Resale price maintenance - no rule of reason in Australia
By Kathryn Edghill, Partner and Graham Maher, Partner
22 July 2007
Resale price maintenance - no rule of reason in Australia
The US Supreme Court's recent decision in Leegin Creative Leather Products, Inc. v PSKS, Inc., No. 06-480 (June 28, 2007) (Leegin), has overruled nearly 100 years of established law under the Sherman Act by holding that resale price maintenance should be judged by the rule of reason and no longer be unlawful per se. US corporations doing, or contemplating doing, business in Australia, need to be aware, however, that resale price maintenance continues to be absolutely prohibited in Australia and that very significant penalties can be imposed for such conduct.
While the Leegin decision has sparked debate on the issue in Australia and a member of the Australian judiciary has recently alluded to the pro-competitive effects of resale price maintenance,[1] there are currently no plans to amend the Trade Practices Act 1974 (Cth) (TPA) to remove the absolute prohibition on resale price maintenance. In fact, the current political climate, in which there is a focus on alleged anti-competitive pricing behaviour of large companies towards smaller competitors [2], would seem to make it highly unlikely that any move to make resale price maintenance subject to a rule of reason test or a test of substantially lessening competition would gain much support.
The Australian prohibition - section 48 of the TPA
Section 48 of the TPA prohibits manufacturers, importers or wholesalers from:
- making known to resellers a minimum price below which goods must not be sold;
- setting a price that retailers are likely to understand is the price below which goods should not be sold or advertised;
- agreeing with retailers that they will not advertise goods below a specified price;
- inducing a retailer not to discount goods; and
- threatening to refuse supply to a retailer to force them to comply with any of the above.[3]
A supplier may, however, insist on a maximum price and may also legitimately withhold supply if the reseller continually sells at less than cost to attract custom or recoup loss of profits made by the sale of other goods. Suppliers may also recommend prices, but there are now many Australian authorities to the effect that a recommended price may well constitute a specified price in such a way that the conduct will amount to resale price maintenance.
Resale price maintenance may be authorised by Australia's competition regulator, the Australian Competition and Consumer Commission (ACCC), if such conduct would result, or would be likely to result, in such a benefit to the public that the conduct should be allowed.
Implications for US corporations doing business in Australia
The ACCC is currently focussing on resale price maintenance and has been making it clear to the Australian business community that it will pursue those who engage in the practice. It recently commenced proceedings against TEAC alleging that TEAC engaged in resale price maintenance by attempting to induce a certain retailer not to advertise certain TEAC products below the Ògo price' specified by TEAC. In a decision handed down in February of this year,[4] the ACCC was successful in suing international skin care company, Jurlique, for resale price maintenance. Total penalties of AUD2.5 million were imposed on Jurlique and the CEO of the company was also fined AUD200,000 for being knowingly concerned in the breach.
Recent amendments to the TPA now mean that companies found guilty of engaging in resale price maintenance may be liable to penalties of up to the greater of AUD10 million, or, where the value of the illegal benefit can be ascertained, three times the value of the illegal gain, or, where the value of the illegal benefit cannot be ascertained, 10% of the turnover of the company and its related companies in the preceding 12 months. Individuals involved in the conduct may also incur penalties of up to AUD500,000. These penalties, particularly when combined with the extraterritorial reach of the TPA, are a timely reminder that US companies doing business in Australia need to be aware of Australia's antitrust laws.
The assistance of Ainslie Baird from our Competition, Trade Practices and Regulatory team, in preparing this article is gratefully acknowledged.
Footnotes
- [1] Australian Competition and Consumer Commission v Jurlique International Pty Ltd [2007] FCA 79 per Spender J.
- [2] There are currently two bills before the Commonwealth Parliament seeking to amend the TPA to strengthen the ability to pursue large companies for alleged predatory pricing towards smaller businesses
- [3] "News for Business - Resale Price Maintenance", 1 January 2007, Australian Competition and Consumer Commission Publication
- [4] Australian Competition and Consumer Commission v Jurlique International Pty Ltd [2007] FCA 79.