Australia: Baxter Breaches of the Trade Practices Act bring $4.9m penalty

Health Law Bulletin - November 2010
Last Updated: 18 November 2010
Article by Richard Owens and David Peters
This article is part of a series: Click A national hospital network for the previous article.

On 26 August 2010, the Full Federal Court handed down penalties of $4.9 million against Baxter Healthcare Pty Ltd (Baxter) for breaches of sections 46 and 47 of the Trade Practices Act 1974 (Act).1

The penalty decision follows the 2008 Full Court decision that Baxter breached sections 46 and 47 of the Act by bundling its sterile fluids (SF) product with its peritoneal dialysis fluids (PD) product.2 Section 46 of the Act prohibits taking advantage of market power. Section 47 prohibits exclusive dealing.

In terms of section 46, Baxter had substantial market power in its SF product but faced competition in its PD product. Baxter offered to supply four States (NSW, Queensland, South Australia and Western Australia) its SF and PD products bundled together at a substantial discount to the price at which it offered to supply the products separately. The bundling was done for the purpose of deterring or preventing others from competing in the PD market.

The section 47 breaches arose from Baxter negotiating and entering exclusive supply agreements with the four States for the purpose, and with the likely effect, of substantially lessening competition in the PD market.

The ACCC had sought penalties against Baxter of $27.3 million. The ACCC also sought injunctions against Baxter restraining it from similar conduct for 3 years.

In determining the final penalties of $4.9 million Justice Mansfield took the following factors into account:

  • the four States had some degree of bargaining power in negotiations with Baxter and had permitted bundled offers;
  • the price of the bundled products was not inappropriate and there was no suggestion of price gouging by Baxter;
  • Baxter's competitors had not been driven from the market and could still participate in future tenders;
  • Baxter did not deliberately intend to breach the Act, but it did deliberately engage in the contravening conduct and that conduct occurred on several occasions; and
  • a lack of contrition, claimed by the ACCC, was not a factor – Baxter was entitled to vigorously defend against the prosecution.

Justice Mansfield did not grant the injunction sought by the ACCC as this would have created uncertainty in how Baxter could participate in future tenders and it would be too difficult to distinguish between bundling that breached the Act and bundling that was acceptable.

Successful prosecutions under section 46 of the Act are rare. However, this decision highlights that section 46 investigations and prosecutions continue to play an important role in the ACCC's activities. It also demonstrates that advice should be sought when considering bundling products, especially by a company that has market power in relation to one or more of the bundled products.

1. ACCC v Baxter Healthcare Pty Ltd [2010] FCA 929

2. ACCC v Baxter Healthcare and Ors [2008] FCAFC 141

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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

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