Australian Regulatory Compliance Review

Trade Practices Act amendments

Treasury has released the Exposure Draft (Misuse of Market Power and related Provisions) to implement the changes announced by the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP to  section 46 of the Trade Practices Act 1974  in order to improve its operation in relation to anti-competitive behaviour.

The measures include:

1. providing that recoupment is not required to be proved when alleging predatory pricing;
2. amending section 46 to clarify the meaning of ‘take advantage’ in that section;
3. amending section 46(1AA) of the Act to remove any ambiguity in that section and so as to make its operation consistent with the remainder of section 46 by targeting market power;
4. access to less expensive justice for small and medium enterprises by extending the jurisdiction of the Federal Magistrates Court to allow it to hear matters arising under section 46;
5. removing the monetary threshold that currently applies to the claims of unconscionable conduct in business transactions under section 51AC;
6. providing that the ACCC may utilise its powers under section 155 until it commences proceedings; and
7. requiring that one of the deputy chair positions at the ACCC has a small business focus.

The Assistant Treasurer has written to the States and Territories seeking their approval for the proposed amendments.

Predatory pricing and other Trade Practices Act small business amendments

As foreshadowed earlier this year, the Rudd Government has announced a package of measures to further amend the Trade Practices Act 1974 including the predatory pricing amendments passed late last year

The Government’s amendments will:

• ensure that victims of predatory pricing will not need to prove that the predator has the ability to recoup losses after participating in an anticompetitive below cost pricing strategy.
• clarify the meaning of the term ‘take advantage’ in section 46 in response to concerns raised by businesses and the ACCC that the present meaning of that term has prevented section 46 from capturing anticompetitive behaviour.
• remove the  uncertainty that has arisen following the ‘two track’ process for predatory pricing that developed under the previous government. The ACCC has said that the dual track process has “caused considerable confusion” because they focus on the “fundamentally different concepts” of market power and market share.

The reforms will also strengthen the role of the ACCC by enabling it to fully investigate suspected breaches of the law by enhancing its information gathering powers under section 155 of the Act  .

The Government will also extend the reach of the ACCC by repealing the $10 million threshold that applies to actions under section 51AC of the Act for unconscionable conduct in business transactions, with duplicate amendments made to the equivalent provisions of the Australian Securities and Investments Commission Act 2001 ('the ASIC Act') which apply to transactions involving financial services.

The Government will amend the Act to require at least one ACCC Deputy Chairperson to have knowledge of, or experience in, small business matters.

The jurisdiction of the Federal Magistrates Court will be extended to include matters arising under section 46 rather than requiring prosecution in the Federal Court, in appropriate circumstances.

The Government wants to have its amendments to the Trade Practices Act passed by parliament by August.

UPDATE: Speech by Chris Bowen. Assistant Treasurer, Minister for Competition Policy and Consumer Affairs

Cadbury fails to stop Darrell Lea from using the colour purple

In a partial rehearing of its passing off action against Darrell Lea, Cadbury has failed to stop Darrell Lea from using the colour purple.[ Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (No 8)  [2008] FCA 470]

Even though certain expert evidence had to be heard, the trial judge thought the evidence made no difference and rejected Cadbury's long-running claim.

I am not persuaded that Darrell Lea, in using the colour purple, has passed off its business or products as those of Cadbury or contravened the Trade Practices Act.  I am not satisfied that such usage has resulted, or would result, in a hypothetical ordinary and reasonable member of the class constituted by prospective purchasers of chocolate being misled or deceived, contrary to ss 52 or 53(c) and (d).

ACCC update

As the ACCC's grocery price hearings started, the ACCC Chairman Graeme Samuel gave a wide-ranging speech in Brisbane on 3 April.

Rather than a formal presentation on regulation (see this speech by ACCC Commissioner King), Samuel gave a forthright view of the ACCC's expanding role in what he described as an "exhilirating time" under the new Government including:

• draft legislation for criminal penalties for cartel conduct;
• draft legislation on component pricing;
• predatory pricing amendments to section 46 of the Trade Practices Act;
• petrol prices (it is not collusion if prices go down, it is competition);
• a description of the real time pricing monitoring of 4000 petrol retailers;
• the grocery prices inquiry;
• ACCC enforcement processes;
• telecommunications competition.

He said the ACCC now had nearly 700 staff.

Component pricing

The Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, has announced that the Government will proceed with amendments to the Trade Practices Act 1974 (TPA) relating to component pricing in advertising to consumers to ensure consumers know a single total price they will have to pay for goods and services that they buy.

Component pricing is the practice of advertising prices as the sum of separate components, for example, advertising an airfare as $100 plus $48 tax, fees and charges.

Business will not be prevented from using component pricing, provided that the total price is also displayed prominently as a single figure.

The ASIC Act will not be amended: the new rules will not apply to  financial service providers.

The provision will apply only to business-to-consumer advertisements to the extent that a single figure price is quantifiable at the time of making a representation in an advertisement.The provisions will not apply to representations made between businesses or between business and government.

Schedule 1 of the draft Bill contains the component pricing amendments. In particular, the draft Bill contains the following changes since the previous consultation rounds:

• The definition of 'single price' excludes charges relating to postage and handling.
• The Government will not proceed with mirror amendments to the Australian Securities and Investments Commission Act 2001. This will allow the current legislative arrangements to continue to apply to financial services.

