Julie Brebner
Published version:
‘Resale
Price Maintenance – The Need for Further Reform’ (2001) 9 Trade Practices
Law Journal 19-29
The Competition Policy Reform Act extended
the resale price maintenance provisions of the Trade Practices Act 1974 to include services and provide for
authorisation where the conduct can be shown to benefit the public such that it
should be allowed. This article
explores the scope of these changes and their shortcomings. It also seeks to provide some guidance as to
their likely application and makes recommendations for further reform.
The
Competition Policy Reform Act 1995
("CPRA") represented the government's adoption of the key
recommendations of the Hilmer Report.[1] It extended the provisions of the Trade Practices Act 1974 (“TPA”) to
individuals and to the State and Territory Crowns and established an access
regime for services of national significance.
It also reformed many of the existing competition provisions of the Act,
including those relating to resale price maintenance (“RPM”). The former have been the focus of much
academic attention. By contrast, little
has been written about the significant reforms to RPM brought about by the CPRA. This paper seeks to remedy this deficiency by
analysing these reforms. It will also suggest ways in which the Australian
Competition and Consumer Commission (“ACCC”) and the courts may interpret and
apply these reforms. An estimate will then be made of the likely scope and
impact that the reforms will have on the way in which corporations conduct
themselves when supplying goods and services.
This paper will then seek to identify other aspects of the RPM provisions
that may warrant further reform, and will make recommendations for such reform.
RPM is the most common form
of vertical price fixing ("VPF"), that is, the practice of a supplier
fixing the price at which a party lower in its distribution chain can sell the
goods or services that it supplies. The practice of RPM has long been considered an undesirable one which
impedes 'free and open competition'[2]
and is prohibited, in one form or another, by all modern competition law regimes.[3] In Australia it has been the subject of strict and
specific prohibition under Australian trade practices legislation for over 25
years. The TPA dedicates not only a
section but an entire part (Part VIII) to its prohibition.
The
TPA prohibits RPM through section 48, which provides that:
A
corporation or other person shall not engage in the practice of resale price
maintenance.
What
does and does not constitute RPM, for the purposes of this provision, is
determined by the provisions of Part VIII,[4]
especially s 96 and the new s 96A.
Briefly, they define as RPM a supplier of goods or services specifying
the price below which those goods or services shall not be sold or re-supplied
respectively. They also define as RPM a
refusal to supply for the reason that the party supplied has refused to agree
to this minimum price. However, an
exception is provided for conduct that occurs in relation to loss leader
selling[5]
and statements of recommended prices are deemed not to constitute, by
themselves, RPM.[6] Sections 96 and 96A are limited to the
fixing of minimum prices, so that maximum vertical price fixing is not
prohibited unless it constitutes an breach of one of the other provisions of
the Act.[7]
There has been, and continues
to be, considerable debate regarding the merits or otherwise of the practice of
RPM.[8] While the legislature continue to impose a per se prohibition on the practice,
backed up by strict enforcement by the courts, it has been argued by advocates
of the legalisation of RPM that in almost all cases the practice will enhance
economic efficiency. The Government has, with the passing of the CPRA, given
limited recognition to possible beneficial motivations or effects of RPM by
making authorisation available to those who engage in the practice. The effect of this will be discussed in the
context of the changes brought about by the CPRA; beyond this, the economic
merits or otherwise of the practice generally will not be considered further.
The Hilmer Committee received submissions arguing that the current
prohibition on RPM should be relaxed either by subjecting it to a competition
test or by permitting authorisation or notification and that the prohibition
should be extended to services.[9]
After examining the position
overseas and the reasons why firms engage in RPM, the Committee recommended
that s. 48 and Part VIII remain in tact, but that authorisation be available
and the provision be extended to the resale of services.[10] It
rejected the submissions that notification be available for RPM[11]
and that it be subject to a competition test.
The Committee’s recommendations were implemented by the CPRA.
The predecessor to the current Act, the Restrictive Trade Practices Act 1971,
provided a facility for exemption from its prohibition of RPM. However, only one application was made for exemption under this
provision and this was rejected by the Trade Practices Tribunal.[12] This facility
was omitted from the current legislation when it was enacted in 1974.
