Latest in competition and consumer law

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The ACCC instituted Federal Court proceedings against SmileDirectClub alleging it made false and misleading statements about private health insurance reimbursements for its clear teeth aligners and associated treatments.

The ACCC allowed a notification by Australian Vending Buying Association to stand. The notification allows the Association to collectively negotiate with large suppliers of goods for use in vending machines.

Epic Games successfully appealed the Federal Court’s decision to stay its Australian competition law proceedings against Apple – the case will now be heard in Australia unless Apple successfully appeals.

Lorna Jane was ordered to pay $5 million in penalties by the Federal Court after it admitted to making false representations about the anti-viral properties of its ‘LJ Shield Activewear’.

The ACCC is examining competition and consumer law issues in online marketplaces as part of the next phase of its ongoing five year Digital Platform Services Inquiry. It has released an Issues Paper and invited submissions from stakeholders in response.

Across the pond, New Zealand’s competition regulator, the NZCC, instituted cartel proceedings against consumer loan provider Moola for allegedly rigging Google Ads bids with competitors.

ACCC strips back veneer of SmileDirectClub’s statements about reimbursement eligibility for dental services

The ACCC instituted Federal Court proceedings on 13 July 2021 against SmileDirectClub Aus Pty Ltd and its US parent company, SmileDirectClub LLC (SmileDirectClub).

The ACCC alleges that between May 2019 and October 2020 SmileDirectClub:

  • represented to consumers they may be eligible for a reimbursement for SmileDirectClub aligners and associated treatment from their health fund;
  • told consumers they should check to see if the aligner treatment was covered by their health fund using item numbers 825 and 811. Consumers who did check using these items may have been advised that their health insurance covered them for the aligner treatment; and
  • sent emails to consumers who filled in an insurance inquiry form provided by SmileDirectClub which represented that SmileDirectClub had contacted their health insurer and that the ‘good news’ was they were entitled to reimbursement for the aligner treatment which could be claimed after they had paid SmileDirectClub in full.

The ACCC alleges these representations were false and misleading, including because most Australian health insurers did not cover those treatments unless they had been provided by a dentist or orthodontist in a face-to-face consultation.

No kicking the can down the road: ACCC allows collective negotiation by vending machine buying association

The ACCC announced on 8 July 2021 that it did not object to the notification lodged by Australian Vending Buying Association Incorporated (AVBA) on 8 June 2021. The ACCC allowed the notification to remain in force for six years (ie until 23 June 2027) unless or until the ACCC ends the protection provided by the notification or the notification is withdrawn by the AVBA.

Under the notification, the AVBA sought to collectively negotiate agreements with current and future suppliers of goods on behalf of current and future members. These goods will be supplied into unattended retail points such as micro-markets and vending machines.

The ACCC was satisfied that the notified collective negotiations are likely to result in net public benefits in the form of transaction cost savings of between 5-35%, the AVBA’s members remaining price competitive with larger rivals and AVBA members potentially having a better say on the terms and conditions they agree to.

The ACCC considered that these negotiations would result in a relatively small public detriment in the form of a reduction in competition between AVBA members in their purchasing of goods. However, the ACCC also considered that this small public detriment was likely to be limited because negotiating members would be dealing with mostly large manufacturers and wholesalers of convenience products and at least six large competing vending machine operators, some of which are vertically integrated with wholesale suppliers. The ACCC also had regard to the fact that there was no collective boycott involved (ie suppliers could continue to individually contract with members) and membership in negotiations would remain voluntary for AVBA members.

As a consequence of the ACCC’s decision, the AVBA can collectively negotiate with suppliers without breaching the competition law. The ACCC could, in the future, decide to revoke this notification, at which point AVBA would need to cease its collective negotiations.

Game on: Full Federal Court overturns stay decision so that Epic Games v Apple is heard in Australia

On 9 June 2021 the Full Federal Court decided in favour of Epic Games, Inc’s (Epic Games) appeal, overturning a stay of Epic Games’ competition law proceedings against Apple which resulted from a 9 April 2021 Federal Court first instance decision. The result of the Full Federal Court’s decision is that Epic Games’ Australian proceedings will continue and be heard in Australia.

For background, Epic Games’ competition law proceedings against Apple (instituted 16 November 2020) allege that Apple engaged in anticompetitive conduct, including by requiring that iOS (Apple’s mobile device operating system) app developers only distribute iOS apps through Apple’s ‘App Store’, and that certain iOS developers only use Apple’s in-app payment processing system and pay a 30% commission for all sales of in-app content. Epic Games alleges these restrictions are contained in Apple’s Developer Program License Agreement (DPLA), which all iOS developers including Epic Games are required to agree to in order to develop and supply iOS apps on Apple’s App Store.

