Marketing Law – BTF3181: Week 11 – Ch 12 & 14 & 17

Exclusive Dealings – Chapter 17 Section 47(1) of the Competition and Consumer Act 2010 (Cth) prohibits a firm from engaging in exclusive dealings – various types set out in Section 47(2)-(9) • Deals with vertical relations between firms at different levels of an industry (i.e. between wholesalers and manufacturers or wholesalers and retailers). • Except for Third Line Forcing, is only unlawful if the conduct has the purpose or effect of substantially lessening competition – Section 47(10) Section 47: • Section 47 (2) & (3) – prohibit a SUPPLIER form engaging in exclusive dealing (Substantial lessening of competition required) • Section 47 (4) & (5) – prohibit a BUYER from engaging in exclusive dealing (Substantial lessening of competition required) • Section 47 (6) & (7) – prohibit a SUPPLIER from engaging in a particular type of exclusive dealing called third line forcing (No Substantial lessening of competition required) • Section 47 (8) & (9) – prohibit a firm from engaging in exclusive dealing where the exclusive dealing is linked to granting, renewing, or terminating a lease or licence over land, or a building, or part of a building; the types of exclusive dealing prohibited are almost the same as those covered by section 47(2)-(7). o All types require proof of substantial lessening of competition, except where the restraint involves third line forcing. Section 47 does not apply to restraints between related corporations – Section 47(12).

Authorisation • Section 88 – exclusive dealing may be authorised, • Section 90 - authorisation with be granted, provided the Australian competition and consumer commission (ACCC) is satisfied that there is a public benefit which outweighs the detriment to the public.

Suppliers Exclusive Dealing – Section 47(2) and (3) 1. Elements of Supplier’s Exclusive Dealing – two steps in determining whether a supplier has engaged in exclusive dealing, namely: a. Has the supplier “supplied” goods or services on condition that the buyer accept an exclusive dealing restraint? b. Will the supplier’s conduct substantially lessen competition? 2. Supply on Condition - Occurs where supplier offers to supply a buyer, or offers some form of incentive to the buyer, on condition that the buyer agrees to one of the constraints: a. Limit the amount of goods or services it acquires from competitors of the supplier; b. Limit its sales of competitors products; c. Not to resupply the supplier’s products to certain customers; or d. Not to resupply the supplier’s products in certain areas. Incentives offer include offering to supply at a special or discounted price (rebate, allowance or special credit). • Restraint does not have to be a binding condition (does not have to be contractually binding), there must be more than just a hope or expectation that the buyer will act in a particular way. • Section 47(13) – the existence of the obligation or condition may be proved by inference. 3. Substantial Lessening of Competition a. Section 47(10) – not exclusive dealing unless the restraint has the purpose or the effect or likely effect of substantially lessening competition b. Substantial lessening may occur in the supplier’s market or the buyer’s market.

Examples of Supplier’s Exclusive dealing 1. Exclusivity Agreements – buyer agrees to acquire only the supplier’s goods or services TPC V CSR Ltd (1991) – CSR cut off supply of plaster materials to a buyer who refused to stop stocking materials manufactured by Boral, a competitor of CSR’s. Breach of section 47. Re Tooth & Co Ltd; In Re Tooheys Ltd (1979) – authorisation was refused for an arrangement whereby certain retailers – hotels and clubs – were required to purchase their beer stocks exclusively from the one brewery. Ford Motor Co of Australia v Ford Sales Co of Australia Ltd (1977) – authorisation refused, held that the sole distributorships had a significant impact on competition and there were insufficient public benefits to outweigh the loss of competition. 2. Loyalty Agreements – buyer agrees to take a certain proportion of its requirements from the supplier a. Loyalty discounts (in breach) need to be distinguished from Quantity discounts. 3. Product or Bundling – where a supplier requires the buyer to take a second product as well as the desired product. ACCC v Fila Sport Oceania Pty Ltd (2004) – Fila was in breach, as the senior executives were well aware that the distribution policy (Fila would supply “on-field” apparel to retailers only on condition that the retailers would not acquire or stock “Team Spirit” apparel) was in breach. ACCC v Baxter Healthcare Pty Ltd (No.2)(2008) – Baxter had a substantial degree of in the sterile fluids market, without the power the tendering policy would not have existed. Baxter had taken advantage of its power (Section 46(1)). I breach of Section 47(2) and (10), but misusing market power and substantially lessening competition. • Many franchise agreements require the licensee to acquire goods or services from the licensor – not a breach. Therefore it may be argued that a tying agreement exists – no protection under section 51(3). • If the supplier treats the product as a composite (I.e. a yacht, mast, hull etc.), with no separate sales or invoices, it may be difficult to establish exclusive dealing. 4. Minimum Quantities Agreement – buyer is required to take a minimum quantity of a product. a. Needs to distinguish between minimum efficient quantity and a restrictive condition b. Section 47(13) – existence of the condition can be proved by inference. 5. Consumer Restraints – if the firm supplies goods or services to the buyer on condition that the buyer agrees not to resell the goods or services. a. Also if the firm insists that the buyer not resell the goods or services – at least to a limited extent (to particular customers or classes of customers). 6. Territorial Restraints – by imposing territorial restrictions Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) – BS breached s47, by refusing to supply ski boots to a retailer which had failed to agree not to resupply the ski boots in places other than its two retail stores. • Common in Franchise agreements and distributorships – not a breach.

