In a precedent-setting decision Justice Hill of the Federal Court has decided that Warner Music and Universal Music had breached sections 46 and 47 of the Trade Practices Act 1974 dealing with misuse of market power and exclusive dealing.
“The ACCC welcomes this landmark decision of the Federal Court", ACCC Chairman, Professor Allan Fels, said today. "The ACCC took these proceedings not only to ensure a competitive market for CDs in Australia but also to ensure all players in the recorded music market had a fair go when the 1998 parallel import amendments to the Copyright Act 1968 came into operation. Amendments the record companies have vigorously campaigned against.
"Today's decision clarifies that a market share of between 17-18 per cent combined with a number of other factors can amount to a substantial degree of market power in a market for a highly differentiated product, such as Top 40 CDs".
The ACCC began an investigation in 1998 into the conduct of Warner and Universal after allegations that the companies had threatened to withdraw significant trading benefits from retailers who stocked parallel imports. In several cases, it was alleged that Warner and Universal had cut off supply to retailers who stocked parallel imports.
In September 1999 the ACCC instituted proceedings against Warner Music and Universal Music alleging unlawful action in order to discourage or prevent Australian businesses from selling competitively-priced parallel imports of CDs.
The ACCC alleged that the action taken by PolyGram, (since been taken over by Universal) and Warner preventing retailers from stocking parallel imports breached the exclusive dealing section of the Act; and breached the misuse of market power section 46 of the Act, by taking advantage of their market power to deter retailers from engaging in competitive conduct.
The ACCC also alleged that Universal and Warner colluded with Asian record companies to try to prevent Asian wholesalers from supplying to Australian businesses. These arrangements were alleged to breach section 45 of the Act as having the purpose or likely effect of substantially lessening competition.
The court found that Warner and Universal did engage in the alleged misuse of market power and exclusive dealing conduct. Justice Hill also made the crucial finding that Warner and Universal had a “substantial degree of market power in the recorded music wholesale market for recorded music, which is an essential element for establishing a contravention of section s46".
This matter clearly indicates that market share is not the only determinant of whether a company has a substantial degree of market power.
“The fact is that chart music in particular has a significance in the market which cannot be ignored", Justice Hill said. "It is this significance which would empower the participant in the market such as Universal or Warner to take steps to prevent the entry of a person seeking to import non-infringing copies into the market".
Justice Hill further said in relation to the conduct of Universal and Warner in threatening to refuse supply: “In my view whatever may be the view of economists, particularly, American economists, business people in Australia would regard such behaviour as involving both market power and the exercise of that power".
Justice Hill did not find that either Warner or Universal had breached section 45 of the Act.
The ACCC welcomes the efficient and expeditious manner in which the trial was conducted and the speed with which Justice Hill handed down judgment.
Justice Hill has set the matter down for further directions about final orders, including penalties and injunctions, for 9.30 a.m. Wednesday, 19 December 2001 in Sydney.