The Competition and Consumer Act 2010 (Cth) prohibits conduct in the market place that has the effect of restricting or limiting competition. As identified in the previous article entitled “Restrictive trade practices – cartel conduct“, there are a number of prohibited restrictive practices. This article examines the practice of exclusive dealing.
Exclusive dealing occurs when a party imposes restrictions on another party’s freedom to choose what they deal in, who they deal with or where they deal. Section 47 of the Competition and Consumer Act prohibits this practice.
There are two broad categories of exclusive dealing as follows:
- Third line forcing; and
- Other types of exclusive dealing.
Third line forcing
Third line forcing occurs where a supplier only supplies goods or services or offers a particular price or discount to a purchaser on the condition that the purchaser buys goods or services from a particular third party. This type of conduct is prohibited regardless of its effect on competition.
Other types of exclusive dealing
All other conduct that can be classified as exclusive dealing falls under this category. A supplier will find themselves in breach if they will only supply goods or services to purchasers who agree not to:
- Buy goods of a particular kind or description from a competitor;
- Resupply goods of a particular kind or description acquired from a competitor;
- Resupply goods or services to a particular person or in particular places.
In contrast to third line forcing, conduct in this category does not automatically constitute exclusive dealing. To be prohibited, the conduct must also have the effect of lessening competition in the market place.
The case of Universal Music Australia Pty Ltd (formerly known as PolyGram Pty Ltd) v ACCC (2003) 201 ALR 636 was a case involving exclusive dealing by two Australian distributors of recorded music, Universal Music and Warner Music.
As a result of changes to copyright legislation, retailers were allowed to import CDs from overseas companies (subject to various restrictions). Universal Music and Warner Music, however, ceased supplying particular retailers and threatened to withdraw trading benefits from retailers who were purchasing CDs from overseas suppliers pursuant to the copyright legislation amendments.
The Court held that this type of conduct amounted to exclusive dealing. However, interestingly, it was found that Universal Music and Warner Music’s conduct did not substantially lessen competition, as they did not have the market power to do so. But in this case, the Court looked to the purpose of the conduct rather than the effect and observed that as the purpose of the conduct was to lessen competition then the companies were in breach. As a result, each company received a penalty of $1,000,000.00.
It is therefore important to be aware of this type of conduct within in the market place. If you have been a victim of exclusive dealing or someone is alleging that your business has engaged in this type of conduct, contact us on 1800 683 928 to find out how we can help.