Competition news

In Touch looks at what's been happening in Competition this month, and what it means for your business.

We hope you find this issue helpful. Please let us know if you would like us to investigate any particular competition news in the next issue and, as always, feel free to get in touch.

Anti-competitive conduct: Penalty imposed on Visa for exclusive dealing

The Federal Court has penalised Visa Worldwide Pty Ltd $18 million for engaging in anti-competitive conduct, in proceedings brought by the ACCC. Visa provides currency conversion services for foreign travellers to Australia wishing to use their Visa card to make point of sale purchases. This allows Australian merchants to be paid in $AUD while any purchases are later billed to the cardholder in their home currency. A competing service is offered by Dynamic Currency Conversion (DCC), which gives international cardholders a choice between either completing the transaction in their home currency or the local currency of the merchant. By implementing a change to the Visa rules which prohibited the further expansion in Australia of the supply of DCC services on point of sale transactions on the Visa network by its rival suppliers of currency conversion services in the period 1 May 2010 to 6 October 2010, Visa Worldwide effectively prevented the further expansion of DCC during that period.

Visa admitted that this conduct constituted exclusive dealing, contrary to s47 of the CCA. The court made a declaration to this effect and imposed a penalty of $18 million. The court said that the serious nature of the conduct, which restricted the advancement of an emerging technology under otherwise competitive market conditions, warranted the substantial penalty.

What this means

The ACCC will prosecute conduct likely to substantially lessen competition in Australian markets even if these actions are a result of global business strategy. Multinational corporations should carefully consider whether their conduct may contravene competition laws in Australia.

Of particular practical importance to companies facing court proceedings for alleged breaches of the CCA, Visa and the ACCC put joint submissions to the court as to the maximum allowable penalty and that the contravention warranted a penalty in the mid-range of the allowable penalties. The court imposed a penalty that was approximately 55 per cent of the agreed maximum penalty.

While the ACCC originally alleged Visa had also contravened s46 of the CCA, it did not ultimately press this before the court.

If you would like more information on this issue, get in touch with Kon Stellios.

Mergers: TPG/iiNet clearance

The ACCC has cleared the acquisition of iiNet by TPG. A number of consumers and competitors argued against the merger of two of the five largest providers in the retail fixed broadband market owing to fears it may lessen competition and drive up prices. Interested parties were concerned that iiNet's competitive influence and high standard of customer service would not be maintained by TPG. Although the ACCC expressed some concern over the competitive effects of the acquisition, particularly in the short term, it concluded that the merger would not result in a substantial lessening of competition in the market as required to contravene the CCA. Central to the ACCC's findings was that the presence of the other major retail broadband suppliers in the market – Telstra, Optus and M2 – would limit any harm to competition caused by the merger and would provide sufficient incentive for TPG to maintain the iiNet service if there was demand.

The ACCC also concluded that the acquisition of iiNet by TPG would not substantially lessen competition in the market for wholesale transmission services. The ACCC noted the role that independent suppliers of these services play in promoting a more competitive wholesale transmission market. It found they can also help to facilitate competition in the supply of retail broadband services, as they have the incentive to encourage entry and expansion by smaller players who, unlike Telstra, Optus, and TPG, have little or no transmission infrastructure of their own.

What this means

This is an example of a five to four merger ultimately being cleared by the ACCC. However, the ACCC has indicated that the merger sees the domestic broadband market become quite concentrated, with any future mergers between the remaining large four suppliers of retail fixed broadband services and wholesale transmission services likely to face very close scrutiny and raise serious competition concerns.

If you would like more information on this issue, get in touch with Jacqueline Downes.

Misleading and deceptive conduct:  'free bets'

The Federal Court has found that bet365’s Australian and UK subsidiaries engaged in misleading or deceptive conduct in their promotions relating to 'Free Bets' for new customers. bet365's promotional offer included a '$200 FREE BETS FOR NEW CUSTOMERS' message on its website, as well as in advertisements on third party websites. First-time users were directed to this page with the offer displayed in large, bright yellow print.

The Federal Court found that the message conveyed the dominant meaning that new customers were entitled to $200 worth of free bets, without any restrictions. This was not the case, as certain conditions applied, including that:

• customers had to pay a deposit and wager that deposit before being entitled to make any 'free' bet;
• customers had to risk the value of their deposit and the amount of the 'free' bet three times before making a withdrawal; and
• the value of the free bet itself was limited by the amount of the first deposit.

These conditions were not displayed on the webpage advertising the offer and customers needed to navigate through a number of hyperlinks to other webpages to access these terms. The court found that this was not in any way corrected by an asterisk accompanying the 'free bets' offer on the home page, as there was no further information on that page describing its implications.

The court found that bet365's later promotion offering a 'deposit bonus' was not misleading or deceptive because customers were likely to realise that a bonus may have conditions attached to it. Further, the offer was adequately qualified by terms and conditions, which were displayed on the same page and easily viewed without having to manually scroll down the page.

What this means

The physical layout of a website is an important factor when considering whether representations are likely to mislead customers. For example, different font sizes can influence how a reader interprets information and the general configuration of a page is important in terms of how much significance a viewer attaches to information.

When developing promotional material, companies should keep in mind how customers are likely to interpret information, as courts will engage in this hypothetical exercise when deciding if certain claims are misleading.

If you would like more information on this issue, get in touch with Carolyn Oddie.

Unconscionability: The Lux penalty

Following declarations by the Full Federal Court that Lux had engaged in unconscionable conduct when selling vacuum cleaners to two elderly women, the Federal Court has ordered Lux to pay pecuniary penalties totalling $370,000. The impugned behaviour involved Lux representatives approaching the women in their houses under the guise of offering free vacuum cleaner maintenance checks where in fact once they had gained access to their homes they engaged in unfair sales tactics including pressuring the women into purchasing new vacuum cleaners.