The DPLA contains a choice of forum clause which requires any litigation or other dispute resolution arising out of, or relating to, the DPLA to occur in the Northern District of California. This choice of forum clause was the basis of Apple’s application to have Epic’s competition law proceedings stayed and instead heard by an overseas court. The Full Federal Court allowed Epic Games’ appeal and overturned this stay on the basis that there were ‘strong reasons’ against granting the stay, including:

  • Epic Games was entitled to the ‘legitimate forensic advantages’ presented by Australia’s competition law (eg specific remedies that a foreign court cannot grant). The court held that Epic Games would be deprived of these advantages if it had to litigate its Australian case in the US;
  • the proceeding involves fundamental public interest issues in relation to conduct undertaken in an Australia. The court also suggested that the dispute would clarify untested amendments to Australia’s competition law;
  • the alleged conduct involves an Australian company, Apple’s Australian subsidiary, that is not itself a party to the exclusive jurisdiction clause. The court noted that this subsidiary gives effect to the DPLA and collects commissions from in-app transactions in Australia on behalf of Apple; and
  • the stay offends the public policy of the forum because the proceedings involve serious issues of public policy with potentially far-reaching consequences impacting the state of competition in Australian markets and a large number of Australians.

Apple has reportedly stated it intends to challenge the Full Federal Court’s decision.

Lorna Jane to wear $5 million dollar penalty for false anti-virus activewear claims

On 23 July 2021 the Federal Court ordered that Lorna Jane pay $5 million in penalties after it admitted to making false or misleading representations about the anti-viral properties of its ‘LJ Shield Activewear’ to consumers.

Lorna Jane admitted it falsely represented to consumers that its LJ Shield Activewear ‘eliminated’, ‘stopped the spread’ and ‘protected wearers’ against ‘viruses including COVID-19’. The company also admitted it did not have any scientific testing results supporting the effectiveness of LJ Shield Activewear on viruses. It also admitted it did not have any scientific results or evidence to establish the truth of its representations. These representations were made across a variety of media, including on Instagram, in-store advertising and on Lorna Jane’s website.

In determining the penalty, the judge said he had taken into account the seriousness of the conduct, which he called ‘exploitative, predatory and potentially dangerous’ and the fact that ‘the conduct emanated from a high managerial level within the company’ and ‘was directed by Ms [Lorna Jane] Clarkson’.

ACCC taking stock of online marketplaces competition in next phase of ongoing digital inquiry

On 22 July 2021 the ACCC announced it is going to examine competition and consumer law issues in online marketplaces. This is part of the ACCC’s ongoing five-year Digital Platform Services Inquiry.

The ACCC’s Issues Paper notes it is focusing on ‘general online marketplaces’ that operate across product categories (eg eBay, Catch and Amazon). The ACCC noted it may consider product-specific online marketplaces (eg furniture, clothing, automotive etc) as part of its examination of competition in the sector generally.

The ACCC’s Issues Paper invites stakeholder feedback on a range of issues, including:

  • what are regarded as the most significant online marketplace platforms in Australia, including whether any of them are a ‘must-have’ for third party sellers;
  • the extent to which and reasons why third party sellers make their goods available across multiple marketplaces;
  • whether competition in the supply of marketplace has been affected by the acquisition of startups or other companies, new entrants, acquisition of new technology, or COVID-19;
  • the process of getting a product listed or removed on marketplaces, and the effectiveness of the current review and approval process;
  • the extent marketplaces’ terms and conditions affect the pricing of third party sellers’ goods;
  • fees and charges imposed on third party sellers by marketplaces;
  • the importance of product display prominence on the marketplace and whether it affects the success of that product;
  • the process by which marketplaces determine how products are displayed; and
  • the range of consumer data able to be collected from the use of the marketplace, and whether that data is accessible to third party sellers or used to advantage the marketplace operator itself.

Submissions in response to the ACCC’s Issues Paper are due to the ACCC by 19 August 2021.

NZCC takes action against Moola for alleged bid rig of brand names on Google Ads

On 21 July 2021 the New Zealand Commerce Commission (NZCC) commenced proceedings against consumer loan provider Moola. In what appears to be a first of its kind case in the world, the NZCC alleges that Moola engaged in cartel conduct by reaching agreements with competing consumer loan providers to not bid on one another’s brand names on Google Ads.

The NZCC considered that the effect of these agreements on competition was two-fold. First, Moola was able to fix, control or maintain the price it paid for online advertising on Google Ads. Second, Moola was able to prevent, restrict or limit the purchase of online advertising on Google Ads. The NZCC also considered the agreements had an effect on consumers, as those searching for Moola may not see ads for competing consumer loan providers.

The NZCC is seeking declarations that Moola engaged in cartel conduct, but is not seeking a pecuniary penalty.