The Hilmer Committee
recommended that authorisation of RPM be made available under the Act.[13] It accepted
that efficiency-enhancing reasons may exist for the
practice and suggested that the ACCC, the body
responsible for granting authorisations, was best suited to conduct the
technical analysis of the reasons advanced for RPM, on a case by case basis.[14] This
recommendation was implemented through the inclusion of s 88(8A)[15] into the TPA which now allows the ACCC to grant an
authorisation to 'engage in conduct that constitutes (or may
constitute) the practice of resale price maintenance'. Before such authorisation may be granted,
however, the ACCC must be satisfied that the proposed conduct will, or will be
likely to, result in a benefit to the public such that it should be allowed to
take place.[16]
What level of
benefit will be considered by the ACCC to constitute a benefit to the public
such that RPM should be allowed, remains for determination. Public benefit, however, has been given a
broad interpretation by the ACCC and the Australian Competition Tribunal, and
includes the promotion of competition in an industry, fostering business
efficacy, assistance to efficient small business, 'the enhancement of quality
and safety of goods and services and the expansion of consumer choice of the
range of goods and services that are available', the provision of better
information to consumers enabling informed choices, the promotion of cost
savings and the reduction of prices at all levels in the supply chain.[17] However,
these benefits must be “public”; that is, they must flow beyond the applicant
or some other limited group. Because of
the requirement that benefits be "public" it has been suggested that
the most likely candidates for authorisation of RPM will be new or highly
complex products.[18]
For new products,
RPM may assist entrants into the market, hence increasing competition. In such cases the current market structure
is likely to be a relevant factor in evaluating "public" benefit. For example, allowing RPM by a software manufacturer
to assist him in gaining access into an already saturated market may be
beneficial to the software manufacturer and certain sectors of the public to
whom the software may be particularly well suited, but is unlikely to have a
substantial public benefit. If,
however, the software market was dominated by only one or two manufacturers,
RPM by a third manufacturer to assist it in gaining access to the market may
well be beneficial to a large section of the public by providing them with a
greater range of products and, ultimately, reducing prices by diluting the
monopolistic or oligopolistic market into which it enters. In such cases,
however, authorisation should be granted for a limited time only and should not
extend beyond what is required to facilitate entry into the market.
In the case of
highly complex products, such as computer systems or stereo units, the product
may require a certain level of service in order to allow consumers to make an
informed decision regarding their purchase. RPM may assist in this respect by
ensuring a level of profit sufficient to cover the extra outlay needed to
promote the product, or to provide services to consumers. On the other hand, in the case of less
complex products, such as kitchenware or bedding, it is unlikely that the
majority of consumers will require sales assistance to enable them to make an
informed decisions, in which case RPM would not have a sufficient public
benefit to warrant its authorisation.
Experience in the
UK and Europe suggest that the ACCC will be reluctant to grant authorisation
except where public benefit is shown to be real and substantial. In these
jurisdictions, authorisation has been denied in the overwhelming majority of
cases and appears to be becoming more difficult to establish, rather than less.[19]
Provided an appropriately limited and cautionary
approach is taken, the extension of the TPA’s authorisation provisions to RPM
will provide an appropriate acknowledgment of those limited forms of RPM that
can result in an increase in competition and an enhancement of consumer
welfare. If it is granted too
liberally, however, it may result in a weakening of the per se nature of the prohibition which would substantially alter
the RPM law of this country.
The change that is likely to
have the most practical significance is the extension of RPM to services. While many services, by virtue of their
personal nature, are not capable of re-supply, the wide definition of services
contained in s. 4 of the Act means that there are many that are.[20] The Hilmer Committee concluded that there
was no reason why these services should be treated differently from goods:[21]
RPM should cover the situation where one person
selling services to a second person requires the second person to re-sell those
services at or above a specified price; or where one person selling goods or
services to a second person requires the second person to sell other services,
provided in connection with the resale of the original goods or services, at or
above a specified price.[22]
In
response to this recommendation, s. 96A was inserted into Part VIII of the TPA[23], which provides:
(1) This Part
applies to conduct in relation to services in a way that corresponds to the way
it applies to conduct in relation to goods.
