Competition and Market Regulation Update July 2009

ACCC outlines approach for new cartel laws
Unit pricing obligations for grocery retailers
ACCC hails Cabcharge for alleged TPA breaches
Price fixing claims against Aussie health care company
ACCC makes submission on creeping acquisitions
Woolworths puts Macro Wholefoods in its shopping basket
Vodafone/Hutchison merger gets the green light
Chicken merger to proceed

ACCC outlines approach for new cartel laws

ACCC Chairman Graeme Samuel has stated that after 24 July 2009, serious cartel conduct will be viewed by the ACCC as criminal and will expose company executives to jail terms of up to 10 years.

The introduction of new criminal cartel laws by the Trade Practices Amendment (Cartel Conduct and other Measures) Act 2009 (Cth) (as discussed in our June 2009 edition¹) raises questions regarding what type of cartel conduct the ACCC will view as ‘serious cartel conduct’ and refer to the Commonwealth Director of Public Prosecutions (CDPP) for criminal prosecution, and the extent to which individuals will be able to gain immunity from criminal prosecution by taking a ‘whistleblower’ role.

The ACCC has moved to answer these questions by releasing guidelines on its ‘Approach to Cartel Investigations’ and a revised Immunity policy for cartel conduct. These are discussed below.

Guidelines on enforcement of new cartel laws

The ACCC has released guidelines setting out its approach to cartel investigation. The guidelines outline the ACCC’s policy on what cartel conduct it will refer to the CDPP. According to the ACCC, when deciding whether to refer a case for prosecution, it will distinguish between ‘serious cartel conduct’ and conduct that is ‘less serious in nature, including relatively minor conduct’.

Relevant matters in distinguishing between ‘serious’ and ‘less serious’ cartel conduct (which are also set out in a Memorandum of Understanding between the ACCC and the CDPP) include:

• whether the conduct was longstanding or had a significant impact on the relevant market
• whether the conduct caused significant detriment to the public, or significant loss or damage to one or more customers of the alleged participants
• whether the alleged participants have a history of cartel conduct, and
• whether the value of the affected commerce exceeded $1 million within a 12-month period.

The guidelines also set out the ACCC’s wide investigative powers. These include the power to issue notices to require production of documents and information, and the power to apply for search warrants. Where the cartel may be subject to criminal prosecution the ACCC may involve the Australian Federal Police to assist with gathering evidence through the use of surveillance devices and telephone taps.

Immunity policy for cartel whistleblowers

The ACCC has also released its revised immunity policy (and associated interpretation guidelines) for cartel participants who blow the whistle on the activities of other cartel participants.

The policy and guidelines set out the conditions under which the ACCC will grant immunity from civil proceedings. For criminal prosecutions, the CDPP, following a recommendation from the ACCC, will decide whether to grant immunity from prosecution by applying the same criteria as in the ACCC’s immunity policy.

Under the policy, immunity will be granted where certain conditions are met, including that the person seeking immunity is the first to apply, was not the ‘clear leader’ in the cartel, and undertakes to provide full disclosure and cooperation. Where a corporation qualifies for immunity, all current and former directors, officers and employees of the corporation who admit their involvement in the cartel and provide full disclosure and cooperation will be eligible for ‘derivative immunity’ in the same form as the corporation. To obtain derivative immunity, the corporation must list all the individuals seeking derivative immunity at the time of making an application for corporate immunity.
All forms of immunity are conditional on the relevant corporation or individual providing ongoing disclosure and cooperation. Final immunity is granted after the resolution of any proceedings against the other cartel participants.

Unit pricing obligations for grocery retailers

The ACCC has released guidelines for grocery retailers on their obligations under new unit pricing laws. These requirements are set out in the Trade Practices (Industry Codes – Unit Pricing) Regulations 2009, which establish a mandatory code for unit pricing. The code came into effect on 1 July 2009.

Unit pricing requires retailers to display the price of groceries offered in a standard measurement (such as ml, L, kg etc), in conjunction with its selling price. This measure aims to increase price transparency by allowing consumers quickly to compare the prices of differently sized and/or branded goods.

Certain items are exempt, such as those sold at a reduced price due to damage or their perishable nature, those offered as a bundle of goods at a single price, and discontinued items. Non-print advertising such as radio and television is also exempt from complying with the new requirements.

