Australia: Why Shouldn´t Ebay Be Able To Require Parties To Use Paypal?

Last Updated: 16 May 2008
Article by Martin Algie

eBay International (eBay) has indicated to the Australia Competition and Consumer Commission (ACCC) that it wants to require buyers and sellers on the eBay system to use one or other of the following payment systems:

(a) cash on delivery/pick up; or

(b) PayPal.

Currently, buyers and sellers have the option of using any one of a number of payment methods.

eBay's proposal clearly raises issues under the third line forcing provisions of the Trade Practice Act (TPA). It is for that reason that eBay has lodged a Notification with the ACCC, seeking dispensation on the basis that the benefit of this requirement outweighs its detriment. Third line forcing includes the practice of supplying goods or services, where the customer is obliged to purchase further goods or services from a third party. eBay's proposal certainly raises third line forcing issues, indeed on both sides of the transaction. First, eBay provides various benefits to buyers, in circumstances where (in practical terms) those buyers would be obliged to obtain financial services from PayPal. Second, eBay directly provides services to sellers (for which it charges a fee) and, as part of that, sellers would be obliged to establish an account with PayPal, through which it would be paid.

In this writer's view, this case highlights the fundamental inadequacy of the laws governing third line forcing. The prohibition is ostensibly broad, potentially capturing all manner of conduct, including eBay's proposal. This is despite the courts having narrowed the application of the law on each occasion that they have been asked to consider it. The problem is the lack of clarity; it is almost never certain whether these rulings will apply in any particular case. The result is the need to file Notifications, as eBay has done, and in eBay's case that has galvanised opposition to the proposal. To the unwary, it could mean prosecution.

The irony is that all of this should no longer be a commercial issue. In 2003, the Dawson Committee strongly recommended that third line forcing be unlawful only if it substantially lessens competition. The Committee reasoned that third line forcing is, in many case, economically advantageous. As there are very few cases in which the competition test would be satisfied, such a change in the law would effectively neuter the prohibition. That, however, would not be a bad thing. The economics does not justify prohibition, save in exceptional circumstances. That also reflects international regulation. Third line forcing is not prohibited under New Zealand's Commerce Act, for instance. The last government was set to implement this recommendation prior to losing power. It was frustrated only by last minute politicking.

The call for reform is based, in part, on the uncertain scope of the law. As noted above, the Courts have restricted the broad application of the prohibition. One of the rulings that narrows the application of third line forcing arguably applies in the eBay case. Based on that ruling, the better view is that eBay's proposal does not breach the third line forcing provisions. That argument is based on the notion that an auction and the payment of the goods purchasing in that auction is a single service. In other words, there is no "third line" that is forced. This argument is not dissimilar to a 2003 case involving the IMB Group. It was promoting a plan to develop a new NRL team. Participants in the scheme borrowed against the capital value of insurance policies in order to purchase shares in a new NRL team, thereby funding the team and the construction of a sports and entertainment centre in which they were to play. As part of the plan, participants had to buy the life insurance on which the scheme depended from National Mutual or Legal & General, albeit through IMB (as agent for these insurers). The ACCC prosecuted IMB for third line forcing. The issue was whether the rights or benefits provided by IMB to its customers were contingent on them purchasing specified insurance policies from a third party (ie. Legal & General). The ACCC's case failed. In essence, the Court held that IMB was offering a package of goods and services, one part of which was the insurance offered by National Mutual or Legal & General, supplied through IMB. This decision turned on the dependent relationship between IMB's services and the purchase of the insurance.

This notion of dependency is complex. And that is the point. Advising clients on this issue is extremely difficult. It leaves companies having to deal with the ACCC. In the worst case, it could lead to prosecution and the invalidation of transactions. In this writer's view, eBay's proposed arrangement appears to exhibit the same dependent character and should therefore be lawful. If the law were reformed as recommended by the Dawson Committee in 2003, the position would be even clearer. Despite eBay boasting as many as 5 million registered users, the arrangement is unlikely to substantially lessen competition in the market for payment services.

The trend has been to strip away unnecessary red-tape in the interests of efficiency. The prohibition against third line forcing remains a relic that needs to be dealt with.

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.

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