ACCC Chair Rod Sims addresses the Law Council of Australia Annual General Meeting regarding the need for strong enforcement combined with continued advocacy for increased penalties; how data, algorithms and digital platforms will be central topics for the ACCC over the coming year; and some comments regarding merger assessments and focus.
Check against delivery
Thank you for the invitation to speak this evening. I am delighted that the tradition of this speech continues given the strong links between the ACCC and the Law Council.
This workshop is always a highlight on the ACCCs calendar, and it always will be.
As usual I will raise some top-of-mind issues, as follows:
- the need for strong enforcement, combined with our continued advocacy for significantly higher penalties to change incentives
- how data, algorithms and platforms will be central topics for the ACCC over the coming year; and finally
- some comments on our merger assessments and focus, which is constantly changing and always fascinating.
1. Continued strong enforcement
Since we last met it may be said that the environment in which regulators operate has changed on a number of fronts.
The Banking Royal Commission, for example, has highlighted the importance of a strong regulatory framework and regulator action to provide confidence to the public and to correct emerging conduct.
To the point of overstating the appropriate capacity of regulators, the Commissioner queried of ASIC why they did not simply direct the banks to change their contracts.
Of course, like ASIC, the ACCC cannot and should not direct businesses, but we are expected to enforce the law through the courts in order to stop and correct contravening conduct and to leverage broader compliance through the economy.
This is the ACCC enforcement model you are all familiar with. We simply cannot pursue every potential breach of the law, but we do look to identify important issues, pursue them firmly, and to publicise the matters to leverage broader compliance.
We believe our enforcement model is transparent. For a number of years, at the beginning of each year, we have publicly announced our compliance and enforcement priorities. Whilst we still have enduring priorities, and the ability to prosecute any other matters which we deem to be sufficiently important or serious, the nominated priorities provide a focus for the ACCC and a yardstick for others to measure our performance.
Fundamental to this model is effective deterrence, which, in the case of large corporations who have breached the law in a serious way, must include significant penalties. This is because we must alter incentives; it must matter a lot to companies and their senior executives that they avoid breaching the Competition and Consumer Act 2010 or CCA.
We have been vocal in our advocacy for the imposition of meaningful sanctions that look not only at the conduct in question but also, crucially, the relative size of the company.
In consumer protection, we hope that Parliament will this month pass legislation that will see penalties increased ninefold from $1.1 million to $10 million, with the further framework of options for three times the gain or 10 per cent of turnover to get this key deterrence.
In the courts, we are getting better at arguing for and receiving, or reaching agreement on more meaningful sanctions under the existing law.
In the past six months alone we have seen three consumer protection penalties in the $10 million range. $10 million for Telstra; $10 million for Ford; and $9 million for Apple. The latter came with strong advice from the court that it was at the lower end of the range.
This is not an aberration, but rather the new framework for penalties, and you can expect the ACCC to have very different discussions with you and your clients to resolve matters when it comes to agreed penalties.
And the experience with competition matters is similar.
Over the past few years, we are all familiar with a number of important competition outcomes in some very long running cases:
- Cement Australia
- Flight Centre, and
- Air Cargo.
With Yazaki, the full Federal Court upheld the ACCC’s appeal on penalty and increased the penalties imposed at first instance from $9.5 million to $46 million.
This is an important outcome, and we consider this must shift the dial when considering the appropriate penalty for a large company engaging in a serious international cartel which affects a significant amount of commerce in Australia. Of course, we recognise that Yazaki has sought special leave to appeal to the High Court; we await the outcome with great interest.
We have also seen the OECD report released on 26 March 2018 that found that average Australian penalties are significantly lower than those imposed in other comparable OECD jurisdictions. The OECD report, Pecuniary Penalties for Competition Law Infringements in Australia, was launched during an OECD penalties workshop in Sydney.
The report compares the penalties for companies which breach Australian competition laws with breaches of competition laws in the EU, the UK, Germany, Japan, Korea and the USA.
The OECD calculated an average Australian penalty based on a sample of cartel cases. The report estimated penalties would have to be increased by over 12 times to be comparable with the level of the average penalty in these OECD countries.
Within the ACCC, we continue to build our capacity to undertake criminal cartel work and there is a team dedicated to investigating serious cartel cases for referral to the Commonwealth Director of Public Prosecutions, or CDPP. There are a number of such matters currently being considered by the CDPP and, as you are aware, there are a number of cases before the court at the moment:
- our second shipping case (K Line) where a plea of guilty has been entered – awaiting sentence later this year;
- Country Care Group; and
- the banking case involving ANZ, Deutsch and Citibank.
One particular aspect of our cartel investigative work is a number of important changes we have proposed to the immunity policy to ensure its continued relevance and effectiveness. We have liaised with a number of overseas agencies to ensure our policy reflects current best practice across jurisdictions such as the US, EC and Canada. We will of course closely consult with the Law Council on these changes.
