The Federal Court today ordered penalties of $3 million against FILA Sport Oceania Pty Limited after finding that FILA's selective distribution policy for the supply of Australian Football League-licensed apparel to retailers was a breach of the Trade Practices Act 1974.
Justice Heerey made the orders following FILA's withdrawal of its defence and consent to declaratory and injunctive orders being made against it. He noted that FILA had in essence admitted liability.
Justice Heerey found that FILA had misused its market power and engaged in exclusive dealing in breach of sections 46 and 47 of the Trade Practices Act 1974. Section 46 of the Act prohibits corporations with a substantial degree of power in a market from taking advantage of that power to eliminate or substantially damage a competitor or to deter and prevent a person from engaging in competitive conduct. Section 47 of the Act prohibits certain types of exclusive dealing.
The Australian Competition and Consumer Commission instituted proceedings against FILA in September 2002. At the time of the conduct, FILA was the Australian subsidiary of FILA Holding S.p.A., an Italian based clothing manufacturer with operations in more than 20 countries. In Australia, between September 1999 and 2001, FILA operated as a wholesaler of apparel merchandise under licence from the AFL for the Adelaide Crows, Essendon Bombers, Geelong Cats, Melbourne Demons and Western Bulldogs. FILA was also a major sponsor of those teams. FILA has since appointed administrators.
The court found that FILA implemented its selective distribution policy in late 1999 to only supply clothing retailers with FILA AFL-licensed apparel on condition that these retailers agreed not to stock AFL-licensed apparel from FILA's competitors. The court found that the policy was in place on a national basis for a period of approximately 19 months. During this time, FILA withdrew its supply of FILA AFL-licensed apparel from a number of major retailers who did not agree to embrace the FILA policy and decided to stock FILA's competitors' products.
Justice Heerey said: "...this was a serious, blatant contravention extending over a substantial period of time which caused major damage to several businesses. In particular, the fact that the conduct contravened s47 would have been obvious to any reasonably competent business person".
In handing down the penalty, Justice Heerey indicated that "clear deterrence is called for… It is only the fact that the relevant conduct fell in the mid range of economic activity in terms of value that makes a significantly higher penalty not appropriate".
"This decision highlights the need for businesses to proceed with caution when implementing a selective distribution policy", ACCC Chairman, Mr Graeme Samuel, said today. "The conduct was felt across a wide range of retailers around Australia, and had a serious effect on FILA's competitors. This resulted in less choice for consumers of AFL apparel".
In handing down his judgment, Justice Heerey adjourned the question of injunctions and declarations pending the determination of the matter against the second respondent.