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Anti Competitive Agreements Notes

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This is an extract of our Anti Competitive Agreements document, which we sell as part of our Competition Law Notes collection written by the top tier of University Of New South Wales students.

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Anticompetitive agreements Definition

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Anti competitive agreements are agreements that lessen competition in a market for goods or services. They may be made by firms competing in that market (horizontal agreements) or between firms operating at different levels in the distribution chain for the goods and services involved (vertical agreements). The scheme in the CCA is to deal with horizontal agreements, other than mergers, in s 45(2) and in Part 1 Div IV and to leave vertical agreements to ss 47 (exclusive dealing) and 48 (resale price maintenance). However this scheme is not rigid. S 45(2) is broad enough to catch vertical anti-competitive agreements that do not fall within ss 47 or 48. Horizontal and vertical are not adopted terms by the CCA either.

4 types of conduct:

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The expression 'anti-competitive agreement' is not used in s 45(2). Rather s 45(2) identifies 4 types of conduct: o Making a 'contract or arrangement' or arriving at an understanding which contains an 'exclusionary provision'; o Giving effect to an exclusionary provision in a contract, arrangement or understanding; o Making a contract or arrangement or arriving at an understanding which contains a provision which has the 'purpose or would have or be likely to have the effect, of substantially lessening competition'; o Giving effect to a provision in a contract, arrangement or understanding which has the purpose, or would have or be likely to have the effect, of substantially lessening competition. SEE: the diagram on page 346. The remaining forms of anti-competitive agreements caught by s 45(2) that we have not yet dealt with are dealt with in this chapter. Where a horizontal agreement creates regularised or formal cooperation between firms it will often be described as a cartel (usually engage in price fixing, dividing markets between members, controlling production levels and providing for sharing or exchange of market information).

CCA 2010 s 45(1)(2) COMPETITION AND CONSUMER ACT 2010 - SECT 45 Contracts, arrangements or understandings that restrict dealings or affect competition 1) If a provision of a contract made before the commencement of the Trade Practices Amendment Act 1977 : a) is an exclusionary provision; or b) has the purpose, or has or is likely to have the effect, of substantially lessening competition; that provision is unenforceable in so far as it confers rights or benefits or imposes duties or obligations on a corporation.

2) A corporation shall not: a) make a contract or arrangement, or arrive at an understanding, if: i. the proposed contract, arrangement or understanding contains an exclusionary provision; or ii. a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: i. is an exclusionary provision; or ii. has the purpose, or has or is likely to have the effect, of substantially lessening competition.

Contracts, arrangements and understandings

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The central element of s 45 is the requirement that the anti-competitive provision must emanate from a contract, arrangement or understanding made between 2 or more parties. S 45 does not catch unilateral conduct. Therefore the first step to see if s 45 has been contravened is to see whether a C,A or U exists. ACCC v Leahy Petroleum Pty Ltd: in order to meet the lowest threshold of 'understanding' conduct must involve some form of communication, consent, consensus and commitment. Gray J: commitment involves at least the assumption of an obligation...morally binding or binding in honour.

Anti Competitive purpose or effect

* Except where it contains an exclusionary provision, a CAU will contravene s 45(2) only if it has the purpose or effect of substantially lessening competition in a market or is likely to do so. This requirement will very often be the principal matter in issue when contravention of s 45(2) is alleged.

* For the purpose of s 45, 'competition' is defined in s 45(3): For the purposes of this section, competition , in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.

* It does NOT require that parties to the CAU be competitors (therefore it is not restricted to horizontal agreements). E.g. if A, B and C will contravene s 45 by making an agreement with the purpose/effect of substantially lessening competition even if C is the only one competing in the market. Purpose of substantially lessening competition

* The Full Court in Seven Network Ltd v News Ltd: the purpose of a provision is the subjective purpose of at least one of the parties to that arrangement responsible for including the provision.

* Hughes v WACA: In relation to s 4D, purpose means the immediate intended result of the agreement in question, rather than some ultimate or long term objective. (thus if the immediate objective of an agreement is to lessen competition, it is no defence to establish that the parties had some longer term purpose).

* S 4F: the proscribed purpose does not have to be the parties' sole or dominant purpose. It is sufficient if it is a substantial one. Dowling v Dalgety Australia Ltd (1992) - page 349

* FCA Lockhart J: 'Purpose' is concerned with motivation and the reasons of the parties for introducing the provision. It must be read in conjunction with s 4F. 'Purpose' has been held to involve subjective considerations in s 45D.

* The purpose relates to the purpose of the parties when the agreement was made.

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The first question is, was the relevant purpose a substantial purpose? Secondly, if it was a substantial purpose, did the purpose amount to a purpose, not only to lessen competition, but to substantially lessen competition? Substantial means considerable.

* Effectively discouraging competition was a secondary purpose. It was alleged in this case that not letting them use the saleyard was anti-competitive agreement. It was held that they had a proprietary interest in the saleyard, they didn't want others to use because of their investment. This was not anti-competitive (so pushing one party out of the market may not be anti-competitive). If you look at the ski boot case where he was refused supply of the ski boots, it was only one person cutting out a brand from one area, he was punching above his weight in the local market in which he serviced and his large impact made this case different. Stationers Supply Pty Ltd v Victorian Authorised Newsagents Associated Limited (1993) - page 350

* VANA entered into arrangements with VNS and various individual newsagents for the purpose of establishing a Newspower product line of stationery. It was alleged that promotional services were supplied on the condition that members not purchase goods from its preferred warehouse.

* Ryan J in FCA: s 45 has been held to be directed towards the subjective purpose of the parties to the arrangement. VANA unilaterally declared all of its members to be nonadvertising members. Yet the purpose was the more effective promotion of newsagents with a view to increasing the overall volume of sales of stationary products by them. There was not a substantial purpose of significantly lessening competition in the market for stationery and other newsagent supplies.

* This case is quite clear. The key fact is that at the time that they brought the rules in they did not have the exclusive supply. Not that important. A judge falls one side because of the circumstances - it is a good example of this. ACCC v Liquorland (Australia) Pty Ltd [2006] - page 351

* Woolworths submitted that the Commission must establish that Woolworths had the purpose of harming the competitive process or state of competition in the relevant markets alleged by it so as to substantially lessen competition in those markets; that is was insufficient to demonstrate that Woolworths had the purpose of harming any of the licence applicants in question; and that it was insufficient to establish that Woolworths had the purpose of protecting its own business.

* In s 46, 'substantial' means 'a considerable or large degree of such power' when qualifying market power. In relation to 'substantial' in s 4F: Did the proscribed purpose, if it existed, loom large among the objects the corporation sought to achieve? 'Substantial' in s 45 means considerable, meaningful or relevant to the competitive process, more than nominal, more than insignificant.

* The fact that the licence and purpose was legitimately pursued by rights given by State law is not the point. The point is that there was a substantial purpose directed towards the competitive process in a meaningful way. Therefore they did substantially lessen competition and contravene s 45(2)(a)(ii) and (b)(ii).

* The notion of purpose (like in Rural Press) must be read in the real world. (why would you say I'm going to have the purpose of substantially lessening competition - this would never happen - so you need to look at the practicalities or the likely result). Effect or likely effect of substantially lessening competition

* You need to identify the market in which 1 or more of the parties trade and consider in each case whether the level of competition in that market is substantially reduced by the agreement (this is dealt with by chapter 5).

* When determining whether a particular provision in an agreement substantially lessens competition, the anti-competitive effect of that provision can be aggregated with the anti-

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