Any business that operates in Australia is required to openly compete with rival businesses rather than colluding to monopolise the market and boost profits. Any conduct that intends to reduce or prevent competition is considered anti-competitive behaviour and may be punished under anti-competition law.
What is Anti Competitive Behaviour?
Anti-competitive behaviour is any concerted practices of collusion between businesses that substantially lessens competition and which flouts, or attempts to flout, Australian competition law. This can include price fixing, abusing substantial market power, exclusive dealings, restricting goods or services, agreeing to allocate customers, or demanding resellers charge a particular price. This conduct is also known as corporate crime, or white collar crime. To dissuade any business from engaging in illegal anti-competitive conduct, anti-competition laws have been enacted to keep all parties involved honest.
Why is Anti Competitive Behaviour Illegal?
Anti-competitive behaviour is illegal because it essentially helps companies monopolise and manipulate the market, which causes artificial increases in prices, lower quality and service, and reduction of innovation and small businesses breaking into the market. Ensuring that companies compete allows traction for other businesses to provide a point of difference and give customers more options to decide upon.
What is the Market?
The market refers broadly to a gathering of buyers and sellers to exchange products or services, with the name derived from the Latin root”mercari”, which translates to “buy”. However, economists define “the market” as a more abstract concept that relates to the total of all the buyers and sellers in a particular geographical region (or of a particular product or service), and how that forms supply, demand, and ultimately, price.
Market power refers to a company’s ability to control the price it sells a product for by manipulating supply or demand to increase profit. An example of this is Italian eyeglasses company Luxottica which owns 40% of the U.S. market, which means that it dominates the market and can charge high prices. While this highly concentrated market power is great for the brands who wield it, it is usually a barrier to entry for other companies who are trying to break into the market and compete.
Types of Anti-Competitive Behaviour
There are many different ways for businesses to circumvent compulsory competition with other businesses or to act in bad faith to gain a financial advantage. These types of anti-competitive behaviour include cartel conduct, collective bargaining and boycotts, price signalling and refusal to supply, among many others.
A cartel refers to businesses that covertly work together to illegally control the market, share markets, set prices, rig bids, restrict goods and services, and ultimately bolster profits, whilst pretending to compete against each other. By colluding together, businesses can reduce choice, quality and services for customers, and charge much more than is fair, while undermining businesses trying to compete in the market fairly. Cartel conduct is illegal because it attempts to cheat the free market system and avoid the competition which keeps prices low, quality high, and rewards innovation and ingenuity.
Collective Bargaining and Boycotts
Businesses are generally required to act independently of their competitors, which means there should be no cooperation between them in regards to price, output, or allocation of customers, nor should there be collective deals struck with suppliers. Collective bargaining refers to an arrangement between companies to negotiate with a supplier over prices and terms and conditions, which is sometimes accomplished by appointing a group representative. Moreover, when companies work together, they can also collectively boycott, which means they pressure suppliers as a unit rather than negotiating with them individually. This is unfair to suppliers and can allow companies to bully their way to cheaper prices, lower quality products and less competition from smaller businesses. This group behaviour is considered anti-competitive and is generally only allowed if it may be in the public interest (such as if the supplier is hiking up the prices). Even if this is the cause, an exemption must be applied for before any behaviour resembling collective bargaining can begin.
Exclusive dealing is when a business imposes restrictions on another company they are dealing with which essentially restricts them from working with a third party in some way. This can include customer allocation, price ranges, geographical restrictions, or what they can supply and to who. This is against the law because it drastically undermines competition between other businesses by preventing them from access to the same products, goods, or services as the company that is breaking the law.
Exclusive dealing includes third line forcing, which is when a company makes conditional sales to another customer or business on the basis that they then buy a product or service from a third party. An example of third line forcing this is if a financial institution offered discounted interest rates on a loan on the proviso that the customer buys insurance from a specific supplier. This is illegal, as the financial institution does not have the right to change its services or prices depending upon a third-party deal that should theoretically have nothing to do with them.
Imposing Minimum Resale Prices
Another form of anti-competitive behaviour is the imposition of minimum resale prices, also known as resale price maintenance. This is when a supplier puts pressure on resellers to charge their recommended retail price, stop discounting, or stop resellers advertising or displaying goods below a specified price. While suppliers can always suggest a recommended retail price, they cannot pressure resellers to comply with resale price maintenance demands through threats of supply disruption or complete cut-offs.
Refusal to Supply Goods or Services
A supplier retains the right to decide who it does business with, however refusal to supply goods or services can be illegal if it is done under certain circumstances related to anti-competitive conduct. These include suppliers who are misusing their market power, boycotting or engaging in exclusive dealing, imposing minimum resale on retailers, or otherwise acting unconscionably.
Misuse of Market Power (Predatory Pricing)
While it is not against the law for a business to wield its market power to its advantage, it is illegal to do so in order to substantially lessen competition through predatory pricing. Predatory pricing is the practice of offering prices which are below the cost of production and distribution of goods in order to eliminate rival businesses. While predatory pricing isn’t explicitly mentioned in the Competition and Consumer Act, section 46 states that “a corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition
Unconscionable conduct refers to certain business practices which are considered so harsh or oppressive that they undermine the principles of fair competition, honest dealing, and good conscience. It is most common when there is a substantial power difference between the parties. For example, unconscionable conduct may include a company pressuring a customer to sign blank agreements or restrict them from reading the contract or having access to legal services or advice.
