Universal Music Australia Pty Ltd v Australian Competition & Consumer Commission [2003] FCAFC 193

FEDERAL COURT OF AUSTRALIA UNIVERSAL MUSIC AUSTRALIA PTY LTD v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION [2003] FCAFC 193 SUMMARY What follows is a summary of the conclusions reached in this case. It does not form part of the Reasons for Judgment. On 30 July 1998, important amendments to the Copyright Act 1968 (Cth) came into operation. The effect of the amendments was that Australian wholesalers and retailers of compact disc recordings and other sound recordings could import stock from other countries provided the manufacture of that stock overseas had not infringed copyright law in the source country and had been carried out with the consent of the copyright owner. Previously the importation of sound recordings had been prohibited without the consent of Australian copyright owners or licensees. The changes meant that retailers of recorded music and, in particular, CDs were no longer limited to purchasing their CDs from Australian sources. Two major Australian distributors, Universal Music Australia Pty Ltd (formerly Polygram Pty Ltd) ('Universal') and Warner Music Australia Pty Ltd ('Warner'), made it known that they might not supply retailers who exercised their right to import CDs from overseas and that, in any event, they would or might review the terms upon which they dealt with such retailers. In certain cases, and for a short time, they ceased to supply some retailers who imported CDs from overseas. The Australian Competition and Consumer Commission ('ACCC') instituted proceedings in this Court asserting that the conduct of Universal and Warner contravened the competition law set out in the Trade Practices Act 1974 (Cth) and in particular ss 45, 46 and 47 of the Act. Hill J found on 14 December 2001 that both distributors contravened ss 46 and 47 of the Act by engaging in abuse of their market power and exclusive dealing conduct. He also found that certain of their executives were knowingly involved in those contraventions. He dismissed the ACCC case based on s 45, which is to do with anti-competitive agreements or arrangements. His Honour delivered a supplementary judgment on 6 March 2002 in which he made declarations and granted injunctions and imposed pecuniary penalties. He imposed penalties of $450,000 on each of Universal and Warner. He also imposed penalties on two Universal executives, Mr Handley and Mr Dickson, of $45,000 and $50,000 respectively. He imposed penalties of $45,000 on each of two Warner executives, Mr Smerdon and Mr Maksimovic. He ordered Universal and Mr Dickson to pay 75% of the ACCC's costs in the proceedings against them and Mr Handley to pay 70% of the ACCC's costs in the proceedings against him. In the proceedings against Warner and its executives, all three were ordered to pay 75% of the ACCC's costs. Universal and Warner and their executives have appealed against his Honour's findings relating to abuse of market power and exclusive dealing. The ACCC has appealed against the penalties imposed on Universal and Warner. In our opinion the appeal against his Honour's decision in relation to the contravention of s 46, abuse of market power, should be allowed. In order to make out a contravention of s 46 it is necessary to show that the corporation said to be contravening it has 'a substantial degree of power in a market'. After the primary decision in this case, the High Court of Australia clarified that concept by its decision in the case of Boral Ltd v ACCC. In this case, the relevant market was the market for wholesale recorded music in Australia. However in our opinion it could not be said that the degree of power held by either Universal or Warner in that market immediately after 30 July 1998 was so significant as to warrant the description 'substantial' within the meaning of s 46 as explained by the High Court in Boral. On that basis we are of the opinion that no contravention of s 46 was proven. However we agree with Hill J that both Universal and Warner contravened s 47 of the Trade Practices Act by engaging in exclusive dealing and that their executives were knowingly concerned in their respective contraventions. These contraventions arose out of the refusal of the companies to supply certain retailers for a time and their imposition of conditions upon supply. The retailers whose accounts were closed were small traders. The cessation of supply to them of itself could have had no significant effect on competition in the market. However, that cessation fortified a general warning to all retailers against acquiring Universal or Warner titles other than through Universal or Warner in Australia. We agree with Hill J that the purpose of Universal and Warner was to discourage retailers from importing or acquiring non-infringing CDs of titles in the Universal and Warner catalogues respectively. If that purpose had been achieved, it would have had a substantial effect upon competition in the market. The fact that the purpose was not achieved is no defence. We also agree with the conclusion reached by his Honour that the Universal and Warner executives were accessories in the contravening conduct of their companies. In relation to penalty, we are of the opinion that the penalty imposed upon Universal and Warner was inadequate even allowing for the fact that, on appeal, the finding of a contravention of s 46 has not been sustained. In our opinion, the appropriate penalty in relation to the exclusive dealing conduct engaged in by Universal and Warner is $1 million each. The penalties imposed on the executives will not be changed except that the penalty imposed upon Mr Dickson should be reduced from $50,000 to $45,000 as his Honour made a factual error in respect of Mr Dickson's involvement in one of the closures. The Court has also on appeal modified the declarations and injunctions to reflect its conclusions about the s 46 contravention. The costs orders have been altered so that in each case the relevant corporation and its officers are to pay one half of the ACCC's costs of the trial and of the appeals. Wilcox, French and Gyles JJ 22 August 2003