(2) For the
purposes of subsection (1), this Part is to be read with appropriate
modifications, including the following modifications:
(a) references
in this Part to goods are to be read as references to services;
(b) references
to the sale of goods are to be read as references to the re-supply of services.
In addition, a new section
4C(f) was inserted to define "re-supply" as it appears in this
provision.
The effect of the
new provision will be to require service-providers, such as internet service
providers, telecommunications companies and electricity companies, who formerly
could engage in RPM with impunity, to conform to the same restrictions as those
that have governed suppliers of goods. It will also bring the Australian
prohibition of RPM into line, in this respect, with the laws of the United States, the
European Community and Canada. What remains to be seen, however, is the
effectiveness of s. 96A. This will
depend on two main factors: the breadth of the term "services" and the
extent to which services may be altered before their use downsteam no longer
constitutes a "re-supply".
Services is broadly defined in the TPA and has been
so interpreted by the courts. Section 4
of the TPA defines services to encompass virtually everything that doesn't fall
within the definition of 'goods',[24] including
any rights, benefits, privileges or facilities provided in trade or
commerce. Examples include electronic
data, intellectual property rights and internet access. The breadth of the new provisions it is not
likely, therefore, to be hindered by a narrow definition of services.
Section 96A
provides that Part VIII applies to services in a manner corresponding to the
way in which it applies to goods. To give effect to this extension, s. 96A(2)
provides that references to the “sale of goods” are to be replaced with
references to the “re-supply of services”. It is notable that re-supply is the
term selected for the second transaction in relation to services, whereas the
corresponding term used for the second transaction in relation to goods is
“sale”. Why different terms are used is unclear. The explanatory memorandum
provides no explanation for this difference and the Hilmer Committee Report
adds to the confusion by referring, in its conclusion,[25] to services being “sold” and then “re-sold”, but then
stating in its recommendation that the provision should be extended to the
“re-supply” of services. While it may
be that the term “re-supply” was considered necessary to accommodate the inherently
different nature of services, the distinction conflicts with s 96A(1) which
provides that services are to be treated in a manner “corresponding” to the way
goods are. The terms are clearly
different in scope, the definition of “re-supply of services” being much
broader than that of “sale”. It is,
therefore, necessary to examine more closely what conduct will amount to a
"re-supply" for the purposes of RPM.
The definition of re-supply of services is s. 4C(f) provides that:
a reference to the re-supply of services (the
'original services') acquired from a person (the 'original supplier') includes
a reference to:
(i) a supply of the original services to another
person in an altered form or condition; and
(ii) a supply to another person of other services
that are substantially similar to the original services, and could not have
been supplied if the original services had not been acquired by the person who
acquired them from the original supplier.[26]
As noted in the
explanatory memorandum to the CPRA,
there are clearly some services which cannot be re-supplied, such as a
hairdresser providing a haircut,[27] or the provision of dentistry services. However, in
respect of those that can be resupplied, there are three limbs to the
prohibition identified in the explanatory memorandum.
Where the service supplied by A to B is exactly the
same as that B supplies to C, any attempt by A to fix the price below which B
supplies to C will contravene the Act. Conduct falling within this limb would
include the situation where a person supplies 'financial information by
electronic means to person B' who then supplies that same information, by
electronic means, to C.[28] This limb is uncontroversial and will be the
easiest to detect in practice.
Re-supply includes the supply of goods in an 'altered
form or condition'.[29] According
to the explanatory memorandum, this would cover the situation where 'A supplies
information electronically to B and B amplifies the signal and then supplies it
to C.'[30] However,
this example appears uncontroversial and therefore does not assist in
determining the extent to which a service may be supplied in an 'altered form'
or an 'altered condition' before it will escape the ambit of this
provision.
The reference to "form" suggests that the
very nature of services may be changed, form being ordinarily defined as the
mode in which something appears.[31] For example, if company (A) supplies law
publisher (B) with electronic cases and legislation in an un-edited format,
which B then sells to its customers electronically, after editing it and making
it more accessible, it is suggested this should constituted an alteration in
form, such as to fall within the ambit of the limb. "Condition", on the other hand, is more likely to be
restricted to situations where the service, while remaining essentially the
same, has been altered in quality. In the example provided, the amplification
of the signal could be categorised as an alteration in 'condition', although it
could fall within either category.
