Big penalty on the way

Kogan in Court for alleged false or misleading discount advertisements If the ACCC's allegations about Kogan, as set out in the ACCC's Media Release, are made out in Court, Kogan could be up for a sizeable penalty. I see the spectre of either a three times the benefit or 10% of annual turnover penalty being imposed.

https://www.accc.gov.au/media-release/kogan-in-court-for-alleged-false-or-misleading-discount-advertisements

Massive fines for property spruiker Rick Otton

Property spruiker Rick Otton and We Buy Houses fined record $18 million While I haven't read the judgment yet, $18 million sounds like a mighty high penalty under the ACL, particularly the $6 million against Rick Otton personally. It will be interesting to see how Judge Gleeson arrived at that number.

https://www.accc.gov.au/media-release/property-spruiker-rick-otton-and-we-buy-houses-fined-record-18-million

Milking it?

Murray Goulburn: Gary Helou likely to face fines following ACCC settlement Cases like this one drive me nuts. The ACCC takes legal proceedings against Murray Goulburn (MG) in April 2017. In their action the ACCC decides not to seek any pecuniary penalties against MG. Now here we are 18 months, four case management hearings and seven administrative listings later, and it looks like the case will be settled with MG consenting to declarations and agreeing to make a contribution to the ACCC's costs. Why didn't MG and more importantly its Directors make the call to settle this case 18 month ago? If they had made that decision 18 months ago MG would have saved at least $500,000 in legal costs which they paid to their top tier legal firm, as well as a couple hundred thousand to the ACCC for their costs.

https://www.abc.net.au/news/rural/2018-11-09/murray-goulburn-reaches-settlement-with-accc/10481784

Labor's plans for ACCC

Labor outlines plans to tighten competition policy and boost regulator Apart from giving the ACCC more money, I am not too sure what Labor could do boost the ACCC's powers. The ACCC recently secured the highest maximum penalties anywhere in the world for breaches of consumer protection laws. The ACCC can already fine companies 10% of their annual turnover for competition law breaches and put individuals in jail for 10 years for cartel conduct.

https://www.afr.com/news/labor-outlines-plans-to-tighten-competition-policy-and-boost-regulator-20181030-h17agk

Ugg outcome falls short of mark

Ugg boot retailer pays penalties for alleged false Australian-made representations I share Australian Leather's concerns about the very low penalty ($25,200) imposed on Ozwear Connection by the ACCC for making misleading representations about the origin of their ugg boots. The use of a swing tag in the shape of Australia with green and gold writing was highly likely to mislead consumers into believing that Ozwear's ugg boots were being made in Australian rather than entirely in China. While the ACCC gets it right most of the time, occasionally they drop the ball - this is one case where the ACCC has let down the Australian ugg boot manufacturing industry by not taking more aggressive enforcement action against Ozwear.

https://www.sheepcentral.com/accc-issues-a-parking-fine-to-misleading-ugg-boot-wholesaler/

The Two that Got Away (or were given away?)

Optus misled customers over ‘Direct Carrier Billing’ charges ACCC has taken another case, this time against Optus, under a delegation from ASIC. The ACCC states in its media release that the action was taken pursuant to a standing delegation of ASIC powers to the ACCC: "The ACCC has a standing delegation of certain of ASIC powers and functions for the purposes of investigation and commencement and conduct of any proceedings in relation to matters involving financial products and services provided as part of, or in connection with, the supply or possible supply of telecommunications services." Why would ASIC delegate such powers to the ACCC? It is not like this is particularly hard work - major Australian corporations agreeing to give up and pay $10 million in penalties. Maybe ASIC has delegated this work to the ACCC because they don't see the work as particularly important? Interestingly, the ACCC is on the way to securing $20 million in penalties from these types of cases so far (ie $10 million from each of Telstra and Optus) which is equivalent to approximately 2/3 of the total amount of penalties secured by ASIC in the last financial year!

https://www.accc.gov.au/media-release/optus-misled-customers-over-%E2%80%98direct-carrier-billing%E2%80%99-charges

