Melway Publishing v Robert Hicks Pty Ltd

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M1 of 2000

B e t w e e n -
MELWAY PUBLISHING PTY LTD
Appellant
and
ROBERT HICKS PTY LTD (Trading as AUTO FASHIONS AUSTRALIA)

Respondent

GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 3 AUGUST 2000, AT 9.38 AM

(Continued from 2/8/00)

MR NETTLE: If the Court please and very briefly before my learned friend continues, concerning the matter of the injunction, because of events which have occurred the respondent considers it is unlikely that an injunction will any longer be of utility. For that reason it wishes not to trouble the Court unnecessarily with considerations which in all probability need not necessarily to be decided. In the circumstances, if it assists in a determination of the true issues in the case, it would consent to an order that the injunction be dissolved.

May I add, however, that the concession, of course, is without any concession as to any lack of propriety in the injunction and against a background of facts under which the appellant abandoned before the Full Court the pursuit of its criticism of the form of injunction ordered by the trial judge. If the Court please.

GLEESON CJ: One of the arguments that was advanced on the part of the respondent in the Queensland Wire Case was that if the Court had had to undertake the task of actually framing an injunction it might have had its attention directed to some of the difficulties in the case of the appellant. We note what you say but there will still have to be consideration given presumably in considering the merits of the arguments on either side to how you would go about framing an injunction to deal with the conduct of the appellant.

MR NETTLE: With all respect, your Honour, I understand that. I wished only that the Court be seized of the facts which are now different to those as they were at the time at which the order was first made. If the Court please.

GLEESON CJ: Yes, Mr Burnside.

MR BURNSIDE: May it please the Court, last night I had submitted that “take advantage of” means simply to get some benefit of the conduct by reason of the possession of substantial market power. It is, after all, an ordinary English phrasal verb and, if I may adopt an example used in the Queensland Wire Case, one may take advantage of fine weather to mow the lawn, which does not mean you cannot mow the lawn when the weather is not fine; it is just that the job is less unpleasant and the advantage ‑ ‑ ‑

KIRBY J: It could have used the words “misuses its position” or an expression of that kind, indicating a pejorative use of the market power, but all it said was “take advantage of”.

MR BURNSIDE: Yes, and the point I was trying to make, of course, was that there must be some nexus between the possession of market power and the impugned activity, so the postulated case of engaging an arsonist to go and burn down the facilities of a competitor or a new entrant would not involve getting any advantage from the use of market power or from having market power. It is simply an act which has the proscribed purpose but has got nothing to do with market power. If the conduct, when seen in the setting of possessing market power, brings to the actor some advantage by reason of having that market power, then the first stage of the inquiry is satisfied. The pejorative element, of course, comes in the proscribed purposes. If it turns out that the Court accepts that the purposes were innocent, then the conduct falls outside the section.

Now, in the context of this case, what one has to do is ask what would have been the position for Melway had it acted as it did but did not have the market power it has? In those circumstances, you have to imagine a world in which there is a readily substitutable product which could be sold in place of Melway, instead of it having effectively 90 per cent of the market.

Now, in those circumstances, plainly what would have happened is that the person wanting 50,000 units of Melway would go and buy 50,000 units of a substitutable directory. The consequence for Melway, on the evidence, it would seem, is that they would lose 50,000 sales, given that the market was apparently ‑ ‑ ‑

KIRBY J: But they would lose more than that; they would lose their preferred, and so far hitherto successful, method of distribution. Take, for example, Gucci: they may not want to sell their product in Woolworths or Coles and they may have their hunch, they may have done market analysis, they may believe, making a business judgment, that it is in the interests of Gucci worldwide marketing to confine it to stores with pianos and candles and other such things. If that is so, why does that fall within the prescription of the section? Is that not analogous to the present case?

MR BURNSIDE: That involves a more refined analysis of whether there is, in fact, an advantage. Let me make it clear. The lost sales I am talking about are the sales which would otherwise be made into the distribution chain but which ‑ ‑ ‑

KIRBY J: Marginal increase in sales, is it?

MR BURNSIDE: No, no. The market constraint which Melway does not confront is the existence of another directory which sells competitively against it - no substitutable alternative product. If there were a substitutable alternative product, the hypothesis that they do not have the substantial market power, then the disappointed buyer presumably would buy 50,000 directories from somewhere else and sell them to whoever would buy them, regardless of the distribution chain of Melway. That, if it is a truly substitutable product, is likely to result in 50,000 fewer Melways being sold than were being sold before the order was placed.

GLEESON CJ: Might that depend on the circumstances? Suppose Gregorys marketed a Melbourne street directory, which was every bit as good as Melways. But suppose that Gregorys operated through a sole distributor and Melway operated through a sole distributor? It may be they would both decline supply to some third party who wanted to get into the distribution of street directories.

MR BURNSIDE: The difficulty with that is that it adds further anti‑competitive behaviour to the hypothesis ‑ ‑ ‑

GLEESON CJ: But it might be a highly competitive situation.

MR BURNSIDE: The hypothesis I am trying to examine is what would have happened in a world where there is a substitutable product.

HAYNE J: A key to your example is to equate market power with lack of substitutability. That is a proposition which, at least, appears to me to be contestable. Market power may not derive from lack of substitutability. It may derive from a number of features, may it not? At the moment Gregorys and UBD produce substitutable products, yet Melway has the bulk of the market.

MR BURNSIDE: That is entirely right, and the ultimate inquiry is what are the feature which give a particular actor in the market their substantial market power? On our reading of the evidence it would seem to be in Melway’s case that their product is regarded as substantially superior to any other product and therefore other products are not substitutable for it.

HAYNE J: That is a slide, it seems to me, in argument, that substitutability requires equality of quality. Substitutability may have more to do with function than with the quality of the market, may it not? The hypothesis for consideration is that the relevant market is street directories. To take Justice Kirby’s examples of shoes, the relevant market is shoes, not high quality shoes, not fashion shoes, but shoes. Have you not injected in your argument an extra element which at least needs to be examined?

MR BURNSIDE: Section 46(3) deals with market power by reference to the constraints which may be identified. The most obvious constraint which would moderate the market power of Melway is the existence of a street directory which people would buy as readily as they buy Melway or a street directory where, in choosing between that and Melway, they would be indifferent.

HAYNE J: But that is a complex decision. That may depend upon price, accessibility in the market, as well as quality.

MR BURNSIDE: Yes, I accept that but in the circumstances of the case, where it does seem that power comes from there being no true competitor for the thing that is sold, no other brand appears to have the same market acceptance as the thing that Melway sells, then the relevant constraint of which they are free appears to be the absence of a substitutable product. If that is so, then in seeing whether they derive an advantage from market power that has that as its principal source, you postulate a world in which there is a substitutable product. Now, this can never be an exact analysis because it is hypothetical.

GLEESON CJ: But your proposition is that if there were a substitutable product, other things being equal, Melway would be less free to reject an offer to acquire from Mr Nettle’s client.

MR BURNSIDE: Yes.

GLEESON CJ: Might that not depend upon other circumstances relating to the state of the market and, in particular, might it not depend upon the way in which the competitor goes about its marketing?

MR BURNSIDE: Of course it is possible to imagine hypothetical alternatives where having a substitutable product does not automatically lead to a diminution in Melway’s sales. The point I really wanted to make was that the diminution in Melway’s sales that has been discussed thus far seems to proceed on the assumption that the 50,000 sales they declined would have been 50,000 additional sales and they have lost those and their answer appears to be, “Well, the market is, in effect, fully catered for directories, so we would just be cannibalising our own existing market, therefore ‑ ‑ ‑”

KIRBY J: They say it is an inelastic market.

MR BURNSIDE: Exactly, but if you imagine ‑ ‑ ‑

KIRBY J: Do you dispute that?

MR BURNSIDE: No, that is probably correct, but if you imagine a substitutable product, then the lost sales that Melway would otherwise suffer is the loss of sales through their own distribution network to the extent that the substitutable product is bought by the would‑be buyer and that substitutable product is sold across the market.

GLEESON CJ: But this is the problem, is it not, the argument against you, whether it is right or wrong, is that the key error made in the courts below is that they concluded that it was self‑evident that if Melway had a serious competitor, rejection of an application for supply by Mr Nettle’s client would mean a loss of sales of 30,000 to 50,000 directories and, therefore, they would be more constrained than they are at the moment in relation to their decision to reject that offer of acquisition? But might not that depend, amongst other things, upon the way in which their competitor is carrying on its business, because if the competitor is carrying on its business with an exclusive distribution arrangement, the competitor would not supply 30,000 or 50,000 directories either.

MR BURNSIDE: That is true, and can I say when your Honour puts to me that what is put against us is this and that, it of course is not put against us at all, it is put against Mr Nettle, and I am concerned not to descend too much into the facts. What I was trying to do is to identify for the purpose of the analysis that we urge the way in which that analysis would or could be applied to the circumstances of this case.

KIRBY J: Well, you stay up there in clouds then, but what is your answer to my problem? Take, for example, Porsche motor vehicles. The Porsche Company in Germany has a system of distribution through authorised agents and them alone, and X, a motor car dealer on Parramatta Road, Sydney, says, “I want to sell Porsches”, and contacts them and says, “This is a very special market and you are refusing to allow me. I can sell them occasionally, and you are not allowing me to do this, and I am going to bring up a proceeding against you because you have a very special product, namely Porsche motor vehicles”. Now, does the section of the Act, in effect, require Porsche to sell through every car yard on Parramatta Road?

MR BURNSIDE: No, and that would be a prime example of the circumstances in which the proscribed purposes were not made out.

GLEESON CJ: But it would also turn on market definition, would it not? There is no such thing as a market for Porsche cars.

KIRBY J: There might be. Some people are obsessed with motor cars.

MR BURNSIDE: Yes.

KIRBY J: Like Justice Meagher, I just regard them as brown or blue ones.

MR BURNSIDE: Or white ones.

GLEESON CJ: But you say as a matter of principle, do you not, that what rescues most of these exclusive distribution arrangements, saves them from contravening the Act, is market definition.

MR BURNSIDE: No, we would say what saves them generally is absence of proscribed purpose.

GLEESON CJ: That is related to market definition, is it not, because it is a purpose of preventing competition in a market?