This limb, therefore, has the potential to capture a
broad range of services and will be limited only by the restrictions placed upon
it by the courts as to the extent to which such alteration in form or condition
may occur. The legislature, through its extension of the per se prohibition of RPM to services, has sent a clear message
that it opposes such conduct and it is hoped that the courts will refrain from
placing any restrictions on the breadth of these terms. The public detriment associated with fixing
the price of the services that have been altered to a very large degree -
manifested most directly in an increase of the price of such services to
consumers - is no less severe than that where only a slight alteration has
taken place.
This may be best demonstrated by example. Assume a film distributor, Moviemasters, supplies the rights to a
cinema group, Entertainment Ltd, to
screen a feature film and; (a) sets the price below which tickets to view that
film must not be sold[32] and (b)
sets the price below which the cinema group must not sell these rights to a
third party. The detriment suffered as
a result of price fixing in each of these situations is substantially the same,
with both likely to increase the cost to consumers of tickets to view the film.[33] However, while scenario (b) is clearly
covered by the first limb of the prohibition, scenario (a) must fall for
consideration under this limb. A wide
interpretation of this limb would result in such conduct being prohibited.
While clearly different from the original service, it is a manifestation of the
original service in an altered form which, but for the original service, could
not have been supplied.
If a supplier of services is able to impose sanctions
or threaten non-supply to a party who refuses to adhere to a minimum re-supply
price of the altered service, it is suggested that the extent to which such
service is altered should be entirely irrelevant, and the conduct should be
strictly prohibited. If this is the
interpretation placed on this provision, it is suggested that it should have a
significant role to play in removing any such existing vertical price
restrictions and deterring the establishment of such restrictions in the
future.
It would be unfortunate, however, if the courts were
to narrowly interpret the provision, allowing only the re-supply of services
that have had their form or condition altered to a negligible degree. Given the nature of services, this would
severely inhibit the effectiveness of the new provisions, and would lead to the
undesirable situation in which the supplier in the scenario (b) would have its
conduct prohibited as unlawful RPM, but the supplier in scenario (a) could
lawfully impose his restrictions.[34] Such an
interpretation would clearly eliminate from prohibition a large range of
services that undergo significant change before reaching the ultimate consumer,
a result that is clearly undesirable from the perspective of the consumer
public, who's interests the provisions are designed to protect.
The third limb to the prohibition relates to s.
4C(f)(ii) which defines as re-supply 'a supply to another person of other
services that are substantially similar to the original services, and could not
have been supplied if the original services had not been acquired by the person
who acquired them from the original supplier'.
According to the explanatory memorandum this 'covers cases where the
re-supplied service is a different bundle of legal rights from the original
service', an example being 'where A supplies information in electronic form to
B and B manipulates the information to transform it into a more easily
understood form and then supplies the transformed information to C.'[35]
Again, this explanation is limited in its ability to
provide direction as to the degree of similarity required between the original
services and the re-supply. It is
suggested that most conduct falling under this limb would also fall within the
'altered form or condition' limb, detailed above. However, there will be
circumstances in which the limbs do not overlap. One example would be where a computer service-provider provides
an internet access service which is re-supplied to consumers along with
installation and set-up services. Here, the original service (the internet
access) has not itself been altered, as required by the second limb. Nevertheless, the new service is different
in that it is constituted by a package made up of a number of services, one of
which was that originally supplied. It
is unclear whether this limb covers this situation - that is, the situation
where the original service is supplied together with a separate, but associated
service, which could not have been supplied if not for the original
service. It is suggested that the
practice of the supplier setting the price below which this combined service can
not be supplied should constitute a 're-supply' under this limb and, therefore,
be prohibited as RPM.
