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Mallesons Stephen Jaques
Who does this affect?

Organisations who are likely to have substantial market power or those dealing with such organisations.

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Be alert to the outcome of this case and ensure that you and your organisation are aware of your obligations under the TPA. We can help with this.

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Competition Quarterly August 2009

Section 46 back in the courts - ACCC v Cabcharge

In June 2009 the ACCC launched proceedings against Cabcharge, a leading player in Australian markets for non cash payment of taxi fares. The alleged conduct in question includes Cabcharge’s refusal to deal with competitors, its supply of free or below cost taxi meters and an arrangement Cabcharge entered into with Townsville Taxis in Queensland. Businesses, especially those with a substantial degree of market power, will be eagerly watching this space since this is the first s46 case before the Courts for a while.

Refusal to deal with competitors and taxi meter conduct - a breach of s46?

The ACCC’s allegation that Cabcharge has taken advantage of its market power within the meaning of s46 of the Trade Practices Act 1974 (Cth) (TPA) rests on a number of instances where Cabcharge boss Reg Kermode and other Cabcharge executives allegedly either refused to deal with competitors or priced competitors out of the market.

The ACCC alleges that Cabcharge has a substantial degree of market power in both the taxi specific non-cash instruments market (an example of a taxi specific non-cash instrument being a Cabcharge Charge Card), and in the electronic/manual processing market for the non-cash payment of taxi fares (including the processing of taxi specific non-cash instruments and general non-cash payment methods such as EFTPOS). The ACCC alleges that Cabcharge’s taxi specific non-cash instruments are the only widely used instruments of their type, while its electronic processing systems are used in 95 percent of Australian taxis.

The ACCC alleges that through a number of specific instances of refusal to allow its taxi specific non-cash instruments to be processed using the electronic payment processing systems of its competitors, Cabcharge has taken advantage of its market power. This taking advantage is alleged to have been for the purpose of damaging competitors in those markets or for deterring or preventing competitive conduct in those markets.

Additionally, the ACCC has alleged that Cabcharge has taken advantage of its market power in the identified markets for the purposes of damaging competitors or hindering competition in the market for taxi meters. Cabcharge entered the market for taxi meters in 2004, and the ACCC alleges that it supplied taxi meters (conveniently combined with processing capability) for free to a number of taxi operators in order to put particular competitors out of business.

The Townsville Taxi agreement - a breach of s45?

The second alleged breach surrounds an alleged arrangement that Cabcharge made with Townsville Taxis to acquire their charge account business and replace 130 competing EFTPOS terminals with Cabcharge EFTPOS terminals. This conduct is alleged to have breached s45 of the TPA.

What next?

Cabcharge is due to file a defence by 18 September 2009 and a pre trial conference has been scheduled for 25 September 2009.

Author
Robert Kelly, Solicitor

Upsetting the small business apple cart - how the unfair terms regime has left small business out in the cold

On 24 June 2009 we outlined the key terms of the national unfair contract terms regime, introduced under the Trade Practices Amendments (Australian Consumer Law) Bill 2009 (Bill). Since then much debate has occurred over the decision to exclude B2B transactions from the regime, with the small business community reportedly ‘devastated’ over Minister Emerson’s eleventh hour decision to cut B2B transactions from the Bill. The Senate Standing Committee on Economics is now due to report on the Bill by 7 September 2009. Given the controversy surrounding this Bill, including the active lobbying by small business and interest from the Committee (including from independent Senator Nick Xenophon) on the Minister’s decision to exclude B2B in the Committee hearings, the outcome of the Committee’s report is now greatly anticipated. The question is: will B2B transactions find their way back into the unfair terms regime?

“We’ve lost contract protection”

The small business community has been an active participant in the Committee’s review of the text of the proposed unfair terms regime. Earlier draft iterations of the Bill had initially raised high expectations for small businesses protection under the unfair terms regime, however this hope came crashing down with the release of the Bill in June 2009. Since this time, small business has been lobbying for B2B transactions to be reinstated into the unfair terms regime, allowing small businesses to rely on the unfair terms regime when contracting with larger corporations on a standard form basis.

