Australian Competition and Consumer Commission - Theory Question - Hypothetical Problem - Law Assessment Answer

Assessment Task:

Australian Competition and Consumer Commission Law Assessment Answer

Hypothetical Problem Question One

John, Paul, George and Bingo are musicians in a band called the Beagles. The Beagles was the biggest band in the world. The Beagles were about to release their latest smash hit album called Sgt. Salt and Pepper's Happy Hearts Club Band (Salt and Peppers). To promote the album, the Beagles also started a world tour called, Lucy in the Sky with Diamonds (LSD Tour). The Beagles wanted to ensure that the sales of Salt and Peppers were high and that the records were distributed carefully around the world. From their previous record promotions around the world, the Beagles had already established a selective distribution system by which the retail market was divided into segments, each segment being exclusively served by a selected wholesale distributor.

In the past, the distribution system served the Beagles well. However, for the promotion of Salt and Peppers, the Beagles, for various reasons, terminated distribution agreements with the following four distributors: (i) Murray Wilsun (Wilsun); (ii) Bill Spector (Spector); (iii) Bruce Li (Li) and Buck Norris (Norris).

The Beagles terminated the distribution agreement with Wilsun because Wilsun would not agree to sell Salt and Peppers to retail stores for less than $20 per album. In the
termination letter to Wilsun, the Beagles stated (Retail Price Maintenance): “We recommend that you sell Salt and Pepper albums for no less than $20. However, if you decide to sell Salt and Pepper albums to retail stores for less than $20, we reserve the right to cancel your distribution agreement with us.”

The Beagles terminated the distribution agreement with Spector because the Beagles entered into another distribution agreement with Martin George (George), which
gave George exclusive rights to sell Salt and Peppers in the areas that Spector distributed Beagles albums in the past. Upon learning that his distribution agreement
was terminated, Spector immediately placed two orders for 100,000 and 10,000 copies of Salt and Peppers. The Beagles refused to supply Spector (Melway – Non-issue).

The Beagles terminated the distribution agreement with Li because Li would not agree to maintain the price of a rebate on Beagles albums with another distributor named
Claude-Jean Damn Van (Van). Li did not want to provide a rebate on Salt and Pepper, as he thought that retailers will buy large quantities of the album as it was a
smash hit. In the past, the Beagles often wrote to all distributors stating: “All distributors must offer a rebate of two per cent on any Beagles albums sold to retailers.
This is part of our overarching arrangement and it is understood that every distributor will comply with it.”

Li never took the letters seriously. Li hoped and expected that other distributors thought the same. In fact, in the past, Li only offered a two per cent rebates to around
two-thirds of retailers he supplied Beagles albums to. The Beagles terminated the distribution agreement with Norris because Norris
refused to comply with the following term (Exclusive Dealing):

“As a distributor to key areas in the United States, the Beagles will supply you (i.e. Norris) with Beagles albums on the condition that you bundle the last two Beagles albums for sale to retail stores. Under no condition are you permitted to sell to retail stores Salt and Peppers individually. Each store must be stocked with a minimum of 100 bundled albums, and you must only stock Beagles albums and no other albums from other bands.”

Questions
1. Has Beagles contravened the CCA for terminating the distribution agreement with Wilsun?

2. Has Beagles contravened the CCA for terminating the distribution agreement with Spector?

3. Has Beagles contravened the CCA for terminating the distribution agreement with Li?

4. Has Beagles contravened the CCA for terminating the distribution agreement with Norris?

Hypothetical Problem Question Two

Wilsun Guitars (“Wilsun”), Bill Spector Music (“Spector”), and Apple Records (“Apple”) are the three main suppliers of music in Australia. Wilsun has a market
share 30% of music sales in Australia, Spector has 20% market share and Apple has 15%. 50 small businesses make up the remaining 45% share of the market, with somen suppliers being located overseas. It is difficult to get a license to sell music in Australia, and to establish a viable supply chain. Large sums of money are required to be a supplier.

Brian, John, and Paul are the sole owners and managers of Wilsun, Spector and Apple respectively.

Brian wish to acquire 50% shares in Apple, as Apple is an effective and vigorous competitor. Brian thinks that with his shares, he can now influence Apple to do what
he wants. He also thinks that with his voting rights in Apple, he can create new jobs and reduce the costs of production in Apple, and possibly pass on a reduction in the
price of music in Australia.

Questions

1. Advise the parties on whether there is likely to be a contravention of the Competition and Consumer Act 2010 (Cth).

2. Advise the parties on:
i. Who could be liable if a contravention was established?
ii. What remedies could the ACCC seek if a contravention was established?

3. Could the parties avoid liability under the CCA, and if so, how?

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