The 5th Biennial Pacific Rim
Computer Law Conference
Anti-trust in Cyberspace
23 February 2001
Sydney
Mr Ross Jones
Commissioner
Australian Competition and Consumer Commission
The rapid growth of the Internet and e-commerce has the potential to provide
enormous benefits to business and consumers. The development of ecommerce is already generating a wide range of issues for the Australian
Competition and Consumer Commission (ACCC). These issues relate to both
the anti-competitive conduct provisions of Part IV of the Trade Practices Act
and the Part V consumer protection provisions. Some of the issues are not
much different to existing issues. For example, some B2B arrangements may
be little more that collective buying arrangements and might be analysed as
such in terms of their anti-competitive behaviour. Some consumer protection
issues in the world of e-commerce and the Internet are nothing more than
electronic versions of old scams such as pyramid selling.
However, some B2B and B2C arrangements generate a new set of issues for
the ACCC. Some of these new arrangements are not in their final form at this
stage but the ACCC has been requested to examine and comment on any
potential anti-competitive consequences, especially in relation to B2B
arrangements.
It may be useful to briefly describe two different arrangements that the ACCC
has some familiarity with. Last year the ACCC met with the principals of
CorProcure. It is a B2B supply hub involving 14 major Australian businesses
including Telstra, BHP, Qantas, Coles Myer, ANZ, Amcor and Fosters.
CorProcure was described as a business to operate an open e-market on the
Internet for the procurement of goods and services used in the day to day
running of a business. Essentially it involved what were described as ‘indirect
goods and services’ such as stationary, travel, utilities etc. CorProcure was not
going to deal with goods and services which are key inputs into the output of
any of its shareholders. Further, the shareholders of CorProcure were
described as not being direct competitors in their core businesses.
A second arrangement the ACCC is aware of is Asiaportal. This is an airline
and associated travel specific airline ticketing B2B arrangement between
airlines in the Asian region. Its members include the major Australasian
airlines Qantas, Ansett and Air New Zealand and a number of their Asian
competitors. The arrangement also includes a B2C portal.
It is useful to talk briefly about the ACCC activities in the context of these two
different types of B2B arrangements. It would seem that three different
markets may be impacted on by B2B exchanges:
1. the market for goods and services bought or sold over the exchange;
2. the downstream markets where those goods and services are resold
(either in their original form or as an input into some other
product);and
3. the market for B2B exchanges.
A number of the Part IV provisions of the Trade Practices Act (TPA) may be
affected by these arrangements. For example, s45 of the TPA prohibits
contracts, arrangements or understandings that may result in a substantial
lessening of competition in a market. Another Part IV provision which may
have relevance would be s46, relating to the misuse of market power. Section
47 of the Act covers exclusive dealing, an issue which might also have some
relevance as might some of the provisions of s50 covering joint venture
mergers
I note that the topic has the somewhat provocative title "Do the Regulators
really understand technology". I think it is fair to say that regulators do not
have a total grasp on the impact on the technology, but I seriously doubt that
anyone else here has either. This therefore gives me sufficient confidence to
blunder into a range of issues I have given some thought to, even if I don’t
have a solution. My primary responsibility at the ACCC is mergers so I might
begin by talking briefly about B2B, B2C and market definition.
1. E-Commerce and market definition
An issue which I expect will be of relevance reasonably soon is whether
or not
e-commerce constitutes a different market to traditional distribution
activity. In some instances e-commerce may create new markets in the
context of competition policy but in other instances it may be little
more that a new sales channel which competes with traditional sales
channels lying within the same market.
It is also possible that e-commerce could potentially widen geographic
markets, as location becomes less relevant to trade between parties.
This could in fact lead to important jurisdictional issues and increase
the need for co-operation between competition authorities. Of course it
is also possible that local characteristics as well as language, currency,
delivery and taxation issues may limit the geographic dimension of the
market. This may be likely in B2C markets, given that traders in B2B
markets are likely to have a higher level of sophistication in
international trade.
In some instances traditional outlets have tried to block the
development of
e-marketplaces which is strong circumstantial evidence that these
traders think they are in the same market. For example, Chrysler
dealers in some US states tried to pressure Chrysler to limit the
activities of an Internet distributor.
The impact of Internet pricing on traditional outlet pricing is also
relevant in terms of marker definition. For example, the ACCC has
observed that the recent entrants into Australia’s domestic aviation
industry have offered heavily discounted prices on the Internet and the
big two airlines responded, but only it seems also on tickets sold over
the Internet.
1. B2B Arrangements and network dominance
A significant issue for the ACCC is likely to be possible network
dominance. First mover advantages in B2B and B2C markets may be
considerable, especially in small market economies such as Australia.
