Salesa Jenny; Clark DavidCOMMERCE AMENDMENT BILLIn CommitteePart 1 Amendments to principal ActCHAIRPERSON (Hon Jenny Salesa): Members we now come to the consideration in committee of the Commerce Amendment Bill Part 1. This is the debate on clauses 4 to 34 amendments to the principal Act. The question is that Part 1 stand part.Hon Dr DAVID CLARK (Minister of Commerce and Consumer Affairs): I'm very pleased to open proceedings on the Commerce Amendment Bill. The legislation presents us with an opportunity to improve the design and operation of the Commerce Act in a number of ways. I want to make some introductory comments which I think are likely to be germane to the debate that we will have. I'm very much looking forward to the Hon Todd McClay's contributions on this bill. I'm sure there'll be a chocolate fish in the offing somewhere along the line and a good yarn.I would like to talk about the two main changes in the bill as we start because they have attracted a lot of interest from other members and there have been submissions to the select committee which have been well considered. I do want to thank the Economic Development Science and Innovation Committee and representatives here from that committee for the work that they've done and I also want to thank submitters from the outset for their written and oral submissions to that committee.I want to speak about section 36. Clause 14 strengthens the prohibition against anti-competitive unilateral conduct. Section 36 of the Commerce Act is supposed to prevent firms with substantial market power from harming competition but it has been clear for a very long time that it just simply fails to live up to that expectation. The solution proposed in the bill is not novel. It uses a test already operating in the Act to deal with anti-competitive agreements and anti-competitive mergers or acquisitions. The test requires proof a dominant firm acted unilaterally with the purpose effect or likely effect of being anti-competitive.Now some members have suggested there is conduct fitting this description which should be allowed and I want to explain from the outset why I disagree with that proposition. First if members want to argue that the proposed test is too broad it is in effect to say that the very purpose of the Commerce Act is too broad. Section 1A of the Act notes its purpose is to promote competition in markets for the long-term benefit of consumers within New Zealand." It is not about what a firm's intentions may be; it is about the actual state of competition in market. That is the purpose of the Act. So whether it's intentional or not requiring well-resourced large businesses to manage their own actions in terms of whether they are causing harm in the market and harm to competition is entirely appropriate. So I want to put that on the record from the outset.Second if you look at concerns raised in select committee they reveal the tendency to overestimate the reach of the reformed prohibition. So what does it actually mean for conduct to substantially lessen competition? We've got existing case law on this and the answer is perhaps a little more nuanced than some critics might suggest. The Commerce Commission or a private litigant would need to establish a number of arguably quite onerous elements to take a successful case.So there's five that I'd like to run through. Detriment to the competitive process has to be more than short term. There needs to be some causal connection between detriment and the firm's conduct. The net effect needs to create a material impact on competition and that involves comparing the state of competition to the relevant market with and without the conduct being examined and the deterrent would have to occur in a market in which the firm is active or likely to be active. And that's because the relevant harm to competition increases or maintains the dominant firm's market power.So the bill does not penalise dominant firms for out-competing their rivals in the market place. If they offer better offerings or they're more efficient the test does not capture them. Substantially lessening competition is also not the same as substantially lessening the effectiveness of a particular competitor. So officials who advised the select committee ran a variety of scenarios through the test and they used the ones that submitters had put in in their submissions to the committee and none of them appeared to produce a questionable result. So I would encourage members to look at the analysis in the departmental report that was presented. It shows that the test is well targeted.So I want to argue that the potential to penalise through this change in the test—to penalise benign or desirable conduct—is modest and far outweighed by the benefits of the reforms. If unilateral conduct is in the public interest despite being anti-competitive the bill then further enables the Commerce Commission to authorise such behaviour. In exceptional cases the commission will be able to authorise conduct on an interim basis. So there are again further protections there in the law and the Commerce Commission will be developing guidelines in respect of section 36. I expect those guidelines will help to moderate concerns that have been expressed to date about the breadth of the prohibition.The second main change in the bill that I want to speak to relates to the "safe harbour" provisions for some intellectual property arrangements. Now the bill would remove three provisions that prevent scrutiny of certain conduct when it involves intellectual property. The provisions are out of date. They reflect a legacy of discredited thinking. If you want to put it in the vernacular they cause confusion and ultimately they prevent scrutiny of conduct which raises genuine competition concerns. So I want to make it totally clear: I recognise the importance of providing businesses with the confidence to invest in the development of intellectual property and to actively make it available to markets. Robust intellectual property rights incentivise innovation making them complementary I would argue to competition law. Therefore it is redundant to have carve-outs for intellectual property. Most intellectual property arrangements are helpful to the competitive process but it does not mean that they should be immune to scrutiny under competition law. The safe harbours make a universal assumption that certain practices will never be anti-competitive just because they relate to intellectual property.So that's where the law currently stands. It's a very bold assumption and one that undermines the integrity of our competition law. Again other members believe without safe harbours the Act will over-penalise and over-deter certain conduct. We can see from the departmental report that officials have made a careful study and that challenges any such view. I would argue intellectual property arrangements should be subject to the same scrutiny as any other type of property arrangements. At the very least I suggest we can be confident this policy will produce far fewer errors than the universal assumption that some conduct is never anti-competitive simply because it involves intellectual property.So again I want to stress the importance of the guidelines that the Commerce Commission will update to support intellectual property owners to realistically assess their obligations. I expect these guidelines to be detailed and provide assurance and clarity for the business community as indeed similar guidelines in Australia have done for the community there. I do want to thank submitters—those who've written to me for pointing out the benefit of those guidelines in Australia because they have come down and taken the concern away for those who initially had it.I'm tabling a necessary Supplementary Order Paper to address an error noticed after the bill was reported back from the select committee. The bill inserts new sections 99AA in 99AB into the Act which would provide a legislative basis for the Commerce Commission to exchange information with other regulators and Government agencies when necessary for the performance of statutory functions. When these provisions were being drafted officials overlooked the bespoke legal status of the New Zealand Police. Police are neither a Public Service agency nor a statutory entity but instead an instrument of the Crown. That means that as currently drafted the information-sharing provisions miss them out completely. Officials assure me this wasn't intended; in fact the Commerce Commission and the Police need to be able to operate and work together cooperatively. They need to work closely when they are tackling white collar crime. My Supplementary Order Paper addresses this by making explicit references to the New Zealand Police and at the same time the Parliamentary Counsel Office has added some minor drafting and amendments—improvements to the bill.So in closing the bill contributes in some important ways to the Act's purpose of promoting competition in markets. I do not share the concerns held by the members with how it achieves this but of course I do look forward to constructive debate."