While the reforms to RPM brought about by the CPRA as
a result of the Hilmer Committee inquiry were a positive step toward capturing
conduct which had previously escaped the Act's ambit, further reform is still
needed to capture other forms of vertical price fixing. There are four key areas in which it is
suggested further reform is desirable: (1) combinations and mixtures of goods
and services; (2) where goods are not exactly the same as those originally
supplied; (3) fixing the price of competitors' goods or services; and (4)
anti-competitive maximum resale price maintenance.
While the CPRA recognises that the provision of
services is capable of re-supply and therefore should be subject to the
prohibition of RPM, the definition of services adopted is not wide enough to
cover combinations or mixtures of goods and services. This limitation exists both where goods and/or services are
provided "in connection" with each other and where one vertical
transaction relates to goods and the other services, or vice-versa. This is demonstrated by the following examples:
¨
Car dealer (A) sells
cars to rental agency (B) and sets the price below B can not rent those cars to
its customers (C). While it could be expected that such conduct would have the
same economic consequences as a dealer who set the price below which those cars
could not be sold, the latter is
prohibited and the former is not.[36]
¨
The owner of a fast
food franchise (A) sets the price below which its franchisee (B) can not sell
its food to its customers (C). Here it is a service that is being sold in the first
transaction and goods which constitute the second transaction. The current RPM provisions fail to capture
this situation regardless of the anti-competitive consequences. [37]
¨
Computer distributor
(A) sets a price below which retailer (B) can not sell a package, consisting of
a computer and the service of setting up and installing programs on that
computer, to customers (C). Here the
price being fixed is for a combination of both goods and services.[38]
It is suggested that the failure to capture this final
example, at least, represents a deviation from the recommendation of the Hilmer
Committee. While the formal
recommendation of the Hilmer Committee stated simply that the prohibition of
RPM 'be extended to the resale of
services', their more detailed conclusion on this issue states that RPM should
cover the situation 'where one person selling goods or services to a second
person requires the second person to sell other
services, provided in connection with
the resale of the original goods or services, at or above a specified price'
(emphasis added). This conclusion
covers the situation whereby A, the supplier of goods or services to B, fixes
the minimum price B can supply related goods or services to its customers (C).
In the above
example, where B sells internet connection services (supplied by A) to C, along
with installation and set-up of the necessary software, RPM would occur,
according to the conclusion of the Hilmer Committee where;
(a) A sets the price below which B can not supply
the connection service to C.
(b) A sets the price below which B can not supply
the installation & set-up service to C.
(c) A sets the
price below which B can not sell a "package" made up of both the
connection service and the installation.
The CPRA, however,
when seeking to implement this aspect of the Hilmer recommendations, has
referred only to the "re-supply" of "those services" that
were originally provided. It has then
defined "re-supply" in such a way that it does not encompass the
fixing of prices in relation to other services
provided in connection with those
originally supplied.[39] As a result, only situation (a) and possibly (c)[40] in the example above will be prohibited.
A
"package" which consisted of goods
originally supplied, distinguished from services
originally supplied in the previous example, and other services would also fail to fall within the prohibition. Thus, if A supplied computers to
B, who sold them to C, A could lawfully set the price below which B could not;
(i) sell services in relation to those computers;
(ii) sell a package consisting of
the computer and the service.[41]
The manner in which services were added to the RPM
prohibition means that goods and services are separately defined as RPM, but
combinations are not, whether the mixture is vertical or horizontal. While this omission may have been
deliberate, it is unfortunate, as it leaves a wide range of conduct subject to
blatant RPM. Setting the price below
which goods or services must not be sold is no less offensive to free
competition where a combination of goods and services is involved. While
currently this practice may be prohibited if it can be shown to substantially
lessen competition under s. 45, or constitute a misuse of market power under s.
46, the prohibition would more appropriately be dealt with under the RPM
provisions. This could be achieved by repealing the current s. 96A and
replacing references to 'goods' in s. 96 with references to 'goods or
services'.
The requirement in s 96 (RPM in relation to goods)
that the second transaction be a sale - rather than a supply or re-supply -
means that the goods sold must be identical to those originally supplied. On the other hand, where services are
involved, the term 're-supply' of services in s 96A is broad enough to
encompass the situation where services have been altered before their
re-supply.
