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In touch
 

Competition news

February 2017

 
Fiona Crosbie

Fiona Crosbie
Chairman
+61 2 9230 4383
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In Touch looks at what's been happening in Competition this month, and what it means for your business.

We hope you find this issue interesting and helpful. Please let us know if you would like us to investigate any competition news in the next month and, as always, get in touch.

Interesting Competition facts

  • The full Harper 'effects test' on its way: The Federal Government has introduced a Bill to Parliament to implement the Harper Review's recommended changes to the prohibition on misuse of market power. The reformed provision includes what has been widely referred to as the 'effects test'. Read our publication on the Bill.
  • Agency arrangements not immune: The High Court allowed the ACCC's appeal in the high-profile Flight Centre case, finding that Flight Centre competed with airlines in the sale of international airline tickets. Read our Focus publication on the decision.
  • Australian companies accused of taking the 'easy route': ACCC Chairman Rod Sims has lamented the 'easy route' taken by Australian companies that buy local rivals rather than pursuing new markets, and suggested that firms (rather than the ACCC) should bear the onus of proving that a merger or acquisition in a concentrated market does not lessen competition.
  • Getting tough on penalties: The ACCC and ASIC have warned that current corporate penalties do not act as a sufficient deterrent against white collar crime. At a senate hearing into financial crime, the ACCC and ASIC suggested that corporate penalties in Australia are inconsistent and low compared to international standards.

Misleading or Deceptive Conduct: ACCC throws the book at companies misleading consumers

The Federal Court ordered Valve Corporation to pay penalties totalling $3 million for misleading representations relating to consumer guarantees. The court found there was a poor culture of compliance at Valve, and noted the evidence led by Valve that it was not subject to Australian law.

The Full Federal Court ordered a $6 million penalty against Reckitt Benckiser (Australia) Pty Ltd for making misleading representations relating to its Nurofen Specific Pain products, an increase from the $1.7 million originally ordered by the Federal Court. This is the largest penalty ever imposed for misleading conduct under the Australian Consumer Law.

The ACCC has continued its series of actions against companies that misrepresent consumer guarantees, issuing proceedings against MSY Technology and related companies. The ACCC alleges MSY misrepresented consumers' rights including by suggesting that MSY:

  • had discretion over whether a customer was entitled to a remedy for a faulty product;
  • could choose which remedy it provided;
  • would only provide a remedy if the product was returned within seven days;
  • may require the customer to pay an administration fee to receive a remedy for a faulty product that is out of warranty; and
  • would provide no remedies in relation to faulty software products.

The ACCC said it was particularly concerned with MSY's behaviour due to MSY's nationwide presence leading to the potential for significant consumer harm. This is not the first time MSY has fallen afoul of the ACCC – in 2011 it was penalised $203,500 for misleading consumer warranty representations.

What this means
  • An internal compliance policy and compliance culture can result in lower penalties being awarded.
  • International companies which supply to consumers in Australia are subject to the Australian Consumer Law, particularly when making representations to consumers about their rights.

If you would like more information on this issue, get in touch with Fiona Crosbie.

Consumer Protection: Airlines agree to improve online booking practices

The ACCC welcomed announcements by Jetstar Airways, Virgin Australia and Tiger Australia that the airlines would stop pre-selecting certain optional extras on their online booking platforms. The announcements came in response to the ACCC voicing concerns regarding the 'opt-out' model for extras on flight bookings, as the regulator feared that some consumers were unintentionally paying for unwanted extras.

Virgin agreed to move to an 'opt-out' model for travel insurance. Jetstar will stop pre-selecting checked baggage, seat selection, travel insurance and charity donations from 1 July 2017. Tiger has agreed to stop pre-selecting travel insurance and checked baggage.

The ACCC is confident that these measures will enhance price transparency in online flight bookings, with ACCC Chairman Rod Sims suggesting that the practice of pre-selecting extras 'is fast becoming a thing of the past'. The ACCC's crackdown followed similar action by the New Zealand Commerce Commission in 2015 and 2016.

Mr Sims noted that the ACCC would also engage with international airlines operating within Australia which maintain an 'opt-out' model for extras.

What this means
  • Pre-selecting options for consumers, particularly options that consumers must pay for, can draw unwanted regulator attention.

If you would like more information on this issue, get in touch with Carolyn Oddie.

Mergers: ACCC looks to alternative providers and clears deals

The ACCC announced its decision not to oppose Quadrant Fund 5's proposed acquisition of Fitness First Asia Pacific Group Pty Ltd. Quadrant owns the Goodlife Health Clubs network and is the head franchisor of Jetts Fitness in Australia. The deal was cleared despite the fact that Fitness First and Goodlife are the two largest networks of 'full service' gyms (that is, gyms that offer a range of weight and cardio equipment as well as group training classes).

In assessing the proposed acquisition, the ACCC noted that Fitness First, Goodlife and Jetts will continue to be constrained by other alternatives including low-cost gyms such as Anytime Fitness and more specialised providers such as F45 and CrossFit. The ACCC also acknowledged the high churn rates affecting the gym industry, as well as the entry and rapid growth of overseas operators, particularly in the low-cost and specialist segments.

Late last year, the ACCC also announced its decision not to oppose News Corporation's acquisition of APN's Australian Regional Media Division (ARM). News publishes The Courier Mail (a state-wide publication) as well as a number of community newspapers in Queensland, while ARM publishes a number of regional and community newspapers.

In clearing the merger, the ACCC took into account the fact that there were declining readership and reduced advertising revenues for hard-copy publications, as advertisers and readers are increasingly turning to other, particularly digital, sources.

What this means
  • The ACCC appears open to the argument that a range of small, low-cost or specialised competitors can impose a sufficient constraint on full-service, established market participants.
  • The rise of digital or online competitors are increasingly relevant to the ACCC's assessment of competition in otherwise traditional markets.

If you would like more information on this issue, get in touch with Jacqueline.Downes.

Investigations & Enforcement: Companies forced to refund millions to consumers

In December, BMW Australia's finance arm and Lifestyle Photographers Pty Ltd were ordered to issue extensive refunds to customers in response to regulatory enforcement action.

BMW Australia Finance was found by ASIC to have breached responsible lending provisions, resulting in ASIC ordering BMW to roll out a compensation package totalling $77 million. This includes $14.6 million in refunds paid directly to customers, $7.5 million in reductions of interest rates over current loans, and $50 million in loan write-offs.

Over 15,000 customers are expected to benefit from the compensation scheme, which has been touted as the largest ever consumer pay-back scheme in Australia.

The Federal Court has ordered Lifestyle Photographers (trading as Expression Sessions) to pay $1.1 million in penalties and to contact and offer a refund to all customers who purchased products between 2012 and 2014. Expressions Sessions was found to have engaged in unconscionable conduct including by using unfair tactics and undue pressure in selling photographic products, failing to provide clear and accurate information about contract terms, including unfair contract terms in agreements and targeting vulnerable consumers.

Lifestyle Photographers sold Expression Sessions in December 2015 to a related company, Easy Payments Pty Ltd. The Federal Court joined Easy Payments to the proceedings and made orders against both companies.

What this means
  • The consequences of contravening the Australian Consumer Law can include time-consuming, complex and costly customer refund packages.
  • A purchaser of a newly acquired business could be liable for the business' past conduct and have to pay penalties and compensate consumers.

If you would like more information on this issue, get in touch with Kon Stellios.

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