What’s the score on third line forcing

Published On 13/07/2016 | By James Gould | Notifications, Reform

Unlike many of Australia’s competition laws, third line forcing is prohibited per se, which means that it is prohibited regardless of its purpose, or effect on competition.

Third line forcing is, essentially:

  • supplying a person (or supplying at a particular price or discount) on the condition that they will acquire goods or services from a third party; or
  • refusing to supply a person (or refusing to supply at a particular price or discount) because they have not agreed to acquire goods or services from a third party.

This prohibition is drafted in broad terms – as noted above, even the offering of a discount conditional on a person acquiring third party goods or services can fall within the description of third line forcing. Further, because it is a per se prohibition, conduct that is not anti-competitive, and that would not be prohibited in many other jurisdictions, can fall foul of the prohibition. Because of the unusual breadth of the prohibition, its per se nature and the absence of any equivalent prohibition in many overseas jurisdictions, it can be easy for businesses, especially those that are not used to operating in Australia, to overlook potential third line forcing issues in their commercial arrangements.

However, businesses can obtain protection from action for third line forcing through what is, in most cases, a relatively straightforward process, known as notification. A party who notifies the ACCC of its proposed conduct (using the correct form, providing the necessary information, and paying the prescribed fee of $100) automatically obtains that immunity within 14 days unless the ACCC issues a notice to revoke it. The ACCC may only do so where it is satisfied that the likely public benefits from the conduct will not outweigh the likely public detriment.

The ACCC has only revoked the protection provided under a third line forcing notification on a handful of occasions – the most recent being in 2011, in relation to a notification by Football Queensland Limited.

Exclusive dealing scorecard

The ACCC keeps a public register of all exclusive dealing notifications it receives and considers. Third line forcing is a type of exclusive dealing (and the only type that is prohibited per se). While the notifications on the ACCC’s register are for a number of types of exclusive dealing, the bulk of these notifications are for third line forcing.

We took a look at the number of exclusive dealing notifications from the first 6 months of 2016, and from the past 5 years.

Exclusive dealing on ACCC’s public register* 2016 (to 30 June) 2011 – 2015
Allowed to stand 239 2,187
Revoked 0 0^
Under appeal 0 0
Appeal finalised 0 0
Withdrawn 0 12

* Note: These figures represent the number of items on the ACCC’s public register. A single item can technically involve multiple notifications, because separate notifications are lodged where multiple parties are proposing to engage in the same conduct.

^ The ACCC’s 2011 revocation of the Football Queensland third line forcing notification does not appear in the above table because it was a 2010 notification that was not revoked until later.

What these figures show is that in the vast majority of cases the ACCC accepts the notified conduct. They also show the extraordinary frequency with which third line forcing issues arise under the current prohibition. This leads us to the question…

Does third line forcing need to be prohibited per se?

The basis on which the prohibition on third line forcing was made per se (in contrast to most other prohibitions under Australian competition law) is not clear. Most per se prohibitions relate to conduct that is usually inherently anti-competitive, which is not the case in relation to third line forcing.

In 1993, the Hilmer Review recommended that the third line forcing prohibition be made subject to a competition test. Again, in 2003, the Dawson Review recommended that it be made subject to a competition test. While the Government accepted the Dawson Review’s recommendation, it was never implemented into law.

In 2015, the Harper Review recommended that third line forcing should only be prohibited where it has the purpose or likely effect of substantially lessening competition. This time, the Government has confirmed that it supports that recommendation. It remains to be seen whether (or when) the Harper Review’s recommendation will be implemented. If it is implemented, the above numbers suggest that it would save the ACCC, and the business community, a significant amount of time and effort. But, in the meantime, the prohibition continues to apply, and businesses need to either avoid third line forcing, use the notification process or be prepared to face the consequences.

For more analysis, see InCompetition’s earlier post ‘Five things to know about third line forcing’.

Picture: Courtesy Flickr/Adam Baker

About The Author

is a Senior Associate in the Sydney office of King & Wood Mallesons, specialising in competition law and dispute resolution.

Leave a Reply

Your email address will not be published. Required fields are marked *

one × 5 =