Exclusive Dealing Under the Trade Practices Act - eBay's Application for Immunity Rejected by the ACCC
By Kathryn Edghill, Partner and Graham Maher, Partner
18 June 2008
In a timely reminder that the grant of immunity for exclusive dealing conduct which would otherwise be a breach of the Trade Practices Act is not necessarily a foregone conclusion, the Australian Competition and Consumer Commission (ACCC) recently issued a draft determination rejecting eBay’s application for immunity in respect of its proposed requirement that users of its on-line marketing facility make and receive payments through accounts held with its related company, PayPal.
Background
eBay operates a website in Australia through which the sale and purchase of goods can be transacted by members of the public. It currently allows sellers to nominate a number of payment options on the site. PayPal operates a secure on-line payment service by which members conduct financial transactions with one another over the internet without the need to provide the other party with specific financial information such as bank account details.
In April 2008 eBay lodged a ‘notification’ with the ACCC seeking immunity for a proposal to require, as a condition of use of the services on its site, that users and sellers conduct the financial aspects of their transactions using PayPal accounts (Conduct).
Exclusive Dealing
The Conduct which eBay sought to notify is a form of exclusive dealing known as third line forcing. It occurs where one party supplies or offers to supply its goods or services on condition that the acquirer also acquires goods or services from a particular third party. Such conduct is a “per se” breach of section 47 of the Trade Practices Act, in that no substantial lessening of competition need be established for a breach to occur.
A party can obtain immunity from prosecution for exclusive dealing by notifying the conduct to the ACCC. Immunity will be automatically conferred 14 days after the date of the notification unless the ACCC determines that the claimed public benefits of the conduct do not outweigh its anti-competitive detriment.
The eBay notification
For a large range of conduct constituting exclusive dealing (including third line forcing) the grant of immunity is infrequently opposed by the ACCC. Such was not the case in respect of the eBay notification.
Although eBay claimed significant public benefits would arise from the Conduct, which were largely related to reducing what eBay calls ‘Bad Buyer Experiences’, the ACCC investigated the matter and decided on 12 June 2008 to revoke the immunity which would otherwise have automatically applied to the Conduct. In the course of its investigations the ACCC received approximately 650 submissions from eBay users most of which opposed the grant of immunity. Such a substantial response provided the ACCC with ample evidence on which to rely in support of its decision.
The ACCC’s Draft Determination
The ACCC found that the public benefits flowing from the Conduct were not sufficient to outweigh the anti-competitive detriment because:
- eBay operates in a market for the supply of on-line marketplaces in Australia and eBay holds substantial power in that market ;
- PayPal competes with a range of on-line payment providers supplying services to facilitate transactions on on-line marketplaces;
- the Conduct would enable eBay to leverage its power in the PayPal market;
- the Conduct was likely to substantially lessen competition by reducing consumer choice, resulting in higher transaction costs and by reducing the prospect of innovation in on-line payment systems; and
- while there were public benefits in reducing Bad Buyer Experiences and some public benefits would arise from use of PayPal (such as increased dispute resolution for higher value transactions), there were negligible public benefits for sellers.
In a comment which may not assist eBay or PayPal commercially, the ACCC also found that the evidence did not support the view that PayPal was the most secure payment method or offered the best services.
The ACCC’s determination is only a draft at this stage. Further submissions may be made before a final determination is made but, if history is any guide, the chances of changing the ACCC’s views are slim.
Conclusion
The decision highlights the fact that the ACCC will not merely rubber stamp notifications in respect of exclusive dealing and demonstrates the need to take care before invoking the process, lest disgruntled consumers use the process to publicly voice their concerns about a company’s goods or services.