Trade Practices

Technical Bulletin

Universal and Warner fined $1million by Australian Federal Court

Two of Australia's largest music companies, Warner Music and Universal, have been fined a total of $1million by the Australian Federal Court as a result of their threats to retailers over CD supplies. On the 6th March 2002, each company was fined $450,000 and four company executives were also personally fined. Three were each fined $45,000 and one $50,000.

This was as a result of proceedings instituted by the ACCC in September 1999 alleging breaches of several sections of the Trade Practices Act including section 45 (contracts, arrangements or understandings that restrict dealings or affect competition), section 46 (misuse of market power) and section 47 (exclusive dealing).   Both the companies and senior executives of the companies were charged with threatening CD retailers when they told them they would stop the supply of CD's and/or vary discounts if a retailer purchased stock from an alternate source.

Why is this Relevant to the Inkjet Industry?

The parallels in this case to the current activities by the OEM's in the inkjet industry is frightening - or should be frightening for the OEM's!!

The following summarises what happened in the Warner/Universal case and how it relates to the current inkjet OEM activities.

Warner Universal Case

The Inkjet Comparison

The making of treats contravened section of the Trade Practices Act

OEM's are making threats and hence contravening the same sections of the Trade Practices Act

Depending upon where the retailer's chose to purchase their CD's, Warner and Universal then offered to and/or supplied goods under various terms, conditions, pricing and discounts. ie. the terms, conditions and pricing were conditional upon the retailer buying only Warner/Universal products - exclusive dealing.

OEM's have adopted a tiered pricing and "anti-discount" structure - if you don't use their inks and solvents you will have to pay more than usual for spare parts, service labour and preventative maintenance programs.
Exclusive Dealing is covered under Section 47 of the Trade Practices Act

A retailer denied supply may not be able to obtain the same product either locally or overseas at an economic price, on time, or at all. This was deemed to constitute "market influence"
(Section 46 of the Trade Practices Act)

Most inkjet OEM's are the sole source of coders, spare parts, service provisions as well as technical manuals and technical data necessary to perform effective service of the coders. If the OEM refused to supply spare parts or service, no third party could fulfill the same role. This is clearly significant "market influence"

At the same time, the court deemed that "market influence" does not necessitate a company having a majority or monopoly in the market.
Warner and Universal combined market share only accounted for a maximum of 35%, but because of their uniqueness of product, ie. it was unable to be substituted from another source, they were still considered to have "market influence" - irrespective of their apparent lack of "monopoly" .

Inkjet OEM's will claim that they do not have a "monopoly" situation and therefore can't impart "market influence".
From the Warner/Universal case, the court saw that market influence is independent of the need to have a monopoly or even substantial market share.   Instead, uniqueness of product was the deciding factor on "market influence" - as detailed above.

In a statement by ACCC Chairman, Professor Alan Fels he said:

"This is an important precedent, as well as an important win for Australian consumers as it means that retailers will be able to freely access cheaper, legal, imported CDs without fear that they will lose supply of other stock" Professor Allan Fels also said. "This case has been a really important precedent in establishing that market share is not the sole determinant of a substantial degree of market power", "The ACCC is pleased that the court has permanently restrained Universal and Warner from repeating their conduct which had the deliberate purpose of preventing competition from legitimate, cheaper parallel imports".

The court had previously found (in a judgment handed down on 14th December 2001) that the companies and executives had breached the Trade Practices Act 1974 by threatening to refuse to supply to CDs to Australian retailers who stocked parallel-imported CDs, and then refusing to supply retailers who chose to exercise their rights to source products elsewhere. Justice Graham Hill found that both Universal and Warner breached the Trade Practices Act by misusing their market power and by exclusive dealing.   Senior executives of the companies were held to be knowingly concerned in the contravention of their employers.

He found that Universal and Warner had a substantial degree of market power in the wholesale recorded music market despite the company seemingly minor market shares of approximately 15 to 17 per cent and 17 to 18 per cent respectively.

Universal and Warner are now permanently restrained, by injunction, from refusing or even threatening to refuse supply of CDs to Australian retailers if the retailer has stocked, or proposed to stock, CDs from an alternate source.

Each major record company (including Warner and Universal) has exclusive rights to a range of music, which forms its catalogue. In each catalogue a company is likely to have top selling titles which, at any one time, are on the chart. For most consumers a specific title cannot be substituted. It is commercially imperative that a music retailer can access major companies catalogues. A retailer denied supply may not be able to obtain music from the companies' catalogues either locally or overseas at an economic price, on time, or at all.

This fact draws a significant parallel to the inkjet industry.

Both Universal and Warner were concerned that competition from cheaper, imported CDs would affect their profits. Justice Hill found that Universal and Warner tried to stop alternative, imported supplies of non-infringing imported recordings of titles in the companies' catalogues. Justice Hill found that neither Warner nor Universal could establish that it had a separate aim of preventing 'free riding' and rejected "any attempt on the part of Universal to suggest that the action taken by it was taken to prevent piracy".

Injunctions permanently preventing Warner and Universal from refusing, or threatening to refuse supply to retailers for the reason that they source or propose to source non-infringing copies of music within their catalogue from an alternate source

ACCC News Release - Application of Fines (6th March 2002)

ACCC News Release - Court Decision (14th December 2001)

*Warner Universal Case*	*The Inkjet Comparison*
The making of treats contravened section of the Trade Practices Act	OEM's are making threats and hence contravening the same sections of the Trade Practices Act
Depending upon where the retailer's chose to purchase their CD's, Warner and Universal then offered to and/or supplied goods under various terms, conditions, pricing and discounts. ie. the terms, conditions and pricing were conditional upon the retailer buying only Warner/Universal products - exclusive dealing.	OEM's have adopted a tiered pricing and "anti-discount" structure - if you don't use their inks and solvents you will have to pay more than usual for spare parts, service labour and preventative maintenance programs. Exclusive Dealing is covered under Section 47 of the Trade Practices Act
A retailer denied supply may not be able to obtain the same product either locally or overseas at an economic price, on time, or at all. This was deemed to constitute "market influence" (Section 46 of the Trade Practices Act)	Most inkjet OEM's are the sole source of coders, spare parts, service provisions as well as technical manuals and technical data necessary to perform effective service of the coders. If the OEM refused to supply spare parts or service, no third party could fulfill the same role. This is clearly significant "market influence"
At the same time, the court deemed that "market influence" does not necessitate a company having a majority or monopoly in the market. Warner and Universal combined market share only accounted for a maximum of 35%, but because of their uniqueness of product, ie. it was unable to be substituted from another source, they were still considered to have "market influence" - irrespective of their apparent lack of "monopoly" .	Inkjet OEM's will claim that they do not have a "monopoly" situation and therefore can't impart "market influence". From the Warner/Universal case, the court saw that market influence is independent of the need to have a monopoly or even substantial market share. Instead, uniqueness of product was the deciding factor on "market influence" - as detailed above.