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Protecting your Brand After Sale

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Can I prevent my resellers and distributors from selling my goods on the internet?

We often receive enquiries from businesses that want to prevent resellers and distributors from selling their products on websites such as Ebay, because they believe that sale of their products at discounted rates on the internet causes damage to their brands.

A business has no general legal right to control what happens to goods after it sells them. A legal right to prevent or restrict how resellers and distributors can act from selling products on the internet needs to be spelled out in the relevant sale contract. Contracts that impose such restrictions may breach 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 and could also amount to “unconscionable conduct” under Part IVA of the TPA.

The general legal principles relating to exclusive dealing are set out in this article. It is fundamentally important to obtain legal advice before engaging in any conduct that could be challenged as exclusive dealing.

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 in a particular market, or engages in other defined conduct, the business engages in exclusive dealing.

Not all exclusive dealing is illegal under the TPA. The conduct must also have the purpose or effect of “substantially lessening competition” in a “market”. There is a two stage test for this. First, what are the markets in which both the business and reseller or distributor operate? Secondly, does the dealing have the purpose or effect of substantially lessening competition in either market?

The Market Test

To decide if there has been a substantial lessening of competition in a market, the structure of the market before and after the relevant conduct must be considered. Specifically, the number of sellers in the market, the height of barriers to entry into the market, the extent of product differentiation in the market, the extent of vertical integration in the market and the nature of arrangements between firms that restrict their ability to act as independent competitors need to be taken into account.

What Should You Do?

To decide if a business can prevent a reseller or distributor from selling their product over the internet, you need a detailed analysis of the markets in which your business and the reseller or distributor operate, as well as consideration of the nature of the proposed restrictions.

MST can help you in that analysis. If you would like detailed advice about Customs & Trade so that you can avoid the risk of infringement of TPA provisions that prohibit exclusive dealing arrangements, please contact us to discuss your situation.

Author: David Boyall