Competition law update

In brief

In touch: Competition law update is a regular publication by the Allens Competition group to keep you informed of the latest news and developments in this area. For more information or for legal advice, please contact one of the Partners listed below. We look forward to hearing from you.

Significant matters

The fixture for 2014

Last year was an eventful year from a competition law perspective. The ACCC enjoyed mixed success in its ambitious enforcement agenda. It sought to enforce the misuse of market power provisions and apply the cartel provisions to principal/agent and distribution arrangements. It also vigorously enforced the Australian Consumer Law (the ACL). While the ACCC had some wins, its success rate was significantly higher in matters concerning the ACL than Part IV.

The year ahead is shaping up to be equally eventful, with the Government's Root and Branch Review likely to take centre stage. The terms of reference and the membership of the panel have not yet been settled. However, one thing is certain, it promises to be wide-ranging.

To kick the year off, we will hold our annual Competition Law Fest on 19 February 2014. This year, we will cover:

• Criminalisation of cartels – what was all the fuss about? Partner Carolyn Oddie and Lawyer Thomas Bagley
• Agents competing with their principal – a competition lawyer's dilemma: Partner Kon Stellios
• Market power – to use or not to use? That is the conundrum...: Partner Jacqueline Downes and Lawyer Theodore Souris
• Merger clearances – what are the trends? Partner Fiona Crosbie and Lawyer David Mierendorff
• Advertising – what's currently misleading? Senior Associate Catherine Bembrick
• Consumer law update: Senior Associate Rebecca Cope and Lawyer Nicola Lord
• Root and branch review & wrap-up: Panel discussion

ACCC news

ACCC assesses bidders for the Macquarie Generation business – 30 & 31 Jan 2014

The ACCC has released a Statement of Issues outlining concerns with the proposed acquisition of Macquarie Generation by AGL Energy Limited. The key assets of Macquarie Generation are the Bayswater and Liddell power stations (together, these power stations account for 27 per cent of NSW capacity). The ACCC's preliminary view is that the proposed acquisition is likely to result in a substantial lessening of competition in the market for the retail supply of electricity in NSW as a result of reduced access to competitively priced and customised hedge contracts. The ACCC has also expressed a preliminary view that the proposed acquisition may result in a substantial lessening of competition in one or more markets for the wholesale supply of electricity in NSW, Victoria and South Australia. The ACCC invites further submissions from the market in response to the Statement of Issues by 17 February 2014, and has deferred its final decision until 4 March 2014. Read the ACCC Media Release

The ACCC has also announced that it will not oppose the proposed acquisition by ERM Power Limited of the NSW Government's Macquarie Generation business and assets including the Bayswater and Liddell power stations. The ACCC formed the view that the acquisition was not likely to substantially reduce the competitiveness of generators or retailers or otherwise raise barriers to entry in the relevant electricity markets. The ACCC reached this view based on ERM's limited existing generation assets and the relatively small size of its existing retail base. Read the ACCC Media Release

ACCC to assess Australia Post's proposed price increase for stamps – 31 Jan 2014

Australia Post has provided the ACCC with its plan to increase the basic postage rate (BPR) from 60 cents to 70 cents from 31 March 2014. The last increase in the BPR was in June 2010 when it increased from 55 cents to 60 cents. Increases are also proposed for other large letter services.

Australia Post submits that it seeks increases because the revenue it earns from these letter services does not recover its costs. It claims that even with the proposed 10 cent increase, its monopoly letter services are facing increasing losses, forecast to reach $246 million in 2014-15. Australia Post attributes its losses to declining letter volumes and the cost of complying with community service standards.

The ACCC must complete its assessment on Australia Post's proposed price increases by 20 February 2014, and seeks submissions by 10 February 2014. Read the ACCC Media Release

Changes to ACCC CEO arrangements – 30 Jan 2014

Chairman Rod Sims will also assume the role of Chief Executive Officer effective from Monday 3 February 2014. Current CEO Brian Cassidy is retiring on 23 May 2014, will assist the Chairman in the transition and also with the ACCC's submission to the 'Root and Branch' review of competition laws. Read the ACCC Media Release

ACCC approves changes to Viterra's wheat port undertaking – 30 Jan 2014

The ACCC has consented to Viterra Operations Limited's application to extend and vary its 2011 Port Terminal Services Access Undertaking, which provides access for third party exporters to Viterra's port terminal services for bulk wheat export at six of its port terminals in South Australia.

Viterra's undertaking was due to expire on 30 September 2014 when a mandatory code of conduct is expected to be introduced to govern access to bulk wheat ports. Viterra applied to extend the operation of the undertaking to 30 September 2015 to ensure continuity in regulatory arrangements in the event the code is not in place before the undertaking expires. If the code is in place before 30 September 2015, the undertaking will expire at the time the code becomes effective.