MR BURNSIDE: Yes, either the market in which you are operating or another market.

GLEESON CJ: People who are not in a dominant position in a market, subject to exclusionary provisions, are not at risk of contravening section 46 because of their absence of dominance.

MR BURNSIDE: Yes, but they may contravene 45 or 47, depending on what they do, and the consequences of what they do.

GLEESON CJ: But why are you entitled to assume, in considering what would happen, absent market dominance, that in a competitive market the competitor or competitors are conducting their business in a way that produces the consequence that if Melway do not supply directories to them, they will get directories from Melway’s competitor?

MR BURNSIDE: Well, if that assumption is not right, then it is not a competitive market. It is just a duopoly. The nature of a competitive market must involve the proposition that if this person will not sell to you, the next person will. Without that, there is no competition.

KIRBY J: Is that the essential answer to the difference between Gucci shoes and Porsche vehicles that a directory, a street directory, is not of its nature a special market, it is just a utility, it is just a book and that, therefore, it ought not to be put into a particular class?

MR BURNSIDE: Well, I think our answer would be the same whether you define the market as the market for fashion shoes or the market for luxury cars or somewhat more broadly.

KIRBY J: I just would be surprised if this section could be used to destroy legitimate and, for other purposes created, systems of distribution which are part of the product that is sold. It is a special type of product which requires special Rolls Royce vehicles, for example, special maintenance, prestige, nice showrooms, big floral displays, the whole works that are part of the package.

MR BURNSIDE: That is exactly right, they are part of a product which is being provided. The answer would lie in two things: first of all, distribution arrangements that are exclusory are capable of being authorised so as to take them outside the reach of section 45. If they receive authorisation, then section 46 will not apply to conduct that uses that distribution system.

KIRBY J: That is a special exception.

MR BURNSIDE: Underlying these questions there seems to be a concern that here are apparently anti-competitive distribution systems which exist for good reason. How is that section 46 can be used to bring them down? Two answers: first, if in truth they are exclusory in contravention of section 45, then there is provision to obtain from the Commission authorisation so that they are no longer in contravention of section 45 or section 46.

KIRBY J: What is the section that authorises that?

MR BURNSIDE: It is section 88. Or is it 93?

KIRBY J: That will be enough, if you just give us the reference.

GLEESON CJ: The market with which we are concerned, the market in which competition is being prevented, is not the market in which Melway is operating, is it?

MR BURNSIDE: No.

GUMMOW J: What is it?

MR BURNSIDE: The market for sale by wholesalers to retailers of street directories.

GUMMOW J: Street directories.

MR BURNSIDE: Yes. The second answer to Justice Kirby’s question is this: if, as a matter of fact, it is found that the reason for the exclusive distribution arrangement, and consequently the reason for the alleged section 46 conduct, the reason for that conduct is to preserve the prestigious nature of the mark or the product, that reason would, presumably, preclude the proscribed reasons.

KIRBY J: No, that is proscribed purposes.

MR BURNSIDE: The proscribed purposes, rather, yes.

KIRBY J: So if it is found that the purpose of the particular distribution system is to maintain the prestige and hence the value and sale and so on of the product, but you say that was determined against Melway here.

MR BURNSIDE: Yes, it was.

KIRBY J: We are concentrating on the second of the three limbs of the section.

MR BURNSIDE: Yes. And the fact that it was determined against Melway is, perhaps, not surprising, even though the reasoning was not teased out in any great detail, and the reason is that it would seem that the distribution arrangement itself is probably in contravention of section 45. It appears to be inherently anti‑competitive. It apparently has not been subject of an application for authorisation and so, if the reason for refusal was to preserve that distribution network, it is a very short step to saying that the purpose of refusal was an anti-competitive purpose. Now, that takes me a step further in the argument that I need to go. But it does seem to explain what the courts below did.

What Justice Heerey did in the court below was to look to legitimate business reason and to see the existence of a legitimate business reason as contradicting the notion of taking advantage of market power. It is our submission that when you look to see whether advantage has been taken of market power, you are not concerned with reasons but simply with effect, and if you can identify a benefit or reduction of a disadvantage by reason of the market power being there, if, in fact, you derive some advantage in your conduct from the fact that you hold market power, an advantage you would not have got absent the market power, then the first inquiry is satisfied and you move to look for purpose. And when looking for purpose, it is our submission that a legitimate business reason will be a relevant consideration. Depending on how it plays out forensically, it may be a decisive consideration.

HAYNE J: How? Does that not depend entirely on the content of this word “legitimate”? It is a wonderful phrase, but it does not tell me much.

MR BURNSIDE: No. We would submit that the court should not be looking to legitimate business reasons, because the inquiry is for the three proscribed purposes. We take the reference to “legitimate business reason” as being a shorthand for those. If it is not, then it is a false inquiry.

KIRBY J: But the American authority, Justice Stevens’ judgment in the Aspen Case, he does not use that word “legitimate” business purpose, but he does use the idea of another reason that can explain the conduct of the alleged monopolist.

MR BURNSIDE: Yes. It is our submission that reliance on the American authorities is very dangerous. Their juris prudence is often helpful but, in these circumstances, dangerous because the Act which they apply is utterly different. It is couched in an entirely different language and it involves somewhat different concepts.

The “legitimate business reason”, as it has been discussed in the cases, appears to be part of the inquiry as to the intent of the alleged monopolist behaviour, and that is consistent with our proposition that if you are looking to the proscribed purposes, you may look at what is a legitimate business explanation of the conduct, protecting the value of the mark, for example.

Now, the best and now the most convenient analysis of this, which highlights the differences between section 46 on the one hand, and the Sherman Act on the other, is found in Byars v Bluff City which is in the folder of authorities we have provided to the Court.

KIRBY J: That is a Federal Court decision, is it?

MR BURNSIDE: Yes. It is a US Federal Court. I am sorry, I am wrong. We have not provided it to the Court. It is on our list.

KIRBY J: Why would they be analysing our Act?

MR BURNSIDE: I am sorry.

KIRBY J: Why would the US Court of Appeals be analysing our Act?

MR BURNSIDE: They are not.

GLEESON CJ: In particular, why would they be doing it in 1978?

MR BURNSIDE: What they do is articulate the analytical steps involved in applying the Sherman Act.

KIRBY J: But has the Federal Court ever looked at the Sherman Act and said, “We have to be very careful in the use of US authorities because the statute history is different and the terms are different.”? It would have thought so.

MR BURNSIDE: Yes, I think Justice Gummow said exactly that.

KIRBY J: What is the name of that case again? I think we were told.

GUMMOW J: There are several cases.

KIRBY J: Do we have that in the bundle?

MR BURNSIDE: Queensland Wire in the Full Federal Court is an example and Eastern Express 35 FCR 43, in particular at 70 to 72. Eastern Express is on our list. The Byars v Bluff City Case is number six on our list.

KIRBY J: Is your submission that the so‑called alternative or arguable or legitimate business purpose comes under the examination of the third branch of the statutory limb, that is the purpose, that that is where you are concentrating on whether the “true purpose” of the alleged monopolist is one which is proscribed by the Act or for some other purpose that the Act says nothing about.

MR BURNSIDE: Yes. Now, if you go to the Byars Case and I do not want to take you to it in detail unless it is useful because we say that it is interesting but irrelevant but the ‑ ‑ ‑

HAYNE J: Mr Burnside, you are intervening. You are taking time which is time of a party. Why take us to things that are interesting but irrelevant?

KIRBY J: Everyone else does.

MR BURNSIDE: Because Justice Heerey relies on that and the American cases and our learned friends for the appellant rely on the American cases. I am content to say this Court should not adopt the tests used in the American cases and when you read the analysis in Byars v Bluff City you will understand that their analytical framework is wholly different to ours and cannot be applied to the Australian provision.

GUMMOW J: Could we just get back briefly to the Australian provisions? I was not sure that an authorisation under 88 with respect to section 45 got you out of section 46.

MR BURNSIDE: Section 46(6) does that.

GUMMOW J: Section 46(6) is it? Yes, thank you.

MR BURNSIDE: Can I then deal briefly just with two things? Yesterday the Court raised the question of the second reading speeches. We have provided in our material the explanatory memorandum for the 1986 amendments, but can I provide also to the Court copies of the explanatory memorandum for the Trade Practices Bill 1974 and the second reading speech for that Bill and for the 1986 revision Bill.

GLEESON CJ: Thank you.

KIRBY J: You will remember yesterday Mr Catterns really came to the point that he said, I think – I put the words in his mouth – that this case boils down to a matter of the reasoning of the Full Court of the Federal Court and whether they gave a sufficient indication of using, misusing or using the advantage, or whatever the phrase is. Now, if that is so, what is the big interest of your client in this case? This does not seem to raise any general issue. It is just a question of whether the Full Court of the Federal Court addressed itself correctly to the terms of the statute. What is the interest of your client that causes this intervention?

MR BURNSIDE: Well, the ACCC administers the Act on the footing that what the ‑ ‑ ‑

KIRBY J: I realise that, but what is important in the case from your client’s point of view, if it is analysed in that way?

MR BURNSIDE: It appeared from the way in which the appellant’s written submissions were framed that they were seeking to reagitate the test which the High Court laid down in Queensland Wire and to impose a test for “taking advantage of” which, in our submission, is just wrong. It is not an analysis which is correct and which appears to derive from Justice Heerey’s analysis, which in turn derives, we would say improperly, from the approach in the American cases to interpretation of the Sherman Act.

KIRBY J: And you remember yesterday the Chief Justice pointed to the difference between what Justice Deane, with the concurrence of Justice Dawson, said and what the other Justices said in Queensland Wire. Do you have any observation on that, given that you are here to defend the battlements of Queensland Wire? What is inside that fortress when one gets to it?

MR BURNSIDE: In our submission, what is inside it is a two‑stage test. First, see whether advantage has been taken of power and that is an objective test. You simply look to see whether it derived an advantage by having power when it acted as it did, which advantage it would not have derived if it had acted the same way but without that power. The second test is a test of purpose and we have really no interest in the outcome in the particular case. But it is two tests, two inquiries, built within the same single expression in the Act.

