Luật học - Chapter 15: Restrictive trade practices

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Restrictive trade practicesChapter 15Learning objectivesAt the end of this chapter you should understand:the background to the passing of the Competition and Consumer Act 2010 (Cwlth) (CCA) and identify those responsible for its administrationthe aims of the CCAthe definition of the terms ‘market’ and ‘competition’the restrictive trade practices prohibited by the CCAprocess of authorisation and notification under the CCAthe roles of the Australian Competition and Consumer Commission, the Australian Competition Tribunal and the Federal Court of Australiaenforcement procedures and the remedies available under the CCA.IntroductionSome restrictive trade practices are prohibited by the Competition and Consumer Act 2010 (Cwlth).If businesses are found to have engaged in this type of anti-competitive conduct, the CCA provides for penalties and remedies for the infringement.Objectives of Competition and Consumer Act 2010 (Cwlth)To improve industry efficiencyTo promote competition in the marketTo provide consumer protectionAdministration of the legislationAustralian Competition and Consumer Commission (ACCC)Responsible for bringing proceedings for contravention of restrictive trade practices provisionsGrants authorisations, permitting conduct that might otherwise be in breach of the CCAResearch, public information and guidance roleConcepts of ‘market’ and ‘competition’MarketIncludes all sellers competing for the same buyersCompetitionA mechanism that ensures consumer needs are provided at the cheapest costs by businesses through control of the use of society’s resources.Cartel conduct prohibited—S44ZZRA-RVA cartel exists where two or more businesses which should be operating in competition with each other agree to cooperate rather than act independently.Prohibited cartel conduct includes:price fixingrestricting outputs in the production and supply chainallocating customers, suppliers or territoriesbid or tender rigging.Breach requires intention to enter an agreement which contained a cartel provision and intention to give effect to that cartel provision be established.Penalties for cartel conductIf an individual breaches the criminal cartel provisions, they face imprisonment for up to 10 years and/or fines of up to $220 000.For a civil contravention, individuals may be liable to a fine of up to $500 000.For a corporation, a fine or monetary penalty for each contravention of a cartel offence or civil penalty provision will not exceed the greater of:$10 millionthree times the value of the benefit to the entire cartelwhen the benefit cannot be determined, 10% of the corporate group’s annual turnover in the 12-month period when the offence occurred.Restrictive trade practices: CCA Sections 45–50APart IVSection 45: contracts, arrangements or understandings restricting dealings or substantially reducing competition.Section 46: misuse of market powerSection 47: exclusive dealingSection 48: resale price maintenanceSection 50: mergers which substantially reduce competition.Section 45: agreements or covenants affecting competitionMust prove competition has been reducedProhibits the making of contracts, arrangements or understandings containing exclusionary provisions, or with the effect of substantially lessening competition in the market place.Examples:market-sharing agreements for territoryprimary boycottslimited amount of discount for areaslimited participation in other associationslimited numbers allowed to participateSection 45B: covenants annexed to or running with landIf they substantially lessen competition in market in which corporation or person supplies or acquires goods or services.Section 45C: price-fixingDo not need to prove competition is reducedProhibits covenants that have effect of price fixing, whether competition is lessened or not, i.e. practice of:fixingcontrollingmaintaining. Prices via allowing the same:pricesdiscountsallowancesrebates.Section 45D: secondary boycottsWhen two parties engage in conduct that hinders or prevents a third party from supplying, acquiring or from otherwise dealing with another party.If it causes substantial loss or damage, lessening competitionSection 46: misuse of market powerProhibits corporations with a substantial degree of market power from taking advantage of that power to:eliminate or damage a competitor in that marketprevent a competitor from entering that or any other marketdeter someone from being competitive in that or any other market. Section 46 (1AA) refers to predatory pricing as prohibited conduct.Misuse of market power (cont.)Section 46(6A) lists four factors that will assist the court in deciding if a person has ‘taken advantage’ of its substantial market power:Was the conduct materially facilitated