Viterra also proposed a number of variations to its 2011 undertaking, including changes to the 'first in first served' booking process, the suspension of port loading protocols during periods of force majeure and the movement of bookings between Inner Harbour and Outer Harbour facilities in Adelaide. The final decision is available at www.accc.gov.au/wheat. Read the ACCC Media Release

ACCC to not oppose BlueScope Steel's acquisition of Fielders Australia – 30 Jan 2014

The ACCC will not oppose the proposed acquisition by BlueScope Steel Ltd of Fielders Australia.

BlueScope, through its subsidiary Lysaght, competes with Fielders in the manufacture and supply of roll formed products. Roll formed products are used in all types of building structures and customers include builders, roof installers and shed manufacturers.

BlueScope is the only domestic manufacturer of various types of steel coil, which are the key inputs in the roll formed product manufacturing process. BlueScope's painted steel brand COLORBOND enjoys a high level of market recognition, particularly when it is used in residential applications, such as roofing.

The ACCC conducted extensive market inquiries following the publication of the Statement of Issues on 5 December 2013 and concluded that the acquisition would be unlikely to substantially lessen competition in any relevant market. The ACCC considered that:

• while BlueScope has market power in the supply of painted coil inputs through its COLORBOND product lines, its market power would not be altered by the acquisition;
• BlueScope does not currently discriminate against other roll formers in favour of Lysaght in the supply of inputs and there are strong economic incentives for BlueScope to maintain competitive supply to rival roll formers. These incentives include the need to operate the blast furnace at its Port Kembla steelworks at full capacity and the greater profits it earns on domestic sales over exporting excess production;
• while Lysaght and Fielders were the two main suppliers of steel formwork, customers would continue to have strong alternative suppliers; and
• BlueScope would likely be constrained by the threat of new entry from existing major roll formed product manufacturers and in some cases the ability of customers to use timber formwork instead of steel formwork.

The ACCC will issue a Public Competition Assessment outlining the ACCC's reasons for its decision in due course. Read the ACCC Media Release

ACCC reauthorises waste reduction scheme – 29 Jan 2014

The ACCC has re-authorised AgStewardship Australia Limited on behalf of itself, its members, Agsafe Limited and current and future participants in arrangements to impose a four cent per litre/kilogram levy on the sale of agricultural and veterinary (AgVet) chemicals. The levy is ultimately passed on to end-users of the chemicals and funds the drumMUSTER and ChemClear® programs, which provide for the collection and disposal of unwanted, empty AgVet chemical containers and chemicals. Around 22 million containers have been collected and 387 tonnes of chemicals have been cleared since 1999.

The ACCC considers that the programs continue to result in a public benefit, and that the extent of the public benefit is likely to be larger now than previously by virtue of the increased scale of the programs. Read the ACCC Media Release

ACCC reauthorises collective bargaining by office products retailers group – 23 Jan 2014

The ACCC has re-authorised Office Choice Limited, Office Brands Limited, Office Products Depot, as well as their current and future Australian members and franchisees, to continue to collectively bargain with office products suppliers for a further six years. The collective bargaining group represents over 250 retailers that sell small business and general office products. Read the ACCC Media Release

ACCC to oppose Sonic's acquisition of the assets of Delta Imaging Group – 17 Jan 2014

The ACCC will oppose the proposed acquisition by Sonic Healthcare Limited of the assets of Delta Imaging Pty Limited (in liq), Delta Imaging Maitland Pty Limited (in liq) and Cscan Asset Pty Limited (in liq). The ACCC concluded that the proposed acquisition is likely to have the effect of substantially lessening competition in the market for the supply of MRI services in Newcastle and Maitland, and the market for the supply of general diagnostic imaging services in Maitland. The ACCC will issue a Public Competition Assessment in due course. Read the ACCC Media Release

Penalty for fake testimonials and false solar energy country of origin representations – 17 Jan 2014

The Federal Court has ordered by consent that P & N Pty Ltd and P & N NSW Pty Ltd (trading as Euro Solar) and Worldwide Energy and Manufacturing Pty Ltd (WEMA, formerly trading as Australian Solar Panel) pay combined penalties of $125,000, for publishing false testimonials and making false or misleading representations about the country of origin of the solar panels they supply following action by the ACCC. The sole director of P&N and WEMA, Mr Nikunjkumar Patel, was also ordered to pay a penalty of $20,000 for his involvement in the conduct. Read the case and the ACCC Media Release

