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.’