ACCC & AER annual report 2016-17

Analysis of performance: Stopping anti-competitive conduct

Deliverable 1.1: Deliver outcomes to address harm to consumers and businesses resulting from anti-competitive conduct

Our Compliance and Enforcement Policy governs our annual priorities in this area. This year our priorities under Deliverable 1.1 are:

  • cartels
  • anti-competitive agreements and practices
  • misuse of market power
  • competition and consumer issues in commercial construction
  • competition and consumer issues in the agriculture sector
  • competition in the health and medical sectors.

In 2016–17 the ACCC was involved in 18 court proceedings relating to competition enforcement.

These proceedings relate to competition matters in a range of industries including medical, building and construction, shipping and transportation, and financial services. A complete list of these proceedings is included in appendix 9.

Of the 18 competition enforcement proceedings:

  • 13 cases were carried over from the previous year
  • five new cases were commenced during the year
  • four cases were finalised
  • 14 cases remained ongoing at the end of the year.

We achieved significant outcomes in competition matters in 2016–17 in:

  • NYK—$25 million fine2
  • Australia and New Zealand Banking Group Limited—penalties of $9 million
  • Macquarie Bank Ltd—penalties of $6 million
  • Yazaki Corporation—Federal Court finding of contraventions of the criminal cartel provisions. The penalty of $9.5 million has been appealed by the ACCC.
  • Prysmian Cavi e Sistemi S.r.l.—Federal Court finding of cartel conduct
  • Flight Centre Limited—successful High Court appeal by the ACCC
  • PT Garuda Indonesia Ltd and Air New Zealand—unanimous High Court dismissal of appeals by each airline, thereby ruling in favour of the ACCC
  • petrol market studies in Launceston, Armidale and Cairns
  • Co-operative Bulk Handling Limited—s. 87B undertaking to stop offering conditional grain receipt, storage and handling facilities
  • Expedia.com and Booking.com—administrative resolutions to amend their contractual terms with Australian hotels and accommodation providers.

Cartels

Cartel behaviour involves businesses agreeing with their competitors to fix prices, rig bids, share markets or restrict supply of products and services. By conspiring to control markets in these ways, a cartel protects and rewards its inefficient members while penalising honest, innovative and well-run companies.

The ACCC has extensive powers to investigate cartels. We can compel relevant individuals and companies to give us information about suspected cartels and, under warrant, we can search company offices and the homes of company officers.

Companies and individuals, including cartel participants, help us to detect cartels. Under the ACCC Immunity and Cooperation Policy for Cartel Conduct, participants can apply for immunity from civil and criminal prosecution by reporting their own involvement in a cartel.

Example of enforcement action to remedy damage from a cartel: NYK and K-Line—criminal charges

In July 2016, following an investigation by the ACCC, Japan-based global shipping company NYK pleaded guilty in the Federal Court to criminal cartel conduct. This is the first criminal charge laid by the CDPP against a corporation under the criminal cartel provisions of the Act.

This matter relates to alleged cartel conduct in connection with the international transportation of vehicles, including cars, trucks, and buses, to Australia between July 2009 and September 2012.

NYK is one of the world’s largest shipping companies, with over 33 000 employees. As well as its headquarters in Tokyo it has offices in Europe, Africa, East Asia, South Asia, China, Oceania (including Australia), North America and South America. It also operates an Australian subsidiary, NYK Line (Australia) Pty Ltd.

In November 2016 the CDPP laid criminal charges against Japan-based company K-Line in respect of the same alleged cartel conduct. This is the second matter in which criminal charges have been laid against a corporation under the criminal cartel provisions of the Act.

K-Line is a global organisation with over 7000 employees. As well as its headquarters in Tokyo it has offices in Europe, Africa, North-East Asia, South-East Asia, Japan, North America, Central America, South America, India, the Middle East, and Oceania (including Australia). It also has an Australian subsidiary, K-Line (Australia) Pty Ltd.

Under the Act, the maximum fine for each criminal cartel offence by a corporation is the greatest of:

  • $10 million
  • three times the total benefits that have been obtained by and are reasonably attributable to the commission of the offence
  • if the total value of the benefits cannot be determined, 10 per cent of the corporation’s annual turnover connected with Australia.