Stakeholders are invited to submit comments the draft Bill by 17 April 2008

Telstra loses challenge to telecommunications access regime

In Telstra Corporation Limited v The Commonwealth [2008] HCA 7 the High Court of Australia upheld the constitutional validity of the telecommunications access regime set out in the Trade Practices Act.

Telstra asserted that contrary to section 51(xxxi) of the Constitution, which provides that Parliament has the power to make laws with respect to the acquisition of property on just terms, the access regime effected an acquisition other than on just terms of some of its local loops, the twisted pairs of copper or aluminium wire running between a local exchange and a consumer’s premises.

The Court unanimously dismissed Telstra’s case, holding that sections 152AL(3) and 152AR of the TPA were not invalid. The rights in Telstra’s assets were rights to use the assets in connection with the provision of telecommunications services but those rights were always subject to a statutory access regime which permitted other carriers to use its assets.

Franchising Code of Conduct compliance manual

The ACCC has published a Franchising Code of Conduct compliance manual for franchisors and master franchisees .

The manual contains sample disclosure documents and checklists.

Misleading advertising: Kleenheat Gas deceptive pricing

In Australian Competition And Consumer Commission v Wesfarmers Kleenheat Gas Pty Ltd Acn 008 679 543 the Federal Court made orders by consent against Wesfarmers Kleenheat Gas Pty Ltd in relation to conduct of Kleenheat Gas varying the pricing for bulk LPG supplied to particular customers, selected as 'Managed Monthly Accounts' or 'Quickhits', which differed from representations it made to those customers as to how their prices would move.

Justice Spender declared that in 2002 and 2003 Kleenheat Gas engaged in misleading or deceptive conduct in breach of the Trade Practices Act 1974 by:

• representing to particular customers that the price for bulk LPG supplied to them would vary according to movements in Kleenheat Gas' actual costs of supply, by reference to an external measure or benchmark (typically the Saudi Aramco Contract Price) or according to Kleenheat's 'list price' or 'ruling scale of prices', when in fact this was not, or was no longer, the basis on which the customer's price would be varied, and
• failing to disclose the existence and nature of the 'Managed Monthly Account' and 'Quickhit' price management practices by Kleenheat Gas, which were the actual basis for price variations for some customers.

Justice Spender granted consent injunctions restraining Kleenheat Gas for three years:

• from representing to bulk LPG customers that their price will be calculated in a particular way unless it intends to supply in accordance with the terms represented, and
• where Kleenheat's terms of supply to bulk LPG customers represent that the price will be calculated in a particular way, from charging to that customer a higher price than would result from such calculations unless by further express agreement with the customer.

The company was also ordered to pay the ACCC's costs in the proceeding in an agreed amount of $20,000.

The ACCC announced that the consent orders form part of an agreed resolution between the ACCC and Kleenheat Gas, together with Kleenheat Gas offering court-enforceable undertakings to the ACCC which provide for nearly $800,000 in refunds to be paid to an estimated 186 affected customers Australia-wide, the majority of whom are small businesses.

Franchising Code fact sheets

Amendments to the Franchising Code became law on 1 March 2008.

The ACCC has issued new publications including:

• Disclosure under the Franchising Code of Conduct
• Overview of the Franchising Code of Conduct, fact sheet
• The franchisee manual
• Resolving franchising disputes, fact sheet
• Being smart about your new franchise and your retail lease, fact sheet

Legal professional privilege claim rejected: Cadbury v Amcor and Visy

In Cadbury Schweppes Pty Ltd (ACN 004 551 473) v Amcor Limited (ACN 000 017 372)[2008] FCA 88 the Federal Court rejected the ACCC's claim for legal professional privilege and public interest immunity privilege in relation to 111 witness statements drafted by ACCC investigators in connection with the ACCC proceedings against Visy .

Cadbury sued Amcor following the judgment in ACCC v Visy (and Amcor joined Visy) but the ACCC sought to prevent Amcor and Visy from producing those documents to Cadbury on discovery. Its claim failed.

However, Visy’s implied undertaking, an obligation distinct from legal professional privilege, to use the documents only for a purpose relating to the ACCC proceedings may or may not still prevent production of those documents to Cadbury in these proceedings.

Privilege was upheld in respect of Amcor witness statements held by Amcor's external solicitors.

Misleading advertising: Prouds was/now ads unlawful

In Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd  [2008] FCA 75 the Federal Court held that 'Was/Now' discount advertising by Prouds Jewellers Pty Ltd was misleading in breach of the Trade Practices Act 1974.

The advertising of certain jewellery was in the form of price comparisons such as 'Was $199 / Now $99.50' and appeared in Prouds' February 2006 Summer of Love catalogue and its May 2006 Love You Mum catalogue. The case related to the 'Was/Now' price advertising of 17 items that appeared in both catalogues.

Justice Moore concluded that the 'Was/Now' advertising conveyed to consumers that the jewellery items had been offered for sale for a reasonable period immediately before the catalogue promotion at the 'Was' price. He also observed that: "The difference between those two ['Was/Now'] prices would be seen by the hypothetical consumer as the savings that would be achieved by him or her by purchasing an item during the sale period."

Justice Moore found that each of the 17 items had not in fact been offered at the 'Was' price in that period and concluded that the 'Was/Now' advertising of each of the items in both catalogues was misleading.

