ACCC v Dermalogica Pty Ltd

Case [2005] FCA 152

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v
Dermalogica Pty Ltd (ACN 067 065 105)
[2005] FCA 152

TRADE PRACTICES – resale price maintenance – supply of beauty products – whether conduct involved the respondent ‘making it known’ that it would not supply products unless the second person agreed not to discount the product – admission of conduct falling within s 96(3)(b) and (f) Trade Practices Act 1974 (Cth) – consideration of appropriate penalty to impose in the circumstances – application for injunction pursuant to s 80 of the Act – whether injunction appropriate remedy in the circumstances.

Trade Practices Act 1974 (Cth): ss 48, 76(1), 80, 96(3)(a), (b) & (f)

Australian Competition & Consumer Commission v Mayo (1998) 85 FCR 327, followed
The Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153, considered
Briginshaw v Briginshaw (1938) 60 CLR 336, referred to
Trade Practices Commission v Simpson Pope Ltd (1980) 30 ALR 544, referred to
Schneider Electric (Australia) Pty Ltd v Australian Competition & Consumer Commission (2003) 127 FCR 170, followed
Trade Practices Commission v CSR Ltd (1991) ATPR 41‑076, applied
Australian Competition & Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41‑515, applied
Trade Practices Commission v CC (New South Wales) Pty Ltd (1994) ATPR 41‑363, applied
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993, referred to
McDonald v R (1994) 48 FCR 555, referred to
Australian Competition & Consumer Commission v SIP Australia Pty Limited (2003) ATPR 41-937, referred to
Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36, referred to
Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40‑091, referred to
Australian Competition & Consumer Commission v George Weston Foods Ltd (2000) ATPR 41-763, referred to
NW Frozen FoodsPty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285, referred to
Australian Competition & Consumer Commission v ABB Transmission & Distribution Limited (2001) ATPR 41-815, considered
Australian Competition & Consumer Commission v ABB Power Transmission Pty Ltd (2004) ATPR 42-011, referred to
Australian Competition & Consumer Commission v J McPhee & Son (Australia) Pty Ltd (1998) ATPR 41‑628, referred to
Universal Music Australia Pty Ltd v Australian Competition & Consumer Commission (2003) 131 FCR 529, referred to
Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41‑760, referred to
Australian Competition & Consumer Commission v SIP Australia Pty Limited (1999) ATPR 41‑702, referred to
Australian Competition & Consumer Commission v George Weston Foods Ltd (2004) 210 ALR 486, referred to
ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248, considered
Australian Competition & Consumer Commission v Francis [2004] FCA 487, considered
BMW Australia Ltd v Australian Competition & Consumer Commission (2004) 207 ALR 452, considered
Australian Competition &…

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AGLC
ACCC v Dermalogica Pty Ltd [2005] FCA 152
Case
[2005] FCA 152
Decision Date