On 11 April 2017 a sentencing hearing was held in the Federal Court for the NYK matter. On 3 August 2017, the court convicted NYK of criminal cartel conduct and imposed a fine of $25 million. Justice Wigney stated that the fine “incorporates a global discount of 50% for NYK’s early plea of guilty” and that “but for the early plea and past and future cooperation, the fine would have been $50 million.” In this case, the maximum penalty was calculated on the basis of 10 per cent of NYK’s annual turnover in connection with Australia, in the 12 months prior to the commencement of the offence. On that basis, NYK’s conduct attracted a maximum penalty of $100 million.

Justice Wigney stated in his judgment the “cartel conduct of the sort engaged in by NYK warrants denunciation and condign punishment” because “it is ultimately detrimental to, or at least likely to be detrimental to, Australian businesses and consumers. The penalty imposed on NYK should send a powerful message to multinational corporations that conduct business in Australia that anti-competitive conduct will not be tolerated and will be dealt with harshly”.

The K-Line matter is still before the court.

Example of ACCC enforcement action to remedy damage from a cartel: ANZ and Macquarie Bank

In December 2016 the Federal Court ordered Australia and New Zealand Banking Group Limited (ANZ) and Macquarie Bank Limited (Macquarie) to pay penalties of:

  • $9 million against ANZ in respect of its admission that it engaged in 10 instances of attempted cartel conduct in contravention of the Act
  • $6 million against Macquarie in respect of its admission that it engaged in eight instances of attempted cartel conduct in contravention of the Act.

The cartel conduct occurred on various dates in 2011, when traders employed by a number of banks in Singapore communicated via online chat rooms about daily submissions to be made to the Association of Banks in Singapore (ABS) in relation to the benchmark rate for the Malaysian ringgit (ABS MYR Fixing Rate).

During the relevant period, the ABS MYR Fixing Rate was derived from submissions made each day by a panel of banks. The ACCC alleged that the traders sought to influence the fixing rate published on the day by making arrangements with other banks to make high or low submissions to the ABS MYR Fixing Rate. The rate would ultimately affect settlement payments for MYR-denominated non-deliverable forward contracts (NDFs).

ANZ was a submitting bank for the MYR. Macquarie was not a submitting bank but often initiated discussions between traders and acted as a hub for or coordinator of submitting banks. ANZ and Macquarie customers included Australian companies.

The ACCC estimated that the annual MYR NDF turnover in Australia was approximately $9 billion to 10 billion. Similar conduct has been investigated and sanctioned in other markets. The Australian Securities and Investments Commission (ASIC) is also engaged in litigation against several Australian banks regarding the setting of interest rate benchmarks.

Court cases

The ACCC brought Federal Court proceedings against a number of businesses and related individuals for alleged cartel conduct in the supply of goods or services in Australia’s medical, building and construction, shipping and transportation, and financial services sectors.

The following cases were finalised in 2016–17. Refer to appendix 9 for details.

Table 3.3: Cartel conduct proceedings finalised

Cartel conduct

Australia and New Zealand Banking Group Limited

commenced

concluded

jurisdiction

outcome

25 November 2016

14 December 2016

Federal Court Sydney

Pecuniary penalty of $9 million, and contribution of $200 000 to ACCC costs

Alleged attempted cartel conduct by ANZ traders and a Macquarie Bank trader to influence the fixing rate for Malaysian ringgit non-deliverable forward contracts

Cartel conduct

Macquarie Bank Limited

commenced

concluded

jurisdiction

outcome

25 November 2016

14 December 2016

Federal Court Sydney

Pecuniary penalty of $6 million, and contribution of $200 000 to ACCC costs

As above

Cartel conduct

OLEX Australia Pty Ltd & Ors

commenced

concluded

jurisdiction

outcome

4 December 2014

10 March 2017

Federal Court Melbourne

ACCC case dismissed

Alleged cartel and exclusionary conduct in the supply and acquisition of electrical cable throughout Australia

The following cases were instituted in 2016–17.

