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Focus: Breach of third line forcing prohibition

11 November 2010

In brief: In a case brought by the Australian Competition & Consumer Commission, the Federal Court has ordered Black and White Cabs Pty Ltd to pay a penalty of $110,000 as a result of an arrangement that contravened the third line forcing provisions of the Trade Practices Act 1974 (Cth). Partner David Brewster (view CV) and Lawyer Jess O'Brien report.

How does it affect you?

  • Third line forcing involves a corporation supplying goods or services (including at a special price or discount) on the condition that the customer must also acquire some other good or service from a third party (other than a related company). Such arrangements are a very common form of business conduct and can often result in savings to consumers.
  • Unlike in other OECD countries, third line forcing is per se illegal in Australia and as the Black and White Cabs case illustrates, can result in substantial penalties.

The Black and White Cabs case

The proceedings related to a requirement that Black and White Cabs imposed on taxi operators that they must have in their cabs an electronic payment service operated by Cabcharge. Justice Finkelstein declared that this breached the prohibition on third line forcing because it involved Black and White Cabs offering to supply a service (the right for cab drivers to operate in the Black and White Cabs network and use taxi licences held by Black and White Cabs) on condition that they also acquire a different service from a third party (the electronic payment system from Cabcharge, which was not a related company of Black and White Cabs).

By consent, Justice Finkelstein ordered Black and White Cabs to pay a pecuniary penalty of $110,000, as well as a $10,000 contribution to the ACCC's costs, and other orders including implementation of a trade practices compliance program.

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Implications

This is the first penalty imposed for third line forcing in many years. It comes at a time when the ACCC is increasingly taking legal action on third line forcing arrangements, including:

  • an action commenced in 2008 against a number of telecommunication companies that provided 'bundled services deals'. This case is still on foot in the Federal Court; and
  • a 2009 case against Bill Express Pty Limited and Technology Business International Pty Ltd in which declaratory relief was sought.

While the strict prohibition against third line forcing can be a source of great annoyance to businesses, it is usually possible to either restructure the arrangement or, alternatively, to obtain immunity from the prohibition by lodging a notification or authorisation with the ACCC. As third line forcing arrangements are common, a frequent mistake by businesses is to assume that their own arrangements are legitimate because 'everyone in the industry imposes these requirements' or because they do not lessen competition. The Black and White Cabs case illustrates the importance of ensuring that commercial arrangements, including in particular those involving sales contracts, distribution, procurement, licensing, franchising and sub-contracting, do not give rise to per se liability under the prohibition on third line forcing.

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