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Competition news

1 March 2016

 
Fiona Crosbie

Fiona Crosbie
Practice Leader, Competition
+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 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.

 
 

Anti-competitive conduct: ACCC settles the 'Informed Sources' petrol price information exchange case

Late in 2015, the ACCC settled its proceedings against Informed Sources and four petrol retailers (BP, Caltex, Woolworths and 7-Eleven) in relation to a retail fuel pricing platform operated by Informed Sources and used by the petrol retailers. The parties have agreed to make the pricing information provided on the Informed Sources platform available to consumers and third parties at the same time as the retailers.

In August 2014, the ACCC instituted proceedings against a third party service provider, Informed Sources, and five petrol retailers (BP, Caltex, Woolworths, 7-Eleven and Coles Express). Informed Sources connected subscribing petrol retailers and enabled them to exchange price information on a location-by-location, near real-time basis. The ACCC alleged that the exchange of price information constituted an arrangement or understanding which had the effect or likely effect of substantially lessening competition for the sale of petrol in Melbourne.

The ACCC had previously accepted court enforceable undertakings by two other petrol retailers, Mobil (in August 2014) and Coles Express (in December 2015), to terminate their participation in the Informed Sources platform and not subscribe to the platform or to similar services for a period of five years. As part of the latest settlement, the petrol retailers have undertaken that they will not participate in any price information exchange service unless the information each receives is made available to consumers and third party organisations at the same time. Informed Sources has also agreed that it will not supply the information exchange service unless the pricing information it provides to petrol retailers is also made available to consumers for free and to third parties on reasonable commercial terms at the same time.

What this means

The settlement is made in the context of a current proposal to reform Australia's cartel rules to introduce a concept of 'concerted practices' aimed at capturing a wider range of behaviour, including information exchanges. Companies should carefully consider whether the sharing of any pricing information, including through third parties, could be deemed an arrangement that has the effect or likely effect of substantially lessening competition.

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

Misleading or deceptive conduct: Exetel compensates consumers following ACCC investigations

The ACCC has recently investigated Exetel for relying on a clause in its standard residential broadband agreement which provided that Exetel could vary any part of the agreement for any reason. Exetel sent letters to more than 2000 customers on fixed term contracts that stated that they were required to either change their broadband plan or terminate their service without penalty. The ACCC considered that the clause in the agreement that allowed Exetel to cancel was an unfair contract term. The ACCC also considered that advertisements for these broadband plans were likely to be misleading, as they suggested that Exetel would provide the service for a fixed 12-month term, when this commitment was not necessarily honoured.

Exetel has agreed to remove the clause from its residential broadband standard agreement forms. For consumers who switched plans, Exetel will refund the additional subscription fees paid by these individuals on a monthly basis for the remainder of the fixed-term period. Exetel has also agreed to refund any charges paid by customers who opted to terminate their broadband service.

What this means 

This decision has significant implications for businesses with standard form consumer agreements that contain a unilateral right to vary. In particular, it demonstrates that the ACCC may have concerns with these contractual entitlements even when consumers have an ability to terminate their agreement in the light of the proposed variation. Businesses should review the terms of their standard form consumer agreements to determine whether:

  • a unilateral right to vary an agreement may cause detriment to a consumer. For example, a customer may not suffer detriment if it can terminate without penalty, but may suffer detriment if there are significant upfront costs or switching costs that the customer is not able to recoup;
  • the contract as a whole is likely to cause significant imbalance in the parties' rights and obligations; and
  • the clause is necessary to protect the business' legitimate business interests.

Businesses also need to consider any claims or representations made to consumers (eg in advertisements) before relying on a unilateral right to vary. It is important to ensure that any proposed variation is not inconsistent with any prior representations made to consumers.

With the commencement in November 2016 of an unfair contracts regime for standard form contracts with small businesses, this decision also has implications for business to business arrangements.

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

Misleading or deceptive conduct: Harvey Norman franchisee and consumer guarantees

The Federal Court has recently directed a Harvey Norman franchisee, Bunavit Pty Ltd, to pay a penalty of $52,000 for making false or misleading representations in relation to consumer guarantees. In 2011 and 2012, staff members at the Harvey Norman Superstore Bundall made statements to two customers denying Bunavit's obligation to repair certain computers purchased from the store. Bunavit's employees indicated that the customers would need to contact the manufacturer directly, in order to claim under the manufacturer's warranty. Sales representatives also suggested that Bunavit could not provide additional assistance unless the consumers met the costs of repair.

Justice Dowsett found that Bunavit made 10 false or misleading representations concerning the existence, exclusion or effect of any guarantee, right or remedy, in contravention of s29(1)(m) of the Australian Consumer Law (the ACL). Bunavit also engaged in conduct that was misleading or deceptive in contravention of s18 of the ACL. These contraventions were admitted by Bunavit.

