Contract & Consumer Law Chapter 11 Restrictive Trade Practices

11.1 Introduction It is legal, governmental and economic policy in Australia that competition is vital for the well being of the economy, and the traders and consumers within that economy. Consequently, a core function and purpose of the Competition and Consumer Act 2010 (Cth) is to prevent conduct by businesses that restricts competition and reduces efficiency in the Australian market place. Previously, we have discussed the ACL which is part of the Competition and Consumer Act 2010 (Cmth), (CCA) by concentrating on the relationships between trader and consumer. When considering restrictive trade practices we are concentrating on the relationships between trader and trader. There should always be substitution available – substitution of trader and trader, good for good, price for price .Essentially, traders within the same market or ‘field of rivalry’ are expected to compete for custom. Those traders may be manufacturers, wholesalers, distributors or retailers. If instead they join together and make agreements not to compete, then this may result in a reduction in competition and reduction of choice for the customer.

11.2 Definitions A market is an area of close competition between businesses providing goods or services. Competition occurs when businesses in the same market are each attempting to obtain a larger proportion of the market. Market power is a measure of a business’s ability to behave without restraint in a market.

11.3 Prohibited Practices The CCA prohibits various types of anti-competitive conduct This conduct is classed into three groups: Conduct that is automatically illegal. Conduct that is illegal if it substantially reduces competition. Conduct that is illegal if done for an anti-competitive purpose.

11.4 Conduct that is automatically illegal Cartel Conduct - S44ZZRD CCA. This can involve: Price fixing – Competitors agree on the price at which competing products are sold. Market Sharing – Competitors agree to allocate customers, suppliers or territory between themselves. Restricting Supply – Competitors agree to limit production output in an attempt to raise prices. Bid Rigging – Competitors make an agreements on which party is to win a bid. Question: Give an example of price fixing.

Conduct that is automatically illegal Collective Boycott - S45 CCA. Any deal between competitors which involves restricting the supply of goods to a person or persons. Minimum resale price maintenance – s48,96 CCA. Business cannot dictate the minimum price at which their goods can be sold by another. Suppliers may recommend prices, but they cannot insist on a particular price. ACCC v Jurlique International Pty Ltd (2007) FCA 79 Third line forcing – s47 (6),(7) CCA. The sale of goods or services to one person on the condition that they buy another product or service from an unrelated third party.

11.5 Conduct that is illegal if it hinders business The conduct listed below does not automatically breach the CCA. This conduct will only be illegal if it substantially lessens competition or hinders business operations. It includes: Exclusive dealings – s47 CCA. Where one party tries to limit another party’s ability to trade e.g. a seller refuses to supply a buyer with various goods and services because that buyer has had dealings with a competitor. Secondary boycotts – s45D CCA. Where two party’s engage in conduct that restricts a third party from dealing with a fourth party for the purposes of damaging that fourth party’s business.

Mergers and Acquisitions – s50 CCA Mergers and acquisitions are prohibited if they substantially reduce competition in the market. Criteria to be considered includes barriers to entry into the market and effect upon prices with the exit of a market participant. Formal clearance that the merger does not substantially reduce competition may be obtained from the ACCC if relevant criteria is met. If the merger does substantially reduce competition, for the merger to legally proceed, authorisation from the Australian Competition Tribunal on public benefit grounds must be obtained.

11.6 Conduct that is illegal if the business has a prescribed anti-competitive purpose Misuse of Market Power - s46 CCA A corporation with a substantial degree of market power must not exploit that power in that or any other market for the purpose of: Eliminating or substantially damaging a competitor Preventing the entry of a new business into the market Deterring or preventing a business from engaging in competitive conduct Queensland Wire Industries v BHP (1989) 167 CLR 177 ACCC v Telstra Corporation Ltd (2010) FCA 790 Whilst it is common that misuse of market power occurs through the behaviour of a large companies, a small company in a small niche market could also engage in misuse of market power.

Conduct that is illegal if the business has a prescribed anti-competitive purpose Predatory Pricing – s46(1AA) CCA A corporation with substantial share of a market must not supply goods or services for a sustained period of time at a price that is less than the cost of supply for the purpose of: Eliminating or substantially damaging a competitor. Preventing the entry of a new business into a market. Deterring or preventing a business from engaging in competitive conduct. Question: Give an example of predatory pricing.

11.7 Authorisation and Notification A party may apply to the ACCC for permission to perform a particular act which may be viewed as anti-competitive in nature. This can be done via two processes; authorisation and notification. Authorisation – s88 CCA. The ACCC can grant approval to a business to partake in conduct that may breach the CCA. Unavailable for misuse of market power. The ACCC will only do this if it is satisfied that the conduct provides a public benefit which outweighs the detriment to competition.

Authorisation and Notification Notification – s89 CCA. Allows a business to notify the ACCC of their intentions to engage in certain anti-competitive conduct. Notification is only available for exclusive dealing (including third line forcing) and collective bargaining. Provides up to three years protection from ACCC prosecution if it can be shown that the conduct does not have an anti-competitive effect or the public benefit outweighs the cost of a reduction in competition. Differs from authorisation in that the businesses do not have to wait for a decision by the ACCC and the process is less formal and less expensive.

11.8 Enforcement and Remedies Enforcement Bodies: The Australian Competition and Consumer Commission (ACCC) Role is to act as a watchdog, educator, investigator and enforcer of the CCA and the Australian Consumer Law. The Australian Competition Tribunal Reviews decisions of the ACCC, authorises mergers and acquisitions,. The Federal Court Cases involving enforcement of the CCA and ACCC actions against businesses are heard at this court and penalties are imposed as required.

Enforcement and Remedies Penalties Criminal sanctions – Cartel conduct is a criminal offence Civil Penalties – Maximum penalties are: Individuals - $500,000 and/or remedial orders such as management bans. Companies – Penalty amounting to the greater of $10 million, three times the benefit derived from the illegal conduct or 10% of the annual group turnover for the previous year (per offence).

Enforcement and Remedies Injunctions – an order by the court to do something or not do something Divesture – Involves disposing of shares acquired in a merger which is in breach of the CCA. Damages – Parties who have suffered a loss as a result of the breach can recover the amount of the loss through court proceedings Immunity – Business or individuals involved in cartel conduct may apply to the ACCC for immunity from prosecution if they are the first party from the cartel to contact the ACCC.