Matthew Crouch continues charting restrictive trade practices.
STORY BY MATT CROUCH
BARTIER PERRY SOLICITORS
Last time we took a look at “third line forcing”. You’ll recall that, in essence, third line forcing happens when, for example, a venue says to a client hiring the venue (this could be an event manager): “You can have the space, but you must enter into a contract with a third party to provide audio-visual services as well.”
Third line forcing is outright illegal under the Competition & Consumer Act and severe penalties apply. To complete the picture, have a read of the legal column in the October/November edition of micenet AUSTRALIA for an outline of third line forcing, and the many guises it may take.
This time I’m taking a look at some of the other related forms of restrictive trade practice that abound in the meetings and events industry – bundling and some other “nasties”.
Bundling (otherwise known as “second line forcing” or “full-line forcing”) happens when a supplier sells two separate goods or services as a “bundle”. That is, the buyer can have product/service “A” only if he also acquires product/service “B”.
This is fundamentally different from third line forcing because the same supplier sells both products. With third line forcing, the buyer is obliged to acquire the second product or service from a third party – and the buyer has two separate contracts with two separate suppliers.
Again with apologies to the venue sector, the classic example is where the venue says to the hirer: “You can hire the space but you must also purchase audio-visual services from us.” One supplier (the venue); two services (hiring the space and providing audio-visual services).
It is important to note that either of the services can be provided by the supplier itself, or by a third party to which the service is outsourced.
The outsourcing of services creates a lot of confusion in this area. The use of a third party to actually provide one or both of the services does not cause this arrangement to be third line forcing (outright illegal). This is because, so far as the buyer is concerned, there is only one supplier to which it is contractually linked. In our example, the hirer deals only with the venue in a contractual sense. It does not matter that the venue has a contract with a third party to provide the audio-visual services at its venue. But it is important to recognise the correct contract structure and not in fact end up forcing a second contract with the third party.
In such cases (where the second service is outsourced by the supplier to a third party) the second service provider will often interact with the buyer – the A/V supplier may have a lot of contact direct with the client to work out the client’s needs – but that doesn’t translate to third line forcing.
Why is there a need to make such a clear distinction with third line forcing? It’s simple – third line forcing is outright illegal. Break that law and your business is exposed to a penalty of up to $10 million (with substantial personal penalties for the company officers involved).
On the contrary, bundling is not outright illegal – it is illegal only if the effect or likely effect is a substantial lessening of competition in the relevant market. That is a significant extra matter to be proven before you can be guilty of illegal bundling – and there are way more cases decided on third line forcing than there are on bundling.
As with third line forcing there are some avenues for suppliers to get immunity from prosecution for bundling. The authorisation and notification procedures are available and there are reasonable prospects of attaining immunity unless the proposed conduct really involves a major detriment to the public. But often businesses do not want to go cap-in-hand to the ACCC as there is then the perception that you are now “on the radar”.
If your business is contemplating bundling I would recommend the notification procedure – it is relatively inexpensive and can provide immunity within a matter of weeks.
If your business is contemplating an arrangement that could be third line forcing then my recommendation would be more emphatic – get immunity form notification or else do not do it at all – it is outright illegal!