Competition news

ACCC rethinking its approach to penalties

On 26 March 2018, the OECD released a report entitled Pecuniary Penalties for Competition Law Infringements in Australia. The report compared the penalties for companies that contravened competition laws in Australia with those in the EU, the UK, Germany, Japan, Korea and the USA. The report concluded that in Australia, both the maximum and average penalties the courts impose for competition law breaches are significantly lower than in the OECD jurisdictions considered, especially for large firms or for long-standing anti-competitive behaviour.

The Chairman of the ACCC, commenting on the OECD report, stated that:

• The ACCC is concerned that penalties imposed in both competition and consumer cases have not been sufficiently high to deter contraventions, particularly by large businesses.
• While the focus of the OECD report is on penalties in competition law cases, the ACCC also wants to ensure that penalties in relation to breaches of the Australian Consumer Law are sufficiently significant to achieve both specific and general deterrence.
• To send a message of deterrence, the penalty imposed on a larger business should be proportionately larger than a penalty imposed on small- or medium-sized businesses for the same or similar conduct. The OECD's report indicates that the ACCC may not have given sufficient weight to this factor in the ACCC's submissions on penalties to the court.
• In the light of the OECD report and recent case law, the ACCC is rethinking its approach to assessing penalties, in two respects:
  • First, it will reconsider how to take into account the size and revenue of the contravening firm. This may result in the ACCC taking as its baseline approach the size and revenue of the contravening firm.
  • Second, it will consider the OECD's recommendation that the ACCC issue public guidelines on how pecuniary penalty amounts are arrived at (being the pecuniary penalties the ACCC submits to a court that the court should impose on the respondent).

Flight Centre penalty decision

On 4 April 2018, the Full Federal Court ordered Flight Centre to pay penalties totalling $12.5 million for attempting to induce three international airlines to enter into price fixing arrangements between 2005 and 2009. Flight Centre sought to have each airline agree not to offer airfares on its own website that were less than those offered by Flight Centre. The $12.5 million penalty was an increase from the original $11 million penalty imposed on Flight Centre by the trial judge in March 2014. Both the ACCC and Flight Centre had appealed from those penalty orders.

Mortgage pricing – interim report draws interest

On 15 March 2018, the ACCC's Residential Mortgage Price Inquiry released its interim report into the prices charged by the four major banks and Macquarie. The report explicitly carved out all other banks from the scope if its inquiry.

The report has found that:

• there is 'less than vigorous' price competition in this area;
• the system of discounts offered on residential mortgage rates makes it difficult for consumers to make informed choices;
• existing borrowers pay significantly higher rates than new borrowers at the same bank; and
• a large majority of borrowers are paying lower rates than the bank's headline interest rate.

The Australian Banking Association has welcomed the interim report, stating that it shows high levels of discounting in the Australian home loan market, which indicates that competition is delivering better deals for customers.

The ACCC's final report will examine the way banks make their mortgage pricing decisions and whether pricing has been adjusted in response to the Federal Government's major bank levy. The final report will be released sometime after 30 June 2018.

Misleading conduct still on the radar – action against Heinz, iiNet and Woolworths

Heinz

The Federal Court has found that Heinz represented that its 'Little Kids Shredz' products were beneficial for young children and that this representation was misleading.

This representation arose from the packaging of the Shredz products, which included prominent pictures of fresh fruit and vegetables, in conjunction with statements such as '99% fruit and veg'. Taken together, these suggested to consumers that the products were a healthy and nutritious food for children.

However, the Heinz products contained almost 60 per cent sugar, and the court determined that Heinz's nutritionists ought to have known that the representations made on the packaging, which marketed the product as a healthy and nutritious snack for children aged one to three years, misrepresented: (a) the quantity of sugar; (b) the likelihood that the products would assist in children developing healthy eating habits; (c) and the health benefits of the product. Penalties have not yet been determined by the court.

iiNet and Internode

iiNet and Internode have given court enforceable undertakings, in which they admit to misleading consumers by promoting and offering contracts for NBN internet services that promised maximum speeds they could not deliver, to the ACCC. As part of the undertakings, the internet providers will contact all affected customers to inform them of the maximum speeds they are able to access and offer compensation, where necessary. More than 8000 iiNet customers and more than 3000 Internode customers are affected.

Woolworths

The ACCC has commenced proceedings in the Federal Court, alleging that certain environmental claims Woolworths made about its 'W Select eco' picnic products were false, misleading or deceptive. Between 2014 and 2017, Woolworths labelled disposable bowls, plates and cutlery in its 'W Select eco' line as 'Biodegradable and Compostable'. The ACCC's allegations include that:

• Woolworths represented to consumers that the products would biodegrade and compost within a reasonable period of time when disposed of normally in Australia, when this was not the case; and
• Woolworths did not make reasonable efforts to substantiate, explain or qualify those claims, and, indeed, did not qualify them in a manner in which they were qualified by the wholesaler of the products.