Although the parties had previously provided the court with an agreed penalty figure, following the decision of Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (2015) 229 FCR 331, both parties submitted that the court should not have regard to the quantum of the pecuniary penalties sought by the parties. The parties can, however, continue to provide information about issues such as:

• what quantum of penalty a respondent has the financial capacity to pay;
• the quantum of penalties imposed in other comparable cases;
• what quantum of penalty would be manifestly inadequate or manifestly excessive;
• what quantum of penalty would infringe any parity principle; and
• what circumstances would justify either no penalty or a maximum penalty and where on the spectrum the present circumstances falls.

The court noted that, although the representatives' contravening behaviour was deliberate, they may not have known that such conduct amounted to unconscionable conduct. His Honour stressed, however, that Lux's senior management had responsibility for ensuring that the behaviour of its employees did not contravene the relevant laws. Given the seriousness of the impugned behaviour, his Honour felt that the $370,000 penalty, representing about 90 per cent of Lux's pre-tax profit over the five years to 30 June 2014, was appropriate. This was especially so given that the maximum penalty for a single contravention could be $1.1 million. His Honour noted that the amount was both necessary and desirable to achieve general and specific deterrence against such behaviour.

What this means

The CFMEU decision is currently under appeal to the High Court. In the meantime, the ACCC and parties can provide some guidance to the courts, for the determination of the pecuniary penalty.

The court reiterated the view that the penatly needs to be sufficient to deter other business of similar size and financial situation from engaging in contravening conduct.

If you would like more information on this issue, get in touch with Fiona Crosbie.

Investigations and enforcement: Producing section 155 transcripts

This year, Boral brought a claim in the Supreme Court of Victoria against CFMEU, alleging CFMEU had caused loss or damage to the business of Boral companies by imposing industrial bans on concrete and other building products supplied to Victorian building and construction projects.

In an interlocutory application, Boral applied to the Victorian Supreme Court to obtain transcripts of examinations conducted by the ACCC under s 155 of the CCA in relation to an uncompleted proceeding in the Federal Court (initiated in late 2014, the ACCC alleged that the CFMEU had engaged in a secondary boycott against Boral). Boral sought access to these s 155 transcripts because it believed the transcripts were material to its damages assessment, and the CFMEU had previously sought and gained access to the transcripts from the ACCC in the Federal Court proceedings. The ACCC intervened and contested Boral's application for discovery on public interest grounds.

In relation to Boral's application, the Court found that it had the power to make an order. Justice Bell determined that, on balance, it would be unjust to deprive Boral of the transcripts given their likely highly probative value. However, his Honour cautioned that it was relevant to the exercise of his discretion that 'ordering discovery of the transcripts might not be helpful to the Commission in relation to the conduct of examinations under s 155(1) generally (because it might create discomfort on the part of interviewees about the actual confidentiality of the process)'.¹

Since this order, Boral and the CFMEU have reached a settlement, which requires CFMEU to pay up to $9 million in damages.

What does this decision mean?

The decision serves as a reminder to consider the broader implications of requesting the supply of ACCC s 155 transcripts. Access to the s 155 transcripts will usually be necessary to defend an action brought by the ACCC. Depending on the type of information contained in the s 155 transcripts, once these are requested, a third party may be able to request the production of transcripts in discovery in separate but related proceedings, e.g. a follow-on action for damages.

If a third party requests s 155 transcripts, consider whether the request:

• relates to transcripts that are likely to be directly relevant to the follow up action;
• denotes categories of documents that have been described with appropriate specificity; and
• is proportionate in terms of nature and degree to the complexity and importance of the issues and amount in dispute.

However, the implications of this decision should not be overstated. Under s 155AAA of the CCA, a third party can seek access to s 155 transcripts from the ACCC by issuing the subpoena as s 155AAA does not provide for the protection of information where the ACCC is required or permitted to disclose the information by 'any other law of the Commonwealth'. The ACCC could potentially refuse to comply with the subpoena using ss 157B or 157C of the CCA, but these sections are limited to 'protected cartel information'. The other grounds upon which the ACCC may be able to refuse to comply with such a subpoena are limited; the ACCC may be able to claim that the information is subject to legal professional privilege, although it will be very hard to establish this privilege when somebody is being examined under s 155 of the CCA.

If you would like more information on this issue, get in touch with David Brewster.

Access/Part IIIA: Port of Newcastle shipping channel

The National Competition Council (NCC) has issued a draft decision recommending against granting access to the Port of Newcastle shipping channels under the national access regime in Part IIIA. Glencore's application for declaration followed material price increases implemented by the operator of the shipping channels.

The NCC was not satisfied that the anticipated improvement in access resulting from 'reasonable prices', subsequent to declaration, would produce a material increase in competition in at least one other market. That conclusion was principally based on the cost of the services representing only a small component of the overall cost of production and sales price for coal, such that even substantial increases in charges were considered not to have material consequences on decisions that would impact on competition in any affected market (such as whether to close or develop a coal mine). Further submissions have been made and a final decision by the NCC is pending.

What this means

The key lesson is that third party access regimes will not always provide a solution for alleged excessive or monopoly pricing.

The NCC was clear that where price increases in one market merely transfer income or value from one party in a supply chain to another without materially impacting competition in another market, Part IIIA will not assist. Theoretically, there will always be a point at which price increases for an infrastructure service would reach a magnitude where they would be sufficiently material to impact on competition – but it will be difficult to establish that in advance of that point actually being reached.

If you would like more information on this issue, get in touch with John Hedge.