Michael Corrigan
Partner •
Sydney
Peters Ice Cream pays a $12 million penalty for exclusive dealing
Exclusive distribution is not unusual in many circumstances; however a recent decision illustrates the legal risks of a challenge from the ACCC when the market is concentrated and there are difficulties for smaller players seeking distribution across Australia.
The Federal Court ordered that ice cream supplier, Peters Ice Cream (Australian Food Group) pay a $12 million penalty for engaging in exclusive dealing in contravention of the Competition and Consumer Act 2010 (Cth).
Peters, which is one of two major manufacturers and suppliers of single-serve ice cream and frozen confectionary products in Australia, admitted that between November 2014 and December 2019, it engaged a national distributor on an exclusive basis for single-serve ice cream products in various geographical areas.
Peters admitted that its exclusive dealing had the likely effect of substantially lessening competition in the market for the supply of single-serve ice cream and frozen confectionary products.
Peters also admitted that absent the exclusivity it imposed on the distributor, one of Australia’s largest distributor of single-serve ice-cream products, it was likely that one or more potential smaller ice cream competitors would have entered or expanded in the market.
Exclusive dealing is an ACCC priority
The ACCC recognised during its 2022 enforcement priorities presentation that in most cases, exclusive arrangements will not raise concerns under the Act. However, this outcome reflects the ACCC’s commitment to prioritise enforcement of anti-competitive exclusive arrangements, particular by firms with market power.
Exclusive dealing will only contravene the Act if it has a purpose, effect or likely effect of substantially lessening competition in a market in Australia.
What do you need to do?
Not all exclusive arrangements will raise concerns under the Competition and Consumer Act. However, the market dynamics in the present case played an important role in the arrangements between Peters and its distributors having the likely effect of substantially lessening competition. This included that Peters was one of two major suppliers of single-serve ice creams and that the distributor was one of only a small number of distributors that were capable of national distribution; including and especially to more regional areas. These circumstances meant that the requirement imposed by Peters for its distributor to only distribute its products was likely to impede other ice-cream suppliers from being able to enter or expand in the market.
For firms that have a strong position in the market or operate in a concentrated market, this is particularly important and should review the terms of any supply arrangement to determine whether there are restrictions on any of the parties as to whom they deal with, where they may acquire or supply products and services from or to and what products and services they can deal with.
If your terms of supply impose some form of exclusivity, an analysis of the purpose or likely effect of those provision on competition is prudent and should be undertaken now.
Businesses should be conscious that the ACCC will continue to investigate and enforce suspected anti-competitive exclusive arrangements and will use this case as an example of its enforcement action, including what it thinks is an appropriate penalty.
Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.