CN05 - Peters Ice Cream receives chilling 12 million penalty for exclusive dealing
11 May 2022
The Federal Court has ordered Australasian Food Group, trading as Peters ("Peters"), to pay a $12 million penalty after the ACCC alleged, and Peters admitted, that its exclusive distribution agreement with PFD Food Services ("PFD") had the likely effect of substantially lessening competition.
Key takeaways
- Exclusive dealing is prohibited in Australia where it has the purpose, effect or likely effect of substantially lessening competition, and is subject to significant financial penalties.
- The ACCC has listed exclusive arrangements that impact competition by firms with market power as one of its enforcement and compliance priorities for 2022-23.
- Care must be taken to assess competition law risk when entering into commercial arrangements which limit the ability of parties to continue to supply or acquire goods or services freely.
Peters' exclusive dealing conduct
Peters is an Australian manufacturer and wholesale supplier of single serve ice cream products ("SSIC products") including those sold under the Connoisseur, Drumstick and Maxibon brands.
PFD was Australia's largest distributor of SSIC products at the time of the conduct. PFD distributed SSIC products nationally to petrol and convenience retailers such as BP and Caltex, and reached more than 90 per cent of Australian post codes.
From November 2014 to December 2019, Peters and PFD had an agreement under which Peters acquired distribution services from PFD on the condition that PFD would not, without Peters' consent, market, promote, sell or distribute SSIC products that compete with Peters' SSIC products in designated geographic areas within Australia (the "Exclusive Dealing Conduct").
Prohibition on exclusive dealing
Section 47 of the Competition and Consumer Act 2010 (Cth) ("CCA") prohibits corporations from engaging in exclusive dealing where it has the purpose, effect or likely effect of substantially lessening competition in a market in Australia.
In broad terms, exclusive dealing arises where an agreement for the supply, re-supply or acquisition of goods or services imposes restrictions on one party's ability to choose with whom, in what or where to deal. For example, exclusive dealing arises where a supplier refuses to supply goods or services unless the purchaser agrees not to buy goods of a particular kind from a competitor of the supplier. This conduct would contravene section 47 of the CCA if it has the purpose, effect or likely effect of substantially lessening competition in a market in Australia.
Likely effect of Peters' Exclusive Dealing Conduct
The ACCC alleged, and Peters admitted, that the Exclusive Dealing Conduct had the likely effect of substantially lessening competition in the market for the supply by manufacturers for SSIC products in Australia ("the SSIC product market").
The ACCC and Peters jointly submitted that the SSIC product market experienced significant barriers to entry and economies of scale due to substantial fixed costs associated with manufacturing and supplying SSIC products, including the cost of distributing SSIC products.
This was evidenced by PFD refusing to distribute SSIC products made by manufacturers such as Bulla and Pure Pops – both of whom are competitors of Peters – as a consequence of PFD's agreement with Peters. Bulla had also investigated alternative distribution methods to distributing through PFD, including establishing its own distribution network, but was unable to find viable alternative distribution options.
As a result, it was found that Peters' Exclusive Dealing Conduct likely heightened barriers to entry by preventing PFD from distributing competitors' SSIC products. The ACCC and Peters agreed that one or more potential competitors were likely to have entered or expanded into the SSIC product market if Peters had not engaged in the Exclusive Dealing Conduct.
On 25 March 2022, the Federal Court ordered, by consent, that Peters:
- pay a pecuniary penalty of AUD 12 million;
- pay the ACCC's legal costs; and
- establish and maintain a compliance program for three years focused on the competition law prohibitions in the CCA, particularly section 47.
ACCC's ongoing interest in exclusive dealing
Anti-competitive agreements and practices remain an enduring priority for the ACCC. The ACCC will always prioritise pursuing exclusive dealing enforcement cases that it considers would likely result in a substantial lessening of competition in a market in Australia.
In particular, the ACCC lists exclusive dealing in its enforcement and compliance priorities for the year. The Chair of the ACCC, Ms Gina Cass-Gottlieb, has confirmed that "[t]he ACCC is targeting exclusive arrangements by firms with market power that impact competition as one of our compliance and enforcement priorities for 2022/23".
It is particularly important for businesses to take care in assessing the competition law risks associated with exclusive arrangements. Businesses should seek advice on risk arising from existing exclusive arrangements, where appropriate, and on proposed entry into new exclusive arrangements.
With thanks to Alicia Gormly and Lachlan Ward of Ashurst for their contribution.
