Exclusive dealing involves one business imposing restrictions on another’s freedom to choose with whom, in what or where they deal. Sometimes this conduct is prohibited outright; at other times it is subjected to a test on whether it has substantially lessened competition in a market.
Full line forcing
Full line forcing involves a supplier refusing to supply goods or a service unless the intending purchaser agrees 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 of a particular kind acquired from the company to a particular place or classes of places.
However, for a full line forcing arrangement to contravene the Competition and Consumer Act 2010 (the Act) it must have the effect of substantially lessening competition in the relevant market.
Third line forcing
Third line forcing involves the supply of goods or services on the condition that the purchaser buys goods or services from a particular third party, or a refusal to supply because the purchaser will not agree to that condition. Section 47 of the Competition and Consumer Act 2010 Section 47 of the Act prohibits different forms of exclusive dealing conduct. These include the supply of goods or services, or the supply of goods or services at a discount, on condition that –
- The buyer will not acquire, or will limit the acquisition of, goods or services from a competitor of the supplier.
- will not resupply, or will resupply only to a limited extent, good or services acquired from a competitor of the supplier.
- will not resupply the goods or services to others, or will resupply only to a limited extent, the goods or services to particular persons, classes of persons or in particular places.
- The supplier will not refuse to supply goods or services because the intending buyer will not comply with these conditions.
Conditions placed on the acquisition of goods or services also amount to exclusive dealing conduct. An exclusive dealing is restricted under Section 47 if it can be demonstrated that the dealings substantially lessen competition. However, the third line forcing is captured regardless of its anti-competitive effect.
Immunity for exclusive dealing conduct
The Australian Competition and Consumer Commission (ACCC) may “authorize” businesses to engage in anti-competitive arrangements or conduct including exclusive dealing conduct. Prerequisites for authorizations for exclusive dealing conduct: The ACCC has to be satisfied that the public interest shall outweigh any anti-competitive detriment. The ACCC has to conduct a full public consultation process before granting or denying authorization. ACCC must issue a draft determination stating whether or not it proposes to grant authorization and stating the reasons for its proposed decision. The applicant and the interested parties are asked to respond to the draft determination, by written submissions within a specified timeframe or by requesting that the ACCC hold a pre-decision conference. A pre-decision conference provides the applicant and all the interested parties an opportunity to discuss the draft decision and to put their views directly to the ACCC commissioner. The ACCC then issues a final determination which may: Grant authorization Grant authorization subject to conditions Deny authorization.
Exclusive dealing notification Immunity from the Act can also be gained by lodging an exclusive dealing notification for obtaining immunity to engage in: third line forcing conduct exclusive dealing conduct other than third line forcing. The ACCC will assess the notifications by applying the public interest test outlined in Section 93(3A) of the Act. This test states that the ACCC may revoke a notification if it is satisfied that the likely public benefit will not outweigh the likely public detriment from the conduct.
What is the substantial lessening competition test? Under the substantial lessening of competition test, it is not enough to show that an individual business has been damaged. To determine whether a substantial lessening of competition occurs one must analyze the following factors – the overall market for the particular product; substitutes of the product; and whether or not the refusal would substantially restrict availability of that type of product to consumers
Further, when territorial restrictions have been imposed as a condition of supply, it must be determined whether consumers are severely restricted in their ability to buy a product or its substitutes within the territory. When franchising, careful consideration must be given to whether the franchisor is engaging in any form of exclusive dealing.
Contact us so that we can assist with the assessment of supply arrangements and any notification process.
