Many companies involved in the direct selling industry in Australia conduct their business by way of a buy/resell model. (This is similar to other forms of distributorships.) In some countries, direct selling companies are able to specify a minimum price below which their independent distributors cannot resell or advertise the goods or services. However, this practice, which is known in Australia as “resale price maintenance”, is strictly prohibited in Australia under the Competition and Consumer Act 2010 (the Act) 1 .

What is “Resale Price Maintenance”?

Suppliers of goods and services in Australia are unable to specify a minimum price below which goods or services are unable to be resold. Independent contractors or distributors have the right to advertise and sell goods at any price they like.

Examples of supplier conduct which may amount to resale price maintenance include:

  • a statement to the effect in Policies and Procedures that products must not be sold by distributors for amounts less than those amounts set by the supplier;
  • setting minimum prices below which independent contractors or distributors must not resell the products;
  • offering inducements to independent contractors or distributors to not resell products at discounted prices; and
  • taking action against independent contractors or distributors, for example, threatening to cut off supply because they have discounted or advertised prices which are below those set by the supplier.

Recent ACCC Action

In January 2012, the Australian Competition and Consumer Commission (the ACCC) (the Australian regulator for consumer law matters) commenced legal proceedings against Eternal Beauty Products Pty Ltd (Eternal) and its director, Ms Penny Rider in respect of conduct allegedly in breach of this prohibition.

Eternal supplies beauty products and is the sole Australian distributor of an eye cream and face cream (the Products). Representatives of Eternal were said to have induced representatives of various retailers during telephone conversations and by email to not sell the Products at prices less than the price specified by Eternal.

The proceedings were concluded recently when the parties agreed by consent to Federal Court orders that:

  • Eternal and Ms Rider had engaged in resale price maintenance in breach of section 48 of the Competition and Consumer Act;
  • Eternal pay a penalty of $80,000 to the Commonwealth in respect of the contraventions while Ms Rider pay a penalty of $10,000.
  • Eternal establishes a Compliance and Education/Training Program, to be maintained and administered for three years.
  • Ms Rider attend the training which must be provided annually for three years and which she must verify has taken place each year (by providing an affidavit to the ACCC).
  • Eternal and Ms Rider pay the ACCC the sum of $10,000 as a contribution towards the ACCC’s costs.

Take Home Points

Companies involved in the direct selling industry should ensure that they do not stipulate to their independent contractors that goods or services must not be sold or provided below particular prices. Recommended or suggested prices should be just that and the independent distributor should have the right to determine the price at which they re-sell goods or services. Direct selling companies should also be mindful that their Policies and Procedures do not contain clauses which contravene, expressly or implicitly, this prohibition. Further, the selling of goods below a recommended or suggested price should not be grounds for the termination or suspension of an independent contractor’s agreement with the company.

Footnotes

1 Section 48 of the Competition and Consumer Act 2010 (Cth).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.