In a timely reminder to business, the Australian Competition and Consumer Commission has commenced proceedings against 28 parties in the telecommunications and finance industries, alleging third line forcing and misleading and deceptive conduct arising out of bundled services deals.
Third line forcing is the practice of supplying goods or services (whether at all, at a particular price or with a discount or rebate) on condition that the purchaser also acquires goods or services from another party. Third-line forcing is a form of exclusive dealing which is always illegal, regardless of its effect on competition. The prohibition is frequently overlooked or misunderstood by businesses, which are therefore at significant risk of inadvertently breaking the law. The ACCC's routine prosecution of companies engaging in third-line forcing highlights the seriousness with which such breaches may be treated.
The ACCC has alleged that the telecommunications companies entered into contracts with small businesses to provide them with telecommunication services, call credits and equipment. It is claimed that many of the small business customers were led to believe that the equipment was a "free" add-on to the service contract. However, it is alleged that the equipment was actually supplied to customers under rental agreements with the finance companies unrelated to the phone companies.
The Commission claims that by entering into these bundled service deals, the telecommunications companies were in breach of the third line forcing provision in section 47(6) of the Trade Practices Act. The finance companies and a number of individuals have also had proceedings issued against them for being knowingly concerned in the alleged contraventions.
While third line forcing conduct is strictly unlawful regardless of its effect on competition, the Trade Practices Act recognises that many bundling and other cross-promotional arrangements have a legitimate place in Australian commerce, are in the public interest, and are often pro-competitive. In these circumstances, infringement can often be readily avoided by first lodging a relatively straightforward notification with the ACCC. Where a notification is lodged, it will give the business immunity from prosecution for the exclusive dealing conduct 14 days after the lodgement. The ACCC may only revoke that immunity if it considers that the detriment to the public of the arrangement outweighs the benefits to the public of the proposed conduct.
Businesses should be mindful that any commercial arrangement that involves another person or company's goods or services risks triggering the provision. However, rather than avoiding all such initiatives, familiarity with the notification process and understanding of the public benefit/detriment test can be extremely beneficial.
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.