In relation to other liaison activity, next week cartel and other enforcement staff will be attending an investigative workshop offered by the DOJ and FBI, the two agencies that work closely on cartel investigations and prosecutions in the US.
This year is the first full year that the Harper Reforms will be law, and their introduction has coincided with an education and awareness campaign for business.
The reforms to section 46 and the introduction of ‘concerted practices’ have been in force since November last year.
We have established a specialised unit, known as the SLC Unit, to focus on investigations that could give rise to cases that use the new laws. The SLC Unit also has a broader mandate to enhance our investigation of competition cases and look to simplify them.
Last month I delivered the 2018 Giblin Lecture under the theme of ‘businesses behaving badly’. I don’t mean to say all businesses or all of the time, but perhaps my greatest surprise in this job is to see the number of businesses, particularly large, established firms which you would think would value their reputation, engaging in behaviour that they just shouldn’t, and usually to the clear detriment of their own customers who they profess to value above all else.
I observed in that speech that the problems we see have much to do with incentives.
First, as I have mentioned, we need higher penalties for CCA breaches to raise the cost of them.
Second, companies need to focus on the internal payment schemes they put in place to reward their employees without appropriate checks on how they meet their targets to which the financial rewards attach.
Over the next year you can expect the ACCC to take even more enforcement action, and to take a firmer stance on sanctions and penalties with a view to making an even greater impact on compliance.
2. Data, algorithms and platforms
Given their growing importance, I am pleased to say that we have a number of roles and functions that touch on these issues.
Digital platforms inquiry
We are more than six months into our inquiry into digital platforms. As you know on 4 December 2017, the Australian Government directed the ACCC to conduct an inquiry into digital platforms to examine the effect that digital search engines, social media platforms and other digital content aggregation platforms have on competition in the media and advertising services markets.
The digital platforms inquiry, or DPI, is looking at a number of important issues, including:
- whether digital platforms have market power in their dealings with media content creators and advertisers and the implications of this for competition.
- to what extent consumers understand what data is being collected about them by digital platforms, and how this information is used
- whether the digital platforms have an unfair competitive advantage as a result of unequal treatment of regulation
- how technological change and digital platforms have changed the media and advertising services markets, including the ability to produce quality news and journalistic content for Australians, and
- how the use of algorithms affects the curation of news for digital platform users.
These are not merely issues that impact Australian media and consumers; they are also global issues.
Our work here will focus on improving transparency, assessing potential breaches of the CCA and, crucially, making recommendations to government.
Consumer Data Right
Our new role in delivering the consumer data right, first with banking but moving quickly to electricity, is ground-breaking new territory for the ACCC but clearly linked to our foundation objectives of empowering consumers and improving competition.
It is permanent function just as, say, our product safety and communications roles are.
We are working closely with the Data Standards Body (Data 61) and the Office of the Australian Information Commissioner, or OAIC, to determine the steps needed to deliver Open Banking from 1 July next year. Consultation has commenced with stakeholders and the ACCC has committed to having draft rules out later this year.
Banking will be an important start but the benefits of the scheme will only multiply as new industries are designated and exposed to the new right.
Algorithms are fundamental to getting the most out of data and play a key role in how consumers benefit from the wealth of data now available. But they also raise competition and consumer issues for the ACCC to consider.
We have already made a small start at looking at the impact of algorithms on a consumer’s experience, such as our past action against Google. We are now looking at comparator sites to see whether results are based on price and consumer benefit, or on commissions.
We need to, and will, do more.
Alongside our DPI we are, of course, aware of arguments in relation to dominant platforms and their entry into various ‘vertical’ businesses.
When do anti-trust issues arise?
The EC’s case against Google Shopping is one example.
Then there are various bundling concerns, with the EC’s recent case against Google for abusing its dominant position by requiring mobile manufacturers to pre install the Google search app and make it the default search engine in order to access Google’s app store.
The ACCC is turning its mind to such issues. The Harper changes now give us the tools to do so, which we did not have before.
It is impossible to talk about data without also acknowledging the importance of privacy. We are now working closely with the OAIC, and this relationship will only grow.
Confidence in privacy and security will underwrite the new consumer data right. And the boundaries between what is a privacy issue and consumer protection is certainly getting aired through the DPI and some of our current enforcement investigations.
Beyond privacy, there are clearly instances where it can be argued that consumers are unaware or even misled about the information being gathered and used.
While the number of mergers we are assessing each year has tended to be relatively stable, the complexity and contentiousness of the relatively small number of transactions that now go to public review continues to trend upwards.
As a result, our workload in the mergers area seems to now fluctuate only in a narrow range between high and very high even though we are dealing with 90 per cent of the mergers via our pre-assessment process.
