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Corporations may find themselves dealing with their competitors in any number of legitimate scenarios, including industry association meetings, joint ventures, industry benchmarking groups, merger negotiations, informal meetings or discussions and joint buying arrangements.

The TPA contains broad ranging prohibitions against certain types of arrangements and understandings between competitors. These prohibitions apply to informal arrangements and understandings as well as formal contracts and do not necessarily require that the parties have an anti-competitive purpose. Accordingly, when competitors come together for legitimate purposes they risk being involved in an “innocent” contravention of the TPA.

In recent times there has been a focus by competition regulators, both in Australia and overseas, on detecting and prosecuting anti-competitive arrangements between competitors. In Australia, the Australian Competition and Consumer Commission (ACCC) has recently identified prosecuting cartel conduct as an enforcement priority. In early August 2006 the ACCC commenced Federal Court proceedings in relation to alleged cartel behaviour in the timber preservatives industry. These proceedings join the stable of cartel cases currently on foot which range across industries including the cardboard box, garnet production, abalone, air conditioning installation and timber costs estimating industries. In addition, the Chairman of the ACCC has recently acknowledged the increasing culture of cooperation between international regulators to meet the challenge of cracking international cartels and stated that the ACCC is at the forefront of this international effort.

This article highlights the dangers inherent in dealing with competitors, by reviewing the relevant provisions of the TPA, outlining the consequences of contravening those provisions and setting out some general pointers for dealing with competitors.

Relevant provisions of the TPA

The provisions of Part IV of the TPA about which corporations should be mindful when dealing with their competitors are:

• Exclusionary provisions: section 45(2) of the TPA prohibits a corporation making or giving effect to a contract, arrangement or understanding which contains an exclusionary provision, irrespective of its impact on competition. Section 4D of the TPA provides that a provision is “exclusionary” if:

• Price fixing: section 45(2) of the TPA prohibits contracts, arrangements or understandings which have the purpose or effect or likely effect of lessening competition in the relevant market. Section 45A of the TPA provides that for the purposes of section 45(2), a provision of a contract, arrangement or understanding:

• Anti-competitive agreements: as stated above, section 45(2) of the TPA prohibits contracts, arrangements or understandings which have the purpose, or effect or likely effect, of substantially lessening competition in the relevant market.

Serious consequences for contravention of the TPA

A corporation which breaches Part IV of the TPA is exposed to:

• pecuniary penalties
• damages actions brought by third parties, and
• injunctions, declarations and other orders.

The current maximum penalty for corporations is $10 million per contravention. Individuals may be fined up to $500,000 per contravention. If the Trade Practices Amendment Bill (No. 1) 2005 (the Dawson Bill) is passed, the maximum pecuniary penalties applicable to corporations will increase to the greater of:

• $10 million
• three times the gain from the contravention, or
• if the gain cannot be assessed, 10% of the turnover of the offending corporate entity and all related bodies corporate.

In addition, during 2006 the Federal Government proposes to introduce legislation making serious cartel conduct a criminal offence. Under the proposal, criminal cartel conduct will be defined as the making or giving effect to a contract, arrangement or understanding between competitors that contains a provision to fix prices, restrict output, divide markets or rig bids, with the intention of dishonestly obtaining a gain from the customers who fall victim to the cartel. The proposed criminal sanctions include prison sentences of up to five years.

Guidelines for dealing with competitors

Against this background of regulatory scrutiny and proposed increased penalties, corporations should be mindful, when dealing with their competitors, of the risk of contravening competition laws or engaging in conduct which may attract, albeit inadvertently, regulatory attention. Minimising “appearance risks” is particularly important as a regulatory investigation, even one which does not lead to further action, is likely to cause significant adverse publicity and be costly and time consuming to manage. The following general pointers give some guidance when dealing with competitors.

• Competitors should not enter into any express or implied contracts, arrangements or understandings (no matter how informal) which have the purpose, or would have the effect, of fixing, controlling or maintaining input or output prices.
• Competitors should not enter into any express or implied contracts, arrangements or understandings which have the purpose of restricting the supply of goods or services to (or acquisition of goods or services from) particular persons or classes of persons (unless the conduct amounts to exclusive dealing conduct within the scope of section 47 and does not otherwise have the purpose, effect or likely effect of substantially lessening competition in any market. For more information on the interaction between sections 45 and 47 of the TPA please contact one of our Competition group specialists listed above.)
• Competitors should only participate in a trade association or industry group for a legitimate, commercial purpose, and only to the extent necessary for the achievement of that purpose. Trade associations should have trade practices guidelines in place which clearly delineate the parameters of lawful conduct.
• Competitors should not signal their pricing intentions or enter into any discussions on actual prices or the underlying components which may be determinative of actual prices.
• The exchange of sensitive information may give rise to trade practices issues, at the very least as a matter of perception, as well as issues in relation to privacy and confidentiality.
• Communications between competitors should be drafted with care. A poor choice of words can make a perfectly legal activity look suspicious.
• Having a lawyer present at all meetings between competitors can assist in the identification of areas that may give rise to competition issues.

Mallesons has considerable expertise in trade practices issues which arise from dealings between competitors. If you would like more information about the matters discussed in this article, please contact one of our Competition group specialists listed above.