CaseChat Overview and Summary

The Australian Competition and Consumer Commission (ACCC) brought an action against Dermalogica Pty Ltd for contravening the Competition and Consumer Act 2010 (Cth) (the Act) by engaging in the practice of resale price maintenance. The court had to determine whether Dermalogica contravened section 48 of the Act, what the appropriate pecuniary penalty should be for the conduct in contravention of section 48, and whether an injunction should be granted. Dermalogica admitted to engaging in the practice of resale price maintenance within s 96(3)(b) and (f) of the Act but denied that any conduct constituting resale price maintenance under s 96(3)(a) had occurred. The court found that Dermalogica did contravene section 48 of the Act insofar as s 96(3)(a) is concerned and granted an injunction against future acts of resale price maintenance by Dermalogica. The court also imposed a pecuniary penalty of $250,000 on Dermalogica. The court held that Dermalogica’s conduct was rash and ignorant and that the principle of deterrence required a significant penalty. The court also found that Dermalogica’s cooperation with the Commission mitigated the penalty imposed.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Dermalogica admitted to engaging in the practice of resale price maintenance within s 96(3)(b) and (f) of the Act, but denied that any conduct constituting resale price maintenance under s 96(3)(a) had occurred. Three questions fall for decision: first, whether the applicant has contravened s 48 of the Act insofar as s 96(3)(a) is concerned; secondly, what the appropriate pecuniary penalty should be for Dermalogica’s conduct in contravention of s 48; and thirdly, whether an injunction should be granted. BACKGROUND Dermalogica is a wholesaler of skin care products. It is a subsidiary of a United States of America corporation and sells the parent company’s products to retailers across Australia. At the date of the hearing there were over 700 retailers within Australia to whom Dermalogica supplied its products. Two of these retailers, relevant for present purposes, were Fatal Attraction and Café Beauty Advanced Anti‑Aging (‘Café Beauty’). Both are beauty salons providing a range of personal services to customers. The former is located in Melbourne, the latter in Sydney. Each also operated a website, on which it offered Dermalogica products for retail sale at discounted prices. Dermalogica sees its products as a ‘premium’ brand. Ms Suzette Cassie (General Manager of Dermalogica in Australia, sole resident director of the company, and a secretary of the company) stated that the products are positioned or pitched, in relation to price, towards the higher end of the market. It is a ‘professional product’ that is sold and used by professional beauty salons, and is unavailable for retail purchase in supermarkets or other retail stores. This image of its products is a principal element of Dermalogica’s marketing strategy. Dermalogica also maintains a system of recommended retail prices and communicates those recommended prices to retailers on order forms and price lists provided by Dermalogica from time to time. Dermalogica’s United States parent company maintains a website operated in conjunction with the Australian management of Dermalogica. Information about Dermalogica’s products is made available on the website to the public and to professional stockists (‘the website information’). The website information included guidelines for stockists in relation to retailing Dermalogica products via the Internet – particularly, guidelines for the use of Dermalogica’s name, logos and other images, together with statements of Dermalogica’s views in relation to the retail pricing of its products when sold via the Internet. Café Beauty and Fatal Attraction both offered Dermalogica products for sale on their websites at prices lower than Dermalogica’s recommended retail price. It was Dermalogica’s response to the salons’ discounting that gave rise to allegations of contravention of the Act. THE LEGISLATION Section 48 of the Act provides that a corporation or other person shall not engage in the practice of resale price maintenance. Section 96(3) sets out the categories of conduct which, if engaged in, constitute resale price maintenance. The relevant sections for the purposes of these proceedings are as follows: “3.The acts referred to in subsections (1) and (2) [the practice of resale price maintenance] are the following:(a)the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier;(b)the supplier inducing, or attempting to induce, a second person not to sell, at a price less than a price specified by the supplier, goods supplied to the second person by the supplier or by a third person who, directly or indirectly, has obtained the goods from the supplier;…(f)the supplier using, in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.”

Evidence

Evidence Before The Court

Although Dermalogica initially filed affidavits by their sales representatives, Ms Mayne and Ms Mitchell, they were not called to give evidence at the hearing and their affidavits were ultimately not relied upon.THE EVIDENCE AND FINDINGS The Commission’s factual case was substantially uncontested at the hearing, although Dermalogica disputed the particulars of some of the conversations. The Commission contended that Dermalogica made it known to Fatal Attraction and Café Beauty that it would no longer supply Dermalogica products to Fatal Attraction unless the salons agreed not to sell Dermalogica products at discounted prices. I address these allegations only so far as Dermalogica’s conduct is alleged to contravene s 96(3)(a) of the Act. FATAL ATTRACTION The conduct of Dermalogica in relation to Fatal Attraction occurred between July and September 2002. The conduct included conversations, statements made in web policies and correspondence.The 23 July meeting Andrea Mayne was the sales representative of Dermalogica responsible for liaising with Fatal Attraction. Georgio Caccamo, a director and secretary of Fatal Attraction, gave evidence, which was not contested, that on 23 July 2002 a meeting occurred at which Andrea Mayne, Sylvia Augello, the manager of Fatal Attraction, and Mr Caccamo were present (“the 23 July meeting”). At the 23 July meeting Ms Mayne of Dermalogica told Ms Augello and Mr Caccamo that it was necessary to register Fatal Attraction’s website with Dermalogica’s parent company in order to sell Dermalogica products on the web. She gave Mr Caccamo a set of web guidelines. A conversation ensued as to the discount that Fatal Attraction was offering on its website in respect of Dermalogica products. Mr Caccamo said Ms Mayne used a “serious” tone of voice and that the conversation involved words to the following effect: “She said:‘We have a problem with you discounting the product.’I said: ‘We are competitive’.She said ‘Where we position the product we don’t like the idea of it being discounted. It is a professional product. It needs to be recommended by professional people and salons.’I said‘How do you know we aren’t doing that?’She kept repeating what she had already said.I said ‘I can email you other sites that are discounting’.She said ‘No that’s impossible’.The conversation paused for a short time and then she continued.She said ‘That’s fine, if you could email me those sites. Look Georgio, I would hate to see this problem cause Dermalogica to cancel your account’.When Andrea made this last comment … I realised the seriousness of the conversation.I said ‘If it went that far I think Dermalogica would have a serious problem, I am not just some little therapist who will get scared or back off.’[Emphasis added] Dermalogica contended that Ms Mayne’s comments during the 23 July meeting extended only to statements to the effect that Dermalogica “might”, in a “worst case scenario”, cease the supply of Dermalogica products to Fatal Attraction. It denied that any statements had been made to the effect that Dermalogica would withhold the supply of products if Fatal Attraction did not agree to sell at specified prices. The web policies

