Legal Update – October 2020
Business models for distribution and supply of goods or services through retail stores or on-line market places may provide significant benefits where manufacturers or suppliers can control marketing, promotion and pricing. These business models require careful scrutiny to avoid the risk of breaching Australia’s competition law, which prohibits anti-competitive conduct including resale price maintenance[i]. In general terms, resale price maintenance occurs when manufacturers or suppliers (such as wholesalers, distributors or franchisors) specify a minimum sale price below which resellers cannot sell or advertise their goods or services.
Resale Price Maintenance Notification and Authorisations by ACCC
The Australian competition law allows companies to apply to the competition regulator, the Australian Competition & Consumer Commission (ACCC) for protection from legal action for resale maintenance conduct by lodging a notification[ii] or by obtaining authorisation in respect of the conduct[iii]. The ACCC has published its Guidelines for Resale Price Maintenance Notification. [iv]
ACCC allows resale price maintenance for notification for HP new business model[v]
The ACCC, on 2 October 2020, allowed a resale price maintenance notification lodged by HP PPS Australia Pty Ltd (“HP”) in relation to a proposed new business model for HP eBay store and any prospective HP stores on other on-line market places. HP imports into Australia, distributes and supplies HP branded IT products including computers, notebooks and related accessories, manufactured by its parent company. The new business model for HP online stores involved:
- the supply of HP products to a third-party distributor who would on sell direct to customer and receive payment through the HP online stores;
- the third-party distributor being responsible for delivery, management of product returns and refunds under indemnification from HP;
- HP controlling product and marketing strategies, including specifying the prices for which the third-party distributor can sell the HP products to customers.
The ACCC allowed the HP resale price notification because the ACCC considered that the likely benefit to the public from the conduct outweighed the detriment to the public. Some of the factors considered to be of significance included:
- The ACCC did not consider that the proposed conduct would likely to lead to customers paying more for HP products
- HP was not seeking to impose retail pricing controls on existing or future competitors.
- The proposed resale price maintenance only applies to sales through the HP on-line market stores. At the time of the notification only one on-line store was identified – eBay. This represented only a small percentage of total sales of HP products.
- Customer could still source HP products from a range of other retailers who would remain free to compete on price and other terms and conditions.
- The ACCC also considered that with most HP product categories, competition provided by suppliers of competing IT brands would constrain prices set by HP through its on-line stores.
- The ACCC considered that there were efficiencies in HP new business model for on-line stores through the appointment of a third party distributor with expertise in logistics services to fulfil orders placed on the HP online stores with HP maintaining control over operational aspect of the stores including promotional strategies and pricing.
Penalties for Resale Price Maintenance Breach
Companies or individuals involved in conduct involving resale price maintenance, without current notification or authorisation, face the risk of legal action by the ACCC for injunctive remedies, damages and pecuniary penalties[vi].
ACCC takes action against FE Sports for alleged Resale Price Maintenance
On 13 October, 2020, the ACCC commenced proceedings in the Federal Court of Australia against B & K Holdings (Qld) Pty Ltd trading as FE Sports (“FE Sports”), a Brisbane-based wholesale supplier of cycling and sporting products alleging resale price maintenance in breach of s48 and s96 of the Australian Competition and Consumer Act .[vii] The ACCC alleges that between at least 5 February 2017 and at the latest 26 June 2019, FE Sports issued 328 contracts with terms that prohibited prospective and existing retailers from advertising goods below the recommended retail price, as specified by FE Sports.[viii] FE Sports allegedly entered into 242 contracts with such terms. As such, the retailers were unable to advertise or sell the products at a discount.[ix]
The practice of resale price maintenance is prohibited because it is considered anti-competitive conduct. By retailers not advertising at a discount to the FE Sports recommended retail price, ACCC alleged that the retailers would have a reduced ability to compete in respect of price.[x]
The ACCC is seeking relief from the Federal Court in the form of declarations, injunctions, pecuniary penalties, an order requiring the establishment of a compliance and education program and an order requiring FE Sports to send corrective letters to retailers and to place a corrective notice on the FE Sports website.[xi]
The ACCC sent FE Sports several letters in 2015 and 2016 raising concerns about conduct which may constitute resale price maintenance. The letters warned FE Sports that resale price maintenance is illegal and that the ACCC would pursue legal action should the conduct continue.[xii]
Strategies for Risk Management of Resale Price Maintenance Conduct.
Companies can manage the risk of competition law breaches involving resale price maintenance and other anti-competitive conduct by:
- Implementing compliance and education training programs for its employees;
- Undertaking a review or audit of existing compliance and education training programs to ensure that the programs are up to date and appropriate;
- Undertaking a review of existing or proposed business models including promotional and pricing strategies for compliance with competition law;
- Ensuring that agreements with prospective or existing retailers, dealers, franchisees and other resellers comply with competition law;
- Seeking authorisation from the ACCC or lodging a notification with the ACCC in respect of any proposed conduct involving resale price maintenance or other anti-competitive conduct;
- Seeking legal advice from lawyers with expertise in competition law.
Competition Law – Resale Price Maintenance and On-line Market Places: Update authored by Katarina Klaric, Principal, Stephens Lawyers & Consultants (25 October 2020).
Case summary of FE Sport authored by Peter Divitcos, Lawyer, Stephens Lawyers & Consultants (21 October 2020)
© Copyright October 2020 — Stephens Lawyers & Consultants
Disclaimer: This update is not intended to replace obtaining legal advice.
For Further Information contact:
Katarina Klaric, Principal
Peter Divitcos, Lawyer
Stephens Lawyers & Consultants
Suite 205, 546 Collins Street
Melbourne VIC 3000
Phone: 61 3 8636 9100
All Correspondence to:
PO Box 16010
Collins Street West
Melbourne VIC 8007
[ii] Competition and Consumer Act 2010 (Cth) s93
[iii] Competition and Consumer Act 2010 (Cth) s93.
[v] ACCC Statement of Reasons Notification lodged by HP PPS Australia Pty Ltd in respect of proposed resale price maintenance conduct on HP products sold through HP Online Marketplace Stores. Notification number: RPN 100000456
[vi] Competition and Consumer Act 2010 (Cth) ss 76, 80, 82, 87.
[vii] Australian Competition and Consumer v B & K Holdings (Qld) Pty Ltd (ABN 47 092 133 858), Concise Statement QUD316/2020, 1 available at https://www.accc.gov.au/system/files/FE%20Sports%20-%2020201013%20%28SEALED%29%20Concise%20Statement%2020200631.pdf.
[viii] Ibid, 1.
[ix] Ibid, 2-3.
[x] Australian Competition and Consumer v B & K Holdings (Qld) Pty Ltd (ABN 47 092 133 858), Concise Statement QUD316/2020, 4 available at https://www.accc.gov.au/system/files/FE%20Sports%20-%2020201013%20%28SEALED%29%20Concise%20Statement%2020200631.pdf.
[xi] Ibid, 3-4.
[xii] Ibid, 1.