June 2004
Price Fixing: Prohibited Anti-Competitive Conduct
Companies and individuals face significant penalties under the Trade Practices Act if they engage in price fixing [1] or resale price maintenance [2] . Companies and trade associations can apply to and obtain from the Australian Competition and Consumer Commission ("ACCC") authorisation for recommended price agreements and resale price maintenance conduct to avoid liability under the Act.
Price fixing and Resale Price Maintenance
Price fixing occurs where competitors agree, expressly or tacitly, to fix, control or maintain prices, discounts, allowances, rebates or credits in relation to the goods or services that they supply. Resale price maintenance occurs where a supplier controls the price for the onward resale or resupply of its goods and services. While it is legal for suppliers to recommend prices or set a maximum price, it is illegal for suppliers to specify a minimum price.
Penalties
Substantial penalties may be imposed on individuals and corporations engaged in price fixing and resale price maintenance pursuant to section 76 of the Trade Practices Act . In the case of corporations, a penalty of not exceeding $10 million may be imposed for each act or omission and in the case of individuals the penalty imposed is not to exceed $500,000 for each act or omission.
ACCC Leniency Policy on Cartel Conduct
The ACCC published a leniency policy in June 2003 which operates where the ACCC is not aware of a cartel, or is aware but does not have sufficient evidence to prosecute, a cartel. The leniency policy has been developed by the ACCC to reward the first party in a price fixing arrangement who approaches the ACCC with information about the price fixing behaviour. The first party to come forward receives immunity from court proceedings instituted by the ACCC. The ACCC leniency policy for cartel conduct can be found on the ACCC website at www.accc.gov.au.
Recent Cases - Pricing Fixing
Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd & Others [2004] FCA 693
Midland Brick Receives Corporate Immunity From Price Fixing Penalty
On 9 June 2004, the Federal Court of Australia ordered Bristile Operations Pty Ltd, a Western Australian company trading as Metro Brick ("Metro Brick"), to pay a pecuniary penalty of $1 million dollars for its part in price fixing arrangements with another Western Australian company, Midland Brick Company Pty Ltd ("Midland Brick"). In addition, a senior manager of Metro Brick was ordered to pay $25,000 in penalties and Metro Brick was ordered to pay a further $190,000 to the ACCC in legal costs.
In the proceedings, which were brought by the ACCC, it was alleged that between September and November 2001 Metro Brick and Midland Brick had agreed to pre-determined price rises for clay brick products on specified dates. It was further alleged by the ACCC that the two companies had made an agreement on a fixed minimum price per thousand bricks for the purposes of tendering. Both arrangements are prohibited under the price-fixing provisions of the Trade Practices Act [3] . In this case the negative impact of the collusion between Metro Brick and Midland Brick was intensified in because the two companies controlled the market at the time.
Boral Ltd, of which Midland Brick is a wholly owned subsidiary, approached the ACCC in January 2002 and admitted its role in the price fixing scheme. Midland Brick escaped the imposition of pecuniary penalties under the ACCC's Leniency Policy on Cartel Conduct by being the first company to come forward and inform the ACCC of the price fixing arrangements.
Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (2003) ATPR 41-941
Good Intentions Does Not Provide Immunity From Price Fixing Penalties
This case illustrates price fixing between vendors in the alcoholic beverage market. Woolworths (South Australia) and three other vendors were responsible for supplying the majority of the alcoholic beverages market in Nhulunbuy, Northern Territory. Over a course of formal and informal meetings between representatives of the vendors, it was agreed that alcoholic beverages would neither be advertised nor sold at a discounted price. This was intended to reduce excess alcoholic consumption among the local Aboriginal Community, a serious social and health issue in the area.
The ACCC took legal action against the vendors alleging that they had entered into pricing fixing arrangements contrary to Section 45 of the Trade Practices Act . Woolworths (South Australia) and another vendor, Arnhem Club, entered into a settlement agreement with the ACCC, whereby they acknowledged that they ought to have known that their conduct was in contravention of the Act and that they should have applied to the ACCC for authorisation of the cost fixing arrangement, if there was a likelihood of public benefit. The terms of settlement, which were approved by the Court included monetary payments and requirements that the parties establish trade practices compliance programs.
A number of companies are currently being prosecuted by the ACCC in the Federal Court of Australia (in separate actions) for alleged price fixing conduct.
- The ACCC has alleged that three demolition companies fixed prices of a tender for demolition and asbestos removal work in South Australia in 2000. The companies allegedly agreed as to the price at which they would tender for the project and the amount each company would receive from the successful tenderer ( ACCC MR #019/03).