At the same time as releasing the Bill, the Minister announced that the Government would continue to review the unconscionable conduct provisions of the TPA and the Franchising Code of Conduct to see how those provisions could be improved to protect small businesses. According to Minister Emerson, “[B]oth of these reviews cover issues relating to the protections afforded to businesses in circumstances where they are dealing with other businesses with greater bargaining power and market power.”

However, according to small business participants, the unconscionable conduct provisions in the TPA are “illusory” and “entirely disappointing” and deferring to the review of the unconscionable conduct provisions and Franchising Code of Conduct is not satisfactory as “timeframes for completion of these reviews have not been released.”

Worries from the West

The current drafting of the Bill is also reported to have revealed cracks in the coordinated efforts of the State and Territory Governments towards a national consumer protection law, with the Western Australian Government recently expressing concerns with the Minister’s decision to remove B2B transactions, apparently without consultation.

Next steps

The Committee’s report and views of individual Senators will be critical to this regime. Against this, last week the Minister announced that he has no plans to reinstate B2B transactions in the regime and delivered a stern warning to the business community that they are “dreaming” if they think the Government will concede any more on the drafting of the regime. The story is far from over.

Click here to see our alert about the proposed regime and implications for financial services providers.

Click here to see our general alert about the proposed regime, which sets out further detail about its operation.

Author
Mary Syrotynskyj, Solicitor

International news

China’s regulatory authorities continue to roll-out antitrust regulations

On 5 June 2009, China’s State Administration of Industry and Commerce (SAIC) officially issued procedural rules to investigate and sanction monopoly agreements and abuses of market dominance and rules on abuses of administrative powers to eliminate or restrict competition. The Supreme People’s Court of China also recently commenced consultation on Provisions on Several Issues Concerning Monopoly-Related Civil Cases. With SAIC publishing procedural rules in advance of substantive ones and the judiciary seeking assistance on related provisions, SAIC is likely gearing up to commence formal investigations into alleged abusive behaviour under the PRC Anti-Monopoly Law (AML).

In addition, due to the revised draft IP Guidelines that were published for consultation, parties now have a better sense of the approach China’s competition regulators will adopt when reviewing AML compliance of intellectual property arrangements. Perhaps most noteworthy is that the guidelines provide for the possibility of a compulsory licensing requirement for IP holders.

With respect to Chinese merger control, the Measures for Calculating the Turnover of Financial Sector Undertakings in Notification of Concentration, jointly issued by China’s main financial regulatory bodies, came into effect on 15 August 2009. Financial institutions and the like now have further guidance on what types of income are included for the purpose of applying prescribed notification thresholds. However, a number of practical issues remain, including how the turnover of financial institutions’ portfolio companies should be calculated and whether turnover should be attributed to the location of the relevant branch or to the countries where the firm’s clients are located.

Further proposals on use of the digital dividend

Various international governments have recently sought feedback on proposals for usage of the “digital dividend” – the radiofrequency spectrum freed by replacing analogue television broadcasting with digital television (DTV). The key policy issue facing national governments at this point is how existing spectrum use should be reorganised to maximise the value of the digital dividend, ensure international harmonisation, and encourage economies of scale.

In recent months the following papers have been released.

  • The UK regulator Ofcom confirmed on 30 June 2009 that it would follow the European trend towards clearing the 800MHz band after the DTV switchover. Ofcom’s subsequent consultation paper Digital dividend: clearing the 800 MHz band seeks feedback on proposed strategies to minimise disruption to existing users of the 800MHz band. Submissions close 11 September 2009.
  • The New Zealand Ministry of Economic Development consultation paper Digital futures - Planning for digital television and new uses proposes to divide the use of the UHF band in equal parts to DTV, to television licences and broadband wireless services, and to new technologies. Submissions close 30 September 2009.

The Australian Government plans to cease analogue television broadcasting in a staggered process ending in 2013. The Government is expected to release a Green Paper outlining its proposals for the use of the digital dividend shortly.

