Lecture Fundamentals of business law (4th): Chapter 15 - Margaret L. Barron, Richard J.A. Fletcher

Chapter 15 - Restrictive trade practices. At the end of this chapter you should understand: the background to the passing of the Competition and Consumer Act 2010 (Cwlth) (CCA) and identify those responsible for its administration, the aims of the CCA, the definition of the terms ‘market’ and ‘competition’,...

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Restrictive trade practices

Chapter 15

Objectives of Trade

Practices Act 1974 (Cwlth)

• To improve industry efficiency

• To promote competition in the market

• To provide consumer protection

Constitutional basis AUSTRALIAN CONSTITUTION S51

• Allows laws made with respect to corporations, trade and commerce

Trade Practices Act 1974 (Cwlth)

Competition Policy Reform Act 1995 (Cwlth)

Administration of the legislation

Australian Competition and Consumer

Commission (ACCC)

• Responsibility for bringing proceedings for

contravention of restrictive trade practices

provisions

• Grants authorisations, permitting conduct

that might otherwise be in breach of the Act

• General research, public information and

guidance role

Administration of the legislation

(ACCC may intervene • Administers the Act

if in public interest) • Brings action against those that

contravene the Act

• Market - Includes all sellers

competing for the same buyers.

• Competition - Is a mechanism that

ensures consumer needs are

provided at cheapest costs by

businesses through control of the use

of society’s resources.

Trade Practices Act (TPA)

Part IV

• Section 45: Agreements or covenants

• Section 46: Monopolies

• Section 47: Exclusive dealing

• Section 48: Resale price maintenance

Trade Practices Act (continued)

Part IVA

• Section 51AA: Unconscionable conduct

Part V

• Section 52: Misleading and deceptive conduct

• Section 60: Harassment and coercion in

relation to the supply of goods and services

• Section 61: Pyramid selling

• Section 63A: Sending unsolicited cards

• Section 64: Payment for unsolicited goods or services

Trade Practices Act

(continued)

Part V

• Section 65-65D: Safety of products

sold to consumers; product

information requirements

Section 45: Agreements or covenants affecting competition

Must prove competition has been reduced

• Prohibits the making of contracts, arrangements or

understandings containing exclusionary provision,

or with the effect of substantially lessening

competition in the market place.

• Examples:

- market-sharing agreements for territory

- restrictions on output produced

- limited amount of discount for areas

- limited participation in other associations

- limited numbers allowed to participate

Section 45A: Price-fixing

agreements

Do not need to prove competition is reduced

• Prohibits “horizontal” price-fixing agreements, by contract,

arrangement or understanding, to fix, control or maintain

e.g retailers.

Section 45B: Covenants annexed to or running with

land

• If they substantially lessen

competition in market in which

corporation or person supplies or

acquires goods or services.

Section 45C: Price-fixing

covenants

Do not need to prove competition is reduced

Prohibits covenants that have effect of price fixing,

whether competition is lessened or not.

i.e Practice of - fixing

- controlling

- maintaining prices via allowing the same - prices

- discounts

- allowances

- rebates.

Section 45D: Prohibits secondary boycotts

• i.e When two parties engage in

conduct that hinders or prevents a

third party from supplying, acquiring

or from otherwise dealing with another party.

• If it causes substantial loss or

damage, lessening competition.

Section 46: Abuse of market

power

• Prohibits corporations with a substantial degree

of market power from taking advantage of that

power to:

- substantially damage or eliminate a competitor

- prevent entry of a competitor into any market

- prevent or deter anyone from engaging in competitive conduct in any market.

Elements affecting market

power

• The ability of a firm to raise prices

without losing customers

• The firm’s conduct in the market is not affected by competitors

• The market share of the firm

• The existence of vertical integration

• The extent to which new participants can enter the market

Section 47: Exclusive dealing

(vertical restraint)

• Prohibits a supplier from imposing

restrictions on the freedom of its customers

to deal with others, and vice versa,

if substantially lessening competition

Prohibited actions

– the purchaser does not acquire goods or services from a competitor

of the supplier

– the purchaser accepts restrictions on the right to resupply goods

– the purchaser acquires other goods or services from a third party.

restriction as to the freedom to supply to third parties.

– has dealt or refused to cease dealing in a competitor’s products

– has failed to accept some restriction on the right of resupply

– refuses to acquire other goods or services from a third party.

accept some restriction on the right to supply third parties.

to engage in any of the conduct cited above

Section 48: Resale price

maintenance (vertical price fixing)

• Prohibits a supplier of goods and services from stipulating the minimum price at which goods to be supplied

by them can be resold.

• S96-100: Relevant qualifications and

definitions required for s48

Section 50: Mergers

• Prohibits mergers and acquisitions if likely to substantially lessen

competition in a market, including

substantial ‘regional’ markets

(Authorisation of mergers is available under S88.)

Matters to be considered for mergers

• The actual and potential level of import

competition in the market

• Barriers to entry into the market

• The level of concentration in the market

• The extent to which substitutes are, or are

likely to be, available

• The degree of countervailing power in the

market

• The likelihood that the acquisition would result

in the acquirer being able to significantly and

substantially increase profits or profit margins

Section 50A: Acquisition

outside Australia

• Prohibits entity gaining dominance of

an Australian company through

acquisition of overseas interests.

Exceptions to restrictive trade

practices provisions

Section 51 provides a number of exemptions to the prohibitions above, including:

• Conduct authorised by legislation

• Industrial agreements covering working conditions

• Restrictive provisions in employment contracts

• Contracts requiring compliance with prescribed standards

• Partnership agreements

• Arrangements relating to copyright or patterns

• Provisions in a contract for the sale of a business

to protect the goodwill of the business.

Authorisations (except for S46:

Misuse of power)

• Sections 88-91: For conduct which

may breach provisions, allowed if

- agreement will result in a

benefit to the public which

outweighs anti-competitive

behaviour.

• Notify commission that S47 (exclusive dealing) is to be infringed before

authorisation which eliminates any

liability that may result for

contravention of section.

• If disallowed after consideration,

action must stop immediately or

penalties will be imposed.