30 March 2022
Last week, Peters Ice Cream received a just dessert from the Federal Court – a $12 million penalty and a three year competition law compliance program undertaking – after admitting to certain anti-competitive exclusive dealing behaviour in proceedings brought by the Australian Competition and Consumer Commission (ACCC).
The ACCC successfully obtained these penalties after Australasian Food Group, trading as Peters Ice Cream, admitted to engaging in exclusive dealing behaviour in relation to the distribution of single serve ice creams sold in petrol stations and convenience stores across the country.
The ACCC relied on a contravention of its much underutilised enforcement power under section 47 of the Competition and Consumer Act 2010 (CCA). Section 47 of the CCA is concerned with exclusive dealing and prohibits parties from entering into arrangements to supply or acquire on the basis that the other party to the dealing is restricted in its supply to, or acquisition from others, where it has the purpose, effect or likely effect of substantially lessening competition. Importantly, exclusive dealing is only contrary to the law if it has the purpose, effect or likely effect of substantially lessening competition.
With the ACCC focusing on identifying and addressing exclusive dealing as one of its priorities for 2022-23, individuals and companies are encouraged to focus on understanding their obligations under section 47 of the CCA when reviewing current exclusive arrangements or looking to enter into such arrangements.
Peters Ice Cream is one of two major manufacturers of single serve ice cream products sold in Australian petrol stations and convenience stores. The company entered into a distribution agreement with PFD Food Services Pty Ltd (PFD) to distribute its single-wrapped ice cream and frozen confectionary products to these retailers nationwide between November 2014 and December 2019.
The agreement contained a condition that PFD could not sell or distribute any competing single serve ice cream products in certain locations around Australia (specified in the distribution agreement) without the prior written consent of Peters Ice Cream.
Potential competitors to Peters Ice Cream in the relevant period for single serve ice creams included Bulla, Gelativo and Pure Pops, the maker being The Nieve Company.
During the term of the distribution agreement, the Court accepted that these potential competitors had approached PFD to distribute these products. PFD then made requests to distribute competing ice cream products to petrol and convenience retailers nationally, but was rejected by Peters Ice Cream.
As Australia’s largest distributor of single serve ice creams, PFD can reach more than 90 per cent of Australian postcodes. As a result, it was the only commercially viable option available to new entrants to distribute those products to retailers operating national retail petrol and convenience stores.
The ACCC brought an action against Peters Ice Cream in November 2019, alleging that it contravened section 47 by effectively shielding itself from competitive entry and expansion with the consequence that consumers were denied the benefits, including improvements in choice, innovation, quality and price.
The ACCC had alleged that this conduct had the purpose, effect and/or likely effect of substantially lessening competition in the defined single serve ice cream market. Peters Ice Cream ultimately admitted it had engaged in exclusive dealing conduct that had “the likely effect” (as opposed to the purpose or effect) of substantially lessening competition in the market and made joint submissions with the ACCC in respect of penalties and orders. In accepting the $12 million penalty, Peters Ice Cream was also ordered to establish a competition compliance program for three years and pay a contribution to the ACCC’s legal costs.
The ACCC has recently signalled a focus on exclusive arrangements by firms with market power that impact competition in its 2022-23 compliance and enforcement policy and priorities.
In particular, the ACCC has indicated that:
“….we are seeing examples in Australia of large and powerful firms engaging in exclusionary behaviour that materially impacts competition. We are particularly concerned about firms with market power restricting access to bottleneck goods or services impacting the ability of competitors or new entrants to compete. So called ‘most favoured nation clauses’ that prevent competitors from offering a better deal to consumers can also raise concerns.”
The Peters Ice Cream outcome shows not only the significant financial consequences of a breach of section 47, but also the likelihood of the ACCC to continue its pursuit of enforcement action under section 47 for some time into the future.
This enforcement action outcome coincided with new ACCC Chair and competition lawyer Gina Cass-Gottlieb’s first week in the role. In announcing this significant outcome, Ms Cass-Gottlieb acknowledged that:
“This case is a reminder to all businesses of the serious and costly consequences of engaging in anti-competitive conduct…the ACCC is targeting exclusive arrangements by firms with market power that impact competition as one of our compliance and enforcement priorities for 2022/23.”
Therefore, companies reviewing their existing exclusive arrangements and those entering into new exclusive arrangements should carefully consider if it is the most appropriate path forward and consider whether these arrangements have the purpose, effect or likely effect of substantially lessening competition in any relevant market, lest the ACCC consider you having your cake and eating it too.
Our team can assist you in understanding the prohibitions against exclusive dealing and other restrictive trade practices under Part IV of the CCA.
We can also assist you in managing the compliance risks associated with your exclusive dealing arrangements. If you have any questions, please contact us or send us your enquiry here.
Authors: Joanne Jary & Kayla Plunkett
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.