competition/antitrust law: August 2007 Archives
The ACCC has announced that the High Court of Australia has allowed their appeal in Australian Competition and Consumer Commission v Baxter Healthcare Pty Limited [2007] HCA 38. Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ were the majority, with whom Kirby J agreed. Callinan J dissented.
The case involved allegedly anti-competitive conduct of Baxter Healthcare, in contracting with state government health departments. At first instance, the Allsop J held that Baxter's conduct would have contravened the Trade Practices Act, but because they were contracting with state government departments (who were not carrying on a business, which would explicitly bring them within the scope of the TPA), Baxter was entitled to derivative crown immunity and the relevant provisions of the TPA could not apply to their conduct.
Both Baxter and the ACCC appealed -- the ACCC on the basis there was no derivative crown immunity, and Baxter on the basis that their conduct would not have contravened the TPA in any case. The Full Federal Court dismissed the appeal, but only considered the crown immunity issue. Hence, the case will return to the Full Federal Court to reconsider the findings of Allsop J on whether Baxter's conduct, absent the crown immunity, contravened the TPA.
The case involved allegedly anti-competitive conduct of Baxter Healthcare, in contracting with state government health departments. At first instance, the Allsop J held that Baxter's conduct would have contravened the Trade Practices Act, but because they were contracting with state government departments (who were not carrying on a business, which would explicitly bring them within the scope of the TPA), Baxter was entitled to derivative crown immunity and the relevant provisions of the TPA could not apply to their conduct.
Both Baxter and the ACCC appealed -- the ACCC on the basis there was no derivative crown immunity, and Baxter on the basis that their conduct would not have contravened the TPA in any case. The Full Federal Court dismissed the appeal, but only considered the crown immunity issue. Hence, the case will return to the Full Federal Court to reconsider the findings of Allsop J on whether Baxter's conduct, absent the crown immunity, contravened the TPA.
The Age online is carrying an article about the ACCC's price fixing action against ANZ bank, which I blogged about a few days ago. Quoting from the article:
ANZ is probably arguing that there are two separate markets: one for "loans direct from banks", in which ANZ competes; and a separate market for "loans via middlemen/brokers" in which Mortgage Refunds compete. Because they're not competitors, what ANZ is alleged to have done isn't price fixing.
Market definition in competition/antitrust cases is, as The Age's article notes, fraught with difficulty. However, I think that the ACCC's argument has a much better chance of success. In economic terms, home loans from banks and home loans via brokers are substitutable; if banks raise their prices, consumers will go to brokers, and if brokers raise their prices, consumers will go to banks. Substitutability is an important indicator that products/services comprise a single market.
ANZ will need to do some fast talking and have eminent economists on hand to support their world view that home loans from banks, and home loans via brokers, are two completely different services that don't compete with each other.
IMHO, the smart money is on the ACCC.
The ACCC's statement of claim and ANZ's response spell out a case that will turn on whether the court believes banks and their brokers operate as distinct and competing entities in a market for "loan arrangement services". ANZ in its only statement regarding the case said the assertion that banks and brokers were competitors was "ill-conceived and misplaced in law" because "ANZ as a lender and Mortgage Refunds as a broker are not competitors".Mortgage Refunds and the ACCC are probably arguing that there is only one market, let's call it "provision of home lending services", in which the ANZ bank and Mortgage Refunds compete with each other.
ANZ is probably arguing that there are two separate markets: one for "loans direct from banks", in which ANZ competes; and a separate market for "loans via middlemen/brokers" in which Mortgage Refunds compete. Because they're not competitors, what ANZ is alleged to have done isn't price fixing.
Market definition in competition/antitrust cases is, as The Age's article notes, fraught with difficulty. However, I think that the ACCC's argument has a much better chance of success. In economic terms, home loans from banks and home loans via brokers are substitutable; if banks raise their prices, consumers will go to brokers, and if brokers raise their prices, consumers will go to banks. Substitutability is an important indicator that products/services comprise a single market.
ANZ will need to do some fast talking and have eminent economists on hand to support their world view that home loans from banks, and home loans via brokers, are two completely different services that don't compete with each other.
IMHO, the smart money is on the ACCC.
Resale Price Maintenance (RPM) is, in a nutshell, a supplier imposing on its customers a minimum price at which they may resell goods or services acquired from the supplier. The result of RPM is to reduce or eliminate price-based competition in the retail market for the goods or services in question. This harms consumers, because they will be forced to pay higher prices than they would pay in a competitive market.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
In Australia, RPM is per se unlawful under s 48 of the Trade Practices Act 1974 (and what actually constitutes RPM is defined in Part VIII). In the USA, RPM has been per se unlawful since the 1911 Supreme Court decision in Dr. Miles Medical Co. v. John D. Park and Sons. The rationale for the per se rule is that RPM (and other practices proscribed per se) always or almost always restrict competition, so it is unnecessary to evaluate each case.