The contravening conduct of Prouds flows from the fact that goods offered for sale in the context of dual pricing, were not offered for sale at the "was" price in the period immediately before the sale. In my opinion there would be no contravention of the Act (and assuming continued use of the dual pricing promotion manifest in the two catalogues considered in this case) if the goods had been offered for sale at the "was" price for a period of two months preceding the sale period. While there can be no precision about the length of the anterior period, it must represent a period of substance in which the price the goods were offered for sale at the "was" price and, negotiated discounts aside, would have been purchased at that price. If the period was unduly short, then the publication of the "was" price in the context of dual pricing would remain misleading or deceptive. 

Prouds consented to implementing a trade practices compliance program.

Government nominates Petrol Commissioner

Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen, has announced Mr Pat Walker as the Rudd Government's nominee for the new Petrol Commissioner.

The full-time commissioner will be predominantly be responsible for overseeing the ACCC's monitoring of the fuel prices in Australia as well as providing an annual report on the ACCC's findings.

The government is continuing to look seriously at the options raised by the ACCC's report on petrol prices, including measures to increase retail price transparency.

The proposed appointment of Mr Walker as an ACCC Commissioner is subject to the approval of the Governor‑General and requires acceptance of at least four States and Territories.

Green marketing and the Trade Practices Act

The Australian Competition and Consumer Commission has issued Green marketing and the Trade Practices Act to provide updated guidance for businesses and industry on the use of environmental claims in marketing. 

The publication aims to educate businesses about their obligations under the Trade Practices Act 1974 and to assist manufacturers, suppliers, advertisers and others to assess the strength of any green claims they make.

Graeme Samuel lunch rescheduled

Graeme Samuel, Chairman ACCC will discuss issues such as amendments to the Trade Practices Act as well as the expanding responsibilities set to be given to the ACCC at an Australia-Israel Chamber of Commerce (Qld) lunch in Brisbane on 3 April. Diarise it now.

Book online.

ACCC draft merger guidelines

The Australian Consumer and Competition Commission has issued Draft Merger Guidelines 2008 for public comment.

The guidelines outline the ACCC's administration and enforcement policy for dealing with mergers under the Trade Practices Act. It includes the factors the ACCC considers relevant including enforceable undertakings.

The closing date for submissions is Friday 28 March 2008.

Franchising Code of Conduct update

Amendments to the Franchising Code become law on 1 March 2008 (provided the Trade Practices (Industry Codes - Franchising) Amendment Regulations 2007 (No. 1) are not disallowed by the Senate).

The ACCC has issued a fact sheet (pdf).

Misleading advertising: carbon offset claims

Following its action against Saab Australia and previous warnings about green claims, the ACCC has released an Issues Paper relating to determining how carbon offset claims by businesses can comply with the Trade Practices Act.

The Paper looks at examples of claims of carbon-neutrality and claims of 'low carbon' and discusses what businesses need to do to substantiate those claims.

Submissions can be made orally or in writing by February 15,2008.

ACCC inquiry into grocery prices

The Government has directed the Australian Competition and Consumer Commission to commence a formal inquiry into grocery prices.

The Government has instructed the ACCC to take a broad approach to its inquiry and ensure all aspects of the chain are included - from the farm gate to the check out counter.

The inquiry will consider the current structure of the grocery industry at the supply, wholesale and retail levels including mergers and acquisitions by the national retailers; the nature of competition and the pricing practices in the grocery industry; and factors influencing efficient pricing of inputs along the supply chain.

The ACCC is required to report to the Minister  by 31 July 2008.

UPDATE 2 February: ACCC's announcement that it will release an Issues Paper soon.

Product development, misleading advertising and regulatory compliance

Why is it so hard for some businesses to accurately advertise their products? Are they too complex or is the advertising not checked?

Last week the ACCC issued proceedings for misleading advertising against Crazy John's (in respect of mobile phones) and Saab Australia (in respect of green claims on their cars). How could such claims be prevented?

The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against Mobileworld Operating Pty Ltd (trading as Crazy John's) for alleged contraventions of sections 52 and 53 of the Trade Practices Act 1974 in relation to the promotion of certain of its mobile phone plans.

The ACCC alleges that Crazy John's has engaged in misleading or deceptive conduct by representing that handsets on its Crazy Phone Plans are available 'FREE' or for '$0', when in fact consumers are required to pay for the handsets through higher call rates than those available on comparable plans which do not include a handset.

The ACCC has also instituted legal proceedings against GM Holden Ltd, which supplies and markets Saab motor vehicles in Australia and trades as Saab Australia, alleging misleading and deceptive conduct and false representations concerning 'green' claims made in the advertising of Saab vehicles.

In 2004 I posted this article (pdf) on the need to consider end compliance issues (such as product standards and misleading advertising) when developing new products or modifying existing products (regardless whether it is a car, a mobile phone plan or a financial product). I recently updated the article to take into account the decisions in ACCC v Audi and ACCC v Telstra. As the issues covered are still relevant I am publishing the full amended version below.

CONTINUOUS COMPLIANCE AND PRODUCT DEVELOPMENT
Even in organisations that have well designed compliance systems,  compliance must be put into the daily practice of the business.

New product development and changes to existing products involve compliance risks. This can occur because of the way in which decisions are made and the way such projects are implemented.

Poor product knowledge combined with lack of understanding of regulatory requirements can lead to a breach.

Even small changes have risks.