Although Bunavit and the ACCC had agreed upon a total penalty of $35,000, the court deemed this to be insufficient in the light of the seriousness of the misconduct and ordered Bunavit to pay penalties of $52,000. In fixing a pecuniary penalty, Justice Dowsett had regard to the number of contravening statements, the duration for which the conduct persisted, the number of staff members implicated in the conduct and the fact Bunavit's sales turnover and net profit were substantial. A mitigating factor was that none of Bunavit's senior staff members participated in the offending course of conduct.

The ACCC also sought declaratory relief to record the court's disapproval of Bunavit's conduct and to deter other corporations from breaching the ACL. However, the Federal Court declined to grant a declaration on the basis that the penalty imposed by the court was sufficient to fulfil these remedial functions. Justice Dowsett also refused to order injunctions, partially because Bunavit ceased trading in February 2015.

What this means

Justice Dowsett's decision is a reminder that, where a party agrees a penalty with the ACCC, it is open to the court to set a higher penalty if the court considers the agreed penalty to be insufficient.

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

Misleading or deceptive conduct: Optus and ACL contraventions

Subsequent to the ACCC's decision to issue Optus Internet Pty Ltd with five infringement notices, Optus has agreed to pay $51,000 in penalties and to execute a court-enforceable undertaking in favour of the ACCC. In advertising its cable broadband service and specific broadband plans, Optus employed the term 'NBN-like speeds'. However, this was not the case: consumers who purchased plans for the promoted price received speeds of 30/2 megabits per second (Mbps). In contrast, NBN plans are capable of delivering speeds of 50/20 and 100/40 Mbps.

In providing the court-enforceable undertaking, Optus has conceded that its behaviour may have contravened the ACL. Optus has agreed to refrain from using the term 'NBN-like speeds' in its advertisements unless the broadband service speeds are genuinely comparable. Optus has also agreed that customers who subscribed to its cable broadband plans during the promotion period may terminate their contract without penalty and receive a refund for any start-up fee. Optus has also agreed to organise an independent review of its trade practices compliance program and implement any recommendations.

What this means

The enforcement action coincides with the ACCC's recent focus on NBN-related consumer law issues as it seeks to ensure a smooth transition for consumers to new NBN services. More broadly, it reiterates the importance of businesses being able to justify any credence claims in their promotional material including claims that their products have certain features or attributes.

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

Misleading or deceptive conduct: Electrodry Carpet Cleaning and fake testimonials

The Federal Court imposed a penalty of $215,000 on A Whistle & Co (1979) Pty Ltd, in relation to fake internet testimonials. A Whistle is the franchisor behind the Electrodry Carpet Cleaning chain. Between February and June 2012, A Whistle published and induced  its franchisees to publish reviews by fictitious customers about Electrodry on websites such as Google, True Local and Yelp. The court held that the fake testimonials were capable of:

  • misleading consumers;
  • unfairly diverting customers from Electrodry's legitimate competitors; and
  • bolstering Electrodry's reputation with no factual basis.

In imposing a penalty of $215,000, the court indicated that it would have imposed a higher penalty but for the cooperation provided by A Whistle to the ACCC in reaching an agreed position. Additional orders relating to injunctions, corrective advertising and a contribution towards the ACCC's costs were also made by the court by consent.

What this means 

This case demonstrates once again the importance of truth in advertising and the fact that online practices are subject to as much scrutiny as any other form of advertising. Another key takeaway is the value of cooperating with the ACCC if businesses have contravened the Competition and Consumer Act 2010 (Cth), as this may result in reduced penalties.

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

Misleading or deceptive conduct: Pricing in the online space – Kogan/Froothie

The ACCC recently issued infringement notices against Athena Solutions Pty Ltd trading as Froothie Australia and Kogan.com Pty Ltd for alleged false or misleading advertising in the online retail space.

Froothie received an infringement notice after advertising a blender on its website at a 'promo price', which was shown immediately below a strike-through price statement. The ACCC had reasonable grounds to believe that this constituted a false or misleading representation (thereby entitling the ACCC to issue an infringement notice), as Froothie could not demonstrate that the blender had ever been sold or offered for sale at the strike-through price. Consequently, the two-price comparison did not reflect a genuine discount for consumers. Froothie incurred a penalty of $10,800 for this conduct.

Kogan received three infringement notices and paid $32,400 in penalties for similar online retailing practices. In connection with its 2015 Fathers' Day promotion, Kogan advertised three computer monitors at a purported 20 per cent discount on its eBay store. However, immediately before this promotion, Kogan increased the prices of these products. The claim of a 20 per cent discount was based on a comparison with these higher prices rather than the original lower prices. When compared to the previously displayed prices, customers only received a 9 per cent discount. At the end of the promotion period, Kogan returned the monitors to the original lower prices. The impression that consumers were benefiting from a larger percentage discount than was in fact the case was considered by the ACCC to be a false or misleading representation.

What this means

By imposing penalties on Froothie and Kogan, the ACCC has affirmed that consumer issues in the online marketplace, including truth in advertising, continue to be a core enforcement priority for the ACCC. The ACCC's approach in issuing infringement notices also demonstrates the ACCC's preparedness to use the full range of enforcement powers available to it as appropriate.  

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

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