This time last year, I reflected on the fact that our track record in opposing mergers in the Tribunal and Court had not been good, not just in recent times but over the last 20 years, with no mergers blocked in the Tribunal or Federal Court. The reason for this, we were being told, was that our decisions to oppose some mergers were theoretical and lacking in commercial reality, which I strongly dispute, and that our merger review and litigation preparation needed to produce more persuasive and probative evidence.
You may recall that I acknowledged that we needed to change our approach if we were to reverse this track record.
One year on, the change may not appear so great to those of you whose clients have had mergers cleared expeditiously as a pre-assessment or after a phase 1 review. However for those of you with clients whose mergers have gone to phase 2 reviews, I expect you are more aware of these changes.
The most obvious is our increasing use of s.155 notices to improve our evidence gathering. In the last financial year (2017–18) we issued significantly more notices (89) compared with last year (44). However, the vast majority of the notices have been concentrated in a relatively small number of matters, reflecting the fact that it is only in a small handful of mergers where our concerns warrant increased evidence gathering to reach a decision and, for some matters, prepare for possible litigation.
These have involved both notices for information and documents and importantly also oral examinations which enable us to fully test lines of inquiry with key stakeholders, including the executives of the merger parties, under oath.
Something that will be less obvious to those outside the ACCC is the increased involvement of my fellow Commissioners, and to a more limited extent me, with the evidence being collected in these cases, including the review and interpretation of the key raw documents and presiding over the oral examinations. We are busy.
On the staffing side, we are constantly looking to gain insights from other agencies overseas on their approach to evidence gathering, mostly recently by having Jeanne Pratt, Senior Deputy Commissioner in Mergers and Monopolistic Practices at the CCB, on exchange for a year heading up our Merger and Authorisation Review Division while Rami Greiss took up a role of Senior Deputy Commissioner for cartels at the CCB.
The conclusion of the exchange presented us with an opportunity for change at this senior level in our organisation. So from next week, Scott Gregson will head up the Merger & Authorisation Review Division and Rami will take the lead of the Enforcement Division. Scott has many years of enforcement and litigation experience which will further shape our evidence gathering and preparation for contentious mergers.
We have also had extended training for mergers staff provided by the EU’s Director-General for Competition, and the United States Department of Justice and are proposing some training by the Federal Trade Commission early next year.
With the PN/Aurizon review now moving to litigation, our decision and our approach to evidence will again be tested in the Federal Court and we look forward to this. Significantly our competition concerns and the proceedings filed relate to conduct by the parties that involve possible breaches of both section 50 and 45.
Merger parties should be aware that we do not just take a narrow merger assessment during our reviews and will consider any other related agreements to determine whether they would, combined with the acquisition, be likely to SLC or whether separately they potentially breach other provisions in the CCA.
The recent Cryosite case is an example of the latter and has resulted in the ACCC instituting proceedings in the Federal Court against Cryosite Limited for alleged cartel conduct in relation to its entry into an asset sale agreement with Cell Care Australia Pty Ltd. The asset sale agreement required Cryosite to refer all customer enquiries to Cell Care after the agreement was signed but before the acquisition was completed.
By referring its customer enquiries to Cell Care before the deal was completed and by ceasing to supply cord blood and tissue banking services to new customers, we allege that Cryosite effectively ‘jumped the gun’. We allege that this amounts to cartel conduct because it restricted or limited Cryosite’s supply of cord blood and tissue banking services and allocated potential customers from Cryosite to Cell Care.
Gun jumping conduct is a concern for competition regulators around the world, who have taken action for similar conduct by merging parties. In April the European Commission imposed a record fine of €124.5 million on a company, Altice, for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before notification or approval by the Commission.
We have a number of other significant merger reviews underway that are generating plenty of interest, including Transurban/WestConnex and CKI/APA.
Despite the ‘noise’ and commentary, including some in relation to our alleged motives, I think that those of you who deal with us on a regular basis know that our processes are consistently applied and our end game is getting the right decision.
You will also be aware that in many instances our teams will go well beyond expectations to meet commercial deadlines. However, sometimes despite these efforts, we may need to make some decisions on our timelines that may impact on a commercial transaction. This is unfortunate but sometimes unavoidable.
It would also be helpful if State Governments took our timelines more into account.
Looking forward, we have the announcement last week of the Nine/Fairfax merger. This will be a fascinating review given the considerable changes affecting traditional media in recent years. Significantly in this matter, we will have the benefit of considerable insight into these changes from our digital platforms inquiry.
The merger parties, as always, can see no competition issues here. We will see what unfolds as we begin our assessments. We have indicated a 12 week phase 1 timeline so our review will be a thorough one.
Thank you for your time today.