How are vertical agreements regulated in Australia?

By Thomas Jones, Tom Macken

10-2020

Under the CCA, with the exception of resale price maintenance (which is a per se offence, meaning that the conduct is prohibited outright, regardless of its purpose or its effect, or likely effect, on competition), a vertical agreement or conduct is only prohibited in circumstances where it has the purpose, effect or likely effect of substantially lessening competition in a market. This is to be contrasted with the treatment of horizontal agreements or conduct, such as cartel conduct, which are per se contraventions.

The primary provisions which regulate vertical restraints or conduct in Australia under the CCA include the following:

  • Exclusive dealing: The prohibition on exclusive dealing is contained in section 47 of the CCA. It prohibits a business from seeking to prevent, limit or restrict another party's freedom to supply goods or services to, or acquire goods or services from, particular persons or classes of persons, but only where it has the purpose, effect or likely effect of substantially lessening competition in a market. The most obvious example of exclusive dealing is third line forcing. Third line forcing occurs where a business indicates to another that it will only supply goods or services, or offer a particular price or discount, on the condition that a purchaser acquire goods or services from a specified third party. The supply of the good or service is made contingent on the purchaser's acceptance of this condition. Third line forcing used to be a per se offence, however, as a result of the Harper reforms in 2015, that is no longer the case.

  • Resale price maintenance: The prohibition on resale price maintenance is contained in section 48 of the CCA. It prohibits a corporation that supplies a good or service from attempting to pressure another not to sell its products below a certain price. This can be accompanied by a threat to withhold or discontinue the supply if its conditions are not met, or a refusal to supply to such retailers altogether. In both circumstances, the conduct is per se illegal. However, the CCA allows a business to obtain legal protection to engage in resale price maintenance conduct if it can satisfy the ACCC that the public benefits arising out of the conduct would outweigh any public detriment.

Vertical restraints or conduct are also regulated by the more general prohibitions contained in Part IV of the CCA, which include the following:

  • Anti-competitive agreements: The CCA prohibits contracts, arrangements, understandings or concerted practices that have the purpose, effect or likely effect of substantially lessening competition in a market. This requires, in effect, a 'meeting of the minds' between two or more competitors or potential competitors, often evinced by a tacit understanding between them to act, or not act, in a certain way. This prohibition applies to both vertical and horizontal arrangements.

  • Concerted practices: The CCA prohibits corporations from engaging with one or more persons in a 'concerted practice' that has the purpose, effect or likely effect of substantially lessening competition in a market. The concept of a concerted practice was only recently introduced into the CCA following the recommendations of the Harper Report in 2015 (and is not defined in the Act). It covers conduct that falls short of being a 'contract, arrangement or understanding', but involves more than a business responding independently to market conditions. Similar to the prohibition on anti-competitive agreements, the prohibition on concerted practices applies to both vertical and horizontal arrangements.

  • Misuse of market power: Under section 46 of the CCA, a corporation with a substantial degree of power in a market is prohibited from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. Determining whether or not a corporation holds a substantial degree of market power in a given market can be difficult and requires a close assessment of the relevant product and geographic markets. The prohibition on misuse of market power also applies to both horizontal and vertical arrangements.

For more information please contact Thomas Jones or Tom Macken.


 
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