A Cartel Case Gets Washed Away
Just before Christmas last year Wigney J dismissed a cartel case in which the ACCC alleged that Cussons (and the other major laundry detergent manufacturers) had colluded when they simultaneously transitioned all their detergent products from a standard formula to an ‘ultra-concentrated’ formula (with concomitant repackaging and re-pricing). The case is on appeal.
ACCC v Colgate-Palmolive Pty Ltd (No 4)  FCA 1590
The parties and basic facts
Wander down the laundry detergent aisle of any supermarket and one finds a plethora of brands to choose from. Behind most of those brands lie only three major producers: Colgate, Cussons and Unilever. In March 2009 those three companies simultaneously introduced a new range of all their existing products, based on formulas twice the concentration of their existing products (“ultra-concentrated”). They did this – inevitably – with the operational cooperation of the two major supermarket retail chains (Coles and Woolworths), and the nation’s major supermarket wholesaler: Metcash.
The initiation of the proceedings
The ACCC launched proceedings in the Federal Court of Australia against Colgate and Cussons, and also against Woolworths and a sales director of Colgate for being accessorily liable. Unilever was spared – it had acquired immunity from the regulator. All defendants except Cussons eventually settled with the regulator. Cussons fought the proceedings to successful judgment.
The ACCC alleged that the March 2009 simultaneous transition by the detergent manufacturers from standard to ultra-concentrated formulations was no coincidence. The ACCC alleged that such simultaneous and uniform transition could only be the result of collusive behavior. Such collusion involved some agreement or understanding between Colgate and Cussons, aided by Woolworths.
Specifically, the ACCC alleged that Cussons had breached the following sections of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)):
- Section 45(2)(a) [making a contract, arrangement or understanding]
- Section 45(2)(b) [giving effect to a contract, arrangement or understanding]
- Section 44ZZRK [giving effect to a cartel provision]
Section 45(2) is to be read with section 4D (definition of ‘exclusionary provision’), section 4F (definition of ‘purpose’) and section 4G (definition of ‘lessening of competition’).
The ACCC alleged that during 2008/2009 the three laundry detergent manufacturers arrived at two arrangements or understandings concerning the simultaneous transition. The two allegations attracted different provisions with different legal effect, namely whether the provision would be deemed a per se breach or whether the ACCC would have to prove a substantial lessening of competition as a result of the provision. However, his Honour ultimately held that the ACCC’s two alleged arrangements or understandings were really just two ways of describing the same arrangement or understanding.
To focus on just one of the ACCC’s two alleged arrangements or understandings, the ACCC alleged in its statement of claim that the manufacturers entered into a Withhold Supply Arrangement. This was an alleged arrangement containing Withhold Supply Provisions which (to describe them broadly) would prevent Cussons (and the other two manufacturers) of restricting supply of ultra-concentrated laundry detergent to Coles and Woolworths until after a certain date, and of limiting supply of standard concentrate laundry detergent after a certain date.
The case came down to whether Cussons had been party with the other two detergent manufacturers to an anti-competitive arrangement or understanding to transition to ultra-concentrated laundry detergent.
The parallel conduct by the manufacturers could not be denied. But as every novice antitrust student soon learns in class, evidence of uniform behavior by companies without more tells us nothing about whether there has been underlying collusion.
Economic models of both collusive and competitive equilibrium pricing or conduct both result in uniform or parallel outcomes. Legally, the regulator must still prove a ‘meeting of minds’, that is, the arrangement or understanding which founds the underlying collusion. Justice Wigney held that the ACCC had not made out that part of its case. In his Honour’s words, explaining the fundamental tension is adjudicating on parallel behaviour (at ):
Was there a meeting of the minds between Cussons and the other two Suppliers, such that Cussons assumed obligations, or gave or received assurances or undertakings vis-à-vis the other Suppliers, concerning the simultaneous transition? Or were Cussons’ actions in transitioning at the same time and in the same manner as Colgate and Unilever the product of independent strategic and commercial decisions made by it, albeit decisions influenced or conditioned by information and expectations about what its competitors were likely to do, and by preferences or dictates of its major customers, Woolworths and Coles? [Emphasis added]
The ACCC’s ‘theory of the case’ depended on the hypothesis that, without simultaneous transition, a manufacturer of detergent which simultaneously maintained some standard product during the transition would profit from consumer ‘confusion’ in that many or some consumers would see the standard products as being contained in ‘bigger boxes’ that ‘cost about the same’ as the ultra-concentrated product.
The ACCC required that hypothesis because the evidence was clear that everyone (manufacturers, retailers, consumers) would benefit from the transition. It follows that there was clear economic incentive for the manufacturers to transition, that is, for that rational behavior to also be collusive, the ACCC also had to show that any ‘unilateral deviation’ by one manufacturer from the uniform transition also had an economic incentive.
The case was circumstantial, since evidentiary particulars of the arrangement, or of the officers of the parties involved in the alleged arrangements (since corporations only act through officers), were never adduced at trial. Evidence of a series of meetings and communications during 2008-2009 was adduced at trial, from which inferences could be drawn by the court, but Cussons often did not participate in those meetings or those communications. The judge noted that the absence of greater particularity was to be considered in light of the immunity granted Unilever, a party to the alleged arrangement, some of whose officers gave evidence at trial for the ACCC.
In February 2018 the ACCC filed a Notice of Appeal.
 A Nevo, ‘Measuring Market Power in the Ready-to-Eat Cereal Industry’, (2001) 69 Econometrica 307.
 Colgate-Palmolive Pty Ltd
 PZ Cussons Australia Pty Ltd
 Unilever Australia Limited
 Coles Group Pty Ltd
 Woolworths Limited
 Metcash Limited
 Although March 2009 pre-dates the introduction of the criminal cartel provisions of Division 1 of Part IV of the Competition and Consumer Act 2010 (Cth), the period of ‘giving effect’ to such a provision continued past 24 July 2009, bringing that conduct within the meaning of section 44ZZRK.
 A ‘cartel provision’ is defined in section 44ZZRD of the Competition and Consumer Act 2010 (Cth).
 The other alleged arrangement or understanding was an alleged ‘Aligned Transition Arrangement’, containing of course ‘Aligned Transition Provisions’.
 There was never alleged to be a contract in law.
 The ACCC’s further ‘hub and spoke’ allegation was not fully pleaded and ultimately Wigney J held that he did not have to decide that point, either on the merits or as a pleading point.
 CS Hemphill and T Wu, ‘Parallel Exclusion’, (2013) 122 Yale L J 1182; RA Posner, ‘Oligopoly and the Antitrust Laws: A Suggested Approach’, (1969) 21 Stan L Rev 1562; DF Turner, ‘The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals To Deal’, (1962) 75 Harv L Rev 655, 677-81; DF Turner, ‘The Scope of Antitrust and Other Economic Regulatory Policies’, (1969) 82 Harv L Rev 1207 . See also T Wu, ‘The Oligopoly Problem, The New Yorker, 15 April 2013.
 And as the primary breach had not been made out, there could be no accessorial liability.
 RC Marshall and LM Marx, The Economics of Collusion Cartels and Bidding Rings, (2012, MIT Press) at Chapter 11 (‘Plus Factors’); and see also RC Marshall and LM Marx, Introduction to The Economics of Collusion: Cartels and Bidding Rings, European Financial Review, 3 August 2012, 10, at 12, section 1.3.2 (available at https://faculty.fuqua.duke.edu/~marx/bio/papers/MarshallMarxEFR2012.pdf).