Broadening the Extraterritorial Reach of Australia's Cartel Prohibition: Adopting the ‘Effects’ Doctrine without the Negative Effects

DOI10.22145/flr.38.1.4
Date01 March 2010
AuthorArlen Duke
Published date01 March 2010
Subject MatterArticle
BROADENING THE EXTRATERRITORIAL REACH OF
AUSTRALIA'S CARTEL PROHIBITION: ADOPTING THE
'EFFECTS' DOCTRINE WITHOUT THE NEGATIVE EFFECTS
Arlen Duke*
I INTRODUCTION
In an increasingly global economy, foreign anti-competitive practices pose just as much
of a threat to the economic wellbeing of Australians as domestic anti-competitive
practices.1 Multinationals which transcend national boundaries are now major players
in many different markets. Furthermore, continuing globalisation means that the
number of commercial activities with transnational implications will rise.
The Trade Practices Act 1974 (Cth) ('TPA') contains a provision that expressly gives
the Act extraterritorial operation. Section 5(1) provides that the competition law
prohibitions contained in Part IV extend to conduct engaged in outside Australia by
bodies corporate incorporated, or carrying on a business, in Australia. With the
exception of the prohibitions against cartel conduct,2 the extraterritorial operation of
the prohibitions against the major forms of anti-competitive conduct is even broader.
Since the Act's inception, the prohibitions against price3 and non-price4 vertical
restraints have extended to the engaging in conduct outside Australia by persons and
bodies corporate (whether incorporated, or carrying on a business, in Australia or not)
in relation to the supply of goods or services to persons within Australia.5 In 1990 the
prohibition against the misuse of market power6 was extended to regulate conduct
engaged in outside Australia by bodies corporate incorporated, or carrying on
business, in New Zealand.7 In 1992 international mergers became subject to increased
regulation. Although acquisitions by bodies corporate not incorporated, or carrying on
a business, in Australia that take place outside Australia are not caught by the merger
prohibition,8 where such a merger impacts on Australian markets, s 50A comes into
play. Section 50A provides that where a body corporate acquires a controlling interest
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* Senior Lecturer, Melbourne Law School, University of Melbourne. I am grateful to
Professor Michal Gal for helpful comments and discussions about ideas presented in this
article. Any errors, of course, remain mine.
1 OECD, Reports: Positive Comity, (1999)
at 21 March 2010.
2 Trade Practices Act 1974 (Cth) pt IV, div 1 and s 45.
3 Trade Practices Act 1974 (Cth) s 48.
4 Trade Practices Act 1974 (Cth) s 47.
5 Trade Practices Act 1974 (Cth) s 5(2).
6 Trade Practices Act 1974 (Cth) s 46.
7 Trade Practices Act 1974 (Cth) s 5(1A).
8 Trade Practices Act 1974 (Cth) s 50; Trade Practices Commission v Australia Meat Holdings Pty
98 Federal Law Review Volume 38
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in another body corporate outside Australia and, by reason of the acquisition obtains a
second controlling interest in a body corporate that carries on business in Australia, the
Australian Competition Tribunal may make a declaration banning the parties from
continuing to carry on the business in Australia.9
It is odd that the extraterritorial reach of the cartel prohibition has not been
extended beyond that provided for by s 5(1). After all, hard core cartels10 are the most
harmful form of anti-competitive conduct.11 Furthermore, unlike other forms of anti-
competitive conduct (such as a merger that causes high market concentration levels
but allows for the achievement of economies of scale), cartels rarely offer any
'legitimate economic or social benefits that would justify the losses that they
generate.'12 The Explanatory Memorandum that accompanied the Trade Practices Bill
1974 (Cth) sheds no light on this issue. It simply states that '[t]he extent to which the
legislation will operate extraterritorially is indicated in clause 5.'13 It does not explain
the decision to extend the territorial reach of the prohibitions against vertical restraints
and not that of the prohibitions against cartel conduct. Although they contain
statements acknowledging that cartel conduct will almost always be against the public
interest,14 the Parliamentary Debates of the Bill also make only general reference to the
extraterritorial operation of the Act.15
Conservatively the global economic harm caused by cartels is estimated to exceed
many billions of US dollars per year.16 This figure includes the many millions of
dollars of harm to the Australian economy.17 Available data indicates that the
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9 The Tribunal will make a declaration if the acquisition is likely to substantially lessen
competition in a market in Australia and does not generate sufficient offsetting public
benefits.
10 '"Hard core" cartels are anti-competitive agreements by competitors to fix prices, restrict
output, submit collusive tenders, or divide or share markets': OECD, Hard Core Cartels
(2000) 6 ecd/39/63/2752129.pdf> at 21 March 2010.
11 OECD, Fighting Hard Core Cartels: Report on the Nature and Impact of Hard Core Cartels and
Nature of Sanctions Against Cartels Under National Competition Laws (2002) 75
1841891.pdf> at 21 March 2010. In Verizon
Communications Inc v Law Offices of Curtis V Trinko, LLP, 540 US 398, 408 (2004), the United
States Supreme Court described 'hard core' cartels as the 'supreme evil of antitrust'.
