Competition and Market Regulation Update December 2008

In this month’s Competition and Market Regulation Update we explore the following:

Repeat offences bring highest ever fines for glass producer cartel

ACCC examines the competition for a market, not in a market

Birdsville amendment to stay

Amendments bring clarity to pricing for consumers

ACCC and CDPP outline cooperation for new laws

Three sets of merger guidelines published

In brief

Repeat offences bring highest ever fines for glass producer cartel

The European Commission (EC) has imposed its largest penalties ever on four car-glass producers for their role in illegal market sharing and exchange of commercially sensitive information regarding deliveries of car-glass.

The cartel came to light after an anonymous tip-off to the EC, who found that Asahi, Pilkington and Saint-Gobain (Europe’s three major players in this industry) discussed prices, shared markets, allocated customers and exchanged commercially-sensitive information. A fourth producer, Soliver, was also involved in the illegal activity. These four companies controlled about 90 per cent of the glass used in Europe in new cars and for original replacement glass.

Total fines imposed by the EC were over €1.3 billion, topping the previous highest fine of €994 million, imposed on elevator-makers in 2007. Saint-Gobain, one of the four companies involved, was fined €896 million—the largest cartel fine ever imposed by the EC on an individual company. As a previous offender, its fine was increased by 60 per cent. Another repeat offender, Pilkington, was fined €370 million. Asahi took advantage of the EC’s leniency regime and had its fine reduced by 50 per cent, the maximum discount available due to the EC’s initiative in starting the investigation.

European Commissioner for Competition, Neelie Kroes, said: ‘These companies cheated the car industry and car buyers for five years in a market worth two billion euros in the last year of the cartel. The overall fines are high because of the large market, the seriousness of the case and Saint-Gobain's earlier offences. The commission has imposed such high fines because it cannot, and will not, tolerate such illegal behaviour. Management and shareholders of companies that damage consumers and European industry by running cartels must learn their lessons the hard way; if you cheat, you will get a heavy fine’.

Given that two of the participants are previous offenders, and in light of other cartel investigations being carried on by the EC, questions may be raised as to whether monetary fines are sufficient to adequately discourage cartel activity in Europe.

ACCC examines the competition for a market, not in a market

The ACCC has recently announced its decision not to oppose the acquisition of Taylor Nelson Sofres (TNS) by the WPP group (WPP). The decision raised some interesting issues, as it was made despite the fact that the target company is not a current competitor in the relevant market in Australia. 

WPP owns 50 per cent of AGB Nielsen Media Research (AGB Nielsen). AGB Nielsen provides ratings figures for the Australian television industry. Ratings services are provided by a sole national supplier so that the reported data can be compared between commercial networks. As a result, competition only occurs when tenders are invited or reviewed, usually every five to seven years. The ACCC’s focus was therefore on competition for the relevant market rather than the level of competition in the market. 

TNS recently won the contract to provide ratings figures in the United Kingdom, and currently provides the same for the Asia and Pacific regions, but not Australia.However, it is a potential supplier of the service, when it next comes up for tender. TNS is one of few participants worldwide that have both the technological capability and expertise to gather ratings data and therefore compete for the contract to provide ratings services here.

AGB Neilsen and TNS were found to be direct competitors for the market for the provision of ratings services, despite TNS not having an Australian presence. While the ACCC did not oppose the acquisition, it secured enforceable undertakings from WPP, including divestiture of its interests in either AGB Nielsen or the European ratings services division of TNS.

Birdsville amendment to stay

Our August 2008 Newsletter¹ provided an overview of the Trade Practices Legislation Amendment Bill 2008 (Bill) as it was introduced into the House of Representatives. The Bill has now been passed and has recently come into force.

The Bill did not pass in its original form. The Rudd Government had hoped to replace the so-called Birdsville amendment introduced by the Howard Government with a narrower test for predatory pricing. The Birdsville amendment prohibits a corporation which has a substantial share of a market from engaging in predatory pricing behaviour while the Rudd Government test would have applied the predatory pricing provision only to corporations with market power. The Senate blocked this proposed change.

Amendments which successfully passed the Senate include the following:

• Recoupment: It is now not necessary to prove that a corporation has an ability to recoup losses incurred from predatory pricing in order to establish that a corporation has engaged in predatory pricing.
• Taking advantage: The Act has introduced non-exhaustive considerations for the court when determining whether a corporation has taken advantage of its market power. The court may now consider:whether the conduct was materially facilitated by the substantial degree of market power
  • whether the corporation engaged in the conduct in reliance on the corporation's substantial degree of market power
  • whether it is likely that the corporation would have engaged in the conduct if the corporation did not have a substantial degree of power in the market, and
  • whether the conduct is otherwise related to the corporation's substantial degree of power in the market.
• Federal Magistrates Court: The Act confers jurisdiction on the Federal Magistrates Court for actions relating to misuse of market power. This amendment has been passed, despite considerable disquiet about the ability of the Federal Magistrates Court to deal with the complicated legal issues arising under section 46.
• Unconscionable conduct threshold: The Act has also removed the $10 million threshold which previously applied to the unconscionable conduct provisions. The amendments were made to broaden the scope of the unconscionable conduct provisions for the benefit of small businesses.

Amendments bring clarity to pricing for consumers

On 11 November 2008, the Trade Practices Amendment (Clarity in Pricing) Bill 2008 was passed by the Senate. The amendments are designed to address issues of component pricing by businesses to consumers. Component pricing is the practice of presenting a component of the price to consumers, rather than an all-inclusive, single amount. Concerns had been expressed by the ACCC that component pricing represents an inaccurate price to consumers, particularly in relation to taxes or other fees and charges. For example, a car dealer that advertises a car as $15,000, with small text about stamp duty and dealer delivery charges, could confuse consumers about the total price payable.

