The Full Federal Court has today upheld that Warner Music and Universal Music had breached section 47 of the Trade Practices Act 1974 dealing with exclusive dealing when responding to the parallel importation of music by small business.
The court did not affirm a breach of section 46, based on the earlier High Court Boral judgment.
The court increased the total penalties payable by Warner, Universal and company senior executives to a total of more than $2 million.
"This decision is important as it sends a strong message to those who would attempt to influence retailers against stocking the often cheaper parallel-imported CDs in competition with Australian-made CDs", ACCC Chairman, Mr Graeme Samuel, said.
"Consumers can benefit also from the lower prices and greater choice.
"Justices Wilcox, French and Gyles further clarified the law regarding misuse of market power by following the High Court judgment in the recent Boral case", Mr Samuel said.
"Both Warner and Universal were unsuccessful in appealing the original decision of Justice Hill that they had contravened the exclusive dealing provision of the Act".
In their judgment, the Full Court stated: "Although short-lived the purpose of that conduct was to snuff out the emergence of a form of competition opened up in the interests of consumers by the amendments to the Copyright Act. On any view these factors would indicate the need for a substantial penalty to be assessed bearing in mind the maximum of $10 million".
They also said: "As we have said, the contravening conduct was plainly and deliberately anti-competitive in its intent".
At trial, Justice Hill held that Warner and Universal had breached the Act by threatening to refuse to supply Australian retailers who stocked parallel-imported CDs, and later refusing to supply retailers who stocked such imports. Those findings made by Justice Hill preventing Warner and Universal from refusing, or threatening to refuse supply to retailers for the reason that they source or propose to source non-infringing copies of music within their catalogue from an alternate source, were upheld by the Full Federal Court.
The ACCC, while successful in establishing a breach of the Trade Practices Act at trial, appealed the pecuniary penalty awarded by Justice Hill (totalling more than $1 million) as being inadequate given the circumstances of the case.
The Full Court held that penalties need to be set to adequately reflect the need for deterrence and ordered the following penalties:
- Warner and Universal – $1,000,000 each
- Paul Dickson (formerly PolyGram Group Managing Director of Music Operations) – decreased from $50,000 to $45,000
- Craig Handley (formerly PolyGram General Manager of Sales) - $45,000
- Gary Smerdon (Director of Warner, formerly Finance and Business Affairs Director) - $45,000; and
- Greg Maksimovic (Warner NSW State Manager) - $45,000.
Mr Samuel welcomed the decision of the court to substantially increase the penalties imposed on Warner and Universal.
"Penalties of $1 million each for Warner and Universal and $45,000 each for the senior executives of those companies show that the court, when faced with serious breaches of trade practices law, will impose penalties to match".
Injunctions have been made preventing Warner and Universal from engaging in exclusive dealing with the purpose of substantially lessening competition in the Australian market for recorded music.
The court ordered that the companies pay the half of the ACCC's appeal costs and 50 per cent of the ACCC's trial costs.