Had the term 'supply' been used in relation to goods,
the placing of vertical price restrictions on goods which are to be leased,
hired or hire-purchased,[42] or goods
supplied together with other property or services, or both,[43] would have
being captured by the definition of RPM in Part VIII.[44] This would have encompassed some of the
'combination' situations referred to above, such as where a car manufacturer
fixes the price below which a retailer can not lease those cars.
Had the term 're-supply' been used, as it is for
services, it would be RPM for a supplier to fix the price below which a
retailer sells goods that have been altered in 'form or condition', or are
'substantially similar' to those originally supplied. This may cover the situation where, for example, a manufacturer
of furniture sets the price below which a distributor, who first paints and polishes
the manufacturer's furniture, must not sell the final product to retailers. It
would also be RPM for the supplier to fix the price below which the retailer
could not supply to another person goods in which the original goods have been
incorporated. This would capture
situations where, for example, the manufacturer of a primary produce (such as
limestone), sets the price below which a retailer may not sell derivatives of
that product (such as cement).
The use of these terms, it is suggested, would be
more appropriate and would mean that goods and services would be dealt with in
substantially the same manner. It would
also be more in keeping with the stated intention of the Hilmer Committee and
the legislature, and would substantially broaden the prohibition in relation to
goods. It is recommended, therefore,
that the term 'supply' should be used in relation to both goods and services
for the sake of consistency, and this term should be defined in the same manner
that re-supply is defined in relation to goods and services respectively.
One important
limitation on Australia's current RPM provisions is their failure to prohibit
the fixing of prices below which competitors'
goods can not be sold,[45] as demonstrated by the following example.
Wholesaler
(W) supplies Panadol (P) to a retailer (R). A different wholesaler (TP)
supplies Herron Paracetamol (HP) to
R. R sells both P and HP to its
customers. In addition, R manufactures
and sells its own brand of pain relief tablets (X) and sells it to its
customers in competition with both P and HP.
W, unhappy about the competition, agrees to supply P to R only on the
condition that R agrees (or withholds, or threatens to withhold, supply because
R has not agreed) not to sell below a specified price, either:
(a)
Panadol (P)
(b)
Herron Paracetamol (HP)
(c)
The retailers Home Brand (X)
Currently,
the RPM provision captures only situation (a).
Conduct (b) and (c) therefore are not prohibited as RPM under s.
48.
This limitation is
disturbing, given the obvious attraction of such conduct and the potential of
such conduct to be even more harmful than fixing the price below which the
supplier's own goods are not to be sold.
Unlike the latter situation, where pro-competitive arguments are often
advanced, there can be no suggestion that vertical price fixing in relation to competitors' goods has the potential to
benefit consumers through the enhancement of economic efficiency, or by any
other means. While generally this type of conduct will only be possible by
firms with substantial market power, in which case it is likely to infringe s.
46 of the TPA, this may not always be the case, and in any event the very
nature of the conduct suggests that it should more appropriately fall to be
considered under the RPM provisions as a per se violation of the Act.
It should be noted that one limited exception to the
requirement that the goods (or services) whose price is fixed must emanate from
the original supplier is provided in section s. 96(3)(e), although it is
questionable whether this was intended by the drafters of the provision.
Section 96(3)(e) defines, as an act constituting
engaging in resale price maintenance:
The
supplier withholding the supply of goods to a second person for the reason that
a third person who, directly or indirectly, has obtained, or wishes to obtain, goods
from the second person:
(i) has not
agreed not to sell those goods at a price less then a price specified by the
supplier; or
(ii) has sold, or is likely to sell, goods supplied to him or her, or
to be supplied to him or her, by the second person, at a price less than a
price specified by the supplier as the price below which the goods are not to
be sold; [emphasis added]
Unlike the other sub-sections in s. 96(3), s.
96(3)(e) does not appear to require that the goods whose price are fixed
emanate from the supplier. This would
apply to a limited range of circumstances where a third person, to whom the
second person supplies goods, has not agreed not to sell goods or services,[46] or has sold
or is likely to sell goods or services, supplied to him by the second person,
at less than the price specified by the supplier as a price below which the
goods are not to be sold.[47] The most
common scenario may arise as follows:
Manufacturer
(M) of product X supplies his product to a wholesaler (W). W then supplies to a retailer (R). M is aggrieved by the conduct of R who is
selling product Y, in competition with product X, at a lower price than product
X. To prevent M's product being subject
to price competition from product Y, M may withhold supplying W with product X
unless R agrees not to sell product Y at or below a specified price.
