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Misusing market power

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The Trade Practices Act (TPA) prohibits corporations with a substantial degree of power in a market from taking advantage of that power, in that, or any other market, for the purpose of either:

  • Eliminating or substantially damaging a competitor
  • Preventing a person entrying into that or any other market or
  • Deterring or preventing a person from engaging in competitive conduct in that, or any other market.

A number of decisions in the past ten years have had the effect of making it harder for the ACCC to prove the necessary elements under section 46 of the TPA.

But two recent decisions confirm that section 46 still has teeth and that Courts are prepared to impose substantial penalties for breach.  These are discussed below.

Baxter Healthcare

On 26 August 2010, after lengthy litigation involving appeals, the Federal Court imposed a penalty of $4.9 million on Baxter Healthcare Pty Limited for contraventions of sections 46 and 47 (exclusive dealing) of the TPA.

This litigation arose from Government tenders lodged and won by Baxter for the supply of sterile fluids and peritoneal dialysis products as a bundled package to State hospitals. The ACCC also made allegations against Baxter in relation to its refusal to provide a volume discount on item by item prices. However, it was the bundling strategy alone which was said to amount to exclusive dealing and misuse of market power because the market for peritoneal dialysis was competitive but the market for sterile fluids was not.

The ACCC sought $27.3 million in penalties against Baxter. Even though the Court placed relevance on the deliberate nature of the conduct, the involvement of senior Baxter management, Baxter’s purpose of securing and maintaining its market share and the significance of the effect of the conduct on competitors, the following factors were considered by the Court for not imposing the penalty sought by the ACCC:

  • The Court did not further penalise Baxter because it chose to fight the case Justice Mansfield noted that Baxter was entitled to assert that it had not contravened the TPA.
  • The States had within their control the form and timing of the tenders. The States were not “unable to negotiate to some degree with Baxter about its bundled offers”.
  • The ACCC didn’t show that the bundled prices were not an “appropriate” price – there was insufficient evidence of the extent of any mark-up or evidence of price-gouging.
  • Even though the effect of Baxter’s conduct was to exclude two other suppliers from being able to supply the States, there was no evidence to suggest that the other suppliers did not remain in the market or were subsequently in any worse position.

All in all the Court stated that the penalty must be at a level to deter Baxter from engaging in similar conduct in the future (even though it accepted that such illegal conduct was unlikely to occur again) and to operate as a general deterrent to the community.

Cabcharge

On 24 September 2010 the Federal Court of Australia ordered Cabcharge Australia Limited to pay $15 million in penalties and costs for three contraventions of section 46.  This is the highest penalty ever imposed for breaches of section 46.

The contraventions related to:

  • A refusal by Cabcharge to allow competing suppliers of electronic payment processing services for taxis to process Cabcharge branded non-cash payment products
  • The below cost supply of Cabcharge taxi meters and associated fare schedule updates for an anti-competitive purpose.

When the matter was considered by Justice Finkelstein of the Federal Court of Australia Cabcharge admitted to the contraventions and, with the ACCC, jointly submitted agreed penalties and other orders to the court for consideration.

Justice Finkelstein ordered that Cabcharge pay a pecuniary penalty of $14 million for the contraventions and a contribution of $1 million towards the ACCC’s costs and to implement a trade practices corporate compliance program.

In responding to the outcome ACCC chairman Graeme Samuel said

“The decision reflects the determination by the ACCC to seek significantly higher penalties for breaches of the competition provisions of the Trade Practices Act under the higher penalty regime that applies to post 2007 contraventions …The penalties imposed are a sharp reminder of the need for companies with market power to exercise such power wisely and legally.”

He also noted that the penalties that were imposed were potentially discounted to take account of the guilty plea by Cabcharge.

MST’s recommendation

These cases demonstrate the ACCC’s determination to vigorously pursue higher penalties against corporations for breaches of the TPA, particularly in relation to anti-competitive conduct.

It seems that the difficulties faced by the ACCC over the past decade in proving the elements under section 46 are diminishing and as a result of these two recent decisions we are likely to see an increase in section 46 claims against coporations.

Any company that holds a strong position in any market should ensure that procedures are in place to minimise the risk of a claim relating to misuse of market power for an anti-competitive purpose.  The above cases demonstate the increasingly severe consequences being imposed on corporations who engage in anti-competitive conduct.

Authors:  Kristy Parker and Philip Colman

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