Wide reaching changes to New Zealand's competition laws: how are you affected?
The Commerce (Cartels and Other Matters) Amendment Act 2017 came into force on 14 August 2017. This legislation amended the Commerce Act 1986 and, in doing so, significantly expanded the reach of the Commerce Commission to combat "cartel" arrangements and anti-competitive activities.
If you are a franchisor, franchisee, supplier or distributor you are among those most likely to be impacted by the new legislation. The most significant change for you is likely to be the replacement of the Commerce Act's previous price fixing prohibition with a broader 'cartel' prohibition that not only disallows price fixing, as in the previous legislation, but also prohibits any arrangement between competitors that involves:
- an arrangement not to sell or buy from certain customers or suppliers, or in particular areas (Allocating markets) ; or
- an arrangement that prevents, restricts or limits output, production, capacity, supply or acquisition etc (Restricting output).
In order to be caught by the new cartel prohibitions there must be a competitor relationship with the party or parties you are contracting with. The definition of competitor not only covers direct competitors in the traditional sense, but can also capture franchisor/franchisee relationships and other licence and supply/distribution arrangements. For example, you may be in a competitor relationship if you are a franchisor who runs your own store, or if you are a manufacturer or distributer who competes with your suppliers by also selling products directly to consumers.
Geographical market allocations (territories) are a common feature of distribution and franchise agreements and may now be considered a cartel arrangement if a competitor relationship exists. It is also common to see agreements between manufacturers and distributors/suppliers that restrict the sale of competing brands, or that restrict sale methods (for example, if you are a manufacturer who restricts the ability of your distributors/suppliers to sell goods online so you have the exclusive control of the online market) so contracts that include these terms will need to be carefully considered.
The news isn't all bad however as although the definition of "cartel conduct" has been expanded, new exemptions have also been introduced if certain criteria are met. In particular, the collaborative activities exemption will be critical to franchises and other forms of common collaborative conduct.
All new arrangements and contracts must comply with the amendments to the Commerce Act straight away. From next week, the amendments also apply to existing arrangements. We would be more than happy to discuss any existing or proposed arrangements you have and the impact these amendments may have.
Our commercial team is happy to discuss both your new and existing contractual and business arrangements to ensure you are complying with the new requirements.