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Competition and Market Regulation Update June 2007

12 June 2007

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

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ACCC loses petrol price-fixing case

The Australian Competition and Consumer Commission’s (ACCC’s) cartel crackdown was handed a severe blow when a Federal Court judge dismissed allegations of price fixing in the Geelong petrol market.

Although the respondents communicated about petrol prices, the ACCC failed to prove that the communications amounted to an ‘arrangement or understanding’ as required by the Trade Practices Act. The Federal Court judge opined:

Not only did the evidence led by the ACCC fail to prove the existence of such arrangements or understandings … but the preponderance of the evidence suggests that no such arrangements or understandings existed.’

Courts are treating the requirement to establish an ‘arrangement or understanding’ stringently. The US Supreme has recently considered similar issues (see the article entitled ‘US Supreme Court heightens pleading requirements for antitrust violations’).

In addition, the Federal Court decision may have implications for the ACCC’s immunity and cooperation policies. The judge found that the court ‘can (and perhaps should) decline to act on admissions when there is ‘reason to doubt their correctness’’, and in this case, the ‘hope of securing leniency’ provided a powerful incentive to make admissions. The judge then discounted a respondent’s admissions in a statement signed pursuant to a leniency agreement with the ACCC, because conflicting evidence ‘given in his own words’ from the stand was ‘more reliable than the words negotiated between his lawyers and those acting for the ACCC’.

This case is sure to have implications for future cartel prosecutions, most notably the ongoing ACCC case against Richard Pratt and Visy.

We will publish a comprehensive analysis of the petrol price-fixing case on our website shortly.

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Government intends to tackle predatory pricing

In the lead up to the federal election, the government has placed big businesses engaging in predatory pricing within its sights, with proposed amendments to section 46 of the Trade Practices Act to be introduced into parliament.

Predatory pricing ordinarily involves a powerful firm pricing goods or services below some measure of cost with an intention to recoup losses once smaller competitors have been forced out. This conduct is currently covered by section 46. However, the courts and commentators have voiced concern over the operation of this section given the difficulty of distinguishing between competitive low pricing and predatory pricing. Most notably, the High Court cases of Boral v ACCC in February 2003 and then Rural Press v ACCC in December 2003 have been seen by small business groups to restrict the operation of section 46.

Media reports suggest that the proposed reforms by and large implement the recommendations of the Senate review conducted by the Economics References Committee in March 2004, including re-wording section 46 to:

This is a continuation of the government’s trade practices reform program with the specific aim of protecting small businesses. It is expected the amendments’ passage through parliament will face a close vote, with all eyes on Senators Joyce and Fielding. We await the precise wording of the new provisions with interest.

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Australian Competition Tribunal disagrees with Telstra pricing and broadband debate rages

The Australian Competition Tribunal has supported the ACCC in its decision of 25 August 2006 to reject undertakings provided by Telstra with respect to the wholesale pricing for its Unconditioned Local Loop Service (essentially the copper network that connects the customer to Telstra exchanges).

Telstra had put forth a proposed $30 per month flat rate for wholesale rental of the line (meaning the same wholesale price would apply in the city and rural areas). In supporting the decision of the ACCC to reject the price, the tribunal was not satisfied that:

The decision comes in the midst of heated discussions over Telstra’s potential development of the Fibre-to-the-node (FTTN) broadband network and may have ramifications for pricing and costing considerations for that network. Graeme Samuel, Chairman of the ACCC, used the decision to argue that Telstra needed to release its FTTN proposals for public examination. Telstra has responded by raising its concern that the decision is at odds with the government’s policy of national averaged pricing for telecommunications, with uniform retail pricing for rural and metropolitan areas, and fundamentally hurts rural Australia.

Meanwhile, the G9, an Optus-led consortium of nine telecommunications companies, has lodged a special access undertaking with the ACCC, setting out prices and access terms for its proposed FTTN broadband network. The ACCC will release a discussion paper shortly and then undertake a public consultation process to assess the undertaking.

The future of the development of, and access to, high speed broadband remains a critical issue in telecommunications.

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ACCC begins criminal proceedings for false information under section 155

The ACCC has commenced criminal proceedings in the Federal Court against Mr John Patrick Neville for allegedly providing false and misleading evidence in the course of an investigation into collusive activity between a group of real estate agents. The Trade Practices Act makes it an offence to knowingly furnish information or evidence that is false or misleading in response to a section 155 notice. An offence under section 155 carries a maximum fine of $2,200 or up to 12 months imprisonment. In the past, the ACCC has rarely, if ever, sought to criminally prosecute those who provide it with false information.

This litigation shows a commitment by the ACCC to pursue those who fail to take their responsibilities seriously. It emphasises the need for all to ensure that when they receive queries or comments from the ACCC that they should seek appropriate professional advice.

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Mergers, acquisitions and takeovers update

Video Ezy / Blockbuster

On 9 May 2007, the ACCC released a Statement of Issues in relation to the proposed acquisition of Blockbuster by Video Ezy.

Both Video Ezy and Blockbuster are owners and franchisors of stores that primarily rent and retail DVDs and games to consumers in Australia. They are currently the first and second ranked national players in DVD rental revenue for ‘bricks-and-mortar’ stores.

The ACCC is concerned that the proposed acquisition may raise competition concerns in the national market for the wholesale purchase of new release DVDs, and in the local markets for the rental supply of DVDs to consumers.

The ACCC is currently in discussions with Video Ezy, and the announcement of the ACCC’s findings has been delayed pending further submissions from the parties. 

Other developments

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€273 million fine difficult to swallow for beer cartel — cartels beware!

In news from the European Commission’s competition section that is sure to have beer-lovers cringing, some of the EU’s largest brewers have been given massive fines for engaging in cartel behaviour.

The Commission handed down the fines for conduct relating to the cartel’s operation in the Netherlands; however, the cartel has been found to operate in Belgium, France and Luxemburg. The brewers still face possible civil actions in the courts of member states by victims.

The European Commission’s onerous penalties are evidence of the potential liability that cartel members face around the world. Following the Dawson Bill amendments to the Trade Practices Act (discussed in the October 2006 Competition and Market Regulation Update), readers should be aware that far more onerous punishment is now also possible in Australia.

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US Supreme Court heightens pleading requirements for antitrust violations

The US Supreme Court handed down its much awaited decision in Bell Atlantic Corp v Twombly on 21 May 2007, heightening the pleading requirements for agreements in restraint of trade under section 1 of the Sherman Act. For a claim to survive beyond the pleading stage, a plaintiff’s allegations must ‘plausibly’ suggest (not merely be consistent with) an agreement. The Supreme Court thought it was inappropriate for claims that did not meet this standard to proceed to discovery given ‘the costs of modern federal antitrust litigation and the increasing caseload of the federal courts’. Defendants will now find it easier to obtain dismissals of complaints alleging parallel conduct, without further evidence of an agreement.

Another potentially defendant-friendly decision from the US Supreme Court is expected soon—the court will decide whether minimum resale price maintenance should still be considered per se illegal.

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