ACCC Franchising Try On

Stronger penalties required for franchising codes and UCT laws The ACCC is making a very strong play for increased penalties for contraventions of the Franchising Code of Conduct. I must admit I don't quite understand the ACCC's reasoning. Is the ACCC claiming they need bigger penalties because they have been taking lots of franchising cases to court and securing very small penalties which are failing to achieve general deterrence? Recent ACCC outcomes do not support this view: Fastway - $9000 paid pursuant to infringement notice Pastacup - $100,000 paid by consent Domino's - $18,000 pursuant to two infringement notices Ultratune and Geowash - still before the courts The more significant issue is that the ACCC has only pursued 26 franchising cases over the last 15 years, despite receiving 12,640 franchising complaints over the same period. The ACCC needs to ramp up the number of enforcement actions it is taking in the franchising sector and also to make sure that it is taking action against larger, national franchisors with high brand recognition. Having said that, I guess having access to bigger penalties may incentivise the ACCC to pick up its game in the area of Franchising Code enforcement.

https://www.accc.gov.au/media-release/stronger-penalties-required-for-franchising-codes-and-uct-laws-0

Coat tailing

ASIC joins ACCC in pursuing ANZ over $2.5b share placement ASIC has taken legal proceedings against ANZ Bank over the $2.5bn share placement which led to the ACCC's criminal cartel prosecutions. Interesting that ASIC has decided to purse a civil penalty case rather than a criminal prosecution. Also, the maximum fine for a breach of section 674 is only $1 million, so we are not talking big dollars here.

https://www.abc.net.au/news/2018-09-14/asic-joins-accc-in-pursing-anz-over-2.5bn-share-placement/10248192?section=business

Westpac to pay $35 million penalty

Westpac admits to breaching responsible lending obligations when providing home loans and a $35 million civil penalty.

That's more like it ASIC! 

Well done for holding out for a substantial penalty!

This also means that ASIC has almost recovered the same amount of penalties in the first two months of the 2018-2019 financial year that they recovered in the whole of the 2017-2018 financial year. Last year total recoveries were only $35.1m whilst this year ASIC has already already recovered $35m.

https://asic.gov.au/about-asic/media-centre/find-a-media-release/2018-releases/18-255mr-westpac-admits-to-breaching-responsible-lending-obligations-when-providing-home-loans-and-a-35-million-civil-penalty/

ACCC Essentials – understanding the Australian Competition and Consumer Commission’s 2018 Compliance and Enforcement Priorities

Introduction

It is vitally important for all Australian businesses to have a thorough understanding of the way in which the ACCC prioritises its enforcement activities, given the highly interventionist and aggressive approach which the ACCC takes to both competition law and consumer protection matters.  Indeed, the ACCC is one of the most aggressive enforcers of the competition law provisions in the world.

Furthermore, the ACCC has been successful in its calls for significant increases to the maximum financial penalties for contraventions of the Australian Consumer Law 2010 (ACL), with the proposed changes likely to be in effect by 1 July 2018.   

It is also important to recognise the strong reputation which the ACCC has amongst consumers as an active and effective regulator. One of the implications of the ACCC’s strong reputation is that any business pursued by the ACCC is usually judged very harshly by the Australian public, the media and their customers.  As a result, businesses which become the subject of an ACCC investigation or legal proceedings brought by the ACCC often suffer significant and long-lasting reputational and brand damage.

This paper will outline the Australian Competition and Consumer Commission’s (ACCC) approach to enforcement and identify the key enforcement and compliance priorities.

Why does the ACCC have priorities?

The main explanation for having priorities is that it provides greater transparency in the way the ACCC will be using its resources. However, there are also important practical reasons for having priorities.

As explained by ACCC in its most recent Annual Report it received 405,382 contacts in the 2016-2017 financial year, of which 234,913 were recorded on the ACCC database.[1]

The following table shows a rough breakdown of how those contact and complaints are processed by the ACCC:

As is apparent, there is no way that the ACCC could pursue all of these complaints. Rather, the only way the ACCC could pursue any of these complaints effectively is by establishing clear and specific enforcement priorities.

While the ACCC received 405,282 contacts last year it was only able to conduct initial investigations into 259 of those complaints. An initial investigation generally involves the ACCC writing a letter to the business which has been complained about, to ask for an explanation of their conduct. This number is significantly lower than in the previous year where the ACCC conducted 427 initial investigations. One explanation for the reduction is that the ACCC is becoming much more selective in the matters it is deciding to pursue.

The ACCC commences in-depth investigations in relation to a much small subset of the total complaints. These are investigations which the ACCC Commissioners have determined are important and need to be pursued in more depth.  These investigations would have been allocated an initial investigatory and/or legal budget and often result in litigation.  The number of in-depth investigations has also declined significantly, from 167 in the 2015-16 financial year to 79 in the last financial year.

