We often receive enquiries from businesses that want to prevent resellers, distributors and franchisees from selling their products on websites such as eBay, because they believe that sale of their products at discounted prices on the internet may damage their brands and/or obligations to other resellers, distributors and franchisees.
A business has no general legal right to control what happens to goods after it sells them unless that right is set out in the relevant sale contract. Contracts that impose such restrictions may breach anti-competitive provisions relating to “exclusive dealing” in Part IV of the Trade Practices Act 1974 (Cth) (“TPA”).
Sometimes a business uses its practical market power to pressure a reseller or distributor into agreeing not to sell their products on the internet. This may still amount to exclusive dealing even without a written contract.
Exclusive Dealing
If a business supplies goods on condition that the customer will not re-supply those goods in a particular market, or refuses to supply goods because that customer has breached a previous agreement not to re-supply those goods in a particular market, or refuses to supply goods because the customer won’t agree not to re-supply those goods, or engages in other defined conduct, the business engages in “exclusive dealing”.
Not all excusive dealing is prohibited. The restriction imposed must have the effect of substantially lessening competition in the market. Determining whether this is the case requires a detailed analysis of the markets in which your business and the reseller, distributor or franchisee operate, as well as consideration of the nature of the proposed restrictions. It is fundamentally important to obtain legal advice before engaging in any conduct that could be challenged as exclusive dealing, including attempting to restrict persons selling your goods on the internet.
Intellectual Property
If the buyer on-sells goods to a third party the original seller cannot rely on a contractual term to prevent the new owner from selling them on the internet. In these circumstances it may still be possible to prevent the goods from being resold on the basis that it infringes on the intellectual property rights of the first seller.
What You Should Do
There are a range of options and considerations that should be taken into account if your business wishes to control the sale of its goods on the internet. If you would like detailed advice on your intellectual property rights or how to avoid the risk of infringement of the TPA, please contact one of our Corporate Advisory lawyers to discuss your situation.
Authors: Darren Sommers and Richard Lim
