The Australian Competition and Consumer Commission has issued draft notices proposing to revoke the third line forcing notifications* lodged by the Seal-A-Fridge franchisors.
"The ACCC is proposing to remove the immunity for third line forcing conduct proposed by Seal-A-Fridge Pty Ltd, Mr Nigel Rooney and Mr Nigel and Mrs Linda Rooney," ACCC Chairman, Mr Graeme Samuel, said today.
Seal-A-Fridge franchisees operate a mobile refrigeration seal replacement service. Under the notified conduct, the franchisors are proposing to require franchisees to acquire the two goods used in the manufacture of refrigeration seals, PVC extrusion and flexible magnet products, from Seal-A-Fridge Pty Ltd and/or nominated approved suppliers.
"Franchisors often require their franchisees to purchase stock or equipment from nominated suppliers. By their very nature, franchise arrangements will impose restrictions on franchisees' freedom to choose with whom, in what or where they deal.
"While these types of restrictions may raise concerns under the competition provisions of the Trade Practices Act 1974, they can give rise to public benefit in many cases. For example, such restrictions may result in higher quality end products to consumers, a greater consistency of products across the franchise and cost savings to franchisees.
"In this instance, however, the ACCC considers there is little, if any, public benefit from the notified conduct. It is not clear that the price to franchisees will be lower as a result of the conduct, nor is it clear that there will be an increase in the quality of the end product to consumers.
"The ACCC is also particularly concerned that the restrictions are to be introduced well after the franchise agreements were entered into and are not supported by a significant proportion of franchisees."
While the ACCC has issued draft notices proposing to revoke the third line forcing notifications lodged by the franchisors, it is proposing not to take any further action at this time in respect of the notification lodged by Seal-A-Fridge Pty Ltd for exclusive dealing conduct other than third line forcing.
"The notification under which Seal-A-Fridge Pty Ltd will seek to require franchisees to purchase only from it is subject to a different test under the Trade Practices Act. To revoke this type of notification, the ACCC must be satisfied that the proposed conduct has the purpose, effect or likely effect of substantially lessening competition in a relevant market.
"Seal-A-Fridge franchisees make up only a small proportion of the Australian market for PVC extrusion, flexible magnet and ready-made fridge seals. Further, the cost of the goods appears to constitute less than 10 per cent of the total price charged to end consumers. Given this, the ACCC does not consider the proposed conduct will substantially lessen competition in any market."
The ACCC is now seeking further submissions from interested parties in respect of the draft notices. In addition, any interested party may request that the ACCC hold a conference in relation to the draft notices.
More information regarding the notifications and a copy of the draft notices are available at the ACCC website by following the links to Public registers and Authorisations and notifications registers and Exclusive dealing notifications register.
* Parties may obtain immunity from legal action in respect of third line forcing conduct by lodging an exclusive dealing notification with the ACCC. Immunity is conferred automatically two weeks after the notification is validly lodged. The ACCC may issue a notice revoking a third line forcing notification if it is satisfied that the likely benefit from the conduct or proposed conduct will not outweigh the likely detriment from the conduct or proposed conduct. Before issuing such a notice, the ACCC must first issue a draft notice outlining the reasons why it proposes to revoke the notification.
