Baxter's conduct hindered competition but protected by 'crown immunity' : Federal Court

In a judgment published yesterday* the Federal Court has held that despite conduct likely to hinder competition, Baxter Healthcare Pty Ltd had not contravened the Trade Practices Act 1974 because it was dealing with various state government departments which were not carrying on business.

The Australian Competition and Consumer Commission had alleged that Baxter had taken advantage of its market power and engaged in exclusive dealing to structure the terms on which it offered to enter into contracts for the supply of a range of sterile fluid products together with peritoneal dialysis products to State and Territory purchasing authorities.

This included requiring the authorities to purchase peritoneal dialysis products from Baxter if they wished to have the benefit of significantly lower prices for the range of products. While Baxter has a monopoly in sterile fluids it faces competition in peritoneal dialysis products.

The ACCC alleged that Baxter structured its offers in this way to prevent, deter or hinder other suppliers from competing with it.

The Trade Practices Act 1974 generally applies to Governments when those Governments are carrying on a business. The Federal Court found that because Baxter was supplying state purchasing authorities which were not carrying on a business and therefore entitled to Crown immunity, the Crown immunity extended to protect Baxter from the proceedings brought by the ACCC.

Without this protection, the Federal Court would have held Baxter had breached the exclusive dealing provisions of the Act in relation to its offers to supply sterile fluids which were tied to the sale of peritoneal dialysis products. Further, without this protection Baxter also would have contravened the misuse of market power provisions of the Act.

Justice Allsop stated that but for the Crown immunity: "…I would….make declarations and injunctions, and consider the imposition of penalties, in relation to the conduct of Baxter".     

The State Governments of New South Wales, Queensland, South Australia and Western Australia** took the position that companies contracting with them should be exempted from the Act.

The ACCC has appealed the decision.

*The judgement was issued on 16 May and published yesterday (21 June) following resolution of confidentiality issues.

**Victoria, Tasmania and the Territory Governments were not involved in the proceedings.

Background

The ACCC alleged that Baxter entered into long term, exclusive, bundled contracts of between three and five years which tied the supply of sterile fluids to the supply of peritoneal dialysis products which are used by patients with kidney failure, with each of the purchasing authorities in New South Wales, the Australian Capital Territory, Western Australia, South Australia and Queensland. Each State and Territory purchasing authority acquires these products for supply to publicly funded health facilities, including public hospitals.

The Productivity Commission in its recent Report on National Competition Policy recommended that the Australian Government consider amending the Act so that it applies to all the procurement activities of governments. It is not known at this stage how the Australian Government will respond.