The amendments mean that a company that makes representations specifying the components of the price must also prominently display the total single-figure price that the consumer must pay to obtain the product or service. The single figure must be specified at least as prominently as the most prominent of the other components of the price. For example, a corporation may represent a price as $500 plus $50 GST plus $30 statutory fees and charges but it must display the single-figure total price of $580 at least as prominently as the most prominent of the other components of the price. The ‘at least as prominent’ provision applies to all types of advertising, including internet and radio.

Significant exemptions to these requirements are:

• Corporations are only required to disclose the single figure, the minimum total price that is quantifiable at the time that the representation is made. Where it is not possible for a corporation to quantify particular components of a price, it will only need to include all the quantifiable amounts in the single figure. For example, where an airline company charges a fuel surcharge it may not be possible to accurately quantify this amount in its advertisements as a result of fluctuating fuel costs. In order to ensure that consumers are not misled, the airline company might need to indicate that this component is not included in its single price figure.
• The prohibition only applies in relation to the supply or promotion of consumer goods.
• The financial services industry is exempt as it already follows detailed disclosure requirements.
• The single-figure total price will not need to include charges such as postage and handling charges or costs that are payable only at the option of the consumer.
• Contracts that provide for periodic payments for services may display the periodic cost of the service more prominently than the single price representing the total amount payable under the contract. For example, a mobile phone contract of $80 per month for a 12-month period may represent the $80 per month component more prominently than the total price of $960.

ACCC and CDPP outline cooperation for new laws

Following the Federal Government’s proposed criminalisation of cartel conduct, the ACCC and the Commonwealth Director of Public Prosecutions (CDPP) have issued a proposed memorandum of understanding (MOU), outlining the roles that each agency will play in the investigation of criminal cartel conduct through to prosecution.

The ACCC has also issued a revised Immunity Policy and Guidelines which will apply to applications for immunity under the proposed civil and criminal provisions.

The criminalisation of cartel conduct had raised the question of whether the CDPP would offer the same level of immunity from prosecution to a cartel member who had taken advantage of the ACCC’s immunity policy, by reporting its involvement in a cartel and cooperating with the ACCC’s investigation and prosecution of other cartel members.

The CDPP has confirmed that the two agencies will take a consistent approach to immunity. The CDPP issued an Annexure to the Prosecution Policy of the Commonwealth which states that it will apply the same criteria as the ACCC in considering recommendations by the ACCC that an applicant receive immunity from prosecution.

Three sets of merger guidelines published

ACCC releases new merger guidelines

The ACCC has released its new merger guidelines. We provide an overview of the ACCC’s new approach to merger analysis in a special edition of this newsletter.²

United Kingdom Competition Commission revises merger remedy guidelines

On 26 November 2008, the Competition Commission (CC) published its new merger remedy guidelines (guidelines). The guidelines address the CC’s approach to merger remedies where the CC has found that a merger will lead to a substantial lessening of competition. The guidelines replace the CC’s previous guidelines which focused on divestment as the main remedy.

The new guidelines include guidance on remedies such as prohibition and behavioural remedies and on remedies involving intellectual property rights.

New Zealand Commerce Commission revises its procedural merger guidelines

The New Zealand Commerce Commission (NZCC) has published revised guidelines on the process for merger and acquisition clearance applications. The guidelines introduce two new steps in the process of obtaining clearance: a pre-notification step and the publication by the NZCC of a Statement of Preliminary Issues.

Pre-notification will provide applicants with an informal opportunity to approach the NZCC on a confidential basis prior to lodging a notification. The NZCC may highlight any competition issues that the applicant may need to address. This pre-notification step is not compulsory. 

The Statement of Preliminary will provide a preliminary view on the competition issues associated with the merger and allow interested parties the opportunity to consider the issues identified by the NZCC.

In brief

ACCC stops proceedings against ABC Learning Centres

The ACCC has dropped proceedings against ABC Learning Centres (ABC) for breach of court enforceable undertakings.

The ACCC had brought proceedings against ABC in the Federal Court alleging:

• failure to divest certain childcare centres
• interference with an agent appointed to sell the centres, and
• failure to manage and operate the centres in accordance with the terms of the undertaking.

Since the proceedings commenced, ABC had divested the childcare centres and were in negotiations with the ACCC in relation to settlement of the remaining issues.

Given ABC has now sold the centres covered by the undertaking, and in light of its voluntary administration, the ACCC has discontinued the action, stating that there would be no further benefit in pursuing the childcare provider.

BHP scraps bid for Rio

BHP Billiton has pulled out of its bid for Rio Tinto, bringing to an end what would have been the world’s second-largest hostile takeover.

The move came after the EC issued a Statement of Objections, which said that BHP would have to divest a significant amount of assets to gain regulatory approval. Given economic conditions, analysts predicted that BHP would encounter difficulties securing buyers for these assets. A company statement said that any forced asset sale during the economic downturn ‘would contribute to the cost and risk of the [Rio] transaction’.

BHP cited a combination of the credit crunch, regulatory objections from the EC, and the downfall in commodity prices as the reason for the withdrawal.

Endnotes

1. Competition and Market Regulation Update August 2008
2. Competition and Market Regulation Update Special Edition November 2008

More information

For information regarding possible implications for your business, contact the Competition & Market Regulation Partners.