Finally, the ACCC listed 24 litigation matters in its 2016-2017 Annual Report. However, if one considered all formal resolutions, such as section 87B undertakings and infringement notices, the total number of formal resolutions is likely to be much higher at around 50 formal resolutions in the 2016-2017 period.

What are the ACCC’s 2017 Enforcement and Compliance Priorities?

ACCC’s Goals

On 20 February 2018, the ACCC released its Compliance and Enforcement Priorities for 2018 (Priorities).[2]  These Priorities must be considered as a whole, as the ACCC takes a multifaceted approach to selecting the matters which it will pursue.

First, the ACCC will consider the overall goals of their legislation. Second, it will consider the outcomes which it is likely to achieve by pursuing a particular enforcement matter and the type of conduct which the relevant business is engaging in.  Finally, the ACCC will determine whether the conduct falls into the specific ACCC 2018 priorities or “hit list”.

As a guiding principle, the ACCC will not pursue any enforcement matter unless it is confident that:

(1)   it can achieve meaningful remedies; and

(2)   the conduct is of a type which has caused or may cause significant consumer detriment, including detriment to small business consumers.

There are many cases where the ACCC could achieve a meaningful outcome but decides not to pursue the matter because the complainant has the resources and motivation to achieve the same outcomes through private action.  Similarly, there are many matters that involve particularly egregious conduct, which the ACCC will not pursue because it will not be able to achieve worthwhile outcomes, for example in relation to some phoenix activity.

The ACCC’s enforcement activity is directed achieving the following three main goals:

·        promoting competition amongst businesses

·        promoting fair trading by business

·        protecting consumers in their dealings with business.

These goals reflect both the competition and consumer law functions of the ACCC, which is to fix market failure and to ensure that consumers have as near to perfect information as possible, so they can make rational purchasing decisions.

ACCC’s 2018 Hit-List

The ACCC has made some changes in the 2018 Priorities document to the way in which it outlined its Priorities in the past. In previous versions of the Priorities, the ACCC would set out the general priority factors before listing the specific priority areas or “Hit List”. 

However, in the 2018 Priorities the ACCC effectively started with its “2018 Hit-List” or the specific areas where the ACCC will be focusing a large proportion of its enforcement resources in the coming year.

The 2018 “Hit List” is as follows:

• consumer issues in new car retailing, including responses by retailers and manufacturers to consumer guarantee claims, and other matters identified in the ACCC’s 2017 New Car Retailing Industry Report

• consumer issues in the provision of broadband services, including addressing misleading speed claims and statements made during the transition to the NBN

• systemic issues involving large or national traders avoiding or misrepresenting consumer guarantee rights

• competition issues in the financial services sector

• competition and consumer issues in the provision of energy as an essential service, including matters identified in the ACCC’s retail electricity pricing inquiry report and the ACCC’s wholesale gas inquiry

• competition and consumer issues concerning the use of digital platforms, algorithms and consumer data, with a focus on emerging markets and matters identified by the ACCC’s digital platforms inquiry

• ensuring small business receives the protections of industry codes and the unfair contract terms law, with a focus on Franchising Code of Conduct issues involving large or national franchisors

• ensuring better product safety outcomes for consumers in the online marketplace

• issues arising from the Takata airbags recall

• conduct that may contravene the new misuse of market power provisions and concerted practice provisions of the Act

• competition and consumer issues in the agriculture sector, with a focus on the dairy inquiry, Horticultural Code of Conduct enforcement, and analysis of the viticulture industry

• competition issues in the commercial construction sector

The interesting aspect of the 2018 Priorities is that many of these Priority areas were identified as Priorities in 2017.   For example, new car retailing, agriculture, commercial construction, unfair contracts, franchising, product safety issues in relation online platforms and broadband speed and performance claims were all identified as Priorities in 2017. This suggests that the ACCC did not achieve everything it wished to achieve in relation to these areas in 2017.

The ACCC has also identified a number of new Priority areas in 2018 - namely:

• financial services
• energy
• digital platforms, algorithms and consumer data
• Takata airbags recall
• misuse or market power and concerted practices.

That these specific areas would be Priority areas in 2018 was to be expected.  For example, it was anticipated that financial services would be a priority area given:

• that the government gave the ACCC additional resources in the 2017-2018 Budget to establish a dedicated Financial Services Unit; and

• the commencement of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in February 2018

The ACCC has also been doing extensive work in the energy sector for some time, through market studies into the areas of gas and electricity.  The inclusion of energy in the 2018 Priorities may suggest that the ACCC will be looking at taking enforcement action in the energy sector in 2018.

