A recent Federal Court decision in a case concerning “exclusive dealing” has brought into focus the need for businesses to carefully assess the competition law risks associated with exclusive arrangements.
“Exclusive dealing” is prohibited in Australia where it has the purpose, effect or likely effect of substantially lessening competition, and is subject to significant financial penalties.
The ACCC has stated that one of its key enforcement priorities for 2022-2023 is exclusive arrangements between firms with market power that impact competition.
What is exclusive dealing?
In summary, exclusive dealing arises where an agreement for the supply, re-supply or acquisition of goods or services imposes restrictions on one party’s ability to choose with whom, in what or where to deal. For example, exclusive dealing arises where a supplier refuses to supply goods or services unless the purchaser agrees not to buy goods of a particular kind from a competitor of the supplier. This conduct would contravene section 47 of the Competition and Consumer Act 2010 (Cth) (CCA) if it has the purpose, effect or likely effect of substantially lessening competition in a market in Australia.
From November 2014 to December 2019, Australasian Food Group, trading as the well-known brand Peters Ice Cream (Peters) acquired distribution services from PFD Food Services (PFD), the largest Australian distributer of single serve ice creams. However, the services were obtained on the condition that PFD would not sell or distribute single serve ice creams produced by Peters’ competitors across a wide range of geographic locations.
In the Federal Court, the Australian Competition and Consumer Commission (ACCC) alleged, and Peters admitted, that Peters had, in requiring this condition, engaged in exclusive dealing conduct contrary to section 47 of the CCA.
Peters was ordered to pay a substantial penalty of $12 million for its breach of the CCA, to contribute to the ACCC’s legal costs, and to establish a compliance program for three years following the decision.
Prohibited exclusive dealing
Exclusive dealing is prohibited under the CCA where it has the likely effect of substantially reducing competition in the relevant market.
The assessment of whether a particular instance of exclusive dealing does in fact have the likely effect of substantially reducing competition in the relevant market is a matter of fact and degree, and will depend on the particular circumstances of both parties and the market in question.
In relation to the decision, ACCC Chair, Gina Cass-Gottlieb said: “Peters Ice Cream admitted, that if PFD had not been restricted from distributing other manufacturers’ ice cream products, it was likely that one or more potential competitors would have entered or expanded in this market.”
This admission was, to the ACCC and the Federal Court, clear evidence of substantial reduction in competition.
What you need to do
The ACCC has identified the targeting of exclusive arrangements by firms with market power that impact competition in its Compliance and enforcement priorities for 2022/23.
Whilst the facts of the Peters decision may now seem like obvious prohibited exclusive dealing, a contravention of section 47 of the CCA may not always be so evident.
This decision is a timely reminder for trading entities to revisit their agreements with the view of assessing any exclusive arrangements for compliance with the CCA.
We are happy to review and advise on any agreements where exclusive arrangements may have been agreed or are being contemplated.
If you have any queries or would like further information about this article, please contact:
M: 0418 578 701
T: (03) 6235 5147
Published: 18 May 2022