Thursday, 11 September 2008

Samuel still to prove himself on market power cases

The recent victory of the ACCC in the long running Baxter case provides an opportunity to reconsider just how successful the ACCC has been in litigating market power cases, and just how committed it is to running such cases.

The ACCC’s wariness regarding section 46 cases is well known. As stated recently by ACCC Chairman Graeme Samuel –

The tests involved in proving allegations of abuse of market power have been inconsistently interpreted in the courts over recent years. As a consequence, it has become unrealistically difficult to overcome the hurdles necessary to prove contraventions of the law – resulting in few successful cases.
However, are these claims by the ACCC’s Chairman borne out by the facts? I would suggest not.

Contrary to the claims of the ACCC Chairman, the ACCC has been largely successful in litigating section 46 cases. Since the introduction of section 46 in 1974, the ACCC and its predecessor the TPC have instituted 15 cases alleging a contravention of section 46. Of these 15 cases, the ACCC achieved a successful outcome in nine, lost four, dropped the market power allegation in one and effectively drew one.

The ACCC has been successful in section 46 cases against CSR (consent), CUB (consent), Safeway (contested), Eurong Beach Resort (consent), FILA (not defended), Bureau of Meteorology (settled without admissions), Darwin Radio Cabs (settled) Garden City Cabs (settled) and most recently Baxter (contested).

On the other hand, the ACCC lost the Boral and CSBP cases, and lost the section 46 component of the CDs and Rural Press cases (although it won these cases on other grounds). The ACCC took proceedings against two cardiothoracic surgeons for alleged contraventions of section 45 and 46, but dropped the section 46 allegations as part of the settlement. Finally, the section 46 case against Qantas was settled with each party paying their own costs.

The ACCC’s 70% success rate in pursuing section 46 cases (excluding the Qantas and cardiothoracic surgeons cases) stands in sharp contrast to its Chairman’s claims that the hurdles necessary to prove contraventions of the section have become “unrealistically difficult to overcome”.

Other statements by the ACCC about market power cases also appear to fly in the face of the facts. For example the claim that “proving a company has engaged in predatory pricing is notoriously difficult”. However, a review of the cases indicates that the ACCC has made allegations of predatory pricing in three cases and been successful in establishing below cost pricing in two of these cases – Boral and Eurong Beach Resort. The Boral case failed because the court was not satisfied that Boral had a substantial degree of market power.

Another concerning fact about the ACCC’s position on market power cases is that it has litigated only 15 cases since the introduction of section 46 in 1974. The ACCC’s strike rate is poor - one section 46 case every two years. Even allowing for the significant evidentiary material needed to establish a section 46 case - this does not seem good enough. The question arises: why have so few cases been taken when the ACCC appears to win twice as many cases as it loses?

Of even greater concern is the fact is that only one section 46 case has been commenced by the ACCC since Graeme Samuel took over as the Chairman of the ACCC in 2003, and this case was against two cardiothoracic surgeons in South Australia. This could be due to the ACCC’s recent focus on cartels and resale price maintenance, to the detriment of other areas. However, it is hard to believe that no corporation with a substantial degree of market power has tried to eliminate or damage a competitor in Australia over the last five years.

I think the facts suggest that the ACCC has been spending more time making excuses why it cannot win section 46 cases, rather than applying the resolve and resources needed to win such cases.

An ideal opportunity for the ACCC to redeem itself in the enforcement of section 46 has arisen in the context of the allegations aired on the recent Four Corners program. Both Woolworths and Coles Myer have allegedly extracted contractual terms from shopping centre operators to exclude potential competitors from shopping centres. Even a cursory consideration of these allegations would suggest that this could be an abuse of their market power. In the words of section 46 –

A corporation that has a substantial degree of market power in the market for the acquisition of shopping centre space has taken advantage of that power for the purpose of preventing the entry of a competitor (for example Aldi or an independent grocer), to that market and deterring and preventing a competitor from engaging in competitive conduct in that market.
Indeed this alleged conduct looks like the ideal opportunity for the ACCC and its Chairman Graeme Samuel not only to pursue some questionable behaviour by the retail giants, but to open up retail grocery markets to genuine and fairer competition.

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