The only other thing I wanted to do, if it is still useful, is to provide examples of the forms of injunction which have been granted in section 46 cases. We have very few of them but we would provide copies of the – apparently we have a very limited number of copies for some reason, but can I identify the cases. Australian Stock Exchange v Pont Data (1991) ATPR 41‑109, in particular at page 52,670.

GUMMOW J: Well, that is reported in the Federal Court Reports, I am sure.

MR BURNSIDE: It is in the appellant’s list, I think, in the Australian Trade Practices Reports. The Trade Practices Commission v Carlton United Breweries, which is on our list – I am sorry, it is not on our list, I beg your pardon. It is reported at (1990) ATPR 41-037, page 51,551. Those are the only two that we are aware of. The ACCC has not obtained injunctions in section 46 cases.

GUMMOW J: That fact, as the Chief Justice points out, bedevils a lot of the academic discussion in this area. You really work out how the thing operates by seeing what relief you would get.

GLEESON CJ: Exactly, and if you framed that injunction in Queensland Wire, you would have to sit down and ask yourself, “Are we really purporting to make an order that compels BHP to produce more Y-bar?”.

GUMMOW J: That is why in the fortress of Queensland Wire, there is a big hole.

KIRBY J: Why would one not say here, you should make your decision absent certain facts? Could that not be the solution; that you frame it with reference to the particular facts of the case, that you have to make the business decision absent the purposes that are proscribed?

MR BURNSIDE: Yes.

KIRBY J: If the Act contemplates the section and contemplates injunctive relief, it may be that in some cases you can only give damages or other relief under the Act, but prima facie there ought to be some injunctive relief because it has high social purposes.

MR BURNSIDE: That is probably right, with respect, and it may be sufficient to make an order requiring the particular order to be filled, the order for 30,000 or 50,000 Melways, as the case may be.

HAYNE J: What, of edition 20? But that is the point, that the Court is making the decision in 2000 on 1998 or 1997 facts. It is entering the boardroom of 2000 in relation to facts that occurred in 1997 or whenever.

MR BURNSIDE: That would be a powerful discretionary reason not to grant an injunction, but that would not lead to the conclusion there had not been a contravention. It may be, in some circumstances, injunctive relief is not available because the facts do not allow it. Queensland Wire may have been an example of that.

KIRBY J: Or injunctions issued under the Sherman Act or the analogist provision.

MR BURNSIDE: I cannot answer that confidently. But it would be surprising at first glance, because section 2 creates a felony and imposes very substantial fines, but ‑ ‑ ‑

KIRBY J: Surprising if they did not.

MR BURNSIDE: But there are provisions for divestment and the like, and that must involve orders in the nature of an injunction.

GUMMOW J: Well, you get them under section 4 of the Clayton Act, you get injunctions, and they certainly have some adventurous injunctions. But the point is not that you cannot get an injunction, the point is that you have to frame the injunction – and we had enormous difficulty in Pont Data, and it concentrates the mind on the particular case and how the section works. Whereas Queensland Wire, to my mind, is largely an academic treatise because it did not face up to the relief, it sent it back to the Federal Court and we do not know what would have happened. The pudding was never eaten; it was just cooked.

MR BURNSIDE: Yes. Imagine a case in which injunctive relief is impossible to frame or inconvenient to frame, and this case might be a good example of that.

KIRBY J: But that would be like Christmas without the pudding. You have won the case, you have established the monopolising activity, you have fulfilled the section, and it is said that courts cannot frame injunctions. That seems very unlikely to me.

MR BURNSIDE: Except this, that if the Court is inclined to order damages for the profit which would have been earned by the disappointed buyer, in the ordinary way of commerce that is likely to provide a stimulus to Melway in this case to change its conduct in the future.

KIRBY J: But that is only one remedy under this Act. This Act is not just between Melway and the respondent. This Act is for the community of Australia, the trading market community of the citizens of this country, consumers in this country. It is sometimes overlooked in inter partes litigation.

MR BURNSIDE: It would have been possible if the ACCC had known about it for the ACCC to seek a pecuniary penalty in the circumstances of this case.

GUMMOW J: Of up to $10 million.

MR BURNSIDE: Of up to $10 million. If a pecuniary penalty of up to $10 million is imposed, that also is likely to alter their ‑ ‑ ‑

GUMMOW J: That might sharpen the minds of some people.

MR BURNSIDE: It might.

HAYNE J: But what sharpens the mind relevantly is for the purpose of injunction, you must determine what exactly was the taking of advantage and is that threatened into the future? If it is threatened into the future, let me stop it; let me stop it by an order. But first, what was it and what is the conduct that is to be restrained or prohibited into the future? That is the point that is being made, as I understand it.

MR BURNSIDE: Yes, and we would answer that, on the facts of this case, that the impugned conduct is the refusal to supply for a prescribed reason. If there is a threat to continue to refuse supply of ascertainable quantities for a prescribed reason, then it would be proper to restrain that refusal.

HAYNE J: So if needs be, they are running at capacity, they have to put on an extra shift to print the extra 50,000, and so it goes.

MR BURNSIDE: That would alter the assumption. That was not the evidence in this case. If that were the evidence, that would be a powerful discretionary reason against an injunction. It may also be material which would demonstrate that you had not taken advantage of the power because if conducting yourself otherwise, if fulfilling the order had actually led you to annoyance, cost, additional production and the like, and that would have been so regardless of your power, then you do not identify any relevant advantage to the conduct. If you change the facts enough, of course you get different results but, in our submission, it does not undermine the approach to the words of the section which we contend for.

For completeness, although it blows on the embers, my junior has pointed out the provisions of section 80(4) of the Trade Practices Act which provides that:

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…..in conduct of that kind‑ ‑ ‑–

GUMMOW J: Yes, that is right.

MR BURNSIDE: But in the example your Honour Justice Hayne gave, it may be that on the changed facts you do not find any taking advantage. Unless there are any other aspects that we can help with, those are our submissions.

GLEESON CJ: Thank you, Mr Burnside.

KIRBY J: Could you get the two examples you gave photocopied and made available to the Court?

MR BURNSIDE: Yes, we will.

KIRBY J: It will save hunting around for them.

GLEESON CJ: Yes, Mr Nettle.

MR NETTLE: If the Court pleases, special leave was granted in this case largely on the basis that it was said by the appellant that the decision of this Court in Queensland Wire left unanswered or left answered insufficiently the question of how one determines whether there has been a taking of advantage. As will be apparent from my learned friend’s submissions yesterday, the appellant is now disdainful of that question, but it is submitted that it is one still to be pursued in the appeal because, although the respondent will seek to demonstrate ‑ ‑ ‑

GUMMOW J: Sorry, of what is Mr Catterns disdainful?

MR NETTLE: Disdainful of the suggestion that the test adumbrated in Queensland Wire is adequate for the purposes of deciding whether there has been a taking of advantage. Indeed, at the end of his submissions or towards the end of his submissions yesterday, he embraced the test that one looks forward to, as it were, a purely competitive market and ask some …..in the hypothetical analysis of whether the defendant would have engaged in the same conduct in that sort of market, as opposed to the one in which he has a substantial degree of power to control.

Now, the respondent wins on that basis for the reasons given by Mr Justice Merkel and by the Full Court, and I will come back to it in a moment. But, if the Court please, we did wish to advance the argument also that although, with great respect, Queensland Wire is not wrong, it is not the whole answer of how one determines whether there has been a taking of advantage and we wish to make a submission to the Court that there is, if not a perfect answer, a better and more complete answer as to how that is to be done.

At the risk of interrupting things, may I do four things prior to making that submission because, in a sense, one needs to understand those four things before the submission can be comprehended. The first thing is to director your Honour’s attentions with respect to the provision of the Sherman Act, copies of sections 1 and 2 of which you will find attached to our written submission. The last page is an attachment where the two provisions are set out. Now, as was observed yesterday, section 1 of the Sherman Act with which other than inferentially we are not here concerned, is directed note against combinations in restraint of trade. It is like why section 45 of the Trade Practices Act, it is combinations for conspiracies and other such things in restraint of trade. Section 2 is more important because it is that upon which section 46 is based. It is a prohibition on persons monopolising.

The second thing that I wish to do is to ask the Court to turn, if it will, to the Full Federal Court’s decision in Eastern Express 35 FCR 43 in the list of authorities given and direct the Court’s attention to what was said in the joint judgment of Justices Lockhart and Gummow, beginning at page 70 in that decision. Halfway down page 70 there is a paragraph which begins:

It is to be recalled that the primary operation of s 2 of the Sherman Anti-Trust Act 1890 (US) is to create a serious felony. The provisions of s 2 have been interpreted in such a way that in order to contravene the section the monopolist must have both the power to monopolise and the intent to do so.

Now, the power under section 46 is immediately clear. There must be power to monopolise, or in the Australian vernacular, there must be market power and there must be purpose to contravene, or in the Australian vernacular, there must be one of the three proscribed purposes.

Note then, if your Honours please, at page 71 the observation halfway down about having devoted some considerable attention to what is meant by the Sherman Act but then, finally, at the conclusion of that analysis which continues on to page 72, the first full paragraph, the fundamental issue, is to determine whether there is proscribed purpose. And see the analysis of how a court is to carry that out, amongst other things by reference to inference based upon general human experience.

KIRBY J: Human experience is something judges have lots of, but business people have also experience of markets and hunches, and things that succeed, and things that fail.

MR NETTLE: We will come to that, your Honour. I heard your Honour’s questions on it before and it is certainly part of the submission we want to make. But to try to answer it now, it simply inheres in this. If the purpose is to exclude competition or to deter it, it is proscribed. But if the purpose is to achieve something else, such as that a Porsche motorcar is sold only in premises which are appropriate or antibiotics are sold through pharmacists, rather than through backyarders. The purpose is not to exclude competition, it is to do something which is legitimate within the vernacular of the Americans, and therein lies the distinction. If the Ford motor company sets up authorised dealers because they alone have the service and tools and equipment to ensure that the vehicles are serviced, their purposely not providing to backyarders motorcars to be sold is to ensure that their vehicles are only sold through those who are equipped to sell them, not to exclude competition.

If, on the other hand, a monopolist like Melways has a product that, admittedly, sells itself, but refuses to sell to a Pawsey of this world, it is doing so, admittedly, for the purposes of excluding competition, not for the purpose of ensuring that it is sold only through those who are appropriately qualified to sell. That is the distinction which underlies the answer to all of those sorts of queries, and it is a distinction which finds expression time and again in the American authorities to which I want to take your Honours a little later.

