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Overdoing the competition

Overdoing the competition

Overdoing the competition

Over-zealous competition cost one Australian footballer five matches on the bench after a very dangerous tackle during the most recent All Blacks game at Eden Park. Even if your business doesn’t involve as much physical contact as rugby, you too can break the law if you take things too far in trying to beat your competitors.

The Commerce Act 1986 prohibits anticompetitive conduct in New Zealand markets. It is a breach of the Commerce Act for a firm to enter into a contract or understanding that has the purpose, effect or the likely effect of substantially lessening competition in a market. Breach of this provision can lead to huge maximum penalties — the greater of $10 million, three times the commercial gain or 10 percent of group turnover. So far, the largest penalty has been $3.6 million (but watch this space).

A nationwide safety equipment retailer, Wesfarmers, got wind of possible entry into the national market for the supply of safety products by a rapidly growing Australian company, Amare. One of its managers sent emails to all of its suppliers (some of whom were also retailers) discouraging them from supplying Amare in NZ. He also asked if those businesses would try to stop Amare NZ importing stock from Amare Australia. Most importantly, he asked its suppliers if they would assist in a marketing strategy to “attack” Amare’s entry into the NZ market.

Wesfarmers’ email did not go down too well with its suppliers. They did affirm their existing contracts with Wesfarmers (including some exclusive supply arrangements, which are permitted under the Commerce Act provided they are not anticompetitive). Beyond that, though, the general response from suppliers could be summarised in two short words. So Wesfarmers’ attempt to get all the suppliers to gang-up on Amare was unsuccessful.

Amare found out about the email – and, of course, complained to the Commerce Commission, which began an investigation.

“Attack” was not a smart word for Wesfarmers to use in its email. It clearly indicated Wesfarmers’s purpose in sending the email: Wesfarmers wanted to reach an understanding with its suppliers for the purpose of knocking Amare out of the market. Because Wesfarmers was trying to completely block supply to its imminent competitor, this could well have been seen as having not just the purpose, but also the likely effect of substantially lessening competition in the market.

Wesfarmers was lucky. The Commission decided just to warn Wesfarmers that its conduct risked breaching the Commerce Act. The Commerce Commission is not a court, so it cannot make a decision as to whether the conduct does in fact breach the Act. But even investigations can cost businesses huge sums in legal costs, as well as wasted time and labour — and they can result in actions against the individual employees who carry out the anti-competitive conduct, as well as their employers.

So, when you’re talking to other players in the supply chain, be careful about what you say — whether it’s in writing, on the phone or in emails. Never discuss price with your competitors, and never ask anybody to help you push a discounter out of the market. And always be very, very careful what you say to competitors at industry events! If in doubt, don’t talk about work. A polite chat about your local sports team might turn out to be a lot better for your business in the long run. Or even a less polite chat about the competition on the field.

This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.


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