Take for example the hypothetical, and I emphasis it is hypothetical of
a CorProcure type arrangement in this context. Consider the case where
a group of large companies, not necessarily competitors, own and
operate an exchange. These companies have market power sufficient to
demand exclusive arrangements. For example, if all the participants in
a major exchange agreed to buy only on that exchange, they may be
able to force suppliers to deal with that exchange on an exclusive basis.
This could give the exchange considerable power relative to later
entrants.
If we expand on this theme it is possible to envisage a system whereby
the owners of this ‘first’ exchange restrict access to buying through the
exchange, to its original partners, none of whom directly compete with
each other. But competitors are locked out from whatever purchasing
benefits the exchange brings.
Now perhaps it is possible for others to develop a competing B2B
arrangement. But if the members of the first B2B arrangement have
forced exclusive dealing arrangements on suppliers and/or introduced
expensive proprietary standards and/or patented interface designs, it
may be extremely difficult for later B2B exchanges to be developed. In a
small economy there may be too few competing suppliers downstream
to enable other B2B hubs to achieve sufficient viable scale.
This is not to say that all incentives provided to deal through a
particular B2B marketplace are anti-competitive. The ACCC will
determine these on a case by case basis. The advantages of the B2B
exchanges such as better price discovery mechanisms and lower
transactions costs may outweigh competition concerns.
2. B2B ownership
Another relevant matter is who owns the B2B exchanges. As I just
noted, B2B exchanges owned or controlled by their major participants
generate a different set of competition issues to independently owned
B2B arrangements.
It is probable that in a comparatively small economy such as Australia,
there may be benefits in participant ownership of an exchange. This
may guarantee a volume necessary to attract investment and achieve
economies of scope and scale.
However, I think it may be necessary for the ACCC to give serious
thought to the issue of what critical mass is necessary for the viability of
an exchange and whether time limits should be placed on restrictive
measures considered necessary to guarantee throughput in the start-up
phase. Extending further on this, I think that it may also be appropriate
to give thought to whether a time limit should be placed on participant
ownership. It may be desirable to encourage participant ownership in
the initial development stages to support the necessary capital
investment but beyond some point the risk of co-ordinated conduct
from participants, especially those that involve arrangements between
competitors may outweigh the benefits. Of course, in practice, it would
be very difficult to agree in advance on an appropriate time limit for
participant ownership.
3. Information sharing in B2B arrangements
The issue of information sharing is a complex one. Lower cost, more rapid
communication permits buyers to be better informed concerning available
options. It allows greater price transparency. But such arrangements may
facilitate practices which are not pro-competitive. The greater transparency
may actually increase the incidence of co-ordinated behaviour and even
collusive price fixing arrangements. It enables parties to this co-ordinated
behaviour to more easily detect those players ‘cheating’ on the collusive
arrangements in place and assists in the maintenance of a collusive discipline.
B2B exchanges could give participants the ability to more easily track changes
in rivals’ costs plus actual and planned output levels. Some B2B exchanges
already feature ‘chat rooms’ which may facilitate reaching agreement or at
least some mutual understanding. It is also possible to design technology in a
way that makes it very difficult for competition authorities to monitor or
regulate.
I realise that my description of the competition issues sounds very negative.
However, it is the job of the competition authority to understand the impact of
the technology and it is not necessarily all positive.
But let me turn to a couple of B2B issues in the context of understanding
technology. Here I think the regulator understands the technology better than
some of the participants, particularly those consumers who become the
victims of Internet scams.
Consumer Protection Issues
The Commission is already responding to a range of consumer protection
problems involving e-commerce. It is rapidly building on its resources and
expertise to discover on-line breaches of the Trade Practices Act, locating the
business, gathering evidence before it can be altered, and enforcing the
provisions in the Act as effectively as it does in the off-line environment. The
Commission’s experience in on-line investigations is accumulating and
developing in line with technology.
The major consumer protection issues associated with e-commerce and other
use of the Internet include:
Scams – these can be old scams given new life by the characteristics of the
Internet or, new technology-enabled conduct and problems of information
asymmetries caused by both user ignorance of the medium and the medium's
characteristics.
A major enforcement issue is that these scams can be set up quickly and do
wide spread damage in a very short space of time – and can disappear just as
quickly. Difficulties can arise in tracing the offenders and taking action before
they disappear into Cyberspace.
There is a tendency for ‘scam’ operators not to target regions in which they are
located. This means that the local authorities are less likely to be interested in
assisting in investigations, and there is uncertainty as to whether the regions
where the harm has occurred have jurisdiction to pursue matters. Traders can
also maintain or move their operations, proceeds and other assets offshore,
adversely impacting on available remedies.
