The Federal Court has imposed penalties of $500,000 on Colgate-Palmolive Pty Ltd for trying to stop discount retailer, Chickenfeed Bargain Stores, advertising Colgate’s Ajax, Palmolive and Colgate lines at cheap prices.
The Federal Court found that in 1994, Colgate received complaints from Woolworths (Victoria) Pty Limited, trading as Purity and Roelf Vos supermarkets in Tasmania, about Chickenfeed undercutting it on Colgate toothpaste. When Chickenfeed tried to order additional stock, Colgate refused unless Chickenfeed agreed not to advertise the stock below Woolworths' normal price. Chickenfeed declined and Colgate cut off supply to Chickenfeed and its wholesaler.
The court also found that in 1997, Chickenfeed again tried to order Colgate toothpaste plus Palmolive detergents and Ajax cleansers and again Colgate required Chickenfeed to undertake to not advertise the lines below Woolworths' normal price.
The Federal Court found that the imposition of the advertising restrictions by Colgate-Palmolive Pty Ltd constituted resale price maintenance.*
In handing down his judgment, the Federal Court’s Justice Weinberg said: "Contraventions of s48 [resale price maintenance] are serious violations of the conditions laid down by Parliament for the conduct of corporate trade and commerce. The prohibition upon resale price maintenance is intended to create conditions under which the public will benefit from traders competing with each other in respect of prices, unfettered by price restraints imposed by suppliers of goods upon retailers. Deliberate contravention of that prohibition should be visited with heavy penalties".
Further, Justice Weinberg commented that the "conduct of Colgate in the present case is aggravated to some degree by the fact that on both occasions, after the contravention came to the attention of middle management, the problem was, for all practical purposes, simply swept under the carpet".
Australian Competition and Consumer Commission Chairman, Professor Allan Fels, said that it was important that manufacturers and wholesalers are aware that they cannot try to influence resale prices by imposing 'no advertising' restrictions or any other form of disadvantageous term of supply.
"To do so places the supplier at risk of contravening the resale price maintenance prohibitions in the Trade Practices Act.
"Small business must have the ability and freedom to price products at the level they see fit rather than have prices dictated to them by manufacturers or wholesalers".
Colgate has undertaken to commission an independent audit of its compliance systems, and to implement a compliance program that provides regular training to staff and furnish each staff member with a compliance manual.
"I was surprised that a company of the stature of Colgate-Palmolive did not at the time have a relevant trade practices education program for its staff", Professor Fels said. "Instead, Colgate's sales staff were left to represent Colgate without a knowledge of their legislated responsibilities".
The penalty decision followed joint submissions by the parties. The ACCC acknowledges Colgate-Palmolive's cooperation in settling the matter, saving court time and costs.
*Section 48 of the Trade Practices Act 1974 prohibits 'resale price maintenance'. A company engages in resale price maintenance where it tries to stop a reseller from discounting a product, or where it supplies a reseller on disadvantageous terms because the reseller had sold, or was likely to sell, the product below a specified price.