US Federal Trade Commission investigates common directors of Google and Apple

The US Federal Trade Commission (FTC) has announced that it is investigating the overlap between the boards of Google Inc and Apple Inc, noting that the overlap raises “competitive issues”.

Although Apple and Google have traditionally operated in different markets, the companies are increasingly producing competing products such as operating systems for mobile phones and personal computers, web browser software, and online media. US antitrust legislation prohibits directors from serving on boards of large competing companies where this would reduce competition. Google has publicly argued, however, that its competing products and services amount to less than 2% of its total revenue, which would render it exempt from the prohibition on interlocking directorates.

The companies until recently had two common directors. The investigation continues despite Eric Schmidt, Google’s CEO, resigning from the board of Apple on 3 August 2009. The second common director, Arthur Levinson, continues to serve on both boards.

Increasing scrutiny of competition in the US telecommunications market

The US Department of Justice (DoJ) has announced that it is scrutinising the use of market power by leading telecommunications companies such as AT&T Inc and Verizon Communications Inc. Two key competition issues seem likely to be of interest to the DoJ.

  • Firstly, exclusive “lock up” arrangements between handset manufacturers and telecommunications carriers (for example, the AT&T/Apple iPhone and Verizon/Research in Motion BlackBerry Storm tie-ups) have been heavily criticised by smaller carriers. The “lock up” arrangements particularly limit consumer choice in rural areas serviced by few major carriers. Larger carriers and handset manufacturers argue, however, that the deals provide investment certainty for manufacturers, and thus encourage technological innovation.
  • Secondly, network traffic discrimination and end-user restrictions have been increasingly adopted to limit access to services which compete with carriers’ own products. For example, the Federal Trade Commission is currently investigating Apple’s decision to refuse to approve the iPhone internet telephony application Google Voice. The application allows users to make phone calls over the internet (also known as VoIP), circumventing carriers’ voice services.

The review falls short of a formal investigation, and it is not clear whether DoJ intends to launch more specific inquiries into particular carriers depending on the findings of the review.

European Commission reviews vertical restraints

The European Commission (EC) has released a draft Block Exemption Regulation for Vertical Agreements, and a revised draft version of its Guidelines on Vertical Restraints.

The existing EU Block Exemption Regulation provides an “automatic” exemption from EC competition laws to European companies entering exclusive vertical agreements (that is, agreements between parties at different levels of the supply chain), in certain circumstances. The Regulation expires in May 2010.

The EC notes that the existing Regulation is “working well overall” and “should not be fundamentally modified”. However, in response to a perceived increase in distributors’ market power and in the growth of direct internet sales by distributors, the draft Regulation makes two key changes.

  • Firstly, the draft Regulation would only exempt agreements where neither the supplier nor the buyer have a market share greater than 30% in any relevant market. The existing exemption applies only where the supplier’s market share is 30% or less (unless it contains an exclusive supply arrangement, in which case the market share cap applies to both parties).
  • Secondly, the draft Guidelines provide that the Regulation does not apply to agreements that require distributors to limit or prevent online sales, or use techniques such as automatic website redirection or price discrimination for customers in other jurisdictions. Agreements with such restrictions would become subject to the normal rules of EC competition law if the draft Guidelines are adopted.

The draft Regulation would continue to provide that agreements with certain “hardcore restraints” (such as exclusive distribution agreements between a supplier and buyer, or resale price maintenance) are not protected.

Submissions on the draft Regulation and Guidelines close 28 September 2009.

Irish pub associations breach Court undertakings with price freeze

The High Court of Ireland has found that Ireland’s two largest publican associations – the Licensed Vintners’ Association and the Vintners’ Federation of Ireland – were in contempt of court by recommending that their members adopt a 12 month price freeze. The Court held that the recommendations breached undertakings made by the associations in 2003.

Those undertakings had been made to settle an action alleging price fixing, which was brought by the Irish Competition Authority in 1998. The associations had undertaken not to recommend to its members retail prices for alcoholic beverages for consumption on licensed premises.

