Focus: Trade Practices – December 2003
The High Court's ruling on the Rural Press decision
In brief: The High Court's decision in Rural Press Limited v Australian Competition and Consumer Commission, handed down on 11 December, has important implications for companies entering into market-sharing arrangements. Lawyer Jared Cowie examines the ruling, which is the latest in a line of High Court decisions dealing with exclusionary provisions, anti-competitive agreements and misuse of market power.
- What the decision means for business
- A market for regional newspapers
- Exclusionary provisions
- Substantial lessening of competition
- Misuse of market power
What the decision means for business
Following the High Court's decision, businesses will need to pay close attention to any dealings with competitors that, while not involving what is commonly known as a boycott, may result in them ceasing to supply or limiting supply to customers, as arrangements made in these circumstances may contain exclusionary provisions. On the other hand, the High Court has made it clear that, when it comes to prosecutions for misuse of market power, the courts will require strict proof that it is market power (and not some other type of power or advantage) that is being used before finding that a corporation has breached section 46 of the Trade Practices Act.
A market for regional newspapers
Rural Press publishes regional newspapers throughout Australia. One of its subsidiaries published the Murray Valley Standard (the Standard), which was circulated primarily in Mannum and surrounding towns in the Murray Bridge district in South Australia. Further up the River Murray Valley in Riverland, Waikerie Printing House Pty Limited (Waikerie) circulated the River News. In 1997, following a change in local council boundaries in the area, Waikerie decided to start circulating the River News in and around Mannum, in competition with the Standard.
Rural Press was concerned about the foray of Waikerie into the Murray Bridge market. It threatened that, unless Waikerie ceased circulating the River News in Murray Bridge, Rural Press would publish a rival newspaper to the River News in the Riverland area. Waikerie eventually withdrew circulation of the River News from the Murray Bridge market.
Exclusionary provisions
An 'exclusionary provision' is defined in s4D of the Trade Practices Act as:
- a provision of a contract, arrangement or understanding;
- between competitors;
- that has the purpose of preventing, restricting or limiting supply of goods to or acquisition of goods from a particular person or classes of persons by all or any of the parties to the contract, arrangements or understanding.
The Full Federal Court held that, by reaching an understanding by which the River News withdrew from the Murray Bridge market, the parties had the purpose only of limiting supply by Waikerie, and not the purpose of limiting acquisition of newspapers by readers in the market. The readers were not specifically targeted as a class of persons, but suffered only 'collateral damage'. Consequently, there was no exclusionary provision.
The High Court overturned this conclusion. Justices Gummow, Hayne and Heydon, with whom Chief Justice Gleeson and Justices Callinan and Kirby agreed, held that Rural Press and Waikerie had entered into an arrangement or understanding containing an exclusionary provision. Their Honours held that it was enough if the purpose of the arrangement was to prevent the supply of goods or services, stating that 'if one's purpose is to prevent the supply of services, an inevitable part of that purpose is to prevent the acquisition of those services by the person or persons to be supplied'.
Justices Gummow, Hayne and Heydon (with whom Chief Justice Gleeson and Justice Callinan agreed) emphasised that there need not be any purpose of injuring or disadvantaging the particular persons or classes of person who are the object of the exclusionary provision. However, the purpose must be directed towards those persons for the legislative prohibition to apply.
Substantial lessening of competition
The High Court unanimously upheld the findings of the courts below: that the arrangement entered into between Rural Press and Waikerie had the purpose or effect of substantially lessening competition. Their Honours held that the effect of the arrangement on competition was substantial in the sense of being 'meaningful or relevant to the competitive process'. The High Court held that, although the Murray Bridge regional newspaper market was small, and that the increases in sales, advertising and profits achieved by revenues were small, there was still a substantial lessening of competition. The entry of the River News into that market introduced a small but significant competitor to the Standard, which diluted the Standard's existing monopoly. The withdrawal of the River News likewise reduced competition substantially in that market, by lessening choice to readers and raising costs to advertisers.
The High Court rejected the Rural Press contention that the lower courts had failed to have regard to the extent of competition from other media such as local radio, regional television and statewide newspaper and television services provided in other markets. The court held that the market definition adopted by the trial judge, and which was not the subject of appeal, excluded those services. Those services could not, therefore, be taken into account.
Misuse of market power
A majority of the High Court (Justice Kirby dissenting) upheld the Full Federal Court's decision that Rural Press had not misused its market power in breach of s46 of the Trade Practices Act. A corporation will breach s46 of the Act if it:
- has a substantial degree of power in a market;
- takes advantage of that market power; and
- does so for a prohibited purpose.
The Full Federal Court had held that Rural Press had a substantial degree of power in the Murray Bridge market, and that it had a prohibited purpose (to prevent Waikerie from engaging in competitive conduct in the Murray Bridge newspaper market), but that Rural Press had not 'taken advantage' of that power for that purpose. High Court Justices Gummow, Hayne and Heydon (with whom Chief Justice Gleeson and Justice Callinan concurred) agreed with the Full Federal Court's conclusion that Rural Press had taken advantage of their access to a printing press and other facilities, rather than its market power. The fact that Rural Press could have acted in the same way in a competitive market meant that it was not taking advantage of its market power. Moreover, their Honours held that the fact that a corporation has market power and wishes to protect that market power does not mean that it has breached s46.
Justice Kirby dissented on this point. His Honour argued that the commercial realities were that Rural Press had used its strong position to stifle competition, in a way in which it could not if it were subject to competitive restraints. Accordingly, Justice Kirby held that Rural Press had misused its market power in breach of s46 of the Trade Practices Act.
For further information, please contact:
- Geoff RankinPartner,
Brisbane
Ph: +61 7 3334 3235
Geoff.Rankin@aar.com.au