Prescribed retailers (larger supermarkets and online retailers) must display grocery items in accordance with the code by 1 December 2009. Other retailers may choose to opt in to the code, or not participate. However, once retailers choose to opt in, compliance with the code is mandatory and legally binding. Display of the unit price must be prominent, legible, unambiguous and in close proximity to the selling price.

Breaches of the code and investigation by the ACCC may result in compensation payments, court enforceable undertakings or orders for corrective advertising. Grocery retailers should seek legal advice on implementing effective trade practices compliance programs if they are unsure of how the new laws will affect their business practices.

ACCC hails Cabcharge for alleged TPA breaches

The ACCC recently commenced Federal Court proceedings against Cabcharge Australia Limited (Cabcharge) for alleged breaches of sections 45 and 46 of the Trade Practices Act 1974 (Cth) (TPA), which respectively prohibit entering into arrangements that substantially lessen competition and the misuse of market power. Cabcharge is a major supplier of products to the taxi industry, including payment products, processing services for non-cash taxi fares and taxi meters.

The ACCC alleges that Cabcharge used its power in the non-cash payment processing services and products markets to refuse to enter into agreements with competing suppliers. The agreements allegedly would have allowed Cabcharge's payment products to be processed through alternative EFTPOS terminals. The ACCC also alleges that Cabcharge used its market power for anti-competitive purposes in the supply of taxi meters and fare schedule updates either below cost or free of charge. Cabcharge is also alleged to have entered into an arrangement with Townsville Taxis to acquire their charge account business and approximately 130 rival EFTPOS terminals and replace them with Cabcharge EFTPOS terminals.

The ACCC is seeking various remedies including declarations that Cabcharge's conduct contravened the Act, pecuniary penalties and a mandatory trade practices compliance program. We will keep you updated on the case’s progress through the Federal Court.

Price fixing claims against Aussie health care company

Allegations of price fixing have been made by a United States hospital in a United States class action law suit against Australian health care company CSL and its major competitor Baxter International. The allegations concern price fixing of blood plasma products. According to lawyers for the plaintiffs, Baxter and CSL colluded to restrict supply or prevent oversupply of the products in order to increase prices. The law suit follows a decision by the Federal Trade Commission to oppose CSL’s takeover bid of rival firm Talecris Biotherapeutics. In its report setting out the reasons for the decision to block the merger, the United States competition regulator claimed that CSL, Talecris and Baxter engaged in a range of market fixing actions to deliberately cut the supply of blood plasma products in order to increase prices. Baxter and CSL are the world’s largest makers of blood plasma products.

ACCC makes submission on ‘creeping’ acquisitions

The ACCC has responded to the government’s second discussion paper containing further proposed legislative amendments to deal with the issue of ‘creeping’ acquisitions. Creeping acquisitions refer to acquisitions of a number of individual assets or businesses that individually are unlikely to contravene section 50 of the TPA (which prohibits mergers that would substantially lessen competition in a market) but collectively may raise competition concerns over time.

As reported in our May 2009² update, Treasury asked for submissions on two proposed options which could be used to regulate creeping acquisitions:

1. legislative amendments that would prevent mergers and acquisitions that would enhance a corporation’s substantial market power, and
2. legislative amendments that would grant the Minister power to ‘declare’ certain corporations or product/service markets. This declaration would prevent the declared corporation or corporations in a declared product/service market from making mergers and acquisitions that would enhance substantial market power.

In response to the two proposals, the ACCC has made a submission expressing support for the first proposal. However, the ACCC recommended that the proposal be amended so that expressing support for the creeping acquisition law would apply only if the enhancement of market power that results from the acquisition is ‘not insignificant’. The ACCC considers that this addition would ensure that the proposed law ‘would not capture trivial matters, but at the same time would not set the threshold [of demonstrating enhanced market power] so high that it would defeat the objective of the proposed amendment’.

The ACCC did not support an alternative proposal to provide the Minister for Competition Policy and Consumer Affairs with power to limit the application of the creeping acquisition law to corporations or product/service markets that are ‘declared’ by the Minister, and set mandatory notification thresholds for those corporations and product/service markets that are ‘declared’. The ACCC considered that this would introduce a level of regulatory complexity that goes beyond what is necessary to address the issues.