As the Act does not require that product Y in this
scenario originate from M, in this situation the definition of RPM would be
broad enough to capture the fixing of prices of a competitor's goods or
services. This now applies equally in relation to services under s. 96A.
This, while foreseeable, is likely to be rare in
practice. It is clear, in any event,
that this provision does not sufficiently address the deficiency whereby the
fixing of the price of a competitors goods escapes the ambit of the RPM
provisions. Had the second aspect of
the Hilmer conclusion regarding RPM in relation to services been implemented,
it would have gone a small way to
combating this situation, however still would have proved inadequate in fully
addressing this deficiency.
It is suggested, therefore, that the definition of
RPM should be extended to prohibit a supplier fixing a price below which a
distributor or retailer can not supply or re-supply goods or services received
from a third party, whether in combination with other goods and services, or
individually. This could be achieved by replacing references to 'those goods'
with references to 'those or other goods'. The use of the term 'supply' rather
than 're-supply', as recommended above, will enable the definition of RPM to
cover the situation where the goods or services whose price is fixed emanate
from the second party, so that there need not necessarily be, strictly
speaking, a 're-supply'.
There
are currently three exceptions recognised in Part VIII to the RPM
prohibition. They are maximum RPM,
recommended prices and loss-leader selling.
The Hilmer Committee did not recommend any changes to these exceptions
and consequently the CPRA made no changes in this respect. While there is little controversy over the
exclusion of these practices from the per
se prohibition of RPM, the exemption in relation to
maximum RPM goes further and specifically excludes that conduct from
prohibition under s. 45 of the TPA even where it can be shown to substantially
lessen competition.[48] This, it is
suggested, is unjustifiable. While situations in which maximum vertical price
fixing will have such an effect may be rare, those rare cases should be subject
to scrutiny under s. 45. It is
recommended, therefore, that this exemption be removed. This could be achieved simply by repealing section
45(5)(c)(iii).
The
extension of RPM to cover services is both desirable and essential. Technology is enabling new and improved
methods of supply, which can only lead to a greater range of services having
the potential for re-supply and consequently the potential for RPM.[49] The use of
the term 're-supply' and its associated definition means that the prohibition
of RPM for services is at least as wide, potentially much wider, than the
prohibition of RPM for goods, save for the natural limitations regarding the
ability to re-supply certain services.
This definition is, on its face, very broad and has the potential to
cover almost all manifestations of secondary supply of services. If this
provision is given the expansive interpretation it deserves it will capture a
wide range of anti-competitive conduct previously immune from the RPM
provisions of the Act. While previously
such conduct may have been subject to prosecution under the general prohibition
of conduct which substantially lessens competition, its prohibition is more
appropriately and effectively addressed by the RPM provisions. The extension provided for by s. 96A
therefore constitutes an appropriate and welcome development in Australia's RPM
laws. However, there remains a wide
range of pernicious vertical price fixing which escapes the ambit of the
current prohibition of RPM. It is
suggested, therefore, that the RPM provisions of the TPA are in need of further
reform.
Several
recommendations for reform have been suggested which, if implemented, would
provide a more comprehensive and consistent prohibition than that currently
existing in Australia. Each gap filled
by the recommendations made translates into a current exclusion from the RPM
provisions of the Act which may have a significant deleterious effect on
competition and, consequently, consumer welfare. The implementation of these recommendations would provide
Australia with an appropriately strict RPM regime which would have a desirable
effect on consumer welfare and lead to greater and more free competition in the
marketplace - the very ideals which the Act seeks to promote.
[1] Report by
the Independent Committee of Inquiry, National
Competition Policy, AGPS, Canberra, 1993 ("Hilmer Report"). The
Committee responsible for the report was chaired by Professor Frederick Hilmer.