by the person’s substantial degree of market power?Did the person engage in the conduct in reliance on its substantial degree of power in the market?Is it likely that the person would have engaged in the conduct if it did not have a substantial degree of power in the market?Is the conduct otherwise related to the person’s substantial degree of power in the market?No authorisation is available for this conduct.Elements affecting market powerThe ability of a firm to raise prices without losing customersThe firm’s conduct in the market is not affected by competitors.Market share of the firmExistence of vertical integrationExtent to which new participants can enter the marketSection 47: exclusive dealingProhibits a supplier from imposing restrictions on the freedom of its customers to deal with others, and vice versa, if substantially lessening competition. This section is concerned with ‘vertical’ restraints. Note that the conduct is only prohibited if it has the effect of substantially lessening competition in a market for goods or services.Notification and authorisation are available.Exclusive dealing—prohibited conductSupplying goods and services on the condition that:the purchaser does not acquire goods or services from a competitor of the supplierthe purchaser accepts restrictions on the right to resupply goodsthe purchaser acquires other goods or services from a third partyAcquiring goods or services on condition that the supplier accepts some restriction as to the freedom to supply to third partiesExclusive dealing—prohibited conduct (cont.)Refusing to supply goods or services because the purchaser:has dealt or refused to cease dealing in a competitor’s productshas failed to accept some restriction on the right of resupplyrefuses to acquire other goods or services from a third party.Refusing to acquire goods or services because the supplier refuses to accept some restriction on the right to supply third parties.Aiding and abetting, procuring, counselling or inducing any corporation to engage in any of the conduct cited above.Section 48: resale price maintenance (vertical price fixing)Prohibits a supplier of goods and services from stipulating the minimum price at which goods to be supplied by them can be resold.Sections 96–100: relevant qualifications and definitions required for s. 48.Section 50: mergersProhibits mergers and acquisitions if likely to substantially lessen competition in a market in an Australian state or territory.Informal or formal clearance of a proposed merger may be obtained from the ACCC if the ACCC is satisfied that the merger or acquisition would not have the effect of substantially lessening competition in a market—onus is on the applicant.If the merger will substantially reduce competition and so breach s. 50, authorisation may only be granted by the Australian Competition Tribunal on public benefit grounds.Matters to be considered for mergers The actual and potential level of import competition in the marketBarriers to entry into the marketThe level of concentration in the marketThe extent to which substitutes are, or are likely to be, availableThe degree of countervailing power in the marketThe likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase profits or profit marginsSection 50A: acquisition outside AustraliaProhibits entity gaining dominance of an Australian company through acquisition of overseas interests.Exceptions to restrictive trade practices provisionsSection 51 provides a number of exemptions to the prohibitions above, including:Conduct authorised by legislationIndustrial agreements covering working conditionsRestrictive provisions in employment contractsContracts requiring compliance with prescribed standardsPartnership agreementsArrangements relating to copyright or patternsProvisions in a contract for the sale of a business to protect the goodwill of the businessAuthorisations (except for Section 46: misuse of power)Sections 88–91: for conduct that may breach provisions, allowed if agreement will result in a benefit to the public that outweighs anti-competitive behaviour.NotificationsNotify commission that s. 47 (exclusive dealing) is to be infringed before authorisation that eliminates any liability that may result for contravention of section.If disallowed after consideration, action must stop immediately or penalties will be imposed.Remedies and enforcement of Part IVPecuniary penalties:fines of up to $500 000 for natural personsmaximum penalty for corporations is the greater of $10 million or 3 times the gain from the breach, or if the gain cannot be calculated 10% of the corporation’s turnoverfines of up to $750 000 for corporations who breach any of ss. 45D, 45DB, 45E or 45EA)Adverse publicity ordersInjunctions (s. 80)Divestiture orders (s. 81)Damages (s. 82)Ancillary orders (s. 87)