In Australian Competition and Consumer Commission V Wizard Mortgage Corporation Limited [2002] FCA 1317 considered an existing advertisement for a loan product which had been legally cleared but had been changed by the marketing head by adding in an interest rate (there was no rate before). However the product was not available at that rate. The Federal Court agreed with the ACCC that the ad was misleading and deceptive.

In BMW Australia Limited v Australian Competition & Consumer Commission [2003] FCA 727 the Federal Court of Australia found that BMW’s 2002 318i model had breached the Trade Practices Act (TPA) by using safety warnings on the jacks which did not comply with the Australian Safety Standards. In dispute was the importance of 5 words which had been omitted.

In Australian Competition and Consumer Commission v Audi Australia Pty Ltd [2007] FCA 1990, the Federal Court made orders against Audi relating to its misleading advertising that the Audi Q7 3.6 SE motor vehicle had 7 seats as a standard feature at the standard price when in fact the standard seating for the Audi Q7 3.6 SE was 5 seats.

In Australian Competition and Consumer Commission v Telstra Corporation Limited  [2004] FCA 987 the Federal Court decided that Telstra's $0 mobile phone advertising was misleading and deceptive after analyding Telstra's mobile phone plans.

The decision making process
Decisions on new products and changes to existing products may be made for different reasons:
• Defensive: follow the leader
• Product innovation
• Market research
• Compliance input

How is the decision made? Is there a team that investigates the options and puts together a business case before a decision is made or does the CEO or the board make the decision and then ask one or more people to investigate it?

You need to do your homework to show that careful business judgment was exercised.

Do you have all the regulatory licences and approvals?
Have you satisfied all regulatory conditions?
Does your pricing model take into account different scenarios?
Have you considered tax issues?
Have you done full "specifications" of the product?
What are the product terms and conditions?
Have pros and cons been weighed?
What are the most important objectives?
Can compromises be made?
Is the change worth making?
What are the different options?
Are there ethical or governance issues?
Is there any ambiguity?
Is it fully documented?
Have you done a cost/benefit analysis?

Implementing decisions
Once the decision is made, who has control?
Is there an external Project Manager?
Is there an implementation team? If so, is every relevant person on it?

An implementation committee should represent the following interests:
• Legal (for issues such as name of product, intellectual property, trade practices, advertising clearance, documentation and specific product regulation)
• Commercial
• Prudential/risk profile
• Accounting/actuarial
• Software (new, modifications)
• Marketing
• HR/training

Will you seek input from your front line staff, key suppliers, customers or regulators?
The committee needs to give clearance at both draft AND final stages.

Product documentation
The process should result in documentation that identifies the background of the product, specifications and operational risks. This will ensure that whoever markets the product has a proper understanding of the product and does not inadvertently mislead consumers. And when the marketing material is produced, a person must have responsibility for checking its accuracy and compliance.

Conclusion
There needs to be a method for ensuring that a new product or a change to an  existing product has been considered from all angles (marketing, IT, compliance, HR, finance etc) before a decision is made to proceed with it.

At the least, failure to do your basic homework can jeopardize your marketing campaign. If timing is critical, the success of the product can be affected.

Graeme Samuel speaks

If you're in Brisbane on Wednesday 20 February, don't miss the opportunity to hear Graeme Samuel, Chair of the ACCC speak about current issues at the ACCC and the Rudd Government’s plan to enhance Australia’s competition laws.

To book for this lunch please contact Liz Venzin, CEO, Australia-Israel Chamber of Commerce (QLD) by emailing liz@aicc.org.au

UPDATE: THIS HAS BEEN POSTPONED TO 3 APRIL

Australian domain name disputes update

Australian cricket captain Ricky Ponting has lodged an application (set for hearing in the Federal Court on 8 February 2008) claiming misleading and deceptive conduct against the operator of a website which described itself as "the official Ricky Ponting site": Ricky Thomas Ponting v Kevin Leonard Consulting Pty Limited (ACN 087 382 858) & Anor (also see Computerworld story)

It is not clear why Ricky Ponting has chosen litigation rather than the domain name disputes resolution procedure administered by .auDA. [UPDATE 17 January: David Starkoff comments]

UPDATE 13 February 2008: Ricky Ponting discontinued his action on 8 February.

According to this data from the World Intellectual Property Organization 2007 was a record year for domain name disputes. Disputes are dealt with under ICANN's Uniform Domain Name Dispute Resolution Policy (“UDRP”)

The auDRP is an adaptation of the Uniform Dispute Resolution Policy (UDRP) administered by ICANN with respect to the generic top level domains such as .com.

auDA can compel dispute resolution where:

(i) a domain name is identical or confusingly similar to a name, trademark or service mark in which the complainant has rights; and
(ii) the domain name owner has no rights or legitimate interests in respect of the domain name; and
(iii) the domain name has been registered or subsequently used in bad faith.

The complainant has the burden of proof.

The Australian 2007 decisions made by WIPO include decisions to transfer the domain name to the complainant as well as cancellation of the name.

The WIPO Domain Name Dispute Resolution Service has resources and past decisions.

In the UK recently Maestro (a subsidiary of Mastercard) failed in its attempt to stop another organisation using maestro.co.uk.

The appeal panel ruled that it did not prove the case that the registration was abusive, and that because maestro is a normal word with a dictionary definition it could not monopolise its use in domain names just because it also happened to be one of its brands.

auDA's policy states that it accepts that a complainant has rights in the complainant's personal name.

