RPM – On everyone’s agenda but ours

Resale Price Maintenance (RPM) law seems open to debate everywhere – except in Australia of course.  RPM has not been a serious policy issue here since the enactment of the TPA.  The 1993 Hilmer report recommended extending it to services (it was restricted to goods) and s 96A achieved this (although in a slightly dodgy way).  Authorisation was also made possible in the ’90’s, but otherwise we’ve stuck with our per se approach to minimum RPM without any real political push for change.  It didn’t really rate a mention in the Dawson Report (it had a chapter on per se provisions, in which the Committee listed RPM as one of the forms of conduct prohibited per se, but it reted no further mention).

The courts have been a little more keen to express their view; in Jurlique, Justice Spender held that Jurlique had contravened the RPM provisions of the TPA, but expressed some reservations about the per se classification of RPM (after setting out what he considered to be some of the benefits of RPM he stated: “In the present proceedings, the difficulty is that … I am bound by the law … It is therefore somewhat of an indulgence to consider whether the law ought to be different from what it is presently is”).

This did not, however, prompt any political action (the focus has been cartels, meaning of understanding, predatory pricing, misuse of market power, access, mergers (creeping acquisitions) – pretty much everything competition law related except RPM).  This is not terribly surprising; nobody’s really pushing hard for a change and it’s not likely to find much public support.  I am not suggesting change either, but am following the debate elsewhere in the world with great interest.

The RPM research and policy revision currently taking place in north America and Europe has largely been prompted by the US Supreme Court decision in Leegin.  This split decision overturned the near-century old precedent in Dr Miles which classified both maximum and minimum RPM as a per se offence.  The per se prohibition on maximum RPM was replaced with a rule of reason test a number of years ago (State Oil v. Khan (1997)), but until Leegin minimum RPM remained a per se breach of the Sherman Act.  The US (at least at a federal level; a number of state laws still impose a per se ban) now subjects all RPM conduct to a rule of reason analysis.  This has prompted much debate, including the introduction of a bill into the Senate seeking to restore the Dr Miles position, supported by 41 US Attorneys General.  Some of the recent news items, articles and reports are listed below.

US Dr Miles related activity

• Sheppard Mullin – Debate on RPM Heats Up (discussing DOJ’s Christine Varney’s views on RPM under state law)
• Sheppard Mullin – “Per Se” or Not “Per Se” – An Historical “Quick Look” at Minimum RPM Under California Law
• Michael Lindsay, State Resale Price Maintenance Laws after Leegin, The Antitrust Source, 2009
• Roger Blair – The Demise of Dr Miles: Some troubling consequences (2008) 53 The Antitrust Bulletin 133
• Thomas Arthur – The Core of Antitrust and the Slow Death of Dr Miles (2009)  SMU Law Review
• Thomas A Lambert (2008) “Dr. Miles Is Dead. Now What?: Structuring a Rule of Reason for Evaluating Minimum Resale Price Maintenance”
• Fair Trade Commission Workshop on RPM in May 2009
• US Committee on the Judiciary Hearing on “Bye By Bargains? Retail Price Fixing, the Leegin Decision, and its Impact on Consumer Prices’ in April
• The American Antitrust Institute has been desperately trying to have Leegin overturned or thwarted by legislation – see, for example, AAI Urges Court of Appeals to Adopt Presumption of Illegality for Resale Price Maintenance Agreements.
• Paper by Marina Lao at the ASCOLA Conference in Washington in June: ‘RPM: A Reassessment of its Competitive Harms and Benefits’

Europe

• Frederic Van Doorn, Resale Price Maintenance in EC Competition Law: The Need for a Standardised Approach (2009)
• Alison Jones, ‘Resale Price Maintenance: a debate about competition policy in Europe?’ (August 2009) European Competition Journal

Canada

• Susan Hutton, Canada, US, Loosen Rules on RPM, 13 November 2009 – Lawyers Weekly

OECD

• OECD Policy Roundtable on Resale Price Maintenance (2008)

Warren Pengilley also recently published on the topic in the Competition and Consumer Law Journal, comparing the Australian/US experienced: ‘Resale price maintenance: An overview of the per se ban in light of recent court observations’ (2008) 16 Competition and Consumer Law Journal 1-45 (it includes a nice discussion of the history of RPM in this country).