Table 3.4: Cartel conduct proceedings commenced

Cartel conduct

Australia and New Zealand Banking Group Limited

Macquarie Bank Limited

As above

 

Cartel conduct

Kawasaki Kisen Kaisha Ltd

 

commenced

jurisdiction

2 November 2016

Downing Centre
Local Court Sydney

Alleged cartel conduct concerning the international shipping of cars, trucks and buses to Australia between 2009 and 2012

Cartel conduct

Nippon Yusen Kabushiki Kaisha

 

commenced

jurisdiction

14 July 2016

Federal Court NSW Criminal Division

Alleged cartel conduct concerning the international shipping of cars, trucks and buses to Australia between 2009 and 2012

The following cartel cases were ongoing in 2016–17.

Table 3.5: Cartel conduct cases ongoing

Cartel conduct

Air New Zealand Limited (appeal)

Conduct

commenced

jurisdiction

17 May 2010

Federal Court Sydney

Alleged cartel conduct concerning price fixing of surcharges on air cargo services

Cartel conduct

Nippon Yusen Kabushiki Kaisha

 
 

commenced

jurisdiction

14 July 2016

Federal Court NSW Criminal Division

Alleged cartel conduct concerning the international shipping of cars, trucks and buses to Australia between 2009 and 2012

Cartel conduct

P.T. Garuda Indonesia Ltd (appeal)

 

commenced

jurisdiction

2 September 2009

Federal Court Sydney

Alleged cartel conduct concerning price fixing of surcharges on air cargo services

Cartel conduct

Australian Egg Corporation Limited & Ors (appeal)

commenced

jurisdiction

28 May 2014

Federal Court Adelaide

Alleged attempt to induce members of the corporation into an arrangement for the purpose of reducing the available egg supply

Cartel conduct

Cascade Coal Pty Ltd & Ors

 

commenced

jurisdiction

25 May 2015

Federal Court Sydney

Alleged bid rigging conduct involving mining exploration licences in the Bylong Valley, NSW

Cartel conduct

Colgate-Palmolive Pty Ltd & Ors

 

commenced

jurisdiction

12 December 2013

Federal Court Sydney

Alleged cartel and anti-competitive behaviour in supplying laundry detergent

Cartel conduct

Oakmoore Pty Ltd, Palram Inc, Ampelite Pty Ltd & Ors

 

commenced

jurisdiction

23 June 2016

Federal Court Brisbane

Alleged cartel conduct in the supply of polycarbonate roof sheeting to retailers in Australia

Cartel conduct

Prysmian Cavi e Sistemi S.r.l.

 

commenced

jurisdiction

23 September 2009

Federal Court Adelaide

Alleged cartel conduct in relation to the allocation of projects supplying high-voltage or extra-high-voltage land or submarine cable

Cartel conduct

Yazaki Corporation & Australian Arrow Pty Ltd (appeal)

 

commenced

jurisdiction

13 December 2012

Federal Court Adelaide

Alleged price fixing and market sharing in relation to the supply of wire harnesses to Toyota

Anti-competitive agreements and practices

The Act prohibits contracts, arrangements and understandings between two or more parties that aim to, or are likely to, substantially lessen competition, even where they do not amount to cartel conduct.

Example of action against anti-competitive conduct: Flight Centre

In December 2016 the ACCC won a High Court appeal in relation to an attempt by Flight Centre Limited (Flight Centre) to induce three international airlines to enter into price-fixing arrangements between 2005 and 2009. The arrangement concerned airfares offered online by the airlines that were cheaper than those offered by Flight Centre.

Flight Centre’s conduct sought to eliminate differences in the airfares offered to customers. The ACCC was concerned about the potential effect of this conduct on competition and its ultimate impact on the prices available to consumers.

Importantly, the High Court found that Flight Centre and the airlines were competing in the market for the sale of international airline tickets, despite Flight Centre being an agent for each of the airlines.