Discussion paper and draft legislation on Criminal Penalties for Serious Cartel Conduct

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen has released a discussion paper in relation to the Government’s commitment to implement criminal penalties for serious cartel conduct.

Cartel conduct refers to contracts, arrangements or understandings between competitors to fix prices, share markets, control output or rig bids.

Attached to the discussion paper is an exposure draft of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 (the Bill), including the proposed new criminal offences and revised civil prohibitions, amendments relating to the investigation and prosecution of the new offences, and associated amendments.

The discussion paper also seeks input on two specific issues:

• how to distinguish the criminal prohibitions from the civil prohibitions; and
• whether telephone interception warrants should be available in relation to the new criminal cartel offences.

Submissions close on 29 February 2008.

Proposed Trade Practices Act changes

Assistant Treasurer and Competition Minister Chris Bowen has given a clear indication of the new Government's approach to competition policy in this interview.

On prison for cartel operators

"The first thing we will do is this. We believe that you need to have disincentives for cartel operations. Cartel is theft. It’s stealing off consumers. In several countries around the world if you operate a cartel you go to prison. Five years, in Canada, Germany, Ireland, the United Kingdom. Ten years in the United States. So we’ll legislate to have prison terms for cartel operations. Because the problem we’ve got is, businesses get together and they think, we could make a lot more money if we did this and even if we get caught, the fine will be potentially less than what we make so we cant really lose. But you’ve got the possibility of five years at Her Majesty’s pleasure, you’ll think a lot more closely about entering into those side deals."

On predatory pricing

"...the ACCC has to be able to prove that that big business can make the money back later. That’s a very, very hard thing to prove so we will legislate to remove that requirement. It’s called the recoupment requirement. We would legislate to remove that and we’ll really strengthen the appropriate sections of the Trade Practices Act and make it easier for the ACCC to bring these cases. We believe in competition, we believe in fair competition, we don’t believe in big businesses or any other business being able to reduce their prices so low for a short period of time to drive everybody else out and then to be able to charge whatever they want...

The other thing that we will do is – at the moment, if you want to take a big business on you have to go to the Federal Court. Now, for a small business that’s very hard. If you believe a big business is intentionally driving you out of business so that they can then put their prices up later you’ve got to go to the Federal Court. That’s a very expensive jurisdiction. So we’ll make that at the Federal Magistrates Court which is cheaper and easier and generally more user friendly – available for those sorts of cases...

we’ll put the definition of take advantage in the law so it is very clear for judges what the Government’s intention is by the term “take advantage”. That will basically say, if you’ve got market power and you use that market power to effect another business, to drive them out of business or to damage them, intentionally then that will a breach of the act."

Resale price maintenance penalty: Navman

In Australian Competition and Consumer Commission v Navman Australia Pty Ltd [2007] FCA 2061, the Federal Court imposed penalties totalling $1.36 million against Navman Australia Pty Ltd and 2 of its officers as a result of a large number of contraventions of the resale price maintenance prohibition contained in s 48 of the Trade Practices Act 1974 (Cth) .

A penalty of $1.25 million was imposed on Navman and penalties of $80 000 and $30 000 respectively were also imposed on Mr Christopher Baird, a former director of Navman and the former Australasian sales manager of Navman, Mr David King.

Navman engaged in extensive resale price maintenance over a period of more than three years.  Its conduct extended to the supply of both marine equipment and personal and in-car navigation (PCN) products. Its conduct in relation to the supply of marine equipment covered the period from 2001 to 2004.  Its resale price maintenance conduct in the supply of PCN products covered the period from 2003 to 2004.

ACCC to monitor green marketing claims

The ACCC is taking a closer look at a number of the green claims that are being made. All businesses need to ensure they are not misleading their customers with such claims.

Green marketing does not refers solely to the promotion or advertising of products with environmental characteristics. Green marketing claims, in the broader concept are now being applied to consumer goods, industrial goods, services, corporate activities.

The ACCC intends to ramp-up its green compliance activities with a combination of business and consumer educative initiatives and targeted enforcement action.

ACCC report into unleaded petrol prices

The Australian Competition and Consumer Commission's (ACCC) has released its report into unleaded petrol prices which has concluded "that the unleaded petrol industry in Australia is fundamentally competitive. There is no obvious evidence of price fixing or collusion between the major participants in the industry".

The Minister for Competition Policy and Consumer Affairs, Chris Bowen, has outlined three measures as part of the government's preliminary response to the report. They include:

• Writing to the ACCC giving it formal monitoring powers over petrol prices;
• Making the ACCC report to the government every year on its monitoring;
• Beginning the search process for a Petrol Commissioner and writing to all of the State and Territory leaders seeking their input on possible candidates for the role.

The inquiry found that there was 'no obvious evidence of price fixing or collusion between the major participants in the industry' and 'fundamental pricing of petrol is dictated by international factors'.

However, it also found that:

• The major refiners have established 'a comfortable oligopoly', with the Australian industry being relatively concentrated.
• There are 'significant impediments to the large-scale importing of petrol by parties other than refiner-marketers, resulting in very little independent importing'.
• The 'well-defined price cycles in Australia's retail unleaded petrol markets are an enigma' and the ACCC was not given a satisfactory explanation of divergences in prices between Australia and price decreases in Singapore.