Digital platforms, algorithms and consumer data is clearly a priority area in 2018 due to the commencement of the Digital Platforms Enquiry. In December 2017, the Government directed the ACCC to conduct an 18 months investigation into digital platforms, focusing on such companies as Google and Facebook amongst others. 

The ACCC has also had a long running involvement in the Takata airbag voluntary recall. However, the ACCC’s role was escalated significantly in February 2018 when the Assistant Minister to the Treasurer decided to issue a compulsory recall of the Takata airbags.

Finally, the ACCC will be focusing its attention in 2018 on the investigation and enforcement of conduct which is caught by the new changes to the Competition and Consumer Act 2010 (CCA), primarily the changes to the misuse of market power provisions and the introduction of the concerted practices provisions.

One interesting addition to the 2018 Priorities is the reference to “systemic issues involving large or national traders avoiding or misrepresenting consumer guarantee rights”.  It would appear specific area that this has been added to the 2018 Priorities due to a concern within the ACCC about large national traders are continuing to mislead their consumers about their consumer guarantee rights.[3]

There are also a number of industries which were on the 2017 Priority Hit List which can now breathe a collective sigh of relief as they did not make the cut in 2018 – namely:

• airlines in relation to their consumer guarantees;
• businesses involved in country of origin labelling;
• businesses involved in commission-based sales business models; and
• private health insurers.

Enduring priorities

The ACCC has also adopted a practice of identifying a number of enduring priorities defined as conduct which is so detrimental to consumer welfare and to the competitive process that the ACCC will always regard them as a priority. The enduring priority areas have not changed in 2018:

Cartel conduct

The ACCC will always prioritise cartel conduct causing detriment in Australia. When dealing with international cartels, the ACCC will focus on pursuing cartels that have a connection to, or cause detriment in Australia; that is, cartels that involve Australians, Australian businesses or entities carrying on business in Australia

Anti-competitive conduct 

The ACCC will always prioritise anti-competitive agreements and practices, and the misuse of market power.

Product safety

The ACCC will always prioritise product safety issues which have the potential to cause serious harm to consumers.

Vulnerable and disadvantaged consumers

The ACCC recognises that vulnerable and disadvantaged consumers can be disproportionately impacted by conduct in breach of the Act. The ACCC therefore prioritises conduct that impacts these consumers.

Conduct impacting Indigenous Australians

The ACCC acknowledges that certain conduct in breach of the Act has the potential to specifically impact on the welfare of Indigenous Australians. The ACCC also recognises that Indigenous consumers living in remote areas face particular challenges in relation to asserting their consumer rights. The ACCC will always prioritise its work in these areas while these challenges remain.

Priority factors

Finally, the ACCC outlines the general priority factors which it will weigh up when making a decision to pursue a “non-Priority area” matter. These general priority areas are:

• conduct that is of significant public interest or concern 

• conduct that results in substantial consumer or small business detriment 

• national conduct by large companies, recognising the potential for greater consumer detriment and the likelihood that conduct of large businesses can influence other market participants 

• conduct involving a significant new or emerging market issue or where our action is likely to have an educative or deterrent effect 

• where our action will assist to clarify aspects of the law, especially newer provisions of the Act.

The above factors largely duplicate the general priority factors set out in 2017.  Notably two factors which the ACCC will no longer take into consideration when deciding whether to pursue an enforcement action are the blatancy of the conduct and whether the relevant business is a serial offender – both of which appear to be surprising omissions.

                                                                               

Increased ACL penalties

Without doubt the most important development in 2018 will be the introduction of vastly higher penalties for contraventions of the ACL.

Currently, the maximum penalties for contravening the ACL are $1.1 million for corporations and $220,000 for individuals for each contravention.

However, in late 2017, Parliament released the draft amendment bill on ACL penalties.[4] If passed this bill will increase the maximum penalties for civil and criminal contraventions of the ACL to:

• $10 million; or
• if the court can determine the total value of the benefit obtained from the offence, three times the value of that benefit; or
• if the court cannot determine the value of the benefit, 10% of the corporation’s annual turnover in the preceding 12 months. 

The maximum penalties for individuals will increase to $500,000 per contravention.   

These changes are scheduled to take effect from 1 July 2018.

As is apparent, this amendment represents a quantum leap in terms of the size of penalties which may be awarded by the Court for contraventions of the ACL.  This change should be of particular concern for businesses with a history of previous contraventions of the ACL.  Courts are much more likely to impose multi-million-dollar penalties against companies which have engaged in multiple prior contraventions of the ACL.

