Knowing what your competitors are up to helps inform your business strategy – but did you know that there are some things that you shouldn't do in conjunction with your competitors – and which, if you did them, could expose you to large fines (and if a proposed new law is passed, to possible imprisonment)?
The Commerce Commission has recently issued a set of Guidelines for Trade Associations. See http://www.comcom.govt.nz/trade-associations. These guidelines recognise that members of trade or industry associations are usually competitors. They go on to outline the types of arrangements between competitors that the Commerce Act does not permit. These rules apply whether or not you are a member of, or actively involved in, a trade association.
What the Commission's guidelines don't do is illustrate the types of arrangements that might have Commerce Act implications for your industry. Here are some examples.
WHAT THE LAW SAYS
- Price-fixing arrangements between competitors are unlawful. (Commerce Act, section 30). Price fixing can include arrangements relating to the price at which goods or services are sold and the price at which goods or services are purchased.
- Contracts, arrangements or understandings that have the purpose, or effect or likely effect of substantially lessening competition are unlawful. (Commerce Act, section 27)
- Competitors may not team up with each other to pressure a customer not to buy from, or supplier not to supply to, a competitor, if the purpose, effect or likely effect is to substantially lessen competition. (Commerce Act, section 29)
EXAMPLES OF WHAT MIGHT BE UNLAWFUL
- Contracted grape growers agreeing with each other about the prices or supply terms they will accept from the wine companies." Contract grape growers collectively negotiating supply terms with the wine companies.
- Contract grape growers agreeing with each other to add container charges or other charges to the price they charge wine companies.
- Contract grape growers or wine companies agreeing with each other to:–
– pull out vines (even if there is an excess of grapes); or– limit production.
- Wine companies agreeing with each other what they will pay for grapes.
- Sharing information with other grape growers or wine companies about production costs, cost structures or production output." Wine companies agreeing with each other that they won't target the others' contracted growers.
- Contract grape growers agreeing with each other which wine companies they will or won't supply.
Why should you care?
- The courts can impose penalties of up to: $500,000 for individuals; and for companies the greater of $10 million or 3 times the commercial gain resulting from the breach or 10% of the turnover of the company and its subsidiaries.
- You could be prohibited from being involved in the management of a company for up to 5 years (and if the new law is passed, there is potential for jail time).
LEGAL WAYS AROUND
In some circumstances, arrangements which might otherwise be unlawful can be structured in such a way that they can be permitted. For example:
- It might be possible to structure a buying arrangement as a collective acquisition.
- Joint venture structures can sometimes reduce the risk of pricing arrangements being considered to be price fixing.
- It may be possible to seek an authorisation from the Commerce Commission to permit collective negotiations or pricing agreements. (For example, a number of years ago, the Commission authorised a collective pricing agreement between kiwifruit growers in relation to coolstorage services that included a maximum load-out charge by coolstore operators.)
These options should not be rushed into without careful legal analysis by lawyers who specialise in the Commerce Act and understand how the Commerce Commission's processes work.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.