12 OECD, Fighting Hard Core Cartels, above n 11, 75.
13 Explanatory Memorandum, Trade Practices Bill 1974 (Cth) 19 [87].
14 See, eg, Commonwealth, Parliamentary Debates, Senate, 13 August 1974, 821 (Ivor
Greenwood); Commonwealth, Parliamentary Debates, House of Representatives, 7
November 1973, 2910 (Billy Snedden).
15 On 14 March 1974 'Notes on Amendments to be Moved on Behalf of Government' were
tabled in the Parliamentary Debates (Senate). These notes highlighted amendments to the
Trade Practices Bill 1973 (Cth). These amendments included the insertion of cl 5. The only
reference to cl 5 contained in the Parliamentary Debates in the Senate and the House of
Representatives is contained in these notes. Item 14 of the Notes states (referring to the
introduction of cl 5 into the Bill): 'This is to ensure that, as well as applying to conduct
within Australia, the Act will apply to conduct outside Australia by persons having a
specified nexus with Australia'. See Commonwealth, Parliamentary Debates, Senate, 14
March 1974, 346 (Lionel Murphy).
16 OECD, Fighting Hard Core Cartels, above n 11, 71.
17 Commonwealth, Parliamentary Debates, House of Representatives, 3 December 2008, 12310
(Chris Bowen, Minister for Competition and Consumer Policy) (in the Second Reading
Speech for the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill
2010 Extraterritorial Reach of Australia's Cartel Prohibition 99
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sanctions imposed on cartelists in recent cases do not achieve the optimal level of
deterrence.18 The OECD has noted that the effective prevention of international cartel
activity will require countries to impose severe penalties on cartel participants.19
Australia has recently increased the penalties imposed on cartel participants in two
ways. First, the level of pecuniary penalty that can be imposed on cartel participants
was increased in 2006.20 Secondly, criminal cartel prohibitions were introduced in July
2009.21 These measures, in particular the criminalisation of cartels, have received a lot
of attention from academics and practitioners alike. However, ensuring that the
extraterritorial reach of Australia's cartel prohibitions is wide enough to permit
Australia to prosecute international cartel activity may be as important, if not more
important, in ensuring that deterrence levels are raised to an appropriate level globally
and the interests of Australian consumers and businesses are protected.
This article will consider whether the extraterritorial reach of the cartel prohibitions
is sufficiently wide to enable cartel conduct occurring outside Australian borders that
harms the Australian economy or Australian consumers to be challenged. Part II
considers the current extraterritorial scope of the cartel prohibition and concludes that
it is not wide enough. Under the current law, mere presence in Australia of goods, the
price of which has been affected by cartel activities outside Australia's borders, will not
suffice to establish jurisdiction. Mere effects, no matter how substantial, will not of
themselves attract jurisdiction.22 The approach adopted in the European Union and
United States to determine the extraterritorial reach of competition laws is then
considered with a view to determining whether Australia should adopt the approaches
employed in those jurisdictions. A conclusion is reached that, to ensure international
cartel conduct is regulated appropriately, Australia should consider adopting the
United States 'effects' doctrine. Part III considers whether Australia could successfully
adopt the 'effects' doctrine. It begins by identifying reasons why countries benefit from
applying their competition laws extraterritorially. The importance of the cooperation of
other nations to the effective investigation of cartels and enforcement of judgments is
then explained. The United States Uranium litigation23 is discussed as the international
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2008). Cartel conduct not only causes prices to be artificially raised but it also causes other,
more subtle forms of loss, such as the loss inflicted on consumers who would have
purchased cartelised products or services but for the artificially increased price.
18 OECD, Fighting Hard Core Cartels, above n 11, 74.
19 OECD, Recommendations and Best Practices — Recommendation of the Council Concerning
Effective Action Against Hard Core Cartels (1998) A1
at 21 March 2010.
20 Prior to the passing of the Trade Practices Legislation Amendment Act (No 1) 2006 (Cth), the
maximum penalty that could be imposed on a body corporate found to be in breach of the
cartel prohibition was $10,000,000. Now, the maximum penalty that can be imposed is the
greater of (a) $10,000,000, (b) three times the value of the benefit obtained by the breach and
(c) (where the court cannot determine the value of the benefit) 10 per cent of the annual
turnover of the body corporate. This increase in penalties applies to all prohibitions
contained in Pt IV of the TPA.
21 The Trade Practices Amendment (Cartels Conduct and Other Measures) Bill 2008 passed
on 16 June 2009. The Act received Royal Assent on 26 June 2009. The cartel provisions
entered into force on 24 July 2009.
22 Brendan Sweeney, 'Combating Foreign Anti-Competitive Conduct: What Role for
Extraterritorialism?' (2007) 8 Melbourne Journal of International Law 35, 64.
23 Re Uranium Antitrust Litigation, 617 F 2d 1248 (7th Cir, 1980) ('Uranium litigation').

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