Clarification of ACCC Chairman's comments in The Australian Financial Review – 6 Jan 2014

As part of a wide ranging interview on the year ahead, the Chairman of the ACCC, Mr Rod Sims, welcomed the coming 'Root and Branch' competition review. He said the review will be extremely important in terms of addressing impediments to competition which will benefit the economy generally. He also said that the competition review was likely to address the role of government in markets, and then went on to say that, generally, the private sector will run commercial enterprises more efficiently than government. There was no reference made to privatise any specific Commonwealth-owned entity. Read the ACCC Media Release

ACCC directs Telstra to amend further measures developed under the Migration Plan – 20 Dec 2013

The ACCC has directed Telstra to improve a measure that relates to a specific process that NBN Co may use to connect premises to the NBN.

In some instances, NBN Co may need to use an existing copper or HFC line to pull the NBN fibre through the conduit that leads from the street to the premises to connect that premise to the NBN. This 'pull through' process will result in a temporary outage to the existing communications services.

Under Telstra's Migration Plan, Telstra is required to have in place processes that enable Telstra to:

• obtain the consent of its wholesale customers for NBN Co to pull through lines over which the wholesale customer is providing services; and
• notify wholesale customers if the pull through process is not successful.

These processes affect the ability of Telstra's wholesale customers to minimise disruption to the supply of communication services to consumers.

The ACCC considers that Telstra's proposal for the collection of wholesale customer consents satisfies the regulatory requirements relating to migration. However, the ACCC is not satisfied that the notification process will enable wholesale customers to effectively manage the migration of their end-users in a way that minimises the period of the service outage.

Telstra must now amend the processes to address the ACCC's concerns and resubmit them within 40 business days. Read the ACCC Media Release

Mitsubishi Electric Australia penalised for resale price maintenance – 20 Dec 2013

The Federal Court has ordered by consent that Mitsubishi Electric Australia Pty Ltd pay $2.2 million in penalties for engaging in resale price maintenance. The court found that between 2009 and 2011, Mitsubishi Electric through the conduct of its senior managers:

• induced and attempted to induce one of its dealers, Mannix Electrical Pty Ltd not to sell Mitsubishi Electric branded air conditioning products at prices below a minimum specified price; and
• reduced the discounts Mannix had received from Mitsubishi Electric by terminating its 'dealer' status, for reasons including Mannix's failure to increase its prices of Mitsubishi Electric branded air conditioning products to the minimum specified price.

The court ordered Mitsubishi Electric to pay a penalty of $500,000 for each act of resale price maintenance in 2009 and 2010, and $1.2 million for its termination of Mannix's 'dealer' status in 2011. The court also made orders for declarations, injunctions, and a contribution by Mitsubishi Electric to the ACCC's costs in the amount of $50,000. Read the case and the ACCC Media Release

ACCC conditionally approves acquisition of Life Technologies by Thermo Fisher – 19 Dec 2013

The ACCC will not oppose the acquisition of Life Technologies Corporation by Thermo Fisher Scientific Inc after competition concerns were resolved by Thermo Fisher 's undertaking to sell its Australian cell culture business and comply with its commitments to the European Commission to sell its global HyClone cell culture and Dharmacon gene silencing businesses. Thermo Fisher and Life Technologies are both global companies that operate in the life sciences sector. The parties compete to supply products in the molecular biology, protein biology and cell culture sectors. In Australia, the merger parties' customers are research institutions and biopharmaceutical companies.

The ACCC considered that in the absence of the undertaking, the proposed acquisition would substantially lessen competition for the supply of certain cell culture products, which are used to grow cells for academic research and vaccine production. The ACCC also considered that without the undertaking, the proposed acquisition would substantially lessen competition in the supply of siRNA, a product which is used in the study of genes. The ACCC will issue a public competition assessment in due course. Read the ACCC Media Release

ACCC to not oppose Gallagher's acquisition of Country Electronics – 19 Dec 2013

The ACCC will not oppose the acquisition by Gallagher Group of Country Electronics Pty Ltd, trading as Thunderbird, after accepting a court enforceable undertaking.

Gallagher and Thunderbird are both manufacturers of electric fencing energisers and accessories, animal weigh scales and other animal management products used by farmers in Australia. Gallagher has undertaken to divest its 11.86 per cent shareholding in competitor Tru-Test Corporation Limited to address the ACCC's concerns about the competition effects of Gallagher having an interest in its most significant competitor post acquisition. The ACCC will issue a public competition assessment in due course. Read the ACCC Media Release

ACCC accepts a variation to the digital radio access undertaking – 19 Dec 2013

The ACCC has accepted a variation to the digital radio access undertakings that set out the terms on which access to the digital radio multiplex transmission service is provided by licensees. In each of the capital cities that offer digital radio, this multiplex transmission service is only provided by one or two operators (the Licensees). The ACCC administers the digital radio access regime, under which each Licensee is required to provide the ACCC with an access undertaking specifying the terms of access to the multiplex transmission service. The ACCC approved the access undertakings in 2009.