Productivity Commission draft report: Review of Australia's Consumer Policy Framework

The Productivity Commission has released its Draft Report of the  Review of Australia's Consumer Policy Framework.

A key point of the draft report is the need for national consumer regulation with a sole national regulator (possibly the ACCC).

The first step in creating a nationally coherent consumer policy framework should be the introduction of a single generic consumer law applying across Australia. This should be based primarily on the consumer provisions in the Trade Practices Act.

• The ACCC should be solely responsible for enforcing the product safety provisions nationally.
• The case for making it the sole national regulator for all of the new generic law should be actively explored.
• In the meantime, individual States and Territories should be given the option of referring their enforcement powers for all of the new law to the ACCC.

There should also be a CoAG oversighted review and reform program (akin to the National Competition Policy legislation review process) to:

• identify and repeal unnecessary industry-specific consumer regulation, with a particular focus on removing regulations that apply in only one or two jurisdictions;
• dentify other areas of specific consumer regulation applying in most or all jurisdictions where divergent requirements and/or lack of policy responsiveness are particularly costly; and
• determine how these costs should be reduced, with explicit consideration of the case for transferring policy responsibility to the national level.

However, in two areas of current State and Territory responsibility - consumer credit provision (including finance broking), and the consumer protection aspects of energy services - the case for a national approach is well established. Hence, the transfer of responsibility to the national level should occur without further review.

To complement this broad reform program for specific consumer regulation, improvements should be made to some of the particular regulatory requirements applying to consumer credit, utility services and home building.

The Commission is seeking comment from interested parties on its draft report through written submissions and/or attendance at public hearings to be held early in 2008. The closing date for written submissions is Wednesday 6 February 2008.

Released with the draft report is a consultancy report, Comparison of Generic Consumer Protection Legislation, by Professor Stephen Corones and Professor Sharon Christensen, Faculty of Law, Queensland University of Technology.

Health profession and trade practices: price-fixing by orthodontists

In ACCC v Knight penalties were imposed for anti-competitive conduct by surgeons.

Now, in Australian Competition & Consumer Commission v Ranu Pty Ltd [2007] FCA 1777, the Federal Court of Australia found that three orthodontic businesses, each operating in northern Tasmania, had contravened section 45 of the Trade Practices Act 1974 by engaging in price fixing and market sharing.

Justice Peter Heerey, found that the respondent orthodontists, in various combinations, entered into a series of illegal anti-competitive arrangements to:

• fix the price of the orthodontic services they each provided to consumers in northern Tasmania
• restrict their respective supply of orthodontic services to new patients when an orthodontist had more customers than the others
• restrict the ability of the orthodontists to supply their respective services from separate premises or work with other orthodontists within 20 kilometres of the existing practices in Launceston, Devonport and Burnie, and
• stop another orthodontist from setting-up a competing practice in northern Tasmania.

The orthodontists provided their services from shared premises in the cities of Launceston, Devonport and Burnie, and the majority of the illegal arrangements were written into the shared premises co-location agreement.

Because the orthodontists relied on faulty legal advice that the Trade Practices Act did not apply to them and because the respondents cooperated with the investigation, the ACCC took the unusual step of not seeking a monetary penalty. The court decided that in all the circumstances it was sufficient to deal with the matter by way of a series of injunctions restraining the orthodontists from again engaging in the anti-competitive conduct.

The court also ordered the respondent orthodontists to attend an annual trade practices law seminar of at least 4 hours duration for the next 3 years and to make available to staff a trade practice compliance manual at the co-located premises.

Qantas settles US price fixing claim

As foreshadowed in Qantas' Annual report, Qantas has announced to the ASX it has entered a Plea Agreement with the US government to settle its liability in the USA resulting from illegal price fixing conduct by its Freight Division involving fuel surcharges.

Qantas has agreed to pay a fine of US$61 million.

BBC News.

UPDATE 15 January 2008: Qantas fined AU$68M (ABC News) 

ACCC succeeds in price-fixing and resale price maintenance prosecutions

The ACCC has been successful in 2 recent prosecutions:

In Australian Competition & Consumer Commission v Australian Abalone Pty Ltd [2007] FCA 1834 penalties totalling $927,500 were imposed on individuals and companies involved in a Victorian abalone cartel.

The ACCC alleged that under the arrangement the parties would not supply a processor customer unless that processor paid a premium on top of an average 'beach' price (market price) and was a processor nominated by Australian Abalone Pty Ltd, a corporate vehicle created to market the catch by the quota holder and others.

Justice Weinberg of the Federal Court in Melbourne found, that the conduct contravened the primary boycott and price fixing provisions of the Act ( ss 45(2)(a)(i) and (ii) and 45(2)(b)(i) and (ii) of the Trade Practices Act 1974) and the Victorian Competition Code.

In ACCC v TEAC the Federal Court of Australia imposed penalties totalling $190,000 on TEAC Australia Pty Ltd and its National Sales Manager, Mr Warren Allison, for engaging in resale price maintenance in contravention of section 48 of the Trade Practices Act in relation to conduct that sought to stop an independent retailer of electronic products from advertising prices below the 'go price' specified by TEAC. (ACCC Media Release).

iSelect gives advertising undertakings to ACCC

The Australian Competition and Consumer Commission (ACCC) has accepted court-enforceable undertakings from iSelect Health Pty Ltd in response to ACCC's concerns in relation to certain representations that iSelect made in the promotion of its health insurance  recommendation service.

iSelect receives commissions from insurance companies in respect of the policies that it arranges for consumers to purchase. 