Third Line Forcing – Section 47(6) and (7) • Another type of exclusive dealing, it is different as it is unlawful whether or not it has any detrimental effect on competition. • Occurs where the supplier offers to supply a buyer – or offers some form of incentive to the buyer on a condition that the buyer agrees to acquire secondary products from another person. ACCC v Link Solutions Pty Ltd (No 2) (2010) – another person includes the situation where the buyer must elect from a panel chosen by the supplier. ACCC v Black &White Cabs Pty Ltd (2010) – cab booking service, notified its operators that the supply of those services was dependent on the operator acquiring certain services from Cabcharge (credit card services) – breached section 47(6) and fines and injunctions granted. • Not third line forcing when the supplier merely tries to persuade the buyer to buy from a particular source. • Section 47(13) – existence of third line forcing may be proved by inference. Paul Dainty Corp Pty Ltd v National Tennis Centre Trust (1990) – operated a ticket selling service, and anyone wishing to hire the national tennis centre was required to use the services of Bass for ticketing operations. There was never any contract, rather the trust offered a product. Therefore no third line forcing occurred.

Buyer’s Exclusive Dealing – Section 47(4) and (5) – two steps to determining whether a buyer has engaged in exclusive dealing: 1. Has the buyer “acquired” (or refused to acquire) goods or services from the supplier on condition that the supplier agree to an exclusive dealing restraint? 2. Will the supplier’s conduct substantially lessen competition? a. Supply on Condition – where a firm offers to acquire goods or services from a supplier or offers to acquire at a special price – on condition that the supplier agrees to one of the following constraints: a. Supplier agrees not to deal with certain customers (or at least restricts dealings) b. Supplier agrees not to operation in certain areas (or at least restricts dealings) Section 47(13) may be proved by inference b. Substantially Lessening Competition – no exclusive dealing unless the conduct has the purpose or effect or likely effect of substantially lessening competition – Section 47(10). Stirling Harbour Services v Bunbury Port Authority (2000) – breach of s47(4) unsuccessful because substantial lessening of competition could not be proved.

Examples of Buyer’s Exclusive Dealing 1. Customer Restraints – forcing the supplier to deal exclusively with the firm, or at least no to deal with the firm’s major competitors. 2. Territorial Restraints – forcing or persuading its supplier to only supply in certain areas and not others.

Exclusive Dealing and Leases or Licences – Section 47(8) and (9) • A firm engages in exclusive dealing if it grants (or refused to grant) a lease or licence in respect of land or buildings on condition that another party to the lease or licence agrees to a restrictive trading condition – exemption for religious, charitable and public benevolent societies. • Restrictive provisions are the same as in Section 47(2)-(7)

Substantial Lessening of Competition 1. “With and Without” Test – to determine whether competition has been substantially lessened – Stirling Harbour Services v Bunbury Port Authority (2000) a. Useful Guide (extended on pg. 652): i. Determine the market (Identify substitutable products) ii. Work the level of competition likely to be expected without the exclusive dealing iii. Work out the level of competition likely to be expected with the exclusive dealing. 2. Consumer Welfare versus Consumer Convenience a. Substantial lessening of competition was proven in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) Outboard Marine Australia Pty Ltd v Hecar Investments (No6) Pty Ltd (1982) – conduct which merely changes the balance between competing entities in a competitive market by disadvantaging one player and advantaging another is not anti- competitive. b. Need to distinguish between competitive and anti-competitive conduct. 3. Exclusive Dealing and Natural a. In Stirling Harbour Services v Bunbury the market was a natural , Bunbury’s proposal to award an exclusive five year towage contract at the port to the successful tenderer was a breach of section 47(4). 4. Distinction between unlawful purpose and unlawful effect Universal Music Australia Pty Ltd v ACCC (2003) – court held that, if the firm had the relevant anti-competitive purpose, it was unnecessary to establish that the firm’s conduct would have the relevant anti-competitive effect.

Notification and Authorisation - exclusive dealing can be notified and authorised – important because there is no provision for notifying or authorising – Section 46. 1. Notification a. Exclusive dealing may be notified – Section 93, which means advising the ACCC in the prescribed manner that the firm is about to engage in exclusive dealing. b. Effect of notification is that the conduct is protected from ay action under section 47 c. ACCC may revoke the protection if; i. It is satisfied that the conduct referred to in the notice has the purpose or effect of substantially lessening competition – Section 93(3); and ii. If first gives notice of withdrawal to the firm and provides the fir with an opportunity to state its case – section 93(4) d. The decision of the ACCC may be reviewed by the ACT – Section 101A. Application by Co-operative Bulk Handling Limited (No3) (2013) – the tribunal considered the state of competition in the market, both with and without the notified conduct and found that the notified conduct represented a significant barrier to entry and was anti-competitive. While there were some benefits it did not outweigh, ACT refused CBH’s appeal. 2. Authorisation a. Only if the public benefits flowing from the conduct outweigh the lessening of competition. Re Tooth & Co Ltd; Re Tooheys Ltd (1979) – ACT refused the authorisation, the relevant product was beer, both bulk and packaged, NSW. Created barriers to new entry and there were only two player in the bulk beer segment. Conduct factors included price competition, product development, promotion marketing. Performance factors were the market dynamics affected.