Justice McKechnie held that the recommended price freeze breached the undertakings. The associations were ordered to reverse the price freeze and publish newspaper advertisements publicising the end of the freeze.

Author
Sam Porter, Solicitor

In brief

Seat belts fastened as another air freight cartel case comes before the Courts

On 18 August 2009 the ACCC announced that it had instituted Federal Court proceedings against Emirates Airlines for its participation in the air freight cartel. Emirates, along with Singapore Airlines, had previously challenged the legitimacy of the ACCC’s notices issued under section 155(1) of the TPA in this matter. Earlier this year, the Federal Court found in the ACCC’s favour in relation to those notices. A directions hearing has now been scheduled for 11 September 2009.

The ACCC alleges that between 2002 and 2006 Emirates entered into arrangements or understandings with other carriers that involved the price fixing of certain fuel charges, security surcharges and rates on cargo carried by Emirates and other airlines.

Emirates is the ninth carrier to be investigated with six to date having been fined a total of $41 million. For its part, Qantas was ordered to pay A$20 million. Proceedings against Singapore Airlines Cargo and Cathay Pacific Airways are currently underway.

Cartel allegations sprayed all over marine hose firms

The ACCC has initiated Federal Court proceedings against four foreign marine hose manufacturers for allegedly giving effect to a global cartel agreement in Australia.

The ACCC alleges that between 2000 and 2007 Bridgestone (Japan), Dunlop Oil & Marine (Britain), Parker ITR (Italy) and Trelleborg Industrie (France) engaged in price fixing, market sharing and other anti-competitive conduct when supplying marine hose, in contravention of the TPA.

Marine hose is used by the Australian oil industry in numerous offshore projects for transporting oil and other products between tankers and storage facilities.

Documents filed at the Federal Court outline a series of meetings dating from 1999 in London, where some of the manufacturers allegedly agreed to co-ordinate prices and not to compete against a nominated ‘champion’ who, it was agreed, would win the tender. The ACCC is seeking penalties, declarations that the respondents’ conduct contravened the TPA, injunctive relief and costs.

The ACCC's proceedings follow similar global enforcement action taken against the defendants by multiple competition regulators including the Department of Justice (USA), the Office of Fair Trading (UK), the European Commission and Japan's Fair Trade Commission.

The next directions hearing has been scheduled for late September 2009.

Reliance on misleading representation need not be the sole cause of loss and damage: P.E. Kafka v The Hermitage Motel Pty Ltd

The Full Federal Court has recently affirmed two key principles relating to damages arising out of misleading and deceptive conduct.

The matter related to the sale of the Sovereign Inn at Muswellbrook in New South Wales. The occupation rates, revenue and net profit figures disclosed by the vendor companies, the directors of the vendor companies and the vendor’s accountant (appellants) were false. The trial judge found that this constituted misleading and deceptive conduct and by reason of the false figures, the purchaser was induced to purchase the hotel. At issue in the appeal case that followed was whether the purchaser was entitled to damages and how those damages should be calculated.

Despite the argument by the appellants that the purchaser had made their own enquiries and investigations before the purchase, the Court held that it was sufficient that the contravening conduct was a cause of the loss and damage, even if it was not the sole cause of loss or damage.

The Court also affirmed the principle that if a person is induced by misrepresentation to buy an article, the purchaser is entitled only to recover the difference between the value as represented and the real value at the time the article was bought.

The appellants failed on all grounds of appeal.

From Birdsville to Blacktown - ‘Guaranteed Lowest Prices’

Nationals Senator Barnaby Joyce and Independent Senator Nick Xenophon have introduced a private members bill, the Trade Practices Amendment (Guaranteed Lowest Prices - Blacktown Amendment) Bill 2009 to end “the anti-competitive practice of geographic price discrimination”.