Your Honours, the third thing to do is to ask you to have a look at the decision in Byars v Bluff which is a decision of a single federal judge in the United States of America, but which is helpful for this reason. It draws together and demonstrates the authorities which show that, by reason of case law development under section 2 of the Sherman Act, whereas, to begin with, in order to establish violation of section 2, it was necessary, as it is still necessary under section 46, to demonstrate a proscribed purpose. Now, in America as a consequence of a development of a second line of doctrine, it is possible also to demonstrate violation by showing conduct which has a serious anti-competitive effect.

The point is made conveniently at page 855 in the report of Byars v Bluff City 609 F 2nd 843. At 855 the federal judge, Judge Keith, says this:

There exist two conceptually similar lines of cases which impose a duty to deal upon a monopolist.

This is page 855, left column, two‑thirds of the way down, under the heading in bold:

The first is a straightforward “intent” test which originated from dicta in United States v Colgate & Co…..where the Court stated that a business is free to deal with whomever it pleases so long as it has no “purpose to create or maintain a monopoly.”

So there is the equivalent of section 46. There is the answer to why it is that everyone is not free to deal, if they have a substantial degree of market power. They are, unless their purpose in refusing is to deter or restrict competition.

Now comes the second development in the States, which is not in Australia, page 856 also left column just above the footnote, that last paragraph ‑ ‑ ‑

GUMMOW J: This is also the essential facilities doctrine ‑ ‑ ‑

MR NETTLE:

There also exists a second, related line of cases which has been styled as promulgating the “bottleneck theory of antitrust law”. Under this approach, a business or group of businesses which controls a scarce facility has an obligation to give competitors reasonable access to it.

And there is reference to the seminal case of the United States v Terminal Railroad. And then this observation is made:

In theory, the distinction between the “intent” theory and the “bottleneck” theory is that the former focuses on the monopolist’s state of mind while the latter examines the detrimental effect on competitors. In practice, however, there exist many overlapping considerations.

The last thing I want to do at this preliminary stage is direct the Court’s attention to what was said by the United States Supreme Court in Aspen Skiing 472 US 585 because by setting out and giving approval to the direction of the trial judge it explains the distinction and how it applies in a case of this kind between the first and second legs. At page 595 about two thirds of the way down it is observed:

In her instructions to the jury, the District Judge explained that the offense of monopolization under s 2 of the Sherman Act has two elements: (1) the possession of monopoly power –

like Australia –

(2) the willful acquisition, maintenance or use of that power by anticompetitive or exclusionary means or for anticompetitive or exclusionary purposes.

Now, there is the dichotomy which has resulted from the Railroad or “bottleneck” cases. In the States it can be demonstrated either by use of anti‑competitive means or by anti‑competitive purposes. Compare this country where it can only be demonstrated that there has been contravention of 46 by demonstrating the proscribed purpose.

The reason I do that is to make the submission to the Court that there is, both under the United States law and under our law, section 46, a fundamental distinction to be observed between purpose and result sought to be achieved. The question under section 2 of the Sherman Act as it was originally contemplated and still under section 46, is not whether a corporation that admittedly has a purpose to exclude competition also has a legitimate business reason for doing so, the question is whether the purpose of the corporation, who is the defendant, is to achieve a legitimate business end such as providing the Porsche dealership with the right equipment or is it to exclude competition, as was the case with Melway with the product which sold itself.

Your Honours, having said that, can I move to the submission that we want to make about how one tests, against that background, whether there has been a use of market power or a taking advantage of market power for the purposes of section 46. Thus far, since Queensland Wire, it has been taken implicitly and almost as a doctrine of faith that the test laid down in Queensland Wire was that one looks forward from the act of conduct which is found, or alleged to contravene, and asks whether it is likely, as a matter of hypothetical analysis, it would have been undertaken if the market in which the defendant were operating were a purely competitive market as economists know that state of affairs. The difficulties with that are obvious, not the least of which ‑ ‑ ‑

KIRBY J: They have advised you to put out of mind something that exists.

MR NETTLE: Not so much that you ‑ ‑ ‑

KIRBY J: For hypothetical purposes.

MR NETTLE: No. With great respect, it is submitted not. One does that all the time in the law. The difficulty is this: it gives rise to the sorts of difficulties which have resulted in an appeal in this case. The test cannot be much good where there is an admitted monopolist, that is to say a defendant with admitted market power, with the admitted purpose of excluding competition who has admittedly refused to supply an order to do so still being able to come to this Court and seriously argue that it has not contravened section 46. That is what is wrong with the test.

That is what is wrong with the test. The question is, “What test does one place?” The reason that they can come here is because they can speculate as to whether or not the test laid down was a purely hypothetical test or whether it is a practical test which requires proof as to fact.

KIRBY J: In fairness to them, they say there are three branches and you might have fulfilled one and you might have fulfilled three but you failed to prove two.

MR NETTLE: With all respect, that is right. I am focusing on the second one: “Was there a taking of advantage?” The question is, “How does one determine whether there was?” The test which has been given or taken to have been given in Queensland Wire is one looks forward and asks, “Could the act which is alleged to have been the taking of advantage been undertaken in a perfectly competitive market as a matter of economic rationalisation or would it have been irrational economically for the defendant to do so in an assumed perfect market?”

GLEESON CJ: I do not think you have to assume a state of perfect competition. I think you only have to, according to Queensland Wire, assume more competition, in other words, an absence of market dominance.

MR NETTLE: That may or may not be so, with great respect to your Honour, but it demonstrates that there is an additional complexity which I had not perceived to exist and one further reason why the test needs some improvement. The test promulgated or proposed by the ACCC is good as far as it goes because it does assist at a practical sort of level to pose the question, “Would it have been more difficult for the defendant to engage in the conduct which it did in a perfectly competitive or more competitive market if it did not have the market power which it has?”

That is the way it seems to have been put and that is useful because frequently it will deliver the right answer, but it is not completely useful because if you test the destruction it will break down. Your Honour the Chief Justice gave an example this morning. Another example would be where, for example, a defendant with market power put on new and improved machinery in order to be able to deliver product at a lesser cost in order better to compete in the market in which it had market power.

In such a case it would not be making use of its market power in order to take advantage of competitors or to preclude competition, yet if one looked to a state of perfect competition or less imperfect competition, he would still suffer disadvantage. He would still suffer disadvantage in the perfect market because he could not get the monopoly profit which would result from the use of the improved machinery which he would get in the market in which it has perfect power.

GLEESON CJ: As I understand it, whether it is right or wrong, the argument that appealed to Justice Heerey was this. Mr Melway says, “Look, I have been doing this man and boy. I did this when I had 5 per cent of the market and I am doing it with 90 per cent of the market and I would do it again tomorrow if I only had 45 per cent of the market. Therefore, I am not taking advantage of my market power.”

MR NETTLE: Yes, well, the argument is misconceived, fundamentally for three reasons: first, evidentially, it was incorrectly based; secondly, it is not the law that one who admittedly has market power can say, “I refused to supply in order to exclude competition because I wish to maintain a distribution system which is anti-competitive”. It is the fact, as with great respect, your Honour, I moved yesterday of noblesse oblige, when one acquires market power there comes with it, imposed from outside, of course by statute, a responsibility no longer to act so as to exclude competition.

It is permissible under section 46 to do so, so long as one does not have market power, for the consequences for the consumer will not be as detrimental. But it is taken as a doctrine of statutory faith that once one acquires that degree of market power which is sufficient to influence the market, he may no longer exercise the freedom which otherwise would be his to exclude competition.

GLEESON CJ: People who are in a dominant market position may, on that account, find themselves constrained by law in ways in which they would not be constrained if they were not in a position to have such an anti‑competitive effect.

MR BURNSIDE: Exactly so, which is what Justice Scalia says in the Supreme Court in Eastman v Kodak, the point which is isolated out. With that new status that comes with monopoly power there, or market power here, comes an obligation which did not exist before not to act so as to exclude competition. That is why Justice Heerey’s analysis is just all together wrong, quite apart from the evidential basis not being as he assumed it to be.

Before I come back to Justice Heerey, which is really a question of upholding the judgment below on the basis of the assumed test under Queensland Wire, can I go to the test which we want advanced to your Honours. It is simply this: in order to decide whether conduct is, or has been, taking advantage of market power, one must first ask the question, “What attribute is it that gives to the defendant its market power?” That will invariably be one of three things which are, in truth, only two. It will be a power to supply or refuse supply, one; or it will be a power to acquire or to refuse to acquire, two; or it will be a power to acquire or supply or refuse either on particular terms or conditions. You see why the third is really just the same as the two; logically it is just a product of them.

So that if one is dealing with a monopolist, or oligopolist, what is it that gives to him the market power which he possesses? It is the power to supply or to refuse to supply into the market. He monopolises the market because he either supplies or refused to supply. If he is an oligopolist, he controls the market like Melway did by putting in or keeping out product as he sees fit, sufficient to alter the terms on which it can be purchased in the market. He turns on and off the tap to control the price in a way in which he could not do if he were subject to perfect or greater competition.

Similarly, if he is an oligopolist, then the power inheres in the ability to acquire or to refuse to acquire in order to control the price – Coles Myer. It can determine the price, it might be thought, at which it purchases groceries because it is so large it can control whether it will acquire or refuse to acquire. Once one has understood, one can simply and invariably every time determine whether conduct complained of against a defendant who has market power is conduct which takes advantage of market power. In a case like this case where one has an oligopolist, that is to say one has Melway who has the ability to control the market to a greater or lesser extent by supplying into it or refusing to supply, the attribute which gives it market power is the ability to supply or refuse to supply its product. One asks what is it that it has done with the purpose of affecting competition? The answer is it has refused to supply. It has exercised that very attribute which gives it the market power which admittedly it has.

GUMMOW J: I may be wrong, but I think that what you are saying may be consistent with what Justice Deane was saying.