Essentials

In order to minimise risks and avoid problems with the ACCC (and other State and territories regulators) it is important for businesses to conduct a detailed Competition and Consumer Law Risk Assessment of every aspect of their operation. This would start with an identification of all risks in the business both from a:

1. competition perspective – for example, the nature of all agreements with competitors, suppliers and service providers, and other third parties and

2. consumer law perspective – for example, the representations made to consumers in marketing and promotional materials, the fairness of standard form contract terms and how complaints handling procedures are managed

Once the business has conducted detailed Competition and Consumer Law Risk Assessment, businesses should take steps to implement a comprehensive and up-to-date Compliance Program, consisting of the following elements:

1. Compliance Policy

2. The appointment of a Compliance Officer

3. Other relevant policies such as a Complaints Handling Policy and a Whistle-blower Policy

4. The establishment of an effective Complaints Handling procedure and

5. Regular Competition and Consumer Law Compliance Training.

Taking steps to conduct a Risk Assessment and implement a Compliance Program will benefit the business by helping them to better identify and manage all competition and consumer law risks in the business. Taking these steps will also benefit the business in terms of mitigating the extent and severity of the much larger pecuniary penalties which the ACCC will be seeking from the Courts for ACL contraventions in second half of 2018.

---

[1] ACCC, ACCC – AER Annual Report 2016-2017, Commonwealth of Australia, p 143 at https://www.accc.gov.au/system/files/ACCC%20and%20AER%20Annual%20Report%202016-17_0.pdf

[2] ACCC, 2018 ACCC Compliance and Enforcement Policy, at https://www.accc.gov.au/about-us/australian-competition-consumer-commission/compliance-enforcement-policy-priorities

[3] Rod Sims, 2018 compliance & enforcement priorities, Speech presented at CEDA Sydney, 20 February 2018 at https://www.accc.gov.au/speech/2018-compliance-enforcement-priorities

[4] Treasury Laws Amendment (2018 Measures No.3) Bill 2018 (Cth).

When is a cartel not a cartel - when it is exclusive dealing

ACCC has settled with Palram and Ampelite for $5.5 million.  Interestingly the ACCC actually settled on the basis of exclusive dealing and not cartel conduct.  This is surprising given all the hullabaloo which the ACCC made when it commenced the case stating that the companies had engaged in cartel conduct: "The ACCC alleges that over a five year period from 2008 until 2013, these companies made and gave effect to a number of cartel arrangements which had the purpose of preventing or restricting the supply of polycarb to retailers." So it seems to me that the ACCC took legal proceedings believing that there were a number of cartel arrangements, but then failed to obtain the evidence to prove the existence of those arrangements. Accordingly, the ACCC had to settle on the vertical agreements. Looks like a pretty major evidentiary fail for the ACCC.  The ACCC  should have the evidence of the alleged horizontal agreements locked in prior to the commencement of the legal proceedings   The ACCC also noted in its media release the anti-overlap provisions of the Competition and Consumer Act 2010 which effectively state that if conduct can be characterised as both horizontal (more serious) and vertical (less serious), the ACCC has to pursue the conduct as vertical.

https://www.accc.gov.au/media-release/court-orders-penalties-of-55m-against-palram-and-ampelite-for-exclusive-dealing

De Ja Vu...all over again! Qualcomm SEP penalties

I was reading an interesting article entitled "The Global Standards Wars: Patent and Competition Disputes in North America, Europe and Asia" by Jorge Contreras.
I was surprised to read how many actions have been taken against Qualcomm for repeated misuses of its Standard Essential Patents (SEP): 2009 - Korean Fair Trade Commission - fine $US208 million 2013 - China's National Development and Reform Commission - fine $US975 million 2016 - Korean Fair Trade Commission (again)- fine $US853 million 2017 - Taiwanese Fair Trade Commission - fine $US774 million 2018 - European Commission - fine $US1.2 billion Total fines (so far) - $US4.01 billion! Furthermore, in 2016 the US Federal Trade Commission commenced legal proceedings against Qualcomm for the alleged misuse of its SEP's. So much for huge fines achieving specific deterrence!

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3106090

ACL penalties to go up, up and away...but not quite yet

Looks like the Bill to increase the pecuniary penalties under the Australian Consumer Law to $10m, three times the benefit gained or 10% of annual turnover has been held up in the Senate. 


The new law was supposed to commence on 1 July 2018.

Australian businesses will be thankful for a reprieve until mid August when the Senate will be back in session.

https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6053