|January 13, 2014|
Previously published on January 2014
The Australian Competition and Consumer Commission (ACCC) last week filed proceedings against Australia’s leading suppliers of laundry products alleging a "laundry detergent cartel". The circumstances in which this cartel arose serve as a timely reminder of the importance of business people being aware of the potential application of cartel laws when industries are experiencing periods of product innovation and, as always, of quickly identifying antitrust risks and being "first" to apply for leniency.
It also is a reminder that industry associations, customers and suppliers need to be vigilant not to inadvertently facilitate cartel conduct when setting industry standards or even when coordinating consumer education initiatives or promoting other laudable public policy aims such as protection of the environment.
The alleged conduct
In 2008 Colgate-Palmolive (Colgate) developed a laundry “sustainability initiative” proposal involving an industrywide transition to ultra-concentrated laundry detergents. Less laundry liquid means lower cost transportation and less packaging, chemical effluent, and retail/warehousing space. Colgate discussed this proposal with Accord Australasia Limited (Accord), the national industry association for the Australasian hygiene, cosmetic, and specialty products industry. Without disclosing Colgate as the author, Accord circulated the Colgate proposal to representatives of the other laundry detergent suppliers. The proposal was ultimately agreed to by both PZ Cussons Australia (Cussons) and Unilever.
The ACCC alleges that, as a result of that agreement, Colgate, Cussons and Unilever entered into arrangements to stop supplying standard-concentrate laundry detergents and agreed to supply only ultra-concentrate detergents starting in 2009. The companies coordinated their ultra-concentrate products to meet certain specifications, including packaging dimensions and configuration. The companies also entered into a “Pricing Parity Arrangement,” agreeing not to pass on the cost savings generated by manufacturing and supplying ultra concentrates. Colgate and Unilever are also alleged to have shared market sensitive information regarding pricing and proposed pricing increases.
Woolworths, one of two supermarket chains that predominate Australian retail, also has been caught up in the allegations, the ACCC alleging that the company was knowingly involved in the arrangements, pointing in particular to the fact that various meetings where these arrangements were discussed were held at Woolworths’ offices and involved Woolworths’ staff.
The race for immunity
Unilever successfully sought and has been granted immunity from enforcement actions under the ACCC’s Immunity Policy for Cartel Conduct. It appears that Unilever discovered the potential for an exposure during an audit of unrelated conduct prompted by the New Zealand Commerce Commission and quickly acted to apply for an “immunity marker” from the ACCC. Unilever now does not face the threat of fines that could be as large as the greater of A$10 million, 10 percent of annual turnover, or three times the value of the benefit obtained from participation in the cartel.
This serves as a timely reminder to corporate management and legal counsel to ensure that antitrust and competition compliance programs are in place and are refreshed regularly. In periods of significant industry transition, where contact with competitors or industry associations is more frequent or involves additional staff, it is prudent to conduct a compliance audit to ensure that these contacts do not create antitrust risks. And as highlighted by this case, the importance of acting quickly regarding immunity applications cannot be overstated.
Limits of industry collaboration
Of course businesses should not collude directly with their competitors to set prices or coordinate other aspects of their respective offers to the market. Within the context of an industry association, topics such as future pricing intentions, planned supply quantities, and bidding intentions should not ordinarily be discussed or coordinated. However, it may be more difficult to determine the extent to which coordination can occur in an industry association setting with respect to such issues as standard packaging sizes, common labeling, and communication of product innovation measures.
Any agreement that is not an ordinary transaction - whether with a competitor or industry association or even a customer or supplier - should be examined to determine it will not have an anticompetitive effect. Where the agreement is with an actual or potential competitor, additional attention must be given to whether that agreement could also breach one of the per se criminal cartel prohibitions - price fixing, supply restrictions, market sharing, or bid rigging.
Industry collaboration is often not only necessary but also beneficial in achieving efficient market outcomes. However, this case highlights how, in the context of any discussions involving competitors, great care should be exercised in participating or agreeing to any moves towards standardized product offerings, marketing messages, or recommended product dosages that could have the effect of coordinating competitors’ approaches to pricing or supply decisions.