The Licensees requested a variation to the access undertakings to, among other things, capture the rollout of on-channel repeaters. This rollout is expected to improve service quality and coverage in existing broadcast areas. After public consultation, the ACCC determined that the variation is reasonable and did not substantively alter the terms and conditions of access previously approved by the ACCC. Read the ACCC Media Release

ACCC welcomes proposal for competitive towage services at Port Hedland – 19 Dec 2013

The ACCC welcomes a proposal from the Port Hedland Port Authority to facilitate the introduction of competition in the provision of towage services at the Port of Port Hedland. The port is Australia's largest port by annual throughput, and is the largest bulk minerals export port in the world. The primary export from the port is iron ore, and users of the port include BHP, Fortescue Metals Group, Atlas and, in the future, Roy Hill Infrastructure.

All vessels entering and exiting the port (other than small craft, such as fishing vessels) must use a towage service provider that has been licensed by the port authority. To date, the port authority has only licensed BHP Billiton Minerals Pty Limited to provide these services to all port users. Following consultation, the port has recently committed to an open, transparent and accountable process to facilitate opportunities for new entrants in the provision of towage services at the port.

In the light of the port's proposal, the ACCC has decided to take no further action at this stage in relation to a notification lodged by the port authority which provides protection from legal action in relation to the existing towage arrangements at the port. The ACCC may review this decision at any time. Read the ACCC Media Release

ACCC releases Statement of Issues on iSentia's acquisition of AAP's media monitoring business – 19 Dec 2013

The ACCC has released a Statement of Issues in relation to the proposed acquisition of Australian Associated Press Limited's media monitoring business by iSentia Pty Limited.

The ACCC's preliminary view is that the proposed acquisition is likely to result in a substantial lessening of competition in the national market for the supply of media monitoring services, comprising online, print and broadcast media monitoring. The ACCC is particularly concerned about the supply of media monitoring services to large customers with extensive media monitoring requirements. The ACCC also considers that the proposed acquisition may raise competition concerns in the national market for the supply of media intelligence services.

The ACCC considers that new entry or expansion by an existing market participant is unlikely in the foreseeable future given the scale, equipment and copyright licences required to establish a national media monitoring service that monitors both print and broadcast media.

The ACCC invited further submissions by 31 January 2014, and will defer its final decision until 20 February 2014. Read the ACCC Media Release

New cases

Federal Court gets serious with repeat offender for breaches of product safety standards

Director of Consumer Affairs Victoria v Dimmeys Stores Pty Ltd [2013] FCA 1371 (Justice Marshall, 17 December 2013)

Key issues

• The court will not shy away from imposing significant penalties for serious contraventions of the ACL even though the penalty may threaten the viability of the respondent as a going concern

Summary

This case related to the promotion and sale of certain goods by Dimmeys Stores Pty Ltd that did not comply with relevant safety standards in contravention of various provisions of the ACL. The goods were supplied to Dimmeys by the second respondent (Starite)

The respondents admitted the contraventions, and the parties attempted to reach agreement on final orders for disqualification of the third respondent (a director of Dimmeys) and pecuniary penalties but were unable to do so. The court was therefore required to determine the scope of the disqualification order and the amount of pecuniary penalties payable by the respondents.

Disqualification

The respondents argued that the order disqualifying the director should be confined to disqualifying him from acting as a director of Dimmeys, rather than a general disqualification order. Justice Marshall considered that in view of the serious nature of the contraventions, and the director's entitlement to apply for leave to manage particular classes of corporations under s206G(1) of the Corporations Act 2001 (Cth) even when subject to a disqualification order, the disqualification order should be general and apply for a period of six years.

Penalties

(a) Dimmeys:

• The court agreed with the ACCC's submissions that there were four courses of conduct and imposed a penalty of $750,000 in relation to each (for a total of $3 million). The court specifically noted that Dimmeys was a 'repeat offender' and had a poor record on compliance with its consumer protection obligations (at [35]).
• In relation to the argument by Dimmeys that the penalty should not be oppressive, the court stated that the case required a substantial fine to be imposed even though it might threaten the viability of Dimmeys. However, to reduce the impact on Dimmeys, the court ordered that Dimmeys pay the fine in instalments, with 1/3 payable within six months, another 1/3 within 12 months and the balance within 18 months of the date of the order.