The background to the High Court outcome was a Federal Court decision in favour of the ACCC in March 2014 ordering Flight Centre to pay penalties of $11 million. Flight Centre successfully appealed in the Full Court of the Federal Court in July 2015. The ACCC then appealed to the High Court.

The High Court held the appeal and cross-appeal hearing in relation to penalty on 10 May 2017, and judgment was reserved.

Court cases

The following cases were ongoing in 2016–17.

Table 3.6: Anti-competitive agreements and practices proceedings instituted

Anti-competitive agreements and misuse of market power

Ramsay Health Care Australia Pty Ltd

commenced

jurisdiction

1 May 2017

Federal Court Sydney

Alleged anti-competitive conduct involving misuse of market power and exclusive dealing in the day surgery market in the Coffs Harbour region

Table 3.7: Anti-competitive agreements and practices proceedings ongoing

Anti-competitive agreements

Flight Centre Ltd (High Court appeal)

commenced

jurisdiction

status

9 March 2012

Federal Court Brisbane

Appeal on issues

Alleged anti-competitive arrangements with three international airlines to eliminate differences in international airfares offered to customers

Anti-competitive agreements

Cement Australia Pty Ltd & Ors (appeal)

commenced

jurisdiction
status

12 September 2008

Federal Court Brisbane

Awaiting judgment

Alleged conduct in contravention of s. 45 of the Act, relating to flyash contracts between Cement Australia and power stations in south-east Queensland

Anti-competitive agreements

Construction, Forestry Mining and Energy Union (CFMEU)

commenced

jurisdiction

status

20 November 2014

Federal Court Melbourne

Awaiting judgment

Alleged secondary boycott conduct by the CFMEU, [edited for legal reasons].

Undertakings

The following s. 87B undertaking was accepted in 2016–17. Details of competition enforcement s. 87B undertakings are in appendix 8.

Table 3.8: Undertaking accepted in respect of anti-competitive agreements

Co-operative Bulk Handling Limited

s. 87B undertaking dated 18 October 2016

The ACCC accepted a court enforceable undertaking from Co-operative Bulk Handling Limited in relation to its supply of grain receiving, storage and handling services in Western Australia

Administrative resolutions

The following administrative resolutions for anti-competitive agreements were finalised in 2016–17.

Expedia Inc (includes Expedia.com, Wotif.com, Hotels.com)

2 September 2016

and

the Priceline Group (Booking.com)

2 September 2016

In September 2016 Expedia Group and Booking.com (part of the Priceline Group) agreed through an administrative resolution to remove parity requirements for room price, availability and conditions from their contracts with Australian accommodation providers from 2 September 2016 for a period of three years.

The ACCC had concerns that the contractual terms between accommodation providers and Booking.com and Expedia.com limited competition between the different online booking platforms. This resolution removes those clauses, which will enhance price competition between online booking platforms.

Parity clauses generally require accommodation providers to offer best price and availability to online travel sites, which is why consumers see the same prices offered across different online travel booking websites.

These changes extend to the largest online travel sites used in Australia for Australian accommodation, including Booking.com, Wotif.com, Hotels.com, and Expedia.com.

Misuse of market power

Misuse of market power is prohibited under the Act. It occurs where a business with substantial market power in a market uses this power to:

  • eliminate or substantially damage a competitor
  • prevent another business from entering a market
  • deter or stop another business from acting competitively in any market.
Example of action for misuse of market power: Pfizer

In February 2014, the ACCC instituted proceedings in the Federal Court against Pfizer Australia Pty Ltd (Pfizer) for alleged misuse of market power and exclusive dealing in relation to its supply of atorvastatin to pharmacies.

Atorvastatin is a pharmaceutical product used to lower cholesterol. Pfizer’s originator brand of atorvastatin, Lipitor, was for a number of years the highest selling prescription medicine under the Pharmaceutical Benefits Scheme. Before the loss of patent protection in May 2012, Lipitor was prescribed to over one million Australians, with annual sales exceeding $700 million.

The ACCC’s allegations relate to offers made by Pfizer to pharmacies in early 2012 for the supply of Lipitor and Pfizer’s own generic atorvastatin product. The ACCC alleged that Pfizer offered significant discounts and the payment of rebates previously accrued on sales of Lipitor, conditional on pharmacies acquiring a minimum volume of up to 12 months’ supply of Pfizer’s generic atorvastatin product.

