Misuse of market power and the Trade Practices Act Law Reporter

The High Court to rule on this issue, while the Federal Court orders more precision in pleadings.  Arguably the most important provision in the Trade Practices Act (TPA) is section 46 which prohibits a misuse of market power.

If this provision is wrongly interpreted it can lead to some disastrous results and impact on the way in which the community can conduct its affairs. That is one of the reasons why the High Court has granted leave to appeal in the Melway case (Robert Hicks Pty Ltd (trading as Auto Fashions Australia) v Melway Publishing Pty Ltd (1999) ATPR 41-668) in which the Full Federal Court by a majority decision had ruled that the producer of the Melways street directory had misused its market power in breach of section 46 when it failed to appoint Robert Hicks as a distributor of the Melways books. While some might argue that the case was correct on its facts other are concerned that the way in which the court has interpreted section 46 in this type of scenario would prevent many companies which have a particular unique product from setting up its own set of distributors. In such a case if someone new came along to the company and said it wanted to become a distributor the company might be in danger of breaching section 46 if it refused to appoint that new person as a distributor. If that interpretation was followed companies would find it virtually impossible to run their businesses in the most efficient and effective manner.

When the High Court hears the appeal in the case (expected to be about June 2000) it will be able to set down some guidelines as to when a failure to appoint a distributor may amount to a misuse of market power with some clarity thus eliminating the confusion that currently exists in the eyes of many in this area of the law. However, it is not only in the case of where a company has refused to appoint a distributor that there may be a misuse of market power. It may arise in other scenarios. It is important when cases are brought that they are pleaded in the proper way so that the court can determine what the real issues are. The relevant case is Telstra Corporation Ltd v AAPT Ltd ((1999) ATPR 41-723). There has been a long running battle in which AAPT is claiming that Telstra has misused its market power. This case was an attempt by Telstra to strike out part of the AAPT claim that Telstra had breached section 46 of the TPA. We set out the facts from the CCH Trade Practices News Report. AAPT provides telecommunications services to consumers on a "third party customer" basis. A customer contracts to have telecommunications services provided by AAPT. AAPT then becomes the customer of Telstra but pays a lower tariff price than is available to direct customers of Telstra. Telstra renders a bill to AAPT which then re-bills its customer for the cost of the services provided. In the operation of re-billing AAPT is totally dependent on Telstra for the provision of billing information.

Over a period of time before deregulation of the telecommunications industry on 1 July 1997, a dispute arose between Telstra and AAPT concerning the accuracy of Telstra's billing system. Telstra alleged that AAPT owed it an amount of almost $100 million for unpaid calls made by AAPT's customers between June 1994 and February 1997. Telstra had initially instituted proceedings in the Supreme Court of NSW seeking recovery of this amount. AAPT filed its defence to Telstra's allegation and a cross-claim seeking damages from Telstra in an amount of $300 million. AAPT's cross-claim alleged that Telstra had engaged in conduct in breach of contract, contravention of section 46 and 52 of the TPA, unauthorised use of confidential information, discrimination in breach of section 183 and 184 of the Telecommunications Act 1997 (Cth), and unconscionable conduct. Telstra's principal action and AAPT's cross-claim (with a similar claim involving another service provider) were then cross-vested to the Federal Court. AAPT alleged that Telstra possessed a substantial degree of power in a number of defined telecommunications markets. AAPT alleged that Telstra had engaged in conduct in those markets designed to put barriers in the way of AAPT so as to frustrate its business. AAPT alleged that in a competitive market, Telstra would not have engaged in such conduct because Telstra would have actually helped AAPT's sale of services to customers thereby increasing Telstra's sale of services to AAPT. Accordingly, AAPT alleged that such conduct constituted a "taking advantage" of market power.

In response, Telstra alleged that AAPT had simply pleaded that by acting in a certain way, Telstra had taken advantage of market power. Accordingly, Telstra alleged that AAPT's cross-claim did not adequately plead the link between its market power and the conduct alleged to be a misuse of that power and should be struck out. The Full Federal Court agreed with Telstra's application that the cross-claim by AAPT was defective in the way in which it had been pleaded. It noted that a central question in a case such as this was to ask whether the relevant monopolist (in this case Telstra) exercised a right that it would be unlikely to exercise or could not afford for commercial reasons to exercise if the corporation was operating in a competitive market. In other words if Telstra was subject to competition it would be unable to behave in the way alleged. In such circumstances the applicant (in this case AAPT) must plead its case so as to demonstrate the link (in a causal sense) between the alleged conduct in breach of the legislation and the market power that could have led to that conduct being engaged in by the relevant corporation.

In the present case, unfortunately for AAPT, it had pleaded that Telstra had acted negligently, acted in a way that was misleading and deceptive, and engaged in behaviour that made it difficult for AAPT to retain customers. These facts in effect pleaded the conclusions and results of an alleged misuse of market power and not that Telstra had actually misused its market power. Despite this fact, however, the court held that the case argued by AAPT was not so hopeless and ridiculous that it should be dismissed. Rather, it granted leave to AAPT to re-plead its case. Clearly, a company in Telstra's position is always going to be faced with the challenges that it is acting in a way that might amount to a breach of section 46. It has so much market power that every time it "breathes" it runs the danger of engaging in anti-competitive conduct although that would be a ridiculous and unwarranted conclusion to reach in every case. Nevertheless the chances are that such a conclusion will be reached from time to time thus posing enormous problems for companies with significant market power.

For these and other reasons adverted to earlier the High Court's decision in the Melway case will be very important. It must clarify just how far section 46 will be allowed to be taken in challenging activities of companies with market power such as Telstra and arguably Melway.

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.