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Third Line Forcing

This article was produced by CIE Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

July 2015

Businesses that enter into relationships with one another in which they agree to help promote each other’s products or services through sales promotions need to be careful that they aren’t engaging in third line forcing conduct – conduct which is deemed to be anti-competitive and in breach of Australian competition law.

Third line forcing is a form of “exclusive dealing” that is prohibited under section 47(6) and 47(7) of the Competition and Consumer Act (CCA). Two examples are:

  • A seller will only provide a discount on its goods or services if the customer acquires goods or services from another party ; or
  • A seller will only supply goods or services if the customer acquires goods or services from another party.

Third line forcing is a ‘per se’ breach of the CCA – that is, engaging in the conduct itself breaches the CCA, irrespective of whether it substantially lessens competition in the market. As a result, even apparently benign arrangements between parties may constitute a breach of the CCA*.

Example

Downtown Retail, an online retailer, will give a discount on their goods if the customer places their order through an app the customer has to acquire through iTunes.

In this example, Downturn Retail is engaging in third line forcing. It will only provide the discount if the customer agrees to acquire the app from iTunes – a specific third party.

It is important that businesses take these prohibitions seriously as the penalties for breaches of the exclusive dealing provisions can be significant including the greater of:

a)    $10 million;

b)    3 times the total amount the party gained from committing the breach; and

c)    if the gain cannot be assessed, 10% of the annual turnover of the party in breach.

An individual who is knowingly involved in the breach, such as a director or company officer, can also face penalties of up to $500,000.

In some cases third line forcing arrangements actually benefit consumers and don’t have an anti-competitive purpose or effect. In these instances it is possible to seek ‘immunity’ from the Australian Competition and Consumer Commission (ACCC) ‘. All that is required is for a form to be completed notifying the ACCC of the relevant arrangements and explaining why the public benefits of the arrangement outweigh any potential public detriment. The ACCC has 14 days to consider the notification and if it does not object to the conduct within that time, the party can engage in the conduct without being in breach. The ACCC can however, remove the immunity at any time if it forms the view that the likely benefit to the public are outweighed by the likely detriment to the public arising from the party’s conduct.

If your business offers a product or service (or discount or other arrangement) that is conditional on your customers buying a product or service from another company (or are about to embark on such an arrangement), and would like advice as to whether the arrangement involves third line forcing conduct (and whether you can seek the ACCC’s authorisation of the arrangement), please contact Daniel Marks or Peter George.

*The recent Harper Review of competition policy recommended that section 47 be repealed in favour of the use of an amended restriction on misuse of market power. In the event that this proposal is not adopted, it further recommended that the “per se” prohibition on third line forcing be removed.

Competition and consumer law online compliance training

This article highlight importance of competition and consumer law in the workplace and the role they play employees play in ensuring that there are no breaches of these laws within their organisation. eCompliance Training offers and online program on competition and consumer law to support this. Click here to learn more.