The offers were first made before Pfizer’s loss of patent protection for the atorvastatin molecule, when other suppliers of generic medicines were prevented from making competing offers to supply a generic atorvastatin product to pharmacies.

In February 2015, the Federal Court dismissed the ACCC case against Pfizer. The ACCC has appealed the decision. The Full Federal Court has reserved judgment, and the case is ongoing.

Court cases

The following cases were ongoing in 2016–17.

Table 3.9: Misuse of market power cases ongoing

Misuse of market power

Pfizer Australia Pty Ltd (appeal)

commenced

jurisdiction

status

13 February 2014

Federal Court Sydney

Judgment reserved

Alleged misuse of market power for the purpose of substantially lessening competition in relation to particular cholesterol-lowering products by offering to supply its originator brand of atorvastatin, Lipitor, and its own generic atorvastatin product to community pharmacies in early 2012

Our case against Ramsay Health Care Australia Pty Ltd, mentioned under anti-competitive agreements, is also a misuse of market power matter.

Commercial construction

In June 2017, as part of recommendations flowing from the Royal Commission into Trade Union Governance and Corruption, the ACCC established a Commercial Construction Unit within its Enforcement Division. The Commercial Construction Unit consists of investigators dedicated to investigating competition issues in the commercial construction industry around Australia. In order to undertake this work, the ACCC will receive additional funding of $2 million extending into next financial year. The types of issues that may be investigated by the unit include cartel conduct, secondary boycotts and other anti-competitive behaviour involving construction industry participants, including industry trade unions.

Competition issues in agriculture

The ACCC continued its work focusing on competition issues in the agriculture sector through the completion of a market study into the cattle and beef industry and contributions to reviews of mergers in the sector. The ACCC is also involved in undertaking regional workshops focusing on competition and fair trading in horticulture and viticulture industries, and conducting an inquiry into the competitiveness, trading practices, and transparency of the Australian dairy industry. Details of the work of the Agriculture unit are on page 58 under ‘Other work promoting competition’.

Competition in the health and medical sectors

The ACCC continued to pursue competition issues in the health and medical sectors as part of its 2016–17 compliance and enforcement priorities.

In 2016–17, we identified competition and consumer issues in the health sector that we need to proactively address. This focus emerged from a number of allegations we received about attempts to limit access to products, patients, procedures or facilities. The effect of anti-competitive conduct by medical professionals can be significant, particularly in regional areas. The followiing case study of Ramsay Health Care Limited highlights the issues in this area.

Court cases

Example of intervention to promote competition in medical services: Ramsay Health Care

In May 2017, the ACCC instituted proceedings in the Federal Court against Ramsay Health Care Australia Limited (Ramsay) for alleged anti-competitive conduct involving misuse of market power and exclusive dealing in the Coffs Harbour region.

Ramsay operates Baringa Private Hospital and Coffs Harbour Day Surgery, the only private hospital and private day surgery facilities in the Coffs Harbour region. Coffs Harbour surgeons use operating theatres at Ramsay’s facilities to perform surgical procedures on private patients.

The ACCC alleged that Ramsay became aware that a group of Coffs Harbour surgeons were planning to establish a competing private day surgery facility in Coffs Harbour. In response to this competitive threat, the ACCC alleges senior Ramsay executives told these surgeons that if they were involved with the proposed new day surgery they would have their access to operating theatre time at Baringa Hospital substantially reduced or withdrawn. The ACCC therefore alleged that Ramsay engaged in this conduct for the purpose of deterring or preventing a new entrant in the day surgery market in Coffs Harbour, or substantially lessening competition in that market.

The matter is currently before the Court. The ACCC is seeking pecuniary penalties, declarations, compliance program orders and costs.

2 NYK was charged on 14 July 2016, on 18 July they pleaded guilty, a sentence hearing was held on 11 April 2017, and on 3 August 2017 NYK was convicted and fined $25 million.