There are economic arguments as to why RPM is not, or is not always, anti-competitive. I don't subscribe to those economic theories -- in my view, the harm to consumers from the elimination of competition on price will not be offset by the benefits to consumers and the public that are claimed to result from RPM. Where a supplier can substantiate the benefit to the public that would be created by RPM, and and those benefits outweigh the harm, they can apply to the ACCC for an authorisation to engage in RPM under s 88(8A) of the TPA.
In June this year, the US Supreme Court drank the economic kool-aid (in a 5:4 split) and reversed Dr Miles Medical Co in Leegin Creative Leather Products v PSKS Inc, holding that RPM did not always or almost always restrict competition, and therefore did not meet the criteria for per se illegality, and would instead be evaluated under the rule of reason approach -- that is, each case would be evaluated on its merits to determine whether the net effect was to lessen competition or not.
Continue reading Resale Price Maintenance and eBay.
The Australian Competition and Consumer Commission announced in a media release that they have instituted proceedings in the Federal Court against ANZ bank over alleged price fixing.
As I understand the case, Mortgage Refund is a mortgage broker, and attracted business by offering to pass on to their clients (i.e. the "refund") some of the commission that was payable to Mortgage Refund from the banks or other lenders. ANZ allegedly threatened to refuse to deal with Mortgage Refund unless they agreed to restrict the amount they passed onto the consumer to $500 or less.
If true, I this conduct would probably contravene s 45 of the Trade Practices Act 1974. ANZ and Mortgage Refund almost certainly compete with each other in the market for home lending services, and the ACCC presumably alleges the existence of a contract, agreement or understanding with the purpose or likely effect of fixing, controlling or maintaining of a discount, allowance or rebate, for services to be supplied by one of the parties. Section 45A would therefore mean that it was deemed to have the purpose, or likely effect, of substantially lessening competition in a market, for the purposes of s 45.
A news.com.au article on the matter says the action will be heard in Brisbane; yet another case I'll be watching with interest.
As I understand the case, Mortgage Refund is a mortgage broker, and attracted business by offering to pass on to their clients (i.e. the "refund") some of the commission that was payable to Mortgage Refund from the banks or other lenders. ANZ allegedly threatened to refuse to deal with Mortgage Refund unless they agreed to restrict the amount they passed onto the consumer to $500 or less.
If true, I this conduct would probably contravene s 45 of the Trade Practices Act 1974. ANZ and Mortgage Refund almost certainly compete with each other in the market for home lending services, and the ACCC presumably alleges the existence of a contract, agreement or understanding with the purpose or likely effect of fixing, controlling or maintaining of a discount, allowance or rebate, for services to be supplied by one of the parties. Section 45A would therefore mean that it was deemed to have the purpose, or likely effect, of substantially lessening competition in a market, for the purposes of s 45.
A news.com.au article on the matter says the action will be heard in Brisbane; yet another case I'll be watching with interest.
Slashdot reports that a website, whyfirefoxisblocked.com, is trying to start a campaign to block all users of the Firefox web browser from accessing websites. Why? Because Firefox supports an extremely useful plug-in by the name of Adblock Plus, which as the name suggests, allows users to block advertising from websites.
Why is this bad? According to whyfirefoxisblocked.com:
In a 2002 interview with Jamie Kellner, chairman and CEO of Turner Broadcasting (a company that controls a number of cable TV channels, including CNN, and a part of Time Warner) said that the increasing penetration of PVRs (Personal Video Recorders, e.g. Tivo, many of which allow you to skip advertising) was not good for his industry. When asked why, he responded:
The whyfirefoxisblocked.com page links to a brief but interesting blog posting suggesting that blocking advertising is an infringement of copyright, and that the makers of Adblock Plus could be liable for contributory infringement. Yet another issue to explore in a future blog posting...
Why is this bad? According to whyfirefoxisblocked.com:
- blocking advertising "is an infringement of the rights of web site owners and developers";
- website operators have the right to insist that users of their website view advertising;
- accessing those websites while blocking the ads is "no less than stealing";
- blanket ad-blocking is "theft";
- the makers of Adblock Plus "refuse to allow website owners control over their own intellectual property";
- etc
In a 2002 interview with Jamie Kellner, chairman and CEO of Turner Broadcasting (a company that controls a number of cable TV channels, including CNN, and a part of Time Warner) said that the increasing penetration of PVRs (Personal Video Recorders, e.g. Tivo, many of which allow you to skip advertising) was not good for his industry. When asked why, he responded:
Because of the ad skips.... It's theft. Your contract with the network when you get the show is you're going to watch the spots. Otherwise you couldn't get the show on an ad-supported basis. Any time you skip a commercial or watch the button you're actually stealing the programming.Everything old is new again. It will be interesting to see if this campaign gains any serious traction. It could just be a troll. In any case, the technical countermeasures that they suggest site owners take could be trivially circumvented. I wonder if they will then rely on the anti-circumvention provisions of the DMCA to help their cause? If this campaign is serious, and spreads, it could lead to a real copyright bunfight.
The whyfirefoxisblocked.com page links to a brief but interesting blog posting suggesting that blocking advertising is an infringement of copyright, and that the makers of Adblock Plus could be liable for contributory infringement. Yet another issue to explore in a future blog posting...
