NEW ZEALAND Law and Practice Contributed by: Christopher Young, MinterEllisonRuddWatts
• the general prohibition on anti-competitive provi - sions; and/or • the misuse of market power prohibition. Cartel Prohibition If a franchisor and franchisee are competitors for the supply of goods or services, an exclusive territory clause may amount to market allocation, which is a form of cartel conduct. This is prohibited unless an exception applies. The most relevant exception to the cartel prohibition for exclusive territories is the collaborative activity exception. The collaborative activity exception applies where: • the franchisor and franchisee are engaged in a col - laborative activity; • the dominant purpose of the collaborative activity is not to lessen competition between the parties; and • the exclusive territory clause is reasonably neces - sary for the purpose of the collaborative activity. Franchise agreements may qualify as collaborative activities. However, franchisors must ensure that the clause is reasonably necessary for the purpose of the collaborative activity. This involves a fact-specific assessment of the exclusive territories’ scope and duration, and whether less restrictive alternatives could achieve the same outcome. If exclusive territories extend beyond the term of the agreement (eg, one year), the cartel prohibition does • the exclusive territories were reasonably necessary to achieve the aims of that collaborative activity; and • the agreement did not end because its dominant purpose became the lessening of competition between the franchisor and franchisee. The proposed amendments to the Commerce Act establish an additional streamlined collaborative activ - ity clearance process. Under this new process, the Commission will be able to grant a clearance if the not apply if three conditions are met: • the collaborative activity has ended;
collaboration meets the requirements of the collabo - rative activity exception, without needing to assess its competitive effects. Applications under this new pathway are subject to a 30-working-day statutory timeframe, with a deemed decline if no decision is made within that period. This change is expected to simplify and speed up the clearance process. The other relevant exception is the vertical supply contract exception. For the vertical supply contract exception to apply to exclusive territories: • the contract must be between a supplier or likely supplier of goods or services and a customer or likely customer of that supplier; • the cartel provision must relate to the supply or likely supply of the goods or services to the cus - tomer or likely customers; and • the cartel provision must not have the dominant purpose of lessening competition between any two or more of the parties to the contract. For the vertical supply contract exception to apply to exclusive territories, the franchise agreement must involve the franchisor supplying goods or services to the franchisee. The exclusive territory clause must relate to that supply and must not have the dominant purpose of reducing competition between the fran - chisor and franchisee. General Prohibition on Anti-Competitive Provisions The exclusive territories must also be assessed under the general prohibition on provisions in contracts, arrangements, understandings or covenants that have the purpose, effect or likely effect of substantially less - ening competition in a relevant market. The relevant market is based on a market definition that best iso - Enforcing exclusive territories may also trigger the misuse of market power prohibition. This applies where the franchisor holds substantial market power and the enforcement of the clause has the purpose, effect or likely effect of substantially lessening com - petition in a defined market. lates the key competition concerns. Misuse of Market Power Prohibition
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