MR NETTLE: Altogether consistent with it, which I wanted to go to in a moment, your Honour. It is a point indeed that the Chief Justice made yesterday. If one goes in Queensland Wire 167 CLR 177 first to what Justice Deane says at page 197, one finds that passage to which reference was made yesterday in the course of debate towards the bottom of 197:

Its refusal to supply Y-bar to QWI otherwise than at an unrealistic price was for the purpose of preventing QWI from becoming a manufacturer or wholesaler of star pickets. That purpose could only be, and has only been, achieved by such a refusal of supply by virtue of BHP’s substantial power in all sections…..In refusing supply in order to achieve that purpose, BHP has clearly taken advantage of that substantial power in that market.

It is so obvious, it is submitted with respect to Justice Deane, that it requires no analysis. It goes without saying – to his Honour - that if you are a monopolist, then your market power inheres in the ability to supply or refuse supply. If therefore you supply or refuse to supply into that market which you monopolise or control in order to achieve the proscribed purpose, you are taking advantage of your market power for that purpose.

KIRBY J: This is the very matter that is complained of by the appellant, “goes without saying”.

MR NETTLE: No, different altogether. The thing that is complained about by the appellant is to assume that the old Queensland Wire test was correct, namely, look forward to the competitive market and ask: in a purely competitive market, would they rationally have done so? Different thing altogether. What is complained of – incorrectly – is to say that the judges below assumed that one could be positive that it goes without saying rather than treating it as some rational analysis, a second part of the argument I have yet to come to. But at the moment, assuming all of that does not arise, that one can resolve the issue at a more preferable level and ask: how does one judge whether there has been a use of market power? Answer: by looking at the attribute which gives market power and asking has it been exercised.

GLEESON CJ: This may be on an entirely different legal basis but in practical effect it gets pretty close to the “bottleneck” cases in the United States, does it not; that is to say that if you are the sole supplier you may have an obligation to share supply?

MR NETTLE: No, not for this reason: under our law it is still necessary to show the proscribed purpose. In the United States the “bottleneck” theory grew out of the fact that until that point it was necessary to show proscribed purpose. That could not be shown with the United States Railway Syndicate.

GLEESON CJ: But in practical consequence in produces the result, if it is right, that a manufacturer like BHP who simply said, “We consume the entirety of our product of Y‑bar for the purpose of our own vertically integrated operation,” is in practical terms – and this is the significance of the form of the injunction – compelled either to produce more Y‑bar or to share its Y‑bar with this intending competitor.

MR NETTLE: Your Honour, can I answer that by saying there was a finding in Queensland Wire that its purpose in refusing to supply was to exclude competition. Its purpose was not just that, “We need all the stuff that we have for ourselves.” The basis on which the case was decided, put aside whether correctly, was that it refused to supply for a proscribed purpose and that is the distinction between Queensland Wire and the “bottleneck” cases.

The “bottleneck” cases assume for the sake argument that there is not a finding of purpose, that the assumption is that they just want all the facility for themselves, but nonetheless in the States they hold that that can constitute a monopolisation under section 2, which could not be held in this country. If one is true to our law, it is a fundamental condition of liability that one demonstrate the proscribed purpose. That is why, if it were the fact demonstrated to be so, Queensland Wire had not had that proscribed purpose of excluding the alternative contender, it could not have been found to be liable under section 46.

Now, having said that, it is true to say, as is observed by Judge Keith in the case to which I just took you, that in practical terms there is frequently an overlap, but it is not the same thing. We must demonstrate under our law that there is proscribed purpose in the use of the attribute which affords market power to the defendant.

GLEESON CJ: Suppose the facts of the present case were different in the following respect. Suppose your client was not trying to break into the wholesale market but was trying to break into the market of production of finished street directories and suppose your client went along to Melway and said, “Look, we do not choose to produce street directories right from the basic point of production, whatever that might be, but we want you to supply us with those coloured maps that you have because if we get hold of those then it will be easier for us to produce completed street directories.” Could Melway legitimately refuse to supply for the reason that they did not want a competitor breaking into their market?

MR NETTLE: This finds reflection in your Honour’s question yesterday about the semi‑finished product. The answer would be submitted yes for the reason that there is no market in which Melway is dominant for the supply of unfinished maps of the kind which might be included once printed and cut and so forth in a directory.

HAYNE J: It is this market or another market.

MR NETTLE: Certainly, but there is no exclusion of competition or purpose of excluding competition in a market for unfinished maps because there is no market for it.

HAYNE J: But it is excluding competition in the market for finished maps, is it not?

MR NETTLE: Certainly, but it is not taking advantage of its market power. Let us back up again. The assumption is that it has market power in the market for the supply of finished directories. The question is, “Has it by refusing to supply its unfinished maps taken advantage of that power? What is it that gives to it the power to control the market for finished directories?” It is a power to supply or refuse supply of those directories. Ex hypothesi in the Chief Justice’s question it has not done so. It has not refused to supply finished directories. It has refused to supply something which is unfinished which is not that which gives it the power to control the market.

If that means that Queensland Wire was wrongly decided, as on one view it possibly could, then it is submitted with great respect, so be it. But it must be right that if one is asking the question, has there been a use of market power, one concentrates on that which gives to it the market power this it has. Has it made use of that which gives to it, the defendant, the market power which it has? Say, for example, to take Mr Justice French’s question, does Melway contravene section 46 by burning down the premises of Pawsey? Clearly not, because although it eradicates competition perhaps, it is not making use of that attribute which delivers it market power. It is doing something which has nothing to do with it.

GLEESON CJ: That analysis may be correct, and if correct, it does not necessarily mean Queensland Wire was wrongly decided because there had been some sales of Y-bar ‑ ‑ ‑

MR NETTLE: I, with respect, agree.

GLEESON CJ: ‑ ‑ ‑ and there was, in fact, a different company that was buying the Y-bar to make the star pickets.

MR NETTLE: Yes. Whilst I am on this, apart from observing, as was observed yesterday, that Justice Dawson did embrace what was said by Mr Justice Deane, may I remind your Honours, with respect, that Justice Toohey did not - repeat, did not ‑ accept the test that one had to look forward and conclude then a perfectly competitive or more competitive market ‑ ‑ ‑

GUMMOW J: No, there was no majority of the Court for that test, as I read it. There was no majority of the Court for that test.

MR NETTLE: No, there was not, but, in particular – I just note this ‑ ‑ ‑

GUMMOW J: It is recounted in all the writing, I just do not understand it.

MR NETTLE: As if it were, quite. What Justice Toohey said at 216 was that counsel for BHP had argued that there was such a test, and then his Honour goes on halfway down the page to say:

Counsel for QWI responded that –

if there were such a test, the test was surmounted. Then in the next paragraph, his Honour observes:

In my view the answer is correct.

Now, the answer is not that that is test. The answer is, if that were the test, it has been satisfied in this case. So you have Justice Deane saying no more than that, which we submit is the case, look to the attribute which gives market power and say, has it been used. You have Mr Justice Dawson apparently agreeing, although exegetically going on talking about you can look forward and test it in a perfectly competitive market. You have Mr Justice Toohey who confesses and avoids and really does not say a great deal about it other than that if it were the test it has been met.

Now, your Honours, if, with respect, you accept that proposition – and we urge it upon you – it follows as day follows night, not for the reason about which the appellant complains, but as a matter for the ineluctable logic that the respondent wins this case.

GLEESON CJ: Not quite, because you then switch the spotlight from the taking advantage to the purpose.

MR NETTLE: Certainly.

GLEESON CJ: Now, it is true that that has had a subsidiary role in the appellant’s argument, but perhaps that is related to the way the appellant approaches the taking advantage issue. But if you switch the emphasis on to the matter of purpose, you may have to take care to distinguish between purpose and effect in a situation such as the present.

MR NETTLE: Yes, certainly. Most certainly, but here – and I am confining it, happily I am not the Trade Practices Commission, it is my case – in this case the admissions are Melway is dominant in the market and Melway did exercise whatever it exercised for the purpose of excluding competition.

KIRBY J: But there was some evidence which was ‑ ‑ ‑

MR NETTLE: Page 418 of the transcript, clear evidence ‑ ‑ ‑

KIRBY J: And it is collected in Justice Finkelstein’s judgment, I think, is it not?

MR NETTLE: He picks it up and cites some of it. I mean there is even more of it there.

KIRBY J: An evaluation of that would conventionally be very significantly for the trial judge.

MR NETTLE: Most certainly. But putting aside Warren v Coombes, you only have then to look at it to see that here is someone who is uniquely placed within the defendant’s organisation, making an admission which one would otherwise regard as obvious.

GLEESON CJ: But suppose, then, you have to choose in a case such as the present. Melway say, “This is our distribution system, which we have had since before we were dominant. It is true that the effect of it is to prevent new competitors breaking into the wholesale market, but from our point of view, both the purpose and the effect of it is to facilitate the distribution more efficiently and effectively of our product.”

MR NETTLE: The answer to that question is how does it facilitate it? Does it facilitate it by excluding competition or does it facilitate it by ensuring that those who distribute are adequately qualified and equipped? If the latter, no problem. If the former, too bad. The law says that you may no longer have a distribution system which is dependent for its efficacy upon the exclusion of competition. If you are dominant, you are no longer entitled to have the clubby little atmosphere of a distribution assistant which works for you because it excludes competition and the reason is this: you, the dominant player through this clubby little system keep up the price above which that at which it would operate if it were not in place. If the Pawseys of this world could come in and compete with the members of the club it would drop.

GLEESON CJ: Having been previously refused admission to the club themselves.

MR NETTLE: Quite.

GLEESON CJ: People usually try and join the club before they set out to break it.

MR NETTLE: No one is professing sainthood, your Honour.

KIRBY J: I think you did write, first of all, a polite letter and then a rude letter. I mean there were approaches with a rising crescendo of rudeness.

MR NETTLE: We asked and we were refused and certainly it could have been more temperately undertaken than it was.

GLEESON CJ: Your client had been a member of the club for years.

MR NETTLE: Indeed.

KIRBY J: Not complaining at that stage.

MR NETTLE: Well, not altogether. To take an example of the Repco incident when we sought to go outside the boundaries of the club and to supply to Repco, who was intended under the club to be supplied by David and Paul, we were hauled in and threatened with excommunication if we pressed on with the supply to Repco.

KIRBY J: But your client is a member of the Sydney club, not complaining.