The ACCC was concerned that iSelect made various representations which were likely to mislead consumers as to the range of insurance policies which it compared when recommending a policy. In particular, the ACCC was concerned that iSelect made representations that:

• misrepresented that it compared a significant proportion of health insurance policies available to consumers
• misrepresented the number of health insurance policies which it compared for consumers, and
• misrepresented that it compared for consumers all the health insurance covers available to them and could find the best suited policy for a consumer's needs at the lowest price.

After the ACCC raised its concerns with the company, iSelect ceased making the alleged misrepresentations and took steps to implement a trade practices compliance program.

iSelect has undertaken that:

• it will not make the representations of concern in specified circumstances where they may be misleading
• it will inform certain customers who it arranged to purchase a health insurance policy of the range of insurance policies which it compared for them, and
• it will maintain a trade practices compliance program.

ACCC v Visy: record price-fixing cartel penalties

The reasons for Justice Heerey's decision to accept the settlement between ACCC and Visy and impose record penalties ($36 million fine imposed on Visy for 37 contraventions under section 76(3) Trade Practices Act) are set out in his 333 paragraph judgment in Australian Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617

Between January 2000 and October 2004 companies in the Visy Group and certain officers of those companies engaged in price fixing and market sharing with companies in the Amcor Group, contrary to s 45 of the Trade Practices Act 1974 (Cth). Visy admitted liability.  The parties entered an agreed statement of facts.

The maximum penalties applicable at the time of the contraventions in this case were, in respect of each contravention, $10 million for a corporation and $500,000 for an individual. Paragraphs 298-300 set out the ACCC's method of calculating the proposed penalty.

In making his own assessment Justice Heerey made the following comments:

(The ACCC) did not set out to prove that any particular customer of Visy suffered any particular loss. However, that is not to say that the conduct in which Visy engaged was victimless. The whole point of price fixing and market sharing is to obtain the benefit of prices greater than those which would be obtained in a competitive market. It must follow that customers pay more than they would in a competitive market, and so suffer loss. The conduct involved here was inherently likely to cause loss. The fact that no particular loss has been alleged in respect of any particular customer cannot alter that.

315 The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.

316 It is appropriate to make some allowance for the fact that the respondents have admitted liability and thus saved a great deal of public expense for a trial which could well have lasted six months or more...

319 The corporate culture of Visy in relation to its obligations under the Trade Practices Act was non-existent.  None of the most senior people hesitated for a moment before embarking on obviously unlawful conduct. There was in evidence a Visy document entitled "Trade Practices Compliance Manual" dated February 1998.  It was signed by Mr Pratt. It bears a distribution list, signed by Mr Debney, with the names of 50 or so personnel covering every State and Head Office. On the front cover it is said:

This is an important document. It is essential that it be read and understood by you.  Visy Industries requires strict compliance with its policy on the Trade Practices Act.

The document includes the stern warning that price fixing and market sharing are "strictly prohibited" and that readers of the document "must never make (such) arrangements with a competitor". Further, it is said Visy personnel

should avoid all contact with competitors or their employees other than contact approved by senior management or Visy Industries’ Legal Counsel.  All necessary contact with competitors should be conducted in formal settings.

I doubt that Westerfolds Park and the Cherry Hill Tavern could be regarded as formal settings.  The Visy Trade Practices Compliance Manual might have been written in Sanskrit for all the notice anybody took of it.

320 Parity with penalties imposed in other cases is a relevant consideration. Counsel referred to a number of other cases. I do not think it necessary to analyse these in detail. Ultimately each case turns on its own facts.  Suffice it to say that the penalty proposed is more than twice the highest previous penalty imposed by this Court.  That is reflective of the fact that this must be, by far, the most serious cartel case to come before the Court in the 30 plus years in which price fixing has been prohibited by statute.

November 2, 2007 in Trade Practices | Permalink | Comments (0) | TrackBack

ACCC v Visy decision

ABC News reports that the Federal Court has fined Visy $36million over its involvement in a price fixing cartel. (Also The Age)

Visy's former chief executive Harry Debney, who accepted responsibility for his part in the cartel, was fined $1.5 million. (Debney resigned as Visy CEO last week).

Former general manager Rod Carroll, who also accepted responsibility for the cartel, was fined $500,000.

Richard Pratt, as owner of Visy (and will bear the penalty indirectly), escaped a personal fine.

See video of decision announcement by Judge Heerey.

UPDATE: ACCC has welcomed the record penalties.

November 2, 2007 in Trade Practices | Permalink | Comments (0) | TrackBack

What is a franchise agreement?

If a contractual arrangement is a franchise agreement then the Franchising Code of Conduct (pdf) (including the obligation to provide disclosure documents) applies.

In ACCC v Kyloe Pty Ltd [2007] FCA 1522 the Federal Court rejected the ACCC's claim that the sub-distributorship agreements for the Polar Krush Ice drink business were really a franchise.

The Code defines a franchise agreement as:

... an agreement:

(a) that takes the form, in whole or part, of any of the following:

(i) a written agreement;

(ii) an oral agreement;

(iii) an implied agreement; and

(b) in which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and

(c) under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol;

(i) owned, used or licensed by the franchisor or an associate of the franchisor; or

(ii) specified by the franchisor or an associate of the franchisor; and

(d) under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example:

(i) an initial capital investment fee;

(ii) a payment for goods or services;

(iii) a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or

(iv) a training fee or training school fee;

but excluding:

(v) payment for goods or services at or below their wholesale price; or

(vi) repayment by the franchisee of a loan from the franchisor; or

(vii) payment for the whole sale price of goods taken on consignment; or

(viii) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement."