The Bill targets the big oil companies and Coles and Woolworths, who the Senators believe are using their market power to drive independent fuel retailers out of business. The amendment, as drafted, would diminish the ability of retail outlets and petrol stations chains from localising price changes depending on whether or not there are independent operators in the area. If passed, the Bill would ensure that that the lowest price charged by any retail outlet will have to be matched by all the retail outlets operated by the same corporation or related entity within a 35 kilometre distance.

The Senate referred the Bill to the Economics Legislation Committee for inquiry on 12 August 2009 and will report by November 2009.

ACCC’s submission in response to creeping acquisitions discussion paper

The ACCC has made a submission in response to a creeping acquisitions discussion paper issued by former Competition Policy and Consumer Affairs Minister, Chris Bowen.

The ACCC considered that the most problematic mergers could be dealt with under the existing section 50 of the TPA. However, the ACCC noted that there are a "material" number of cases where competition and consumers would be better served if creeping acquisitions could be dealt with.

The ACCC noted its support for the introduction of legislative amendments to address the issue of creeping acquisitions. While the ACCC supported in principle the revised ‘Substantial Market Power’ (SMP) model, it argued for an additional requirement. The ACCC believes that the SMP test should only apply if the enhancement of market power that results, or is likely to result, from the acquisition is “not insignificant”.

The ACCC did not support the introduction of a declaration or mandatory notification scheme. The ACCC believes that limiting the application of the revised SMP model to declared corporations or products “would be ineffective and would seriously undermine the operation of the substantive creeping acquisition law”.

For further information on the Government’s discussion paper, click here.

Amcor’s sweet deal with Cadbury

The action brought by Cadbury against Amcor, which began in 2006 and was set to go to trial in the Federal Court in July 2009, settled at the eleventh hour. Cadbury, one of Amcor’s biggest clients, was seeking $235.8 million for loss and damages it says it incurred because of Amcor’s price-fixing cartel with Visy. Cadbury’s damages claim and ultimate out-of-court settlement is the first of its kind to emerge from the fallout of the cardboard packaging cartel.

A class action launched by lawyers Maurice Blackburn on behalf of 17,000 manufacturers, retailers and transporters who used Visy and Amcor cardboard is expected to be heard in mid 2010.

Gorgon Gas gets go-ahead from the ACCC

The ACCC has decided to grant conditional interim authorisation to the Gorgon Gas Project joint venture to engage in joint marketing of natural gas to customers in Western Australia.

The joint venture participants are Chevron Australia Pty Ltd, Chevron (TAPL) Pty Ltd, Mobil Australia Resources Company Pty Ltd and Shell Development (Australia) Pty Ltd.

Interim authorisation will allow the joint venture participants to continue to engage with potential customers and obtain information relevant to their investment decision, while the ACCC assesses the substantive applications for authorisation.

Mr Samuel said the ACCC considers that granting interim authorisation is unlikely to result in irreversible changes to the market, particularly since any gas sales agreements entered into during the period of interim authorisation will be conditional on the ACCC granting final authorisation.

A number of interested parties raised concerns about providing commercially sensitive information to the joint venture participants under an interim authorisation. In order to address this concern, the ACCC decided that the interim authorisation would only come into effect once the applicants have had their ring fencing arrangements independently audited, and made any changes required to make those ring fencing arrangements effective or implemented.

The ACCC is planning to make a Draft Determination by September 2009.

One small unit for grocery retailers, one giant leap…for working families

On 1st July 2009, the ACCC issued guidelines for grocery retailers about their obligations under the new Unit Pricing Code. Unit pricing is the cost of an item in a standard unit of measurement, which is indicated alongside its selling price. The guidelines outline the different types of grocery items that use different measurements.

The code came into effect on 1st July 2009 and requires larger supermarkets and online retailers to comply by 1st December 2009. The code has been prescribed by the Government as a mandatory code of conduct under the TPA.

The ACCC’s Graham Samuel has said "unit pricing offers a number of benefits, including allowing shoppers to more easily compare the price of products in different sizes and between different brands products”.

