Penalties totalling $250,000 have been imposed by the Federal Court on Dermalogica Pty Ltd, a wholesaler of prestige skin care products, for engaging in resale price maintenance in contravention of section 48* of the Trade Practices Act 1974.
The court noted this penalty would have been considerably higher but for the company's cooperation by admitting certain contravening conduct.
The penalties imposed on Dermalogica, a subsidiary of an American corporation, follow action taken by the Australian Competition and Consumer Commission in November 2002.
The ACCC alleged Dermalogica had attempted to stop two retailers discounting Dermalogica products below suggested retail prices on their websites. Dermalogica had written to these retailers stating:
It has come to our attention that your website is offering the Dermalogica product range for sale lower than the recommended retail price. Our web guidelines and policies clearly states that in order to maintain Dermalogica's premium brand image and consistent pricing strategy, we strongly discourage the selling of Dermalogica products for more or less than their suggested retail prices.
I would ask you therefore to please adjust your prices for online retailing with immediate effect.
Staff of the company had also met with the retailers to voice concerns at their practice of discounting Dermalogica products. Additionally, Dermalogica's web guidelines provided that a violation of its pricing policy could result in account termination and legal action.
As well as imposing these penalties, Justice Goldberg made orders declaring that Dermalogica had engaged in specific acts of resale price maintenance in breach of the Trade Practices Act 1974. He also ordered Dermalogica to pay the ACCC's costs in the matter.
In handing down his judgment, Justice Goldberg referred to a number of factors which he took into account in determining the amount of the penalty to impose on Dermalogica. Among these factors was Dermalogica's conduct which was found to be "deliberate, bold and somewhat aggressive" and rash and ignorant in its nature.
Justice Goldberg further noted the involvement of senior staff in the offending conduct. He said he was satisfied that Dermalogica's conduct was "for the most part a product of an attitude inculcated at a senior level within Dermalogica's management structure". As the conduct was not a result of tactics adopted by lower level officers within Dermalogica, a higher penalty was imposed on the company.
ACCC Chairman, Mr Graeme Samuel, welcoming the decision said: "The Federal Court has reaffirmed the basis upon which penalties in these cases are fixed. That is, when setting the penalty, it is entirely appropriate for the court to have regard to the general deterrent effect that a particular penalty will have upon the future conduct in the wider community. This deterrent effect is not satisfied, as Dermalogica tried to argue, from the mere existence of prescribed maximum penalties under the Trade Practices Act 1974.
"Suppliers who try to maintain a prestige image for their products by preventing their resellers discounting should be aware that such a practice is a perilous one. Suppliers engaging in this conduct who come to the attention of the ACCC can expect prompt and rigorous enforcement action which at the end of the day may involve a potentially substantial monetary penalty".