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A recent exclusive dealing notification by eBay International AG highlights the public nature of the notification process and will illustrate the application of the substantial lessening of competition and public benefit–detriment tests to the market for online payment services in Australia.

The Australian Competition & Consumer Commission (ACCC) is considering a proposal by eBay International AG (eBay) to supply online auction services to its customers on condition that they acquire online payment services from PayPal Australia Pty Ltd (PayPal) — a related body corporate of eBay — to the exclusion of PayPal’s competitors. In considering whether to revoke the proposal’s prima facie immunity, the ACCC must consider whether this conduct is likely to substantially lessen competition and, if it is, whether its public benefits would be outweighed by its detriments.

Exclusive dealing under the TPA

Section 47 of the Trade Practices Act 1974 (Cth) (TPA) prohibits a corporation from engaging in the practice of exclusive dealing, which includes:

• supplying goods or services on condition that the purchaser of those goods or services will not acquire goods or services from a competitor of the supplier or a related body corporate, and
• refusing to supply goods or services by reason that the purchaser has acquired (or has not agreed not to acquire) goods or services from a competitor,

where this has the purpose, effect or likely effect of substantially lessening competition.

The proposed conduct

Under the proposal, eBay would alter its accepted payments policy so as to restrict the types of payment that sellers can accept in online auctions. These changes would occur in two phases.

The first, which commenced on 21 May 2008, made PayPal a mandatory payment option alongside any other voluntary payment options selected by a seller, such as credit card and direct deposit. PayPal account balances can be topped up with funds from a credit card or bank account, but these payments must be processed via PayPal.

The second phase, scheduled to commence on 17 June 2008, would make PayPal the only permitted payment option, subject to two exceptions. These exceptions relate to items that are collected in person from the seller, which may be paid for in cash or by negotiable instrument, and high-value items in specified categories, such as cars and real estate.

The exclusive dealing notification process

On 11 April 2008, eBay lodged an exclusive dealing notification with the ACCC. The effect of this notification was to confer statutory immunity from proceedings under section 47 of the TPA. Immunity commenced from the date of lodgment, but only in respect of the conduct described in the notification.

Upon receipt of the notification, the ACCC commenced a public inquiry, inviting submissions from interested parties. This inquiry asked whether the proposed conduct would be likely to:

• substantially lessen competition; and, if it would,
• whether the public benefits would not outweigh the detriments of the conduct.

If the ACCC is satisfied of these elements, it may revoke the notification under s 93(3) of the TPA.

Market position of eBay and PayPal

eBay holds a majority of the Australian market for online auctions and classifieds. PayPal is the clear leader in the market for online payment services. PayPal is currently one of several available payment methods and accounts for between 25 and 50 per cent of eBay transactions.

Substantial lessening of competition

The public scrutiny involved in the notification process has been highlighted by eBay’s notification.

More than 560 submissions (an unusually high number) were made to the ACCC by individuals, competitors, financial institutions and market regulators. Almost all submissions opposed the notification.

Respondents pointed to the following factors as evidence that the proposed conduct would be likely to cause a substantial lessening of competition:

• eBay and PayPal’s market dominance
• the already high barriers to market entry
• the exclusion of competing payment services, and
• the likely foreclosure of future entrants from relevant markets.

A submission by the Reserve Bank of Australia (RBA) emphasised the risk that the proposed arrangement would limit competition between PayPal and existing or future online payment systems, as well as reduce the ability of merchants to exert competitive pressure upon fees.

Public benefits

eBay has emphasised its importance with respect to internet auctions and online shopping and described the changes as necessary to reduce online credit card fraud, identity theft and other ‘bad buyer experiences’. It also claims that the conduct will improve security on eBay and on the internet more generally, as well as create benefits for the Australian economy. If the conduct is allowed, it also proposes to increase the level of fraud protection offered to buyers to $20,000.

Public detriments

Submissions by parties opposing the notification also emphasised the public detriments that could be caused by the proposed conduct. Submissions by the RBA, BPAY Pty Ltd, the Australian Bankers’ Association and the Commonwealth Bank of Australia, for example, criticised the negative impact of the proposed conduct on consumer choice and disputed the accuracy and extent of eBay’s claimed public benefits.