[2] It should
be noted, however, that there is considerable debate regarding the possible
merits of the practice. This has been
extensively discussed elsewhere and, while the arguments for and against RPM
will be briefly noted below, they will not be discussed in any detail in this
paper.
[3] For
example, in the EC, Article 85 of the Treaty of Rome prohibits certain
anti-competitive conduct in terms broad
enough to cover vertical price fixing.
In the US it is prohibited by §1 of the Sherman Act. New Zealand prohibits RPM in substantially the same
terms as the TPA: s. 37(1) of the Commerce
Act. For an overview of the law in
other countries see P H Clarke, Vertical
Price Fixing, The Federation Press, Sydney, 1991, ch 14.
[4] Section
4(1) TPA provides that the practice of RPM is that contained in Part VIII of
the Act.
[5] Section
98(2) TPA.
[6] Section 47
TPA.
[7] Note,
however, that s. 45(5)(c)(iii) TPA exempts such conduct from prohibition under
s. 45.
[8] For an
extensive review of the arguments advanced for and against RPM see: Clarke,
above, n 3, ch 2.
[9] Hilmer
Report, above, n 1, p 50. Scant detail was provided as to the content of
submissions or the reasons behind the committees finding.
[10] The Committee's
evaluation and recommendations on RPM are detailed in the Hilmer Report, above,
n 1, ch 3(E).
[11] Notification
is a procedure by which a party wishing to engage in exclusive dealing can
"notify" the ACCC of the proposed conduct which results in immediate
protection of such conduct from prosecution under the Act, unless and until
such time as notification is revoked by the ACCC. The Committee
concluded that efficiency-enhancing reasons for RPM were not likely to be frequent
enough to warrant such extension, and consequently, the notification procedure
remains restricted to exclusive dealing: Hilmer Report, above, n 1, p 58.
[12] Re Books (1972) 20 FLR 256. See also I
Searles, 'Should Resale Price Maintenance Continue to be Banned?' (1993) 1 Trade Practices Law Journal 184 at 185.
[13] Authorisation is a procedure by which a firm wishing to engage in
particular conduct can apply to the ACCC, the body responsible for policing the
TPA, for permission to engage in conduct that would otherwise contravene of the
Act (s 88 TPA). While available for most forms of conduct in Part IV (it is not
available for conduct which constitutes a misuse of market power under s 46),
prior to 1995 conduct prohibited as RPM under s 48 could not be authorised.
[14] Hilmer
Report, above, n 1, p 58.
[15] This was inserted into the
TPA by s 16(d) of the CPRA.
[16] Section
90(8)(a) TPA.
[17] R Steinwall & L
Layton, Annotated Trade Practices Act
1974, Butterworths, Sydney, 1997, p
324.
[18] Id, p 167.
[19] Books and
medicines were granted exemptions from the RPM prohibitions in the UK: Re Net Book Agreement, 1957 [1962] 3 ALL
ER 751; Re Medicaments Reference (No. 2)
[1971] 1 All ER 12. All other
applications failed. The EC Commission
refused to exempt the Net Book Agreement from the RPM provisions so that, where
trade between Member States was affected, the Agreement breached article 81(1)
of the EC Treaty: Publishers Association
- Net Book Agreements 89/44 (1989) OJ L22/12. In 1997 the Restrictive Trade Practices Court held that the
exemption in relation to books was no longer in the public interest, and it was
withdrawn: Re Net Book Agreement 1957 (M
and N) [1997] 16 LS Gaz R 29. For
examples of cases in which RPM has failed to qualify for exemption see: Hennessy-Henkell [1981] 1 CMLR 601 (in
relation to the distribution of cognac); Gerofabriek
[1977] 1 CMLR D35 (cutlery distribution arrangements); Junghans [1977] 1 CMLR D82 (clock distribution - RPM clauses
deleted before exemption allowed).
[20] Hilmer
Report , above, n 1, p 53-54.
[21] Id, p 58.
[22] Ibid.
The official recommendation stated merely that 'the provision be
extended to the resale of services'.
[23] Inserted by
s 21 CPRA.
[24] Note, however, that it does not include rights or benefits being the supply of goods and performance of work under a contract of service. See