MR NETTLE: Not quite. I mean, Sydney is different because there, there was competition against the Melway product. Melway had to break in. It chose to begin the assault on the beachhead by appointing one distributor. Subsequently it developed into three. They were given territories but only at the request of those that had been appointed.

GLEESON CJ: Is this the significance of the legitimate business purpose explanation as a contrast to an anti‑competitive purpose? To get back to your example about distributing ethical pharmaceutical products, although a system of confining sales of ethical pharmaceuticals to registered chemists is anti‑competitive in the sense that it means that Woolworths and Coles cannot sell ethical pharmaceuticals, the explanation, or justification if you like ‑ ‑ ‑

MR NETTLE: Purpose.

GLEESON CJ: ‑ ‑ ‑ of that practice is such that its anti‑competitive effect is properly seen as merely incidental.

MR NETTLE: Correct. The purpose is to ensure it is sold through a properly qualified pharmacist.

KIRBY J: And, hence, Coles do have pharmacies in ‑ ‑ ‑

MR NETTLE: Woe be tied refusal if Coles put a registered pharmacist in on the premises, for then it is highly likely that it is no longer for the purposes of making sure that it is sold through properly qualified pharmacists that they exclude Coles from the operation. Then Coles can legitimately come along and complain that they are speaking with forked tongue, that their real purpose is to exclude competition.

KIRBY J: And this is a well-known area. This happened in the Mikasa Case, did it not, I think?

MR NETTLE: Mikasa v Festival Stores. That was a resale price market.

KIRBY J: Yes, I realise, but I think in that case they were caught out because Mikasa was supplying ‑ ‑ ‑

MR NETTLE: To Norman Ross.

KIRBY J: - - - some ways inconsistent with what they were contending in refusing to ‑ ‑ ‑

MR NETTLE: That is exactly right, your Honour. They pretended that they wanted to do it in the Gucci-style store, when the truth was they were just rigging the prices.

KIRBY J: You mentioned earlier in a vivid phrase “the noblesse oblige” theory of the section, that if you happen to get to that level, well that is just something that comes with it.

MR NETTLE: Yes.

KIRBY J: You mentioned Justice Scalia’s expression. Now, I see he was dissenting in that case.

MR NETTLE: He was dissenting. But time and again, his observation in that dissenting judgment on that point has been picked up and followed. Can I take your Honours to that, Eastman Kodak, Mr Justice Scalia’s decision, 504 US 451. The observation made by Justice Scalia is at page 488 in the United States Reports. It is in the second paragraph where his Honour begins by observing:

Our section 2 monopolization doctrines are similarly directed to discrete situations –

there is reference then made to the United States v Grinnell. And then follows the passage:

Where a defendant maintains substantial market power, his activities are examined through a special lens: Behavior that might otherwise not be of concern to the antitrust laws – or that might even be viewed as procompetitive – can take on exclusionary connotations when practiced by a monopolist.

And there is reference to that passage out of Areeda that your Honours are probably familiar with. That is what is taken up and run with later. Whilst in a moderately competitive market, it is open, subject to sections 45 and 47, to do things which viz-a-viz individuals might be anti‑competitive, it is not any longer open to a player who acquires market power to do that, even if in a case-by-case analysis it does not have a substantially lessening effect on competition, because the law proscribes is a bright line distinction case, that if he has that market power and exercises it, for a proscribed purpose, his conduct is contrary to the law. It assumes that the consequences are likely to be so inimical to consumer welfare as to prescribe it.

KIRBY J: Do you say that passage has been applied in later United States cases?

MR NETTLE: Yes, we have set that out in the written submissions and we have set out a large number of the American authorities in which it has been applied and we have extracted, indeed, in the written submissions some passages to which I wish to take your Honours later, the most recent of which – I am reminded by my learned junior – is the decision in Microsoft, which is an unreported decision but a copy of which I trust your Honours have. At page 7 the judge, at first instance, engages in a useful analysis under the heading “Maintenance of Monopoly Power by Anticompetitive Means”, page 7 of the unreported decision. Your Honours will see there at that page:

In a section 2 case, once it is proved that the defendant possesses monopoly power in a relevant…..liability for monopolization depends on a showing…..See…..Eastman Kodak Co. v Image Technical Services, Inc (Scalia, J dissenting); Intergraph Corp v Intel Corp. Prior cases have established an analytical approach to determining whether challenged conduct should be deemed anticompetitive –

and then note the last sort of stanza on that page:

If the evidence reveals a significant exclusionary impact in the relevant market, the defendant’s conduct will be labelled “anticompetitive” – and liability will attach –

in this goes to something else a bit later:

unless the defendant comes forward with specific, procompetitive business motivations that explain the full extent of its exclusionary conduct.

KIRBY J: That is what I meant when I said to you earlier – perhaps I did not express it very well – that you cannot hypothesise away the monopolists’ market dominance because (a) the statute attaches significance to it, and (b) experience teaches that those who have that power often misuse it.

MR BURNSIDE: I do not hypothesise it away, your Honour; indeed, I assume it.

KIRBY J: No, I am not saying you did, but you, I thought, indicated that that was not a proper mode of reasoning. But it seems to be the mode of reasoning that Justice Scalia – it is, in a sense, the noblesse oblige reasoning.

MR BURNSIDE: Exactly right. The distinction I was seeking to draw inexpertly was this: it is not enough to have a business reason that we like the club because it has worked, if the club is dependant for its efficacy upon the exclusion of competition, and thus the purpose is to exclude that competition which would break down the club. It is different if it is the pharmaceuticals and the purpose is to ensure that it is dispensed through a properly qualified agent, for there the purpose is to ensure something which is necessary for consumer welfare not to exclude competition.

GLEESON CJ: It is not a matter of noblesse oblige, it is matter of puissance oblige.

MR BURNSIDE: I have made the submission that that is the test which ought be adopted and we make the submission to your Honours that it does follow from that test, if it is adopted, that the respondent necessarily must be successful. Here there was an admission of market power, here there was an admission of purpose of excluding competition, and here, admittedly, or proved, or both, the way in which that was achieved was by refusing supply, which is exercising that facet or factor which gives to the defendant the monopoly or market power which it had. Once you get to that point, that is the end of it.

If contrary to our submission that test is not to be followed, if the true test remains, as it has been perceived to have been enunciated in Queensland Wire as being that one looks forward to the perfectly competitive or more competitive market, and asks is it likely as a matter of rationality that the conduct would have been engaged in in that market, then we win still. This is dealt with in paragraph 25 and following of our written submissions. In volume 5 of the appeal book, the test is picked up by each of the judges that dealt with the matter. First, Justice Merkel, at appeal book 1300.

GUMMOW J: I think we were taken to this passage yesterday, were we not?

MR BURNSIDE: You were. You were taken also, I think, to Justice Sundberg at 1346 who also approached the matter on that basis, on page 1346 at paragraph 44. Whilst your Honours are there, may I direct your Honours’ attention specifically to the last five lines of that paragraph 44, because it is right, and with respect, correct as a matter of analysis:

There is no evidence that while it was a small player the appellant ever refused supply to someone who wanted to compete with one of its distributors.

There was no such evidence.

KIRBY J: Do you accept that this was an elastic market and that there was not space for a further 50,000 purchasers and that, therefore ‑ ‑ ‑

MR BURNSIDE: No, not at all. On the contrary, if there had been – the answer is no. Secondly, even if it were ‑ ‑ ‑

KIRBY J: Half a million sales a year seems a tremendous lot of sales.

MR BURNSIDE: Even if it were not sufficiently elastic to accommodate the further 50,000 sales a year, it goes to make the respondent’s case, not the appellant, because it proves that there has been an exercise of market power to exclude competition which, in an inelastic market, would have resulted in a reduction in price. It is one thing to say you can sell another 50,000 copies at the monopolist price which is prevailing, it is quite a different thing to say that because the market is so demand inelastic, the only result of letting a competitor in would be to reduce price.

KIRBY J: You want to break down their distribution system. Your client wants to break that down and that means you are going to impose on them obligations of invoicing and having all sorts of dealings with lots of other people.

MR NETTLE: The evidence was no difficulty. The evidence was that it sold itself. The container comes in and goes out. The evidence given by Lane in his affidavit ‑ ‑ ‑

KIRBY J: That is at the moment with limited – but if you have a thousand outlets who are all badgering you for your beautiful icon product, then you are going to have a lot more invoicing, a lot more administration, a lot more trouble, nuisance, people not paying their bills.

MR NETTLE: Maybe so in other cases, but the evidence here was that the only reason for refusing supply was to exclude competition. That was the admission which was made. It was supported by all the other objective evidence. I mean, the things come in shrink‑wrapped on containers. They come in one door, you change the label, they go out the other at the wholesale level. The invoicing and the difficulty of having others involved is nothing to the point. The point was that it was sought by Melway to exclude the competition which would exist against its distribution system if Pawsey were allowed to have supply. Your Honour, I do not eschew the possibility that in other cases there may well be legitimate reasons which make the purpose one of being other than excluding competition.

KIRBY J: All of this is posited on that word “purpose”.

MR NETTLE: It is.

KIRBY J: All of this comes back to “purpose” and you can hold on to a finding by the primary judge and collateral findings by the majority in the Full Court there.

MR NETTLE: I can indeed, and more than amply supported by the evidence to which ‑ ‑ ‑

KIRBY J: Mr Catterns though says if you look to the objective evidence, if you look to what happens in the Sydney market, if you look to what long happened in the Melbourne market when they were not a monopolist, if you look to the actual objective information available to the court, there were only two elements that supported the purpose determination.

MR NETTLE: No, not at all. The evidence I want to take the Court back to indeed throughout the duration of the club demonstrates that its very rationale, its raison d’etre, was to exclude competition. That is why when Pawsey sought to cut across the lines of the club when he was a member of it and supply to someone not in his territory, he was hauled in. That is why when K Mart sought a number of distributors to tender, they were written to by Melway and implicitly threatened with unpleasant consequences if they were to answer the tender.

KIRBY J: Was there evidence as to a different – I thought I read that Melway did not interfere with the price that was charged by the retailer. Was there evidence that in fact the retailers were all asking a common price, or was there evidence of price competition at the retail outlet?