Personally, I’ve always been a bit miffed that maximum RPM gets such a free ride in this country.  Not only does it escape per se prohibition as RPM under s 48 of the Act (which is fair enough – I’m not suggesting it should be per se prohibited) but even if it can be proven that a maximum RPM arrangement substantially lessens competition it is safe, courtesy of some strangely worded anti-overlap provisions).  This seems somewhat nonsensical to me, but it’s not worth making a huge fuss about; there don’t appear to have been any such cases to prompt Parliament to remedy this anomaly.

The debate raging in US and Europe over the appropriate mechanism for prohibiting RPM is interesting and worth following – but as far as Australia is concerned the current per se ban is appropriate.  While there might be some RPM that doesn’t cause much harm, demonstrable consumer benefit from RPM conduct is more difficult to demonstrate.  Consequently, the benefits associated with banning RPM for the bulk of cases in which consumers would be worse off outweigh the harm (if any) caused to those companies whose RPM conduct might not cause consumer harm; if there is a demonstrable public benefit in engaging in RPM the option for authorisation remains (imperfect though it may be).

Senate report slams GROCERYchoice

Yesterday the Senate Economics Committee released its report on the GroceryChoice website.  The Report concludes that ‘the Government’s GROCERYchoice initiative was characterised by waste and mismanagement’ and that it was ‘designed to fulfil a hollow election promise to put downward pressure on grocery prices.’   It was clear, the Report concluded, that ‘the aims of the website were not going to be achievable’ through the ‘poorly-designed ACCC website’.  This was not all the ACCC’s fault though – the ‘time pressure that the Government placed on the ACCC to launch the website’ which they describe as  ‘arbitrary and politically motivated’, ‘clearly led to hasty decision-making and little consideration of the potential saving to the taxpayer of $2.7 million’.  This cost, they conclude, ‘could have been saved if the Government had been more flexible and kept its eye on the ball.’

The report further recommends (Recommendation 4) ‘that the Government note the unfair manner in which its contractual arrangements with CHOICE were prematurely terminated by the Minister for Competition Policy and Consumer Affair s, the Hon. Dr Craig Emerson MP, without affording CHOICE a right of reply, and ensure that such
unprofessional and discourteous conduct does not occur again’.  Ouch.

There are many other scathing recommendations, the final one being that ‘the Government learn from this episode of waste and mismanagement and ensure that such inappropriate and careless spending does not occur again in the future, noting that now, more than ever, value for money for the taxpayer should be a top priority.’

Naturally the Labor Senators strongly dissented from this Report …

Ultimately the Report appears simply another waste of time.  It allowed a few mainly self-interested parties to vent about the issue (and about the grocery industry generally) in their submissions, but the report was always going to be hijacked by political opportunism; reviews of this nature are therefore of little value unless conducted by independent agencies.

Restrictions on parallel importation of books here to stay

The Government today rejected the Productivity Commission’s Report on Copyright Restrictions on the Parallel Importation of Books, in which it was recommended that parallel import restrictions be removed.  This conclusion accords with the findings on an earlier ACCC Report.

In his press release, Dr Craig Emerson MP (Competition Minister – amongst other things), claimed the Australian book printing and publishing industry already experienced significant online competition from international sources:

Australian book printing and publishing is under strong competitive pressure from international online booksellers such as Amazon and The Book Depository and the Government has formed the view that that this pressure is likely to intensify.

In addition, the technology of electronic books (e-books) like Kindle Books will continue to improve with further innovations and price reductions expected.

Concern was expressed that local authors, publishers and “culture” would be adversely affected by removal of the restrictions and were not prepared to fund compensation for that loss.  The real fear – from the government’s perspective – seems to have been the fear of some job-cuts in the Australian printing industry – a prospect the publishing companies skillfully manipulated to their advantage.

The Press Release also claimed that while compromise proposals were considered, they were all rejected.  Emerson also claimed that because of intense online competition ‘changing the regulations governing book imports is unlikely to have any material effect on the availability of books in Australia’.