(b) Starite:

• Justice Marshall noted that Starite had only one previous contravention and imposed a penalty of $300,000 for each of the two identified courses of conduct.

(c) The director

• Justice Marshall imposed a penalty of $120,000 (representing $20,000 for each of the six contraventions) on the Dimmeys director the subject of the disqualification order. In arriving at that amount, the court took into account the effect of the disqualification order on the director's livelihood along with his lack of prior transgressions.

Source: AustLII

Federal Court approves penalties for non-compliance with 'do not knock' sign

Australian Competition and Consumer Commission v AGL Sales Pty Ltd (No 2) [2013] FCA 1360 (Justice Middleton, 12 December 2013)

Key issues

• Door-to-door sales representatives be warned – 'Do not knock' signs can amount to a request to leave the premises

Summary

In Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] FCA 1030, the Federal Court found that AGL itself and through the conduct of its door-to-door sales representatives (contracted through the second respondent, CPM Australia Pty Ltd), had breached the ACL by not leaving certain premises immediately when requested to do so by the presence of a 'do not knock' sign. The parties subsequently filed joint submissions requesting specific declarations, a penalty of $35,000 against AGL and of $25,000 against CPM, which the court agreed to make.

Source: AustLII

Harvey Norman franchisee found to have misled consumers about their ACL entitlements

Australian Consumer and Competition Commission v Camavit Pty Ltd [2013] FCA 1397 (Justice Katzmann, 13 December 2013)

Key issues

• Know the reach of the ACL consumer guarantees and ensure you comply with their requirements

Summary

This case is one of a series of cases against a number of Harvey Norman franchisees for making false or misleading representations about consumers' entitlements under the ACL. The respondent in this case was a Harvey Norman franchise store in Campbelltown, and the proceedings related to the sale of a television and subsequent conduct of employees in denying the customer a refund.

The Harvey Norman franchisee admitted that its conduct contravened the ACL. The franchisee and the ACCC subsequently made joint submissions on remedies as follows:

• a declaration that Camavit be restrained from making similar representations for three years;
• a penalty of $32,000 in relation to the contravention of s29(1)(m) of the ACL;
• an order that a summary of consumer rights conferred by the ACL be displayed at the point of sale of every product supplied by the respondent for three years; and
• an order for a compliance program.

The court considered that the orders sought were appropriate and made the orders accordingly.

Source: AustLII

Minister certifies issue of product recall notice without proper grounds

Pro Teeth Whitening (Aust) Pty Ltd v Parliamentary Secretary to the Treasurer, David Bradbury MP [2013] FCA 1376 (Justice Rangiah, 20 December 2013)

Key issues

• The Minister cannot certify that a product recall notice should issue without delay unless there are proper grounds for the certification

Summary

Background

This was an appeal against a judgment of the Federal Circuit Court of Australia dismissing an application for judicial review of the respondent Minister's decisions to issue a product recall notice.

Pro Teeth Whitening (Aust) Pty Ltd (PTW) supplied teeth whitening products. Over the course of some months commencing in December 2011, the ACCC and PTW corresponded in relation to the level of peroxide in certain of PTW's products. The ACCC requested that PTW voluntarily recall those products, and when PTW did not comply, requested the Minister act by issuing a product recall notice.

The Minister has power under the Competition and Consumer Act 2010 (Cth) to certify by written notice published on the internet, that a recall notice be issued without delay where the Minister considers that consumer goods create an imminent risk of death, serious illness or serious injury (section 132J(1)). The Minister also has the general power under the ACL to issue a recall notice where it appears that goods will or may cause injury to any person (section 122).

At the ACCC's request and on the ACCC's advice, the Minister acted under both powers. The Minister certified that a recall notice for two teeth whitening products supplied by PTW be issued without delay (the Certification Decision). The Minister also issued a recall notice (the Recall Decision). PTW applied to the Federal Court for judicial review of both decisions. The primary judge in the Federal Circuit Court dismissed the application and PTW appealed to the Federal Court.

Federal Court decision

The court held that PTW had been denied natural justice by the Certification Decision because (among other things):

• the ACCC had been vague in its correspondence with PTW about the statutory provisions it proposed to ask the Minister to act in accordance with; and
• the Minister's finding that there was an 'imminent risk' was not open on the facts, especially considering the length of time over which the ACCC and PTW corresponded.

The court set aside the Certification Decision.

In relation to the Recall Decision, the court remitted the matter to the Federal Circuit Court to allow the parties to address the question of whether such a decision was reviewable by the court as this had not been established in the earlier Federal Circuit Court proceeding.

Source: AustLII