International cooperation by regulatory agencies is vital, especially in cases
where cross-jurisdictional issues arise.
An example of a current matter with the Commission is the Skybiz 2000
Scheme. Late last year the Commission instituted proceedings for alleged
contraventions of s 57 (referral selling) and 61 (pyramid selling) of the Trade
Practices Act 1974.
The Commission alleged that the members of Skybiz.Com.Inc attempted to
induce other to become participants in the trading scheme, and to pay
Skybiz.Com.Inc US$100 per website to obtain the prospect of participating in
the scheme.
The Commission is seeking declarations from those involved in the pyramid
selling scheme, injunctions, restraining further involvement and orders
requiring the implementation of a trade practices compliance program.
In a recent Western Australian based investigation, the Commission obtained
interim injunctions against Perth-based computer retailer Info4pc.com Pty
Ltd, for allegedly advertising but not delivering very cheap computers, mainly
on the Internet.
The injunction obtained by the Commission affords national protection to
consumers and follows proceedings by the Western Australian Ministry of
Fair Trading, which assisted in this action. Authorities in the United Kingdom
and Canada have investigated similar schemes with direct links to
Info4pc.com in Australia. The UK schemes closed their doors in October 2000
and the Canadian scheme in November 2000, leaving thousands of consumers
out of pocket.
Product Safety — the availability of goods from international vendors that
may be banned in Australia or subject to mandatory standards or other
domestic regulation of supply eg prescription drugs is facilitated by ecommerce.
For example, recent interlocutory court orders against Mr David Zero
Population Growth Hughes, trading as Crowded Planet, have restrained the
supply of oral contraceptives to consumers within Australia.
There are a number of health risks involved in taking any pharmaceutical
obtained over the Internet. In Australia, it is illegal to supply them without a
prescription.
In addition to suppling a Schedule 4 pharmaceutical, Crowded Planet also
made alleged false and misleading misrepresentations on its Internet site that
the Commission had approved its business operations. The Commission does
not give approval to the operations of individual business.
It is important that businesses trading on-line must do so within all aspects of
the law.
International Internet Sweep Day
For a number of years, the Commission has been involved in coordinating the
"International Internet Sweep Day" under the auspices of the International
Marketing Supervisory Network (IMSN). World-wide sweep days were
conducted in 1997, 1998 and 1999. The Commission coordinated these sweep
days which involved about 70 consumer affairs enforcement agencies from 30
countries sweeping the Internet.
In 1997 the Sweep day targeted 'get rich quick' schemes. In 1998 the focus was
on websites promoting 'miracle cures' and other potentially misleading health
claims. Once suspicious sites were identified, the operators of those sites were
sent an educational email message, outlining the fact that the activities they
appeared to offer may be regulated in some countries, and referring them to
the regulatory body in their country to obtain information on how to comply
with the appropriate legislation.
The 1999 Sweep Day was slightly different to previous years in that it did not
focus on particular types of behaviour but assessed e-commerce websites
according to ten questions based on some key consumer protection principles.
The principle behind this was that if consumers are to have confidence when
shopping ‘online’ they must have clear and accurate information about the
business they are dealing with, the terms and conditions involved, procedures
for redress if something goes wrong and how the trader will deal with their
personal information.
Regrettably, the sweep day found that most sites are not providing this basic
information. In fact 62 per cent of sites did not provide any information
regarding refund or exchange policies and 75 per cent had no privacy policy or
statement of how they would handle consumers’ personal details. The average
score out of ten for all sites was 4.8.
Just this month, the Commission has again been ‘sweeping’ Internet sites in a
48- hour campaign. The 2001 Sweep focus is compliant with consumer
protection principles that have gained international acceptance in the OECD,
and in Australia through the issuing of "Building Consumer Sovereignty in
Electronic Commerce: A Best Practice Model for Business".
Since the first in 1997, the Sweep Days have enjoyed an increasing level of
success. The statistics on compliance assist agencies in targeting their efforts
in their local jurisdictions, and a strong compliance message is sent on a
global level to consumers and business alike.
In conclusion, I think I can say that this regulator is aware of the impact of
technology. Certainly the ACCC is aware that developments in e-commerce
will have a major impact on the way in which we conduct our enforcement
role. The way in which these developments will impact may not be clear to the
ACCC at this stage but I doubt that they are clear to anyone here. The ACCC is
not afraid of the technology and welcomes its potential pro-competitive effects
but we are also aware of the new challenges it raises.