Vertical Agreements in Australia: Understanding the Legal Framework

Vertical agreements refer to a type of agreement between two or more companies operating at different levels of the supply chain, such as agreements between manufacturers and retailers. In Australia, vertical agreements are governed by the Competition and Consumer Act 2010 (CCA), which is enforced by the Australian Competition and Consumer Commission (ACCC).

The CCA prohibits anti-competitive conduct in the market and aims to promote competition and fair trading practices. Vertical agreements that have the potential to harm competition or result in consumer detriment may be subject to scrutiny by the ACCC.

Types of Vertical Agreements

Vertical agreements in Australia can take various forms, including:

1. Resale Price Maintenance (RPM)

A type of agreement where a supplier specifies the minimum price at which its products must be sold by a downstream retailer. RPM is prohibited under the CCA, as it can result in higher prices for consumers and restrict competition among retailers.

2. Exclusive Dealing

An agreement between a supplier and a retailer that requires the retailer to purchase products exclusively from the supplier. Exclusive dealing may also include an agreement that prohibits the retailer from selling competing products. Exclusive dealing is prohibited if it has the effect of substantially lessening competition in the market.

3. Non-Price Vertical Agreements

Agreements between suppliers and retailers that do not involve pricing, such as agreements regarding the distribution, marketing, or promotion of products. Non-price vertical agreements may also be subject to scrutiny under the CCA if they result in consumer harm or harm competition in the market.

Assessment of Vertical Agreements

The ACCC assesses vertical agreements by considering their potential impact on competition and consumer welfare. In general, vertical agreements that promote efficiency, innovation, and consumer choice are less likely to be subject to scrutiny by the ACCC.

However, the ACCC may take action against vertical agreements that have the potential to harm competition or result in consumer detriment. For example, the ACCC has recently taken action against companies for engaging in RPM and exclusive dealing, resulting in substantial penalties and court orders.

Conclusion

Vertical agreements are an important aspect of the supply chain in many industries. However, companies must be aware of the legal framework governing these agreements in Australia to avoid engaging in anti-competitive conduct. The CCA prohibits RPM and exclusive dealing if they have the effect of substantially lessening competition in the market. Companies should seek legal advice before entering into vertical agreements to ensure compliance with the CCA and avoid potential penalties.