One wonders why the Government commissioned a report, which resulted in 563 submissions and ran for some 7-8 months culminating in a report of 240 pages and a supplemental report, if it was never going to support recommendations which conflicted with it’s own desire to protect local publishers.  In Emerson’s defence, it appears he supported the PC recommendations, but was outvoted in Cabinet.

Publishers are the big winners, and many authors will also be pleased, but not all – see, for example, article by Kass Williams in the Australian on 29 October – ‘Let books follow the CD path‘.  See also Lex Hall’s ‘Book import restrictions on books hit students hard‘.  Compare various articles in the Bendigo Advertiser, claiming Australian authors would not be able to get published without the restrictions, a view that no doubt has little to do with their related fear of massive job lost at the largest local employer – a publishing plant.  The submission by Joshua Gans is useful in providing an independent economic analysis of the impact of the restrictions – concluding that they cannot be justified and ‘raise the price of all books sold in Australia’.  See also Joshua’s blog post following the decision.

Australian authors and publishers should not be protected from international competition any more than local musicians and record producers.  Consumers will continue to pay more to prop up local publishers. Book retailers will suffer as their internet-savvy customers will continue to switch to overseas online services to acquire cheaper books. The Government’s decision today is a great disappointment to those who favour free trade, competitive markets – and cheap books!

See further

• ABC – Fels scathing over book import decision
  Fels referred to the PIR’s as  ‘.. a Government mandated import monopoly market which is grossly overcharging Australians’.  He continues: ‘If the Government can’t deliver this simply reform because of the uneducated clamour of a few authors who are driven by publisher interests then there’s little hope that the Government will be able to stand up to other pressure groups and bring about useful change for the economy and for our society.’

Competition Law Blogs

I’ve recently come across a couple of new competition law blogs – it’s well worth having a look at and adding to your RSS feeds:

• IP & Competition Law Canada is a well established competition law blog and resource administered by Steve Szentesi
• Chillin’ Competition is a blog by Dr Nicolas Petit, lecturer in competition law and economics at the Institute for European Legal Studies (IEJE) Liege Law Faculty and co-director of the IEJE

Other useful competition/antitrust blogs include

• Antitrust and Competition Policy Blog – this blog by D Daniel Sokol is about the most frequently updated one out there – while it’s light on opinion/content, it’s the place to go for links to new research, speeches, laws, conferences etc.
• Antitrust Law Blog by Sheppard Mullin is regularly updated with good content and opinion
• Antitrust Review is another US-based blog – regularly updated and edited by Hanno Kaiser, David Fischer and Manfred Gabriel
• Antitrust Commentary – another well-established US blog with some good content organised well into subject areas – run by Matthew S. Wild, Senior Counsel at Levitt & Kaizer
• Antitrust Lawyer Blog – less frequently updated, but worth keeping an eye on, run by  Antitrust Lawyers Doyle, Barlow & Mazard PLLC
• The Antitrust Hotch Potch – after a dry spell between March and September, this blog is back in action – run by Prof Damien Geradin

Market definition in Australia

Earlier this month (on 2 October 2009) the Full Federal Court dismissed Singapore Airlines’ appeal against a decision of Justice Middleton which challenged ACCC investigation powers under s 155. A key issue was whether ‘routes between two points wholly outside Australia could be within a “market in Australia”.’ In rejecting the appeal, the Full Federal Court held that ‘prices fixed for legs of a journey which take place wholly outside Australia may ultimately affect competition in a market in Australia’. ACCC Chairman, Mr Graeme Samuel, noted that the decision was crucial in that it

‘confirms that the Act is able to reach cartels formed outside Australia affecting Australians. The Full Federal Court has also confirmed that the ACCC is fully able to investigate conduct occurring overseas. Here we are investigating a worldwide market for air cargo services.’  See ACCC Press Release.

The decision is a positive one. The definition of market in s 4E of the Trade Practices Act as one within Australia is artificial and distorting in cases where the reality is that the market is global or, at least, transnational.  It is not a problem that appears to arise in other jurisdictions which more sensibly focus on local effect on competition without the artificial market restriction.  Confirmation that a global market might be classified as a ‘market in Australia’, even where relevant conduct occurs entirely outside Australia is a positive step – and consistent with foreign approaches to the application of competition laws to conduct occurring abroad – but it is not a complete panacea for the problems generated by our restrictive market definition.