Further, the ACCC alleges that the claims were made in contravention of Woolworths' own Environmental Claims Policy, which provided that any such claims are required to be accurate, specific and clear, apply where there is a real environmental benefit, not overstate the benefit, and be articulated in plain language.

Franchising

On 23 March 2018, the ACCC launched its Small Business 2017 snapshot, which gives an overview of the ACCC's activities within the small business sector in 2017. The ACCC flagged that, looking ahead to the rest of 2018, it would continue its work in relation to business-to-business unfair contract terms, and would focus on Franchising Code of Conduct issues involving large or national franchisors.

Full Federal Court dismisses Prysmian cartel appeal

On 13 March 2018, the Full Federal Court dismissed an appeal by electric cable manufacturer Prysmian against a finding that it engaged in cartel conduct.

The finding related to the supply of high voltage land cables and accessories to a Snowy Mountains Hydro Electric Scheme project in 2003. Prysmian was alleged to have (among other things) entered into agreements with competitors to share pricing information and to allocate projects among themselves, contrary to prohibitions on price fixing and exclusionary arrangements.

In 2016, the Federal Court found that the allegations were made out and ordered Prysmian to pay a $3.5 million penalty. The ACCC's case against one of Prysmian's competitors was dismissed. Prysmian appealed, arguing that the dismissal of the case against its competitor meant the trial judge had erred in finding it had engaged in cartel conduct. However, the Full Court affirmed the trial judge's decision and penalty order.

Concerns over dairy and rail acquisitions, and hotel deal in the clear

The ACCC has announced that it will not oppose the proposed $1.3 billion acquisition of Murray Goulburn by Canadian dairy giant Saputo, after accepting a court-enforceable undertaking from Saputo to divest Murray Goulburn's Koroit plant. This followed the release, on 1 March 2018, by the ACCC of a Statement of Issues outlining its concerns about the proposed acquisition. The ACCC was concerned that, following the acquisition, Saputo would control more than two-thirds of the raw milk processing capacity in the south-west Victoria and south-east South Australia area.

On 29 March, the ACCC released a Statement of Issues in relation to MYOB's proposed acquisition of Reckon's Accountants Group. MYOB and Reckon supply software used by accounting firms for tax returns, client accounting and practice operation. The ACCC is concerned that the acquisition, if implemented, will likely result in MYOB being the only supplier of practice software suitable for medium to large accounting firms. The ACCC indicated that feedback it received from the accounting industry was that MYOB's AE product and Reckon's APS product are the only products that are capable of meeting the software needs of medium to large accounting firms. While there are other suppliers of this software, market feedback suggested that those products are less sophisticated and unlikely to be able to develop, at least for several years, the more advanced functionality required by customers. The ACCC's final decision is scheduled for 30 May 2018.

The ACCC also raised 'strong concerns' about Pacific National's proposal to acquire Aurizon's Queensland intermodal freight haulage business and intermodal rail terminal at Acacia Ridge, Brisbane. The ACCC is concerned that the proposed acquisition will turn a concentrated but competitive market into a monopoly. In addition, the ACCC considers that the Acacia Ridge rail terminal is a key strategic infrastructure asset, access to which could pose a significant barrier to entry for any competitors considering entering the Queensland rail freight haulage market. Consequently, the ACCC's preliminary view is that undertakings offered by Pacific National will be insufficient to resolve its concerns around the concentration of the market and the ownership of a key strategic asset by the dominant market player. The ACCC's final decision is expected to be announced on 24 May 2018.

Finally, the ACCC has decided to clear the $1.2 billion bid by Accor Hotels for the Mantra Group. The deal will create the largest hotel operator chain in Australia. The ACCC noted that it does not consider that the deal would substantially lessen competition, because:

• each of the businesses has a different focus – Accor mainly provides hotel-style accommodation, while Mantra tends to provide serviced apartments; and
• the future Accor-Mantra group will continue to face competition from both international and national hotel chains and independent accommodation providers.

Telco report released and inquiry into telco transmission begins

The ACCC has released its 2016–17 report on competition and price changes in the telecommunication section. The ACCC highlighted a 43 per cent increase in data downloads, while prices for consumer internet services continued to fall. In particular, fixed line prices fell 4.5 per cent over the past year. The ACCC also noted price decreases of 7.1 per cent on average for mobile services. The report is available on the ACCC website.

In other Telco news, on 5 March 2018, the ACCC commenced a public inquiry into whether treating the domestic transmission capacity service (DTCS) as a 'declared service' subject to stricter regulation is appropriate. The ACCC's discussion paper notes that the growth of commercial alternatives, new NBN products for business customers and industry consolidation mean the DTCS may no longer require such strict regulation, and seeks submissions as to whether this regulation should continue. The ACCC's consultation closes on 13 April 2018; the current declaration is due to expire on 31 March 2019.