MR NETTLE: There could be no price competition in the sense that each distributor had an exclusive zone in which to operate and those that came in with that zone could not go elsewhere. For example, take McEwans, the old hardware shop before its demise, in Victoria. It came within an area which was previously serviced by Pawsey. Subsequently he was replaced by the new distributor. The evidence given by Jones of McEwans was that he would have been delighted to be able to play off one distributor against another for reasons which are obvious, but he was precluded from doing so by reason of the operation of the club. K Mart got sick of not being able to get the sort of price that it thought it was entitled to because it was K Mart, called tenders and the prospective tenderers, being the distributors in the club, were threatened, not to put it too highly, that things might change with the distribution system were they to answer the tender. One of them indeed did not go ahead on the basis of it and gave evidence it was because he feared the consequences if he did.

There is evidence going back as far as 1989 when Gordon & Gotch were acting as the intermediary before going through to distributor that they were writing to individual distributors saying that they should hold the line on price, Mikasa style. Quite apart from what is pretty obvious as a matter of human experience, if I can invoke that, there is evidence there that it was the case that the thing existed to preclude competition as between persons who might compete for various sectors. That is why I said to your Honour before, it assists my case, not his, to demonstrate that the market was inelastic. My man could have come in if he had had supply and bid for the sales at a lower price.

GUMMOW J: In footnote 42 of your written submissions you refer to the various writings on the subject which seems to suggest some disquiet and anxiety as to what flows from your success in the Full Court.

MR NETTLE: It is all misdirected, your Honour. It is the Justice Heerey analysis that if the decision of the Full Court is correct, no manufacturer or supplier that operates in the market can have an exclusive distribution system because instantaneously they will be in contravention of section 46, and this cannot be right. The conclusion is so far from the reasoning in that case as really not to bear analysis.

As Justice Sundberg points out, the prohibition or the contravention did not exist in the having of a distribution system. It existed in refusing supply of 50,000 copies or 30,000 copies for the proscribed purpose of excluding competition. Any number of manufacturers have distribution systems. To take an example given yesterday, Stevens & Son in the UK have as their exclusive distributor in Victoria and I think elsewhere in the Commonwealth of the Law Book Company or whatever it is now called. That does not mean you cannot go and buy copies of its books from others and there is Mr Gunn, who was spoken of yesterday; there is Mr Wade in Victoria. They supply these books to others than distributors, but their distributor is exclusive for the territory.

No one for a moment would suggest that there is anything improper about Stevens & Son having as its exclusive distributor in Victoria or New South Wales the Law Book Company, but they might well contend successfully that to refuse supply to a Mr Gunn or to a Mr Wade for the proscribed purpose of ensuring that they do not compete against the exclusive distributor would be a contravention of section 46. This is the very point which all of these apparently otherwise learned analysis completely miss. Once that is understood, there is no difficulty at all in the decision of the Full Court.

KIRBY J: Do we have access to these? Are they in somebody’s folder, these commentaries?

MR NETTLE: It has all been given to your Honours in one form or another. Mr Pengilley formerly of the Trade Practices Commission is perhaps the most vocal of all in his criticisms of the judgment but, equally ‑ ‑ ‑

KIRBY J: He says it is a disaster.

MR NETTLE: Disaster, yes, but, equally, the illogicality of his analysis is the one which is most immediately apparent because it is he, who like Justice Heerey, confuses refusing supply and maintaining a distribution system.

KIRBY J: Do any of the commentators support you or do they all think it is a disaster?

MR NETTLE: Mr Dunn supports us apparently, your Honour.

KIRBY J: And you say you have got the Federal Court.

MR NETTLE: Yes, I have got the Federal Court and it is submitted the law also, despite what the commentators might misunderstand about it. Now, your Honours, if that be the test, and I have pointed out to you what Justice Sundberg said at about 1346 and Justice Finkelstein said at 1353, it is submitted, as we do in paragraphs 25 and following of our written submissions, that Justices Merkel and the two that comprised the majority were entitled to come to the conclusions which they did.

They had, amongst other things, the evidence which was given by Lane at appeal book 469 to 470, which is in volume 2 of the appeal book in the affidavit which he filed in‑chief, he being the marketing director or principal marketing officer of the Melway company. At 469 to 470 there is the evidence that he would have been delighted to accept the offer of 50,000 sales in New South Wales, which has been criticised as being unreal, but it just goes to support what is otherwise commonsense.

If there were no concerns about excluding competition, as there would not be in New South Wales, of course one in the position of Melway would be delighted to sell 50,000 copies. Who, who is in business of supplying a book for sale, would not be thrilled to be able to unload 50,000 copies ‑ ‑ ‑

KIRBY J: Other things being equal but not if it breaks down the distribution/club.

MR NETTLE: If that evidence were there, which it was not, which is the teaching of the American authority. It is all very well to enunciate these things as pious hopes about why it was done, but if you are going to make it good as a defence, you have got to bring in evidence to demonstrate that it was truly so.

HAYNE J: Just before you go from that, Mr Nettle, you gave a reference before – 69, 70. That, I think, is a transcript reference. I think it might be 487, 488 in the appeal book. Do not stay on it.

MR NETTLE: I am much obliged to your Honour. You are correct. The other evidence I wanted to show you from Lane, if I may, is at appeal book 925 in his affidavit in‑chief. It goes directly to the question your Honour Justice Kirby just asked, paragraph 38 of it, where he deposed that it was their experience at Melway that many sales “are made on impulse” and at the top of page 926:

The product is, I believe, of high quality…..and essentially sells itself in store.

So it is not ethical pharmaceuticals. It is not a Porsche motor car with all the tools and service that go with it. It is something that sells itself.

KIRBY J: Some Porsche owners would say that is what a Porsche does.

MR NETTLE: Indeed they do, but perhaps they may not say that if the thing could not be serviced in the way in which it is by means of the distribution network that exists. Now, there was that. There was the admission as to purpose at the bottom of page 418 of the transcript. At 416 it begins. There are several questions of critical importance founding the conclusion reached by all three judges who held for the respondent. The first important answer is given at line 28 of page 416 of the appeal book in response to the judge’s question:

no intention of supplying Mr Pawsey?---Probably. Probably you’re correct.

Line 40, Garratt’s question:

would have brought Mr Pawsey directly into competition with Mr Nagel, wouldn’t it?---Yes.
You didn’t want that?---No.
You didn’t want that?---Correct.

Page 417 lines 9 and 10:

Sorry, Mr Pawsey – because you knew in part that he intended to supply some of his old customers, if not all of them?---Yes.

Line 30, a question from the judge:

You made an assumption in your questions to Mr Godfrey that the competition would only be with Mr Nagel’s company, but there it is for on‑sale to the retail market. It does seem to be suggested there it’s any section of the retail market –

which goes nowhere but then, at line 43:

You saw in the last paragraph on that page that Mr Pawsey’s intention was to continue selling Melways to old customers and he hoped to acquire new customers?---Yes, I see that.

Over the page, 418, top two lines:

So you knew that he would be competing with Mr Nagel if he supplied…..Yes.

Lines 12 and 13:

At the time you read this letter you saw that he was going to supply to his old automotive customers?---Yes.

Lines 27 and 28:

That’s right, you didn’t want him supplying to customers of other distributors?---No.
That again was part of the reason why you refused supply, wasn’t it?---Yes.

Bottom two lines of that page:

At that time indeed there were no reasons in your mind for refusing supply other than that you did not want competition with customers of existing distributors?---Yes.

The judge missed it extraordinarily and Garratt clarifies it in a way which has been criticised in our friend’s written submissions but is not objected to by counsel at that time for the appellant nor is it re‑examined upon lately. There can be no doubt that there was an honest and frank admission by Mr Godfrey, a principal director of the company, that the whole of the purpose of the conduct of refusing supply was to preclude competition between Pawsey and the existing distribution network.

GLEESON CJ: All those are merely different aspects of elaboration of the proposition that he had a fixed, rigid distribution system.

MR NETTLE: No, with respect, not. If the answer had been, “No, it was not to exclude competition from Mr Pawsey, it was to ensure that the product only went through those who were qualified to service it, to bring it to the attention of others, and so forth”, the answer would have been different.

GUMMOW J: But it could not be different in this sort of arrangement.

MR NETTLE: Of course it could not. That is the very point, with great respect, to your Honour. Unless it is a product like a Porsche or ethical pharmaceuticals or something which you need people qualified to deal with, if it is the sort of thing like a Melways that sells itself ‑ ‑ ‑

KIRBY J: Please do not be rude to an icon. It is a very successful product by canny business people.

MR NETTLE: It is a superb product that does sell itself. What is put against us by the appellant is a number of arguments. The first you will find expressed in paragraphs 18, 19, 21 and 30 of their written submission, which is answered by paragraphs 26 to 29 of our written submission. It is an argument that the test to be extracted from Queensland Wire is not what would have been, or likely to have been, in a purely competitive market or more competitive market, it is rather what it could it not have been. We answer that simply by directing your Honours’ attention to each of the passages which have been highlighted in the written submission to show that in each case where Chief Justice Mason and Justice Wilson went on to talk about the subject and to the extent that he did, his Honour Justice Dawson, positing a question of hypothetical analysis of what is likely to have been the case in a purely competitive or perhaps more competitive market. That is the test which each of the judges, other than Justice Heerey below applied.

The second argument put against us is put against us at paragraph 27 of the appellant’s written submissions, and it is the argument that it cannot be right that there has been a making use or taking advantage of market power because the system of distribution was in place before the acquisition of market power. There are two answers to that: the first is the one which is given by Mr Justice Sundberg, that is to say, there was no evidence of whether the distribution system was in place before the acquisition of market power. But secondly, and more importantly, there is Justice Scalia’s analysis in Eastman v Kodak, it does not matter what you did before you had market power, the situation changes once you do. Once you do, if you take advantage of it for a proscribed purpose, then you are in contravention of section 46. Even if you had committed the same act for the same purpose without market power, you would not have been in contravention of section 46.

In support of that criticism which they make of paragraph 27 of their written submissions, our learned friends place considerable reliance upon the analysis of Justice Heerey. Can I briefly take your Honours to that, which is in volume 5, of course, of the appeal book. Justice Heerey’s analysis at 1336 of the appeal book. It consists in two parts, it is submitted: the first part of his Honour’s analysis is to be found ion paragraph 21, at page 1336 of the appeal book, and it seems to amount to a proposition that the test thought to have been derived from Queensland Wire could not be applicable to a case of this kind, for whereas Y-bar was fungible, Melways are not.