The last time this was officially reviewed was during the course of the Dawson Review of the competition law provisions of the Act which addressed it very briefly in the context of mergers (in which the definition of market is defined as a substantial market for goods or services in Australia, a State, a Territory or a Region of Australia: s 50(6)).  The Report concluded that this definition is not too restrictive and that it allows regard to be paid to foreign competition.  However it entirely glossed over the point that a market which is transnational cannot be.  I briefly discussed this in ‘The Dawson Report and Merger Regulation’ (2003) 8 Deakin Law Review (pages 59-61).   See also submission by Dr Maureen Brunt – ‘Market Definition in the Trade Practices Act: the Challenge of Globalization’.

The issue has arisen in a number of cases recently, with judges taking vastly different approaches to the meaning of market in the TPA.  The importance of defining market in a realistic, rather than artificial, way has increased with the globalisation of markets and will continue to do so as more conduct occurring outside our territorial shores impacts on our domestic competitive environment.  It is time to revisit the issue of market definition for purposes of the competition law provisions of the TPA.

Boost to Competition in the Grocery Industry

Minister for Competition Policy and Consumer Affairs, Dr Craig Emerson, today announced and end to restrictive provisions in supermarket leases with shopping centre owners, with most ceasing immediately. See press release.

Dr Emerson also today released the Rudd Government’s policy paper titled: Introducing more competition and empowering consumers in grocery retailing.  The policy notes, in part, that the Government is still considering its policy position on the notification of supermarket mergers (presumably in reference to its creeping acquisitions discussion papers)

Emerson: Labor is the Party of Competition

On Monday the Hon Dr Craig Emerson MP, Minister for Competition (among other things), delivered a speech tot he Committee for Economic Development of Australia outlining Labor’s approach to competition and consumer policy.

The discussion of competition policy is very good.  In the context of competition law and proposed amendments Emerson discusses the ‘Blacktown Amendment’, proposed by Senator’s Joyce and Xenophon, which proposes to make unlawful the selling of the same product at different prices within a 35km radius.  Emerson is highly critical of the bill, claiming Adam Smith would have described it as ‘a conspiracy against the poor’ and suggesting the description would not ‘be too far off the mark’.  The speech is highly critical of protectionist policies generally and notes that policy proposals ‘that are pro-competitive will get a sympathetic hearing [from the Government] while those that are anti-competitive will be listened to with great precaution and examined with the most suspicious attention’.

Emerson also notes, in the context of competition policy, the Government proposals to ‘improve the timeliness and effectiveness of decision-making process under the national access regime …’

No mention is made of the current reviews into creeping acquisitions and the meaning of ‘understanding’.

Despite the title of the speech, Emerson also spends some time discussing current and future reforms to Consumer law, including the unfair terms provisions, the current review into the unconscionable conduct provisions of the TPA and the proposed additional powers for the ACCC and ASIC to seek civil penalties under the Australian Consumer Law.

Worth a read.

View speech.

New issue of CCLJ

The latest Competition and Consumer Law Journal is out (Vol 17(1)) containing some interesting items on current developments in the law, including:

• In hope of convergence — A regional perspective on competition law (Chief Justice R S French)
• Signalling, collusion and s 45 of the Trade Practices Act (Rhonda L Smith, Arlen Duke and David K Round)
• The contract requirement for the joint venture exceptions under ss 44ZZRO and 44ZZRP of the Trade Practices Act (Brent Fisse)
• Cartel damages and the passing on defence: A comparative analysis (Graeme Edgerton)

For those interested in everything TPA related, there’s also an interesting article on the scope of s 51A (representations about the future) in the context of the current review of Australian Consumer Law.

• The 2009 review of Australian consumer law — An opportunity to reconsider and clarify the rationale and scope of s 51A of the Trade Practices Act (Aviva Freilich and Eileen Webb)

Trade Practices Act – Time to Split it Up?