After looking at the contractual arrangements in this case, Judge Tracey decided that Clause 4(1)(b), which requires that any right conferred by a franchisor to carry on business must be granted under a system or marketing plan, had not been satisfied.

He noted that "The phrase a "system or marketing plan" is not defined in the Code. In seeking to give meaning to this concept Australian courts have had resort to American case law which deals with equivalent but not identical legislation."

October 21, 2007 in Business Planning, Trade Practices | Permalink | Comments (1) | TrackBack

ACCC v Visy preview

It's expected that Visy will accept liability today in ACCC's price fixing case against it.

There has been a lot of pre-hearing publicity (including speculation about Australia's largest ever civil penalty).

The Australian provides an overview of the case, the prospect of subsequent class actions and past recommendations that this offence should be criminalised.

UPDATE 16 October: decision reserved

UPDATE 2 November: decision announced

October 16, 2007 in Trade Practices | Permalink | Comments (0) | TrackBack

Consumer policy review

The release of the Productivity Commission's  draft report on its review of consumer policy will be delayed until later in October. The reporting date of the inquiry has been extended to 28 February 2008.

Media speculation is building about whether the Productivity Commission's review of consumer policy will recommend the setting up of a national consumer protection agency which will take over state responsibilities as well as the consumer protection functions of ACCC and ASIC.

October 2, 2007 in Trade Practices | Permalink | Comments (0) | TrackBack

Legislative update

Once the election is called the Commonwealth Government will be in "caretaker" mode when no new laws will be passed unless they're urgent and have bipartisan support. The Spring sittings are scheduled to commence on 15 October 2007 but will not occur if the Parliament is prorogued (brought to a close) before that date for a general election.

Looking at the Bills List, there are Bills not passed which represent the culmination of a long period of consultation and negotiation. Other Bills (such as Access Card) have had to be amended and will likely wait for the next term to be re-introduced, if at all.

The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Bill 2007 and Financial Sector Legislation Amendment (Simplifying Regulation and Review) Bill 2007 and  the International Trade Integrity Bill were passed on 13 September and are awaiting Assent. The Trade Practices Legislation Amendment Bill (No. 1) 2007 was passed on 20 September and is also awaiting Assent. UPDATE: These Bills all received assent on 24 September.

The Financial Sector Legislation Amendment (Review of Prudential Decisions) 2007 Bill was introduced on 13 September but will lapse.

The Australian Securities and Investment Commission (Fair Bank & Credit Card Fees) Amendment Bill 2007 will also lapse.

The Trade Practices (Industry Codes - Franchising) Amendment Regulations 2007 (No. 1) will have to wait for a further 6 Senate sitting days before they take effect (to ensure they are not disallowed).

Regardless of the election, here's a sample of key dates that are not dependent on further Parliament sittings this year:

• 12 December 2007: Anti-money laundering customer identification rules start
• 1 December 2007: the new ASIC debenture disclosure rules start
• 1 January 2008: the new ASX governance principles and APRA governance standard start
• 1 January 2008: The Basel II framework starts
• 1 March 2008: new franchise disclosure regulations commence (if not disallowed)
• 31 March 2008: first AML compliance report due
• 1 July 2008: merged financial services dispute resolution scheme starts.

September 24, 2007 in Business Planning, Financial Services, Trade Practices | Permalink | Comments (0) | TrackBack

The ACCC and franchising complaints

The ACCC has set up a new section on its website explaining the ACCC’s role in relation to franchising complaints and investigations and detailing some matters the ACCC has investigated and taken to the courts.

Although the ACCC notes that many complaints fall outside the jurisdiction of the ACCC and the Trade Practices Act 1974, are of a private contractual nature, or cannot be substantiated to the degree required to allow further action it gives case studies of where enforceable undertakings were obtained (eg Quiznos and You Can Bake-It Franchising P/L) as well as examples of investigations that were inconclusive or reached a mediated settlement (eg The Midas Franchise and Michel’s Patisserie) .

September 21, 2007 in Trade Practices | Permalink | Comments (0) | TrackBack

Senate passes amendments to Trade Practices Legislation Amendment Bill (No. 1) 2007

The Trade Practices Legislation Amendment Bill (No. 1) 2007 was passed in the Senate on 18 September 2007, with amendments.

The original Bill amended the Trade Practices Act 1974 to provide greater protection for small businesses against misuse of market power and unconscionable conduct by large corporations.

The amendment Bill has further amended the misuse of market power provisions in section 46 of the Act to:

• address concerns about establishing when a corporation has a substantial degree of power in a market, which is the threshold requirement for section 46 to apply;
• specifically prohibit a corporation from leveraging market power from one market to another; and
• refer to sustained below‑cost pricing conduct as a factor the Court may consider in deciding whether a corporation has misused its market power.

The Government’s new amendment is based on an amendment by Senator Joyce and includes a specific prohibition against a corporation with a substantial share of a market from engaging in sustained below-cost pricing conduct for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market, or deterring or preventing a person from engaging in competitive conduct in a market.

The Bill also makes amend