It is true, I guess, that Y-bar is fungible and Melways is not, but it certainly does not have anything to do with the application of the analysis in Queensland Wire. Queensland Wire is not limited to an analysis of a product which is generic. It will apply, if it be a correct test, to all products simply on the basis of a test of whether the defendant would have been likely, economically and rationally, to do what he did in a market in which he did not have the dominance that he does in fact have. So it is a distinction, certainly, but one without any relevant difference. For that reason, Justice Heerey’s analysis is wide of the mark.

The second part of his Honour’s analysis is that – it appears a couple of pages earlier which is at page 1335 in the last few lines of the last major paragraph, but:

Put another way, the same activity, the maintenance of the segmented distribution system, cannot change its nature simply because a substantial degree of market power has been achieved.

And it is submitted, that is just wrong. It can and does change. So to the extent that our learned friends place reliance upon Justice Heerey’s analysis, it is submitted that it is misdirected. Of course, Mr Justice Heerey agreed with the other judges, that the proscribed purpose was the purpose of the defendant.

The third argument which is put against our submission on this branch of the case is in the appellant’s submission at paragraph 32 and it is an argument that it just cannot be right to conclude that Melway would have refused an order for 50,000 products in a competitive or more competitive market, for otherwise it is said that no one can have the distributor.

Can I ask your Honours to look at paragraph 25 of our written submissions, because I am conscious of the time. We have set out there, in three propositions with reference to the passages in the judgment and transcript upon which we rely, the argument that that contention which is put against us is just not correct as a matter of analysis. If the test is laid down by Broken Hill that one is to look forward to a competitive market and ask would a defendant rationally have engaged in conduct of this kind in a market in which it did not have market power, the answer must be “Yes”. If it were in a market where Gregorys and Val Morgans and UBD and all the others were there with products which were just as appealing to the consumer as Melway is, it cannot be believed that Melway would refuse an order for 50,000 copies, for it is to be assumed that, rationally, as a manufacturer, it would know that the would-be purchaser would go to Gregorys or UBD and get 50,000 copies of the product just as appealing to the consumer and then sell it against the Melway product and thus reduce the sales of Melway.

KIRBY J: It seems clear that it is refused because it is a Trojan Horse.

MR NETTLE: Well, I do not know about that. The findings are that it was refused for the purpose of excluding competition.

KIRBY J: That is what I mean, with the sale comes a whole series of uncongenial results.

MR NETTLE: Certainly. And those are proscribed if one has market power and exercises it for the purposes of precluding those results. Those are the results which are dictated by the adoption in this country of the Sherman Act philosophy of consumer welfare to be protected against actions which are anti‑competitive in the exercise of market dominance. That is the law. And whilst it was very nice, no doubt, for those who enjoyed the situation before it was the case, it has been ordained that it would be so.

Your Honours, as a matter of evidential analysis, it is submitted, for the reasons given in that paragraph 25, they are entitled to reach the view both as a matter of theoretical analysis and to the extent that there was evidence as a matter of inference that Melway would not have acted as it did in a more competitive market. First, there is the proposition that there was no evidence of refusal to supply before market power as opposed to distribution. Secondly, there is the evidence of Brian Lane at the transcript to which his Honour Justice Hayne directed the reference that he would have been only too glad to get 50,000. Thirdly, there is the evidence that the product sold itself.

Just before passing from that, can I remind your Honours of what Justice Sundberg said because it is submitted it is to the point. At paragraph 44 of his judgment at appeal book 1346, the focus is not upon the distribution system. Section 46 does not strike down distribution systems. The focus is upon the refusal to supply and the two are not necessarily the same. At paragraph 44:

The submission concentrates on the reason behind the existence of the distribution system. It identifies its historical justification, and asserts that that justification, born when the appellant had no or no significant market share, does not change…..But the submission appears to me to lack the specific focus required by s 46 and Queensland Wire. The question for decision is not whether there is a causal link between the appellant’s market power and the maintenance of its distribution system. It is whether there is a link between its market power and the refusal of supply.

His Honour then observes in the last five lines of that paragraph:

There is no evidence that while it was a small player the appellant ever refused supply to someone who wanted to compete with one of its distributors.

Can I invite your Honours to contemplate what the position would have been in 1968 even if there were then in place a distribution system long before Melway had dominance, when Gregorys still ruled the roost. Would Melway literally have knocked back an order for 50,000 copies at that stage because it had a distribution system? Of course it would not. Of course it would have grabbed the 50,000 sales the better to compete against Gregorys who was then in command.

The fourth argument put against us is in the appellant’s written submissions, paragraph 32, and in ours at paragraphs 37 to 39. It is the argument that it was not open to the judges of the majority below to conclude that advantage was being taken because it is said by the appellant there could be – I stress “could be” – numerous rational reasons for refusing supply in the absence of market power. There could be numerous rational reasons for refusing supply. This invokes that part of their argument which seems now to rest so heavily upon the burden of proof and it is something to which we come back.

But can I jump ahead to say now that it is submitted, with great respect to our learned friend, that they misconceive this question of burden of proof. No doubt the burden of proof lay upon the plaintiff to begin with, no doubt it was incumbent upon the plaintiff to establish by evidence the existence of market power and the prescribed purpose and also advantage had been taken of it. It did that by demonstrating market power, use of refusal of supply and purpose. At that point, according to conventional orthodox theory, the evidential onus shifted to the defendant to bring in some evidence to demonstrate that the inference properly to be drawn should not be the conclusion reached, and it did not. On the contrary, it gave evidence making admissions that it was its purpose.

What else can a trial judge do, other than in those circumstances, infer and hold that the case has been made out? It cannot be the case and it is not the law that whenever there is a possibility of a rational explanation to the contrary of the proposition you seek to prove, you have to bring in evidence to rebut every theoretical possibility to the contrary. The way in which these things has, with great respect, we all know work is that, you prove your case, as it were, to a prima facie level and unless there be evidence in rebuttal, you win. That is what happened.

Your Honours, our learned friends suggest in paragraph 32 of their written submissions that the American law assists their case. They say that the American law contains numerous examples of corporations in the States being excused of violations on the basis that they had a legitimate reason for the refusal to supply.

Can I make two points to your Honours. First, in approaching the American decisions, whilst they are helpful, it is essential to bear in mind that the Americans, under section 2, are concerned with two considerations: purpose; and, secondly and alternatively, conduct. We, in this country, are concerned only with purpose. Therefore, to the extent that the American judges have opined on what is relevant in analysing conduct, it is irrelevant. One must concentrate one’s attention, if one is going to use the American authorities, on what the American judges have said about purpose. What the American judges have said about purpose is that if a defendant seeks to escape liability, it is incumbent upon the defendant to bring in evidence to satisfy the tribunal of fact that its purpose was other than the purpose which one would infer to exist from the prima facie evidence.

We cite two cases, the first is Data General. May I very briefly take your Honours to that decision. Data General Corporation v Grumman Systems Support, 36 F 3d 1147. Now, the case is really authority for the proposition, more or less that the refusal to license someone with one’s copyright is not monopolisation under section 2 of the Sherman Act, for, by analogy with the law which has been developed there about patents, it is to be taken to be an implied exception. But the important part of analysis for present purposes is at page 1183 in the left-hand column, four lines down. The observation is made, page 1183, left column:

Thus, a monopolist’s unilateral refusal to deal with its competitors (as long as the refusal harms the competitive process) may constitute prima facie evidence of exclusionary conduct in the context of a Section 2 claim. See Kodak…..A monopolist may nevertheless rebut such evidence by establishing a valid business justification –

reference is then made to Kodak –

(suggesting that monopolist may rebut an inference of exclusionary conduct by establishing “legitimate competitive reasons for the refusal”) –

read purpose –

(suggesting that sufficient evidence of harm to consumers and competitors triggers further inquiry as to whether the monopolist has “persuade[d] the jury that its [harmful] conduct was justified by [a] normal business purpose”). In general, a business justification is valid if it relates directly or indirectly to the enhancement of consumer welfare. Thus, pursuit of efficiency and quality control might be legitimate competitive reasons for an otherwise exclusionary refusal to deal, while the desire to maintain a monopoly market share or thwart the entry of competitors would not.

So it is Porsche versus the other. The other decision to which we wish to refer your Honours very briefly on the same point is the decision of the United States Supreme Court in Aspen 472 US. Your Honours may know, with respect, that this was a case in which the organisation which controlled three of the mountains at Aspen refused to enter into a package deal arrangement with the organisation which controlled the fourth so that consumers could get an all day ticket to go to any one of them as they wished. It was held that constituted a violation of section 2 of the Sherman Act.

In the course of the trial the defendant sought to justify its conduct on the basis that it had apprehensions about consumers perception of the other organisation so that it did not wish its reputation to be associated with it. The observation was made, most importantly, at page 595 of the United States Reports in the third paragraph:

District Judge explained that the offence of monopolization under s2 of the Sherman Act has two elements –

that is the use or the purpose. Then there is the next full paragraph:

On this element, the jury was instructed that it had to consider whether “Aspen Skiing Corporation wilfully acquired, maintained, or used that power by anti‑competitive or exclusionary means ‑ ‑ ‑

GUMMOW J: This was a treble damages action.

MR NETTLE: It was. I read that in anticipation of what I am about to take your Honours to now, page 605, just at the bottom of 604, the last couple of lines:

Since the jury was unambiguously instructed that Ski Co’s refusal to deal with Highlands “does not violate Section 2 if valid business reasons exist for that refusal,” supra, at 597, we must assume that the jury concluded that there were no valid business reasons for the refusal.

Lastly, if I may, your Honours ‑ and I have passed over some good material at pages 608 and 609 ‑ can I direct your Honours’ attention to 610 about six lines in:

Ski Co’s purported concern for the relative quality of Highlands’ product was supported in the record by little more than vague insinuations, and was sharply contested by numerous witnesses. Moreover, Ski Co admitted that it was willing to associate.....
Although Ski Co’s pattern of conduct may not have been as “‘bold, relentless, and predatory’” as the publisher’