Week 11 Rescale Price Maintenance PDF

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Lecturer Kara McBride...

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LAW3221 MODULE 11 RESALE PRICE MAINTENANCE & ANTI-COMPETITIVE MERGERS AND ACQUISITIONS

Resale Price Maintenance § S.48(1) - a corporation or other person shall not engage in the practice of resale price maintenance. § S. 48(2) – s48(1) will not apply to a corporation or other person if a notice describing the conduct is given under s93(1) and the notice is in force. § Maintenance by a supplier of the resale price of its goods(and services) by limiting or refusing to supply unless the buyer, usually a retailer, agrees not to resell below the price specified by the supplier. § You do not need to establish a substantial lessening of competition in order for it to be prohibited. § Prohibition is also extended this to services under s.96A Product image and RPM § Much debate in Australia § should it be per se illegal? § persuasive arguments for the view that RPM can have pro-competitive effects § conduct should be prohibited only if it substantially lessens competition in the market. § Australian Competition and Consumer Commission v High Adventure Pty Ltd - Gray J § a ‘rule of reason’ approach Discounting § If products are discounted, consumers might regard them as defective, ‘common’ or somehow of lesser quality than more expensive products. § Australian Competition and Consumer Commission v Jurlique International Pty Ltd (2007) ATPR 42-146 § Jurlique admitted that it had engaged in RPM in relation to the supply of premium skincare products to specialist retailers. § Jurlique submitted that discounting undermined prestige qualities and, thus, the value of the Jurlique brand. Maintenance of resale prices enhanced the value of the brand and, by implication, protected the returns to retail outlets. CASES § Australian Competition and Consumer Commission v High Adventure Pty Ltd(2006) ATPR 42-091 § Australian Competition and Consumer Commission v Dermalogica Pty Ltd(2005) ATPR 42-046 § Australian Competition and Consumer Commission v TEAC Australia Pty Ltd (2007) ATPR 42-201

S48 – 3 STEP PROCESS • s48 - ‘A corporation or other person shall not engage in the practice of resale price maintenance’. • the ‘practice of resale price maintenance’ is defined in s 4 of the Act to mean ‘the practice of resale price maintenance referred to in Part VIII’ • Pt VIII of the Act contains ss 96–100 in which the various practices of RPM are defined, clarified and supported. Resale Price Maintenance § Section s96(1) and (2) specify that a corporation or individual will engage in RPM if they do an act listed in s.96(3) § Section 96(3)(a)-(f) identifies six categories of resale price maintenance (RPM). § The categories are not mutually exclusive and do overlap § Direct RPM issue, involving overt or positive conduct, is covered by ss.96(3)(a), (b), (c) and (f). § Indirect RPM such as activities involving the refusal to supply because of a failure to comply with a restriction involving the resale price of services or goods, is covered by ss.96(3)(d) and (e) S96(3)(f) § It is RPM for a supplier to use, 'in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.' Loss Leaders (s 98) – DEFENCE? § Loss leaders deal with the practice of selling goods at less than cost, to attract additional business or for promotional purposes. Wallace v Brodribb (1985) ATPR 40-541; 58 ALR 737 § s.96(3)(d), provides a defence – s96(3)(d) does not apply: § where the supplier withdraws supply because, for example, their product’s reputation or image has or will suffer as a result (see s.98(2)). § for the purpose of attracting customers to buy other goods: (s98(2)(a)) or § otherwise for the purpose of promoting the business of that other person: (s98(2)(b)) § Genuine clearance would not be sufficient reason for a supplier to withhold supply (s.98(3)(a)). § “A sale of goods that took place with the consent of the supplier” will not entitle the supplier to withhold – s98(3)(b) Authorisation § Although RPM is prohibited per se in Australia, it is possible for parties to seek authorisation of their conduct (s 88). If successful, section 48 will not prohibit the authorised conduct.

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The first authorisation of RPM (following the first application for RPM authorisation) was granted in December 2014: Tooltechnic Systems (Aust) Pty Ltd - Authorisation A91433. The ACCC granted conditional authorisation to Tooltechnic to set minimum retail prices on its products for a period of three (3) years.

Remedies for breach of s.48 § Penalties are covered in section 76 is applicable to breaches of Part IV. § Pecuniary penalty of up to $10 million for corporations and up to $500,000 for individuals § Other remedies include: § s.80 injunctive relief § s.82(1) damages for loss § s.87 ancillary orders (varying contracts etc) Anti Competitive Mergers And Acquisitions § Competition is a state of ongoing rivalry between firms § Mergers and acquisitions are important for the efficient functioning of the economy. § Many mergers do not affect the level of competition at all because there are sufficient substitution possibilities to effectively constrain the merged firm. § In some cases, however, by altering the structure of markets and the incentives for firms to compete, mergers have anti-competitive effects. § ACL prohibits acquisitions which have, or would be likely to have, the effect of substantially lessening competition in any market. § ACCC takes the view that a lessening of competition is substantial if it confers an increase in market power on the merged firm that is significant and sustainable. s.50- anti-competitive acquisitions § s.50(1) - Prohibition of acquisitions that would result in a substantial lessening of competition § (1) A corporation must not directly or indirectly: § (a) acquire shares in the capital of a body corporate; or § (b) acquire any assets of a person; § if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. § Note: The corporation will not be prevented from making the acquisition if the corporation is granted an authorisation for the acquisition under section 88. § (2) A person must not directly or indirectly: § (a) acquire shares in the capital of a corporation; or § (b) acquire any assets of a corporation; § if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. § s.50(3) - (3) Without limiting the matters that may be taken into account for the purposes of subsections (1) and (2) in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the following matters must be taken into account: § (a) the actual and potential level of import competition in the market;

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(b) the height of barriers to entry to the market; (c) the level of concentration in the market; (d) the degree of countervailing power in the market; (e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices or profit margins; (f) the extent to which substitutes are available in the market or are likely to be available in the market; (g) the dynamic characteristics of the market, including growth, innovation and product differentiation; (h) the likelihood that the acquisition would result in the removal from the market of a vigorous and effective competitor; (i) the nature and extent of vertical integration in the market.

s.50A- Acquisition that occurs outside Australia § (1) Where a person acquires, outside Australia, otherwise than by reason of the application of paragraph (8)(b), a controlling interest (the first controlling interest) in any body corporate and, by reason, but not necessarily by reason only, of the application of paragraph (8)(b) in relation to the first controlling interest, obtains a controlling interest (the second controlling interest) in a corporation or each of 2 or more corporations, the Tribunal may, on the application of the Minister, the Commission or any other person, if the Tribunal is satisfied that: § (a) the person’s obtaining the second controlling interest would have the effect, or be likely to have the effect, of substantially lessening competition in a market; and § (b) the person’s obtaining the second controlling interest would not, in all the circumstances, result, or be likely to result, in such a benefit to the public that the obtaining should be disregarded for the purposes of this section; § make a declaration accordingly. § (1A) Without limiting the matters that may be taken into account in determining whether the obtaining of the second controlling interest would have the effect, or be likely to have the effect, of substantially lessening competition in a market, the matters mentioned in subsection 50(3) must be taken into account for that purpose. Merger Review & Authorisation Informal merger review § seek the ACCC’s view on whether the proposed acquisition is likely to have the effect of substantially lessening competition. Merger authorisation § seek statutory protection from legal action under s50 by lodging an application for merger authorisation....