The ACCC determines unconscionable conduct using a variety of factors, some of which include:
- the relative bargaining strength of parties and the willingness of the stronger party to negotiate
- whether any conditions were imposed on the weaker party that were not reasonably necessary to protect the legitimate interests of the stronger party
- whether the weaker party could understand the documentation used
- the requirements of applicable industry codes
Penalties for Individuals and Corporations Involved in Anti-Competitive Behaviour
Penalties for anti-competitive behaviour can vary depending upon the particular crime committed, the severity of the crime, and whether it was committed by an individual or a collective within the corporation. Generally, different penalties apply for cartel conduct and contraventions of the Competition and Consumer Act that fall outside of cartel conduct, such as pyramid selling and unconscionable conduct.
- Individuals found guilty of cartel conduct could face criminal or civil penalties, including:
- up to 10 years in jail and/or fines of up to $420,000 per criminal cartel offence
- a pecuniary penalty of up to $500,000 per civil contravention.
It is illegal for a corporation to indemnify its officers against legal costs and any financial penalty. Other forms of relief relating to the cartel offence include injunctions, orders disqualifying a person from managing corporations and community service orders.
- Corporations found guilty of cartel conduct are subject to a maximum fine or pecuniary penalty for each criminal cartel offence or civil contravention (whichever applies) will be the greater of:
- three times the total value of the benefits obtained by one or more persons and that is reasonably attributable to the offence or contravention where benefits cannot be fully determined
- 10% of the company’s annual turnover (including related corporate bodies) in the preceding 12 months.
Breach of other Australian Consumer Law
Not only cartel conduct falls under the umbrella of anti-competitive behaviour. Other white-collar crimes such as unconscionable conduct, making false or misleading representations, pyramid selling, or supplying unsafe or banned consumer goods or services are also severely punished.
Individuals who breach these laws are at risk of maximum penalties of up to $500,000, while corporations found guilty will incur monetary penalties which are greater of the following:
- 3 times the value of the benefit received, or
- 10% of annual turnover in the preceding 12 months, if the court cannot determine the benefit obtained from the offence.
The Australian Competition and Consumer Commission has also outlined penalties for non-compliance, contraventions of the horticulture code, franchising code, payment surcharges, and motor vehicle information scheme.
Anti-Competitive Behaviour Defences
Australia has stringent antitrust and anti-competition laws, rules, and regulations, however there are potential defences available to those who have been accused of engaging in unfair competition in a particular market.
One such defence is called a joint venture defence. A joint venture is a business agreement where multiple parties agree to develop a product or service by contributing equity, sharing expenses, revenue, and assets. As such, all companies are equally invested in the project and therefore some exceptions can be made in terms of competition conduct.
Requirements to Qualify for the Defence
The criteria surrounding the characterisation of joint ventures are fairly flexible and there are some notable points that have been provided as a guideline by the court.
In defending criminal charges, it must be “for the purposes of a joint venture” and there must be reasonable necessity for undertaking the joint venture.
The joint ventures defence exempts certain conduct if the purposes of the cartel provision within the joint venture are:
- for the production and/or supply of goods or services
- carried on jointly by the parties to the contract
- carried on by a body corporate formed by the parties to the contract for the purpose of enabling those parties to carry on the activity by means of their joint control, their ownership of shares in the capital of that body corporate.
The requirements to qualify for defence will always vary according to the scenario at hand and the precedents that characterise the particular situation.
Examples of Anti-Competitive Behaviour in Australia
Heavy Construction Tenders
In 1988, a particularly brazen bid rigging attempt amongst construction firms located in Sydney exposed long-term collusive practices within the industry. The bid rigging involved the agreement amongst four contractors to rig the tender and have the winner pay the three other firms a “loser’s fee” of $750,000 each which would be concealed through consultancy invoices. The New South Wales Royal Commission exposed the arrangement and issued $1.75 million penalties on companies and individuals involved.
Power Transformers Cartel
From 1989 to 1999, four major Australian suppliers of power transformers, Schneider Electric, Wilson Transformers, Alstom Australia, and AW Tyree, operated as a cartel, utilising price fixing, bid rigging and market allocation to increase their profits collectively. The power transform cartel enjoyed enormous market power, covering nearly 100% of the market and able to extract an estimated $80 million from its customers during a five-year period (1994 to 1999) whilst monopolising the market and preventing close competition. They met secretly in hotels, lounges, and private dwellings during that time in order to organise the bid-rigging operations they took part in. Following a long-term sting operation, the cartel members were brought before a federal court where a total of $35 million in penalties was imposed upon the participating companies and their executives.
LY Lawyers and Anti-Competitive Behaviour
At LY Lawyers, we have a proven track record in defending cartel conduct charges, including a successful result within the first sentencing proceedings for cartel offences in Australia. If you or your business have been accused of anti-competitive conduct, or of contravening the Competition and Consumer Act in some way, it is essential that you seek legal advice from experts who are well-versed in competition law.
We pride ourselves on our dedication to fighting hard to protect your rights. Whether you feel as though you have been misidentified for anti-competitive behaviour, or have been a victim of an unjust court decision regarding cartel conduct, we have the legal experience and expertise to help you find a solution that helps put things right.