Author
Peter Yeldham, Solicitor

Our publications

1. Comments sought on review of statutory implied conditions and warranties - 31 July 2009

The Minister for Competition Policy and Consumer Affairs has recently released an Issues Paper on behalf of the Commonwealth Consumer Affairs Advisory Council, examining existing laws on implied conditions and warranties. Issues being considered include the potential introduction of “lemon laws” in Australia; allowing a regulator to take action for breach of an implied term; the offering of extended warranties by retailers; and whether statutory implied terms should be extended, for example, to apply to sales by auction.

This publication reviews existing laws and enforcement issues in addition to considering the concept of lemon laws.

2. MOFCOM resolves confusion between 2008 monopoly rules and 2006 M&A rules - 28 July 2009

The Chinese Ministry of Commerce has resolved the inconsistency between rules on anti-monopoly merger clearance issued by two different government entities, by amending the 2006 M&A Rules to replace the anti-monopoly provisions with the 2008 Provisions. This publication includes a table summarising the key inconsistencies. Importantly, in the case of each inconsistency, the 2008 provisions prevail.

3. Double damages and mandatory IP licensing under the AML: Chinese competition law heats up for summer - 24 July 2009

There have been some significant clarifications regarding the operation of China’s merger control regime. This is a detailed publication concerning the most recent developments.

Regulators in China have published merger control measures for financial institutions. Publication of these measures follows a new consultation on draft Guidelines on IP-related Anti-Monopoly Law Enforcement (Guidelines). The Guidelines outline the approach that China’s competition authorities will adopt when reviewing the compliance of intellectual property (IP) arrangements with the AML. Most notably, the Guidelines provide for the possibility of a compulsory licensing requirement for IP holders.

Additionally, draft judicial provisions that include proposals to facilitate class actions and the award of “double damages” under the Anti-Monopoly Law have been issued by the Supreme People's Court of China.

This publication assesses the measures, IP guidelines and provisions and what implication this will have on business.

4. Chinese competition regulators focus on cartels and sharpen their investigatory tools - 14 July 2009

Published by China’s Anti-Monopoly Commission, the “Guidelines for Defining the Relevant Market” provide a basis for all enforcement activity under the Anti-Monopoly Law that relates to defining a market. Under these guidelines, firms should prepare themselves for possible dawn raids and other enforcement action by the National Development and Reform Commission against pricing cartels. This publication gives an overview of the guidelines and reflects on their impact on business.

5. Unfair Contracts Bill: implications for financial services providers - 30 June 2009

Financial services providers will be regulated under the proposed Trade Practices Amendments (Australian Consumer Law) Bill 2009. This brief publication sketches out which financial agreements the new regime would apply to, if passed. For more information on the new regime, see also our previous alert.

6. Unfair terms Bill introduced into Federal Parliament - 24 June 2009

This publication outlines the contents of the Trade Practices Amendments (Australian Consumer Law) Bill 2009. The Bill proposes a national unfair contract terms regime that will apply to standard form consumer contracts across all industries and sectors of the economy, including financial services. This publication assesses the test for ‘unfair terms’, the new enforcement powers for regulators and the likely impact of the bill on consumer transactions.

7. Cartel conduct criminalised in Australia - 17 June 2009

This publication was written shortly after the passing of the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 by Parliament. Now in force, this Act significantly amends Part IV of the TPA by introducing parallel civil and criminal sanctions for cartel conduct.

This publication provides a high level view of how the law will operate, analyses the exceptions that apply and includes a checklist of actions corporations should take to prepare for the introduction of cartel criminalisation.

8. Chinese antitrust regulators signal the commencement of AML investigations and fines - 8 June 2009

China’s State Administration of Industry and Commerce officially issued its first two procedural rules under the Anti-Monopoly Law (AML) on 5 June 2009. SAIC is responsible for regulating ‘Monopoly Agreements’, ‘Abuses of Market Power’ and ‘Abuses of Administrative Power’ under the AML.

This alert provides a succinct outline of how the new rules will operate and includes some analysis of the leniency policy which complements the new regime.

Author
Peter Yeldham, Solicitor

 
This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.