Decision

Reasons for decision

GOLDBERG J
However, just as it would hardly have affected Dermalogica’s penalty if the Commission had dropped the pleading of s 96(3)(a) so would the penalty hardly have been affected if liability under s 96(3)(a) had been conceded.Conclusions as to applicable pecuniary penalties Having regard to all of the above issues, with particular reference to the rash and ignorant nature of the conduct of Dermalogica and its agents between July and September 2002, and to the principle of deterrence, I consider the appropriate penalty to be, in relation to each of the two breaches of s 48, $125,000. Were it not for Dermalogica’s co-operation with the Commission the penalties would have been considerably higher. The total penalty thereby imposed on Dermalogica is $250,000. I see no reason why the principle of totality would require any different conclusion. Subject to any further submission which Dermalogica’s counsel may wish to make on the time for payment, Dermalogica is to pay the total penalty of $250,000 to the Commonwealth within thirty days of the date of this order.INJUNCTION The Commission sought an injunction pursuant to s 80 of the Act in relation to future acts of resale price maintenance by Dermalogica. Section 80 of the Act provides:“(1)Subject to subsections (1A), (1AAA) and (1B), where, on the application of the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute: (a) a contravention of any of the following provisions:(i) a provision of Part IV, IVA, IVB, V or VC; (ii) section 75AU or 75AYA; (b)attempting to contravene such a provision;(c)aiding, abetting, counselling or procuring a person to contravene such a provision;(d)inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision;(e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or(f) conspiring with others to contravene such a provision;the Court may grant an injunction in such terms as the Court determines to be appropriate. …(2)… (3) … (4) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a)whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;(b)whether or not the person has previously engaged in conduct of that kind; and(c)whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.(5)The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised: (a)whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing;(b)whether or not the person has previously refused or failed to do that act or thing; and(c)whether or not there is an imminent danger of substantial damage to any person if the first‑mentioned person refuses or fails to do that act or thing.…”

Ratio Decidendi

Legal Principle Established

Established by: GOLDBERG J

The commercial consequences of Dermalogica’s conduct are, as always, difficult to assess. This is especially so since both Fatal Attraction and Café Beauty appear to have continued their discounted Internet sales of Dermalogica products in spite of Dermalogica’s blustering threats. Dermalogica’s conduct caused no significant economic loss or damage to the salons. I would tend towards the view that, even if the impact of this conduct upon the market was measurable in any precise way, it would appear to have had little impact. This is in part due to Dermalogica’s small share in the cosmetics market and in part due to the salons having continued to sell Dermalogica products at a discounted rate. However, in my view this factor should be given relatively little weight. An attempt to distort the market must be nearly as blameworthy and as proper an object of the Act’s deterrent penalty regime as is an actual distortion of the market.Cooperation with the Commission and willingness to comply with the Act Cooperation with the Commission is relevant to, and may mitigate, the penalty imposed by the Court: Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41‑760 at 40,961; Australian Competition and Consumer Commission v SIP Australia Pty Limited (1999) ATPR 41‑702 at 43,005-43,006; Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (supra) at 40,892; Trade Practices Commission v CC (New South Wales) (supra) at 42,725. Considerable evidence was given in relation to this issue – perhaps more than for any other relevant factor. In short, although there was communication and provision of some information by Dermalogica to the Commission, the level of cooperation and compliance were in dispute. It is useful to set out a short sequence of events in relation to the complaints, the investigation and the cooperation given by Dermalogica. At the time of the contravening conduct, Dermalogica had no compliance program, indeed its policy can be evinced from its letter dated 16 September and web policies. Dermalogica submitted that it sought legal advice as to whether it could restrain stockists from selling below the prices Dermalogica recommended, and in particular whether they could refuse supply to achieve this result. However the date upon which the advice had been sought was in issue. Dermalogica’s actual request for advice was withheld on the basis of legal professional privilege, but the tendered documents (including the letter of advice consequently provided by Dermalogica’s initial solicitors, Steingold Abel) indicated that Dermalogica had sought advice. I accept the evidence of Ms Cassie that Dermalogica sought that advice on 16 September 2002, the same day that the letters discussed at par [19] above were sent to Fatal Attraction and Café Beauty. Dermalogica received its advice from Steingold Abel on 26 September 2002, which summed up the provisions of the Act and concluded by suggesting that ‘You may wish to write to [your stockists] to request that they sell at the recommended retail price, but you should also state that the price is not obligatory and also ensure that the request is not framed in such a way as to be taken [as] an attempt to induce the stockist not selling [sic] below the recommended retail price.’