We will keep you updated on the government’s next steps.

Woolworths puts Macro Wholefoods in its shopping basket

On 17 June 2009, the ACCC granted clearance to Woolworths Limited (Woolworths) to acquire Macro Wholefoods (Macro). Woolworths acquired the business and assets of Macro as part of its establishment of its new Thomas Dux Grocer business. Thomas Dux offers non-organic specialty products.

In its Public Competition Assessment, the ACCC defined the relevant markets as:

• local markets for the retail sale of organic food and grocery products (being within 3–5km from each Macro store), and
• state-wide or regional markets for the wholesale supply of organic food and grocery products.

The ACCC adopted a narrow definition of the relevant market as organic groceries rather than groceries in general. This definition was based on market inquiries which found that consumers do not view organic and non-organic retailers as close substitutes. The type of product rather than the store it is offered in is of primary importance to consumers. The ACCC concluded that organic retailers are more likely to exert competitive constraint on other organic retailers than on larger supermarkets or non-organic stores.

The ACCC concluded that the acquisition would not have the effect of substantially lessening competition in markets for the sale and wholesale supply of organic food and grocery products. Although Woolworths supermarkets and Thomas Dux stores sell some organic food and beverage products, the ACCC determined that there was limited overlap between these businesses and Macro’s specialist organic retail business, and the merging parties therefore exercised very little competitive constraint on each other.

Vodafone/Hutchison merger gets the green light

The Vodafone Group plc (Vodafone) and Hutchison 3G Australia Pty Ltd (Hutchison) (operator of the ‘3’ brand) have merged to form a 50:50 joint venture called Vodafone Hutchison Australia Pty Limited (VHA). The ACCC announced in May that it would not oppose the merger.

The merger increases concentration in the mobile network operator space by moving the market from four key players to three: VHA, Telstra and Optus. However, the ACCC considered that this increased concentration would not substantially lessen competition for the following reasons:

• There was evidence suggesting that, absent the merger, the parties would be unable to engage in price competition in the long term and to compete effectively with Telstra and Optus. The ACCC found that while both Vodafone and Hutchison had been vigorous and effective competitors, absent the merger, they were likely to be a less competitive force in the retail market in the foreseeable future.
• The merger would provide the parties with the scale required to operate effectively and provide competitive high speed data services, like mobile broadband.

Vodafone and Hutchison had made commitments to the ACCC not to alter any existing mobile plans for two years once the entities merged. ACCC chairman Graeme Samuel indicated that the clearance was not based on this commitment as behavioural measures ‘are generally viewed by the Commission as an unattractive merger remedy’.

The combined entity will market its services under the Vodafone brand and gradually phase out ‘3’.

Chicken merger to proceed

In our March 2009³ edition, we reported on opposition from the ACCC in respect of a merger between Barterr Enterprises Pty Ltd (Barterr), the second-largest processor of chicken meat in Australia and the owner of ‘Steggles’, by Baiada Poultry Pty Ltd (Baiada). Baiada is Australia’s third-largest processor of chicken meat and the merged entity would have replaced Inghams as the largest processor of chicken meat in Australia. At the time, the ACCC found that the proposed merger would likely result in a substantial lessening of competition in the market for the wholesale supply of processed chicken meat.

Baiada has addressed the ACCC’s concerns by offering an undertaking that upon acquiring Bartter it will divest all assets currently owned by Bartter in Victoria to La Ionica Poultry.

The ACCC accepted this undertaking as allaying its concerns, finding that La Ionica Poultry's acquisition of these assets would lead to a significant expansion of its business. The ACCC concluded that the acquisition will allow La Ionica to compete with Baiada to supply large volume buyers of processed chicken, such as supermarkets and fast food outlets, and will therefore offer increased competitive constraints to the merged entity.

Endnotes

1. Competition & Market Regulation Update June 2009
2. Competition & Market Regulation Update May 2009
3. ‘Too chicken to merge’, Competition & Market Regulation Update March 2009

More information

For information regarding possible implications for your business, contact a member of the Competition & Market Regulation team.