The Trade Practices Act (TPA) is too big and too complicated. The Government has introduced phase I of their two-phase plan to implement a new Australian Consumer Law which will bulk up the Act even further (the Bill alone runs to 84 pages).  The adds to the additional 90 pages of statutory text generated by the recent passage of the criminal cartel act.  It cannot go on … the annotated acts are bursting at their seems.

So what can be done to stem the flow of dense legislative supplements to what was once a neat little Act (the original 1974 Act comprised a little over 38,000 words of text; the current consolidation contains more than 305,000 words)?  The answer is probably nothing.  It is unlikely there will be any substantive legislative repeals or genuine attempts at simplification, although this would be desirable, and the problem is likely to get worse with current inquiries into unconscionable conduct, creeping acquisitions and the meaning of ‘understanding’ in part IV of the Act likely to generate more legislative content in the near future.  Another answer is needed.

Chris Bowen MP, when he was then Minister for Competition Policy and Consumer Affairs, announced that the Government would change the name of the TPA to the ‘Australian Competition and Consumer Act’ while in the process of implementing the Australian Consumer Law.  It was though that somehow this would ‘better reflect its purposes of promoting competition and empowering consumers’.  It is believed the Govenment is still intent on this name change.  Although, as a bit of a traditionalist, it hurts me to part with the term ‘Trade Practices Act’, of which I am now very fond, the proposed name change might present an opporunity.  While in the process of changing the Act’s name why not split it up?  Let’s divide it into a consumer act (‘Australian Consumer Act’ perhaps) and a competition act (‘Australian Competition Act’?).  These are two separate fields of law and policy (even if there may be some overlapping objectives) – they need not be married together in this legislative jungle.

While we’re in the process of splitting up the Act let’s also re-number it.  A multitude of additions and alterations over the years has led to an absurd numbering system.  The last part of the Act is Part XIII.  You might deduce from this that the Act has 13 parts.  You would be wrong; it in fact has 28 parts and a schedule.  Parts include IIIAA, XIAA, XIB etc.  All very logical!  The section numbering is even better. The new cartel laws begin with section 44ZZRA and end with section 44ZZRV.  Why?  Because the government wanted to slip them in between sections 44ZZR and 45.  Again, very logical and easy to follow for business trying to adhere to the law – and this is not the worst of it. This bizarre numbering is scattered throughout.  We have s 51ACAA (I kid you not), s 44AAGA, s 75AZQ, s 87CAA, s 95AZEA (seriously!), s 10.01 (yes, in Part X the numbering system completely changes – we go from s 119 to s 10.01 – 10.91 then we jump to s 150A at the start of Part XIA – there are no sections 120-150 in the Act) and my personal favorite, s 151BUAAA.  It is simply absurd.

So, with the re-naming and and of the Act we can also begin a re-numbering system.  Nobody really loves s 151BUAAA or will be sorry to see it go.  Lets put what we want in the Act (or Acts), then start the renumbering of parts and sections from scratch.  No doubt future amendments will mess this up a little, but the Act cannot continue on it’s current numbering trajectory.

There are, of course, more serious issues than poor structure and numbering of the Act.  It is highly complex and, as a result, inaccessible for many of those parties to whom it is directed (consumers and business).  But a simplified structure (one that clearly separates consumer and competition legislation and policy) and a logical numbering system would, at the very least, be a good start.

Creeping Acquisition submissions due … later

Submissions on the ‘Creeping Acquisitions – The Way Forward‘ discussion paper are due tomorrow.  The paper proposes only one type of creeping acquisition law – a market power based law which would prevent acquisitions by corporations with substantial market power any time the acquisition would further ‘enhance’ their market power.  No guide to how much it would need to ‘enhance’ their power is provided …

For more see my submission to the inquiry.

UPDATE: I raced to get my submission in by the deadline of 12 June but it seems I need not have bothered.  Today the web site has been updated with a notice that “The closing date for submissions has been extended by four weeks, to 10 July 2009″.  Naturally this will also set back the introduction of any creeping acquisition law, which the Government previously announced would occur by 30 June (this, is of course, a good thing … better that they set it back until … never)