Allens acted for PZ Cussons in successfully defending the first contested 'hub and spoke' cartel case brought by the ACCC. The ACCC alleged (among other things) that laundry detergent suppliers entered into an agreement via communications through an intermediary – initially, the industry association and, subsequently, a major customer, Woolworths. The other respondents in the proceeding – Colgate-Palmolive and Woolworths – settled with the ACCC in 2016, paying pecuniary penalties of $18 million and $9 million respectively. Partner Kon Stellios and Senior Associate Lisa Lucak, who worked on the case, report.
How does it affect you?
- Agreeing to a customer's request regarding pricing or product development is unlikely to contravene Australia's competition laws, even where you believe or expect the customer to make the same request to your competitors. Similarly, receiving or acting on 'market intelligence' from a customer or supplier about a competitor will not, without more, contravene Australia's competition laws.
- However, you should be alert and take caution when receiving 'market intelligence' about your competitors from your customers or suppliers. This is particularly with the introduction of the new prohibition on concerted practices in November 2017, which does not require the ACCC to prove that there is an agreement between competitors. We expect the ACCC to prosecute more cases involving the exchange of information, including via intermediaries, to test the ambit of the new prohibition.
- Businesses need to take care when engaging in discussions at industry associations and establish appropriate protocols governing those discussions. Discussions at industry association meetings continues to be a focus area for the ACCC.
The ACCC commenced proceedings against:
- Colgate-Palmolive and PZ Cussons, alleging they entered into a cartel with a third laundry detergent supplier, Unilever; and
- Woolworths and a former Colgate-Palmolive sales director (in his personal capacity), alleging they were knowingly concerned in the contraventions by Colgate-Palmolive, PZ Cussons and Unilever (the suppliers).
The ACCC did not sue Unilever. Unilever was the immunity applicant.
The case concerned the suppliers' transition from standard concentrate laundry powders to ultra-concentrate powders in early 2009. This transition involved the suppliers halving their pack sizes while keeping the same number of washes per pack. The ACCC alleged that the suppliers entered into an arrangement or understanding to cease supplying any standard concentrate laundry detergents and simultaneously move to supplying ultra-concentrate laundry detergents.
The ACCC also alleged that the suppliers had agreed to sell their ultra concentrates at the same wholesale list price as the equivalent standard concentrated products. However, the ACCC dropped this price fixing allegation against PZ Cussons shortly before the hearing commenced.
The ACCC argued that the suppliers entered into the arrangement or understanding via direct communications as well as indirectly via communications through an intermediary (initially the industry association and then Woolworths).
Insofar as the allegations concerning the use of an intermediary were concerned, the ACCC argued that this was a 'hub and spoke' cartel as follows:
- the suppliers (the 'spokes') provided information to an intermediary (the 'hub') regarding their proposed transition to ultra concentrates, with the expectation and intention that the intermediary (eg Woolworths) would pass that information to the other suppliers and that the information would induce the other suppliers to act in a particular way;
- the intermediary acted as a 'hub' to facilitate the agreement by passing on this information between the suppliers; and
- the suppliers knew that the other suppliers provided information to the intermediary with the expectation and intention that the other suppliers would act on the information they received from the intermediary.
The communications the ACCC relied on in support of its 'hub and spoke' case included:
- industry association meetings between the suppliers; and
- communications in which Woolworths passed on to each supplier information concerning their competitor's plans to transition all products at the next major range review. This also included emails Woolworths sent to all suppliers collectively regarding the transition.
Before the hearing, Colgate-Palmolive admitted to cartel conduct and agreed to pay a pecuniary penalty of $18 million. Woolworths admitted to being knowingly concerned in cartel conduct and agreed to pay a pecuniary penalty of $9 million. The former Colgate-Palmolive officer also admitted to being knowingly concerned in cartel conduct. He was disqualified from managing a corporation for seven years, and was ordered to pay $75,000 of the ACCC’s costs. The individual did not pay a penalty, as the court recognised the impact the proceedings had on his employment prospects.
A key issue in the case was whether the suppliers (being competitors) had entered into an arrangement or understanding to transition all their products to ultra concentrates simultaneously. The court held that there was no arrangement or understanding between the suppliers. Key aspects of the decision concerning the 'hub and spoke' allegations were:
- In some circumstances, a series of separate vertical arrangements that competitors enter into with a single company (eg common customer) may evidence a horizontal arrangement or understanding between competitors. However, a hope or expectation that each competitor would enter into the same vertical arrangement is insufficient to establish a horizontal arrangement or understanding between the competitors.
- In the context of this case, there was no horizontal arrangement or understanding between the suppliers. At its highest, the evidence revealed no more than that:
- Woolworths entered into or arrived at separate vertical understandings or arrangements with each of the suppliers concerning the transition; and
- PZ Cussons may have had a hope or expectation that Unilever and Colgate would also meet Woolworths' preferences or expectations as to the scope and timing of the transition such that, it was likely, that all suppliers would simultaneously transition to ultra-concentrates.
We set out below more specific findings of the court that supported this conclusion.
- There was nothing improper about each of the suppliers meeting, discussing and seeking feedback from Woolworths concerning their plans to transition to ultra-concentrates.
- Woolworths arrived, for its own commercial reasons, to the conclusion that it was preferable for all suppliers to transition to ultra concentrates in line with Woolworths' major category review in March 2009. In this context, it was not surprising that Woolworths at times disclosed to each of the suppliers what it understood to be the position of the supplier's competitors in terms of the timing of the transition.
- The evidence did not support any finding that:
- PZ Cussons knew or intended that the information they provided to Woolworths would be conveyed to the other suppliers and that the information would induce Unilever and Colgate to act in a particular way;
- either Unilever or Colgate knew that anything that PZ Cussons told Woolworths was expected or intended by PZ Cussons to operate as an inducement to Colgate and Unilever to act in a particular way; and
- PZ Cussons believed or understood that the information they received from Woolworths was provided with the consent or approval of Colgate and Unilever.
Businesses should be alert when receiving 'market intelligence' about competitors from third parties including customers or distributors. This is particularly so given the introduction of the prohibition on concerted practices in November 2017, which does not require the ACCC to prove that there is an agreement between competitors (although the ACCC would need to prove that the concerted practice had the purpose or effect or likely effect of substantially lessening competition). The new concerted practice prohibition was not relevant in the PZ Cussons case.
We expect that the ACCC will prosecute more cases involving the exchange of information between competitors and/or via intermediaries to test the ambit of the new prohibition on concerted practices. In such cases, the ACCC may well allege both cartel conduct and, in the alternative, a concerted practice.
We also expect to see further 'hub and spoke' allegations made by the ACCC. The ACCC's guidelines on concerted practices relevantly provide that a concerted practice can involve communications with or without the involvement of agents or other intermediaries.
Businesses should ensure that any protocols in place governing industry association meetings or discussions with shared distributors or customers are updated to reflect the new prohibition on concerted practices.