- The Australian Competition and Consumer Commission (ACCC) is investigating various arrangements between local retailers/importers and (predominantly off-shore) distributors with a view to determining whether they breach any of the prohibitions under the Competition and Consumer Act 2010 (Cth) (the Act).
- Various arrangements aimed at protecting Australian businesses from the increasingly popular online retail market may breach the Act.
- We have previously seen action pursued by the ACCC against companies seeking to limit parallel imports of musical recordings – resulting in penalties ordered by the court. While it remains to be seen what will emerge, if anything, from the current investigation, it serves as a reminder of the potential application of Australia’s competition laws to attempts to limit imported products.
There have been recent reports of local retailers entering into arrangements with predominantly off-shore fashion distributors with the effect that the distributors:
- cease distribution to some other retailers, particularly those selling through online channels,
- increase prices for their own online sales or cease undercutting the prices of local retailers, or
- prevent other distribution channels (such as third party fashion websites) from undercutting local retailers.
The ACCC has announced that it will be investigating the alleged arrangements to determine whether they are in breach of the Act, with a particular focus on exclusive dealing that substantially lessens competition or evidence of parties controlling prices.1 The ACCC’s investigation is in keeping with the enforcement priorities previously outlined by ACCC Chairman Rod Sims.2
The emergence of online retail competition to ‘bricks and mortar’ stores is not limited to the fashion industry. A number of other retail products and services (such as books, sporting goods, musical instruments, electronics, cosmetics and travel services to name a few) are now commonly purchased online by Australian consumers.
Potential competition issues
If the allegations outlined above are substantiated, then these arrangements may fall foul of certain per se prohibitions in the Act (namely, the prohibitions against resale price maintenance and price fixing). This means that if the arrangements satisfy the objective elements of these prohibitions, then the parties involved may be liable to significant penalties. In addition, the arrangements may also contravene the Act if they otherwise have an anti-competitive purpose or effect.
While the specific facts must be considered in each instance, the ACCC is likely to be particularly concerned where the arrangements might involve the following:
- Minimum resale price maintenance: The prohibition against resale price maintenance aims to ensure that competition is unfettered by downstream minimum price restraints imposed by suppliers on re-suppliers of goods or services. With limited exception (ie agency arrangements), any agreement for the supply of goods or services which limits the re-supplier’s (eg retailer’s) ability to sell below a specified price is automatically prohibited. This could arise, for example, where a distributor seeks (perhaps at the request of a major retailer) to impose a minimum resale price on another retailer or distributor.
- Price fixing: Where an online distributor or retailer comes to an arrangement with a local retailer in relation to the price at which goods are sold in Australia, extreme care must be taken. As actual or potential competitors, parties to such arrangements need to be mindful that entering into collaborative agreements which contain cartel provisions (such as provisions which fix, control or maintain the price for a particular product) may automatically breach the Act.
- Exclusive dealing: The prohibition against exclusive dealing is targeted at vertical arrangements (for example, between distributors and retailers) which have the purpose, effect or likely effect of substantially lessening competition. For example, an arrangement where a distributor supplies goods to a retailer on condition that the retailer accept some restriction on the right to re-supply the goods, or an arrangement where a retailer acquires goods or services on condition that the distributor accepts some restriction as to its freedom to supply online fashion websites, may fall foul of the exclusive dealing prohibition, but only where that restriction has an anti-competitive purpose or effect. The ACCC has previously succeeded against exclusive dealing relating to efforts to limit parallel imports of musical recordings where the court held that the conduct had a substantial anti-competitive purpose.3
Importantly, the exclusive dealing and resale price maintenance prohibitions extend to engaging in conduct outside Australia by any persons (ie off-shore distributors) in relation to the supply by those persons of goods or services to persons (ie retailers) within Australia.
Watch this space
Ultimately, whether any of the prohibitions outlined above are breached will be dependent on the particular facts. The ACCC may investigate alleged breaches of the Act using section 155 notices, which compel those people or companies named in the notice to provide the requested information, documents and evidence.
If you have any concerns that certain business arrangements may raise issues under the Act, please do not hesitate to contact us. Further, we would be happy to assist you in responding to any voluntary or section 155 notices issued by the ACCC.