Industry and trade associations provide important and indispensible work for their members. Typically their activities do not give rise to issues under the Commerce Act 1986 (Commerce Act). These activities include keeping association members informed of industry developments, setting standards for products and services, improving the quality and safety of products, and working at improving laws governing the industry.
However, members of industry or trade associations are generally competitors. A trade association may provide the vehicle for anti-competitive activity. For this reason, trade associations and their members must be aware of their obligations under the Commerce Act and take active steps to ensure they do not breach these obligations.
WHAT ARE THE APPLICABLE RULES?
Price fixing prohibited
Some conduct is prohibited under the Commerce Act regardless of its actual effect on competition because it is presumed to be anti-competitive.
Price fixing between competitors falls into this category. It is unlawful for competitors to enter into any contract, arrangement or understanding which has the purpose, effect, or likely effect of fixing, controlling or maintaining the price of goods or services bought or sold by those parties.
Price fixing includes any kind of price manipulation, from an agreement on price to be charged to arrangements concerning discounts, allowances, rebates and credits. It applies to any arrangement which limits the ability of competitors to set their own price.
No written agreement is necessary for a Court to find that price fixing has taken place. All that is required is a consensus giving rise to an expectation that parties will act in a certain way. This captures a 'nod and wink' understanding. Courts may look at circumstantial evidence such as evidence of joint action, similar pricing structures or movements and attendance at meetings to infer that a price fixing arrangement exists.
The prohibition applies to attempts to fix prices even if they are unsuccessful.
Certain boycotts prohibited
It is unlawful for competitors to agree with each other that they will work together with a supplier or customer to prevent another competitor from acquiring or supplying goods and services. The arrangement may be permitted if the parties can prove that the arrangement did not have the purpose, effect or likely effect of substantially lessening of competition in a market. This will require careful legal and economic analysis.
General prohibition on certain contracts, arrangements and understandings
In addition to certain strictly prohibited practices, the Commerce Act prohibits contracts, arrangements or understandings which have the purpose, effect or likely effect of substantially lessening competition in a market. These can take many forms for example, agreements to split the market between competitors either geographically or by customer or product.
Determining whether conduct is anti-competitive and prohibited is almost always complicated and not necessarily clear cut. It involves consideration of complex legal and economic issues. The golden rule in that situation is to err on the side of caution and get advice on the relevant conduct proposed.
APPLYING THE RULES TO INDUSTRY ASSOCIATIONS
Agendas and meetings
Association meetings should avoid commercially sensitive topics such as pricing, costs, market allocation, production and market shares. Discussion of discounts, payment terms, business strategy, bidding tactics and allocation of markets are also topics that should be avoided.
The exchange of any commercially sensitive information between members including pricing information (for example, prices charged, discounts, costs, terms of trade and rates) needs to be carefully considered.
Unless expressly required by legislation, association members should not exchange current or future pricing information. The circulation of aggregated historical pricing or other information or collation of price trends, particularly if undertaken by an independent third party, will usually not give rise to competition concerns.
Self regulation and standards
Many industry associations put in place rules or standards (which may be compulsory or voluntary). These are generally beneficial and intended to protect consumers and ensure standards of service. However, they may be problematic if they affect fees charged, advertising, allowable business structures and types and location of practice. Overall, rules and standards should be related to a legitimate purpose, impartial, and neither favour nor constrain the ability of particular market participants to compete in the market.
On the issue of disciplinary practices, associations should avoid sanctions or forms of coercion aimed at forcing members to obey recommendations that may have an anti-competitive effect. Sanctions that are implemented for legitimate purposes, such as for the failure to meet safety standards should not give rise to any competition concerns.
It is obviously also lawful for members to discuss proposed legislation or standards regulating industry wide issues (such as product labelling, health & safety etc). However care needs to be taken that discussion does not stray into areas which could give rise to concerns such as how individual members will respond to changes to the regulatory environment (for example whether or not particular costs should be passed on to consumers). Members should always remain entirely free to set prices and compete independently of each other.
One topical area of interest for industry bodies involved in the finance and insurance sectors relates to standards and rules relating to disclosure of fees. Transparent disclosure of fees in these sectors is pro-competitive and provided discussions do not stray into the level or existence of fees no competition concerns should arise. Again, care also needs to be taken that discussions do not extend to talking about future market conduct.
In some cases membership of an association may be important for a firm to compete effectively in one or more markets for goods or services. In these circumstances, rules restricting access to the association may place nonmembers at a significant disadvantage. For this reason, access to these associations should be granted to potential members on non discriminatory terms and based on reasonable, objective standards.
Minimising the risk
Given the Commerce Act risks, every association should consider putting in place a basic compliance program to inform the association about the Commerce Act, identify the boundaries of permissible conduct and encouraging pro-competitive activities. Associations differ vastly in terms of tasks, size and represented industry. Each program should be tailored to reflect the particular characteristic of the association and the relevant competition risks.
Some examples of practical steps associations can take to minimise risk are:
- Employment of clear agendas for meetings of the association and ensuring that minutes are taken that comprehensively note all issues discussed. Where possible, discussion should not stray from the agenda.
- Development of a standard statement regarding competition compliance which is noted at all meetings of the association and recorded in relevant minutes.
- Where particularly sensitive topics are to be discussed, have legal counsel review agendas and minutes and attend meetings of the association.
Ultimately, it will always be down to the individuals and organisations participating in associations to protect themselves against allegations of breaches of the Commerce Act. Whether or not the association adopts the practical steps recommended above there is always the potential for discussions at an association meeting to stray into dangerous territory. If that ever happens in a meeting you are attending we recommend that you immediately raise your concerns and ask that these concerns be recorded in the minutes. If the discussion continues we recommend that you immediately withdraw from the meeting, again asking that your withdrawal be noted in the minutes. You may then wish to discuss the matter with an appropriate senior manager or legal counsel within your organisation or your external legal provider.
© DLA Phillips Fox
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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.