- The ACCC has alleged that during the 1990s eight petrol retailers and distributors in the Geelong area colluded as to retail petrol prices by notifying the another in advance over the telephone as to the size and approximate time of a price rise (ACCC MR #236/03).
Recent Cases - Resale Price Maintenance
Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA 619
This case involved two separate incidents found by the Federal Court to be resale price maintenance conduct which contravened section 48 of the Trade Practices Act .
The first incident occurred in December 1994, when a discount store in Tasmania, trading as Chickenfeed, sold Colgate Toothpaste for a retail price of $2 per packet. Chickenfeed obtained its supply of Colgate toothpaste from a company called Prego, a customer of Colgate-Palmolive. Shortly after Chickenfeed advertised the Colgate toothpaste at $2 per packet on television, Woolworths Australia complained to Colgate-Palmolive about its toothpaste being advertised at that price. Colgate-Palmolive subsequently informed Prego and Chickenfeed that Colgate would only supply Prego with the toothpaste if Chickenfeed undertook not to advertise the toothpaste at $2 per packet. Chickenfeed refused to give such an undertaking and Colgate-Palmolive withheld supply of the toothpaste as a result.
The second incident occurred in February 1997 and again involved Colgate-Palmolive, Prego and Chickenfeed. Chickenfeed ordered a number of Colgate products from Prego for retail sale. Colgate-Palmolive informed Prego that it would only supply the products if Chickenfeed undertook not to advertise them. Colgate-Palmolive's reason for doing so was it believed that Chickenfeed would advertise the products at prices below those prices offered by Woolworths. In this instance Chickenfeed agreed not to advertise the products and Colgate-Palmolive subsequently supplied the products.
Colgate-Palmolive admitted that it engaged in acts of resale price maintenance relating to both the 1994 and 1997 incidents described above. The ACCC and Colgate-Palmolive reached a negotiated settlement of $500,000 in pecuniary penalties. Although Justice Weinberg of the Federal Court imposed a penalty of $500,000 on Colgate-Palmolive, he observed that due to the serious nature of the offences, he probably would have imposed a higher penalty had it not been for the negotiated settlement reached by the parties.
Australian Consumer and Competition Commission v Sundaze Australia Pty Ltd [1999] FCA 1642
This case provides a further example of a breach of the resale price maintenance provisions of the Trade Practices Act . In this case Sundaze Australia Pty Ltd withheld supply of Oakley branded sunglasses from certain retail stores because the retail stores had sold or were likely to sell Oakley branded sunglasses for less than Sundaze's recommended retail price. Justice Spender of the Federal Court of Australia imposed pecuniary penalties totalling $500,000 for the breaches of the Trade Practices Act and ordered Sundaze to pay the ACCC's costs of $120,000.
A number of companies are currently being prosecuted by the ACCC in the Federal Court of Australia (in separate actions) for alleged resale price maintenance:
- An overseas manufacturer of para-gliders is claimed to have engaged in resale price maintenance by withholding supplies of its product to an Australian retailer unless the retailer sold its product above a certain specified price ( ACCC MR #289/03).
- A supplier of beauty products in Melbourne is alleged to have engaged in resale price maintenance by attempting to induce two retailers to stop discounting its products below a specified price ( ACCC MR #292/02).
The loss leader defence to resale price maintenance
Sections 48, 96 and 96A of the Trade Practices Act operate together to prohibit resale price maintenance. Section 96 of the Trade Practices Act provides that a person or corporation engages in resale price maintenance if the person or corporation does a particular act described in the section. One such act described in section 96, is where a person or a corporation withholds the supply of goods from a reseller or third person, because the reseller or a third person has sold or is likely to sell goods obtained from the supplier, either directly or indirectly, at a price lower than a price specified by the supplier [4] .
However, section 98(2) of the Trade Practices Act allows the supplier to withhold supply of a product where the reseller is involved in product "loss leader selling". Loss leader selling occurs when a reseller within the preceding 12 months has sold goods obtained directly or indirectly, at below cost price, for the purpose of:
(i) attracting customers who are likely to buy other goods; or
(ii) promoting the business of the reseller in some other way.
This exemption does not apply to a genuine seasonal or clearance sale or where the supplier has given consent to the sale of goods for the purpose of loss leader selling.
© Stephens Lawyers & Consultants, June 2004
[1] Section 45A
[2] Sections 48, Sections 96 and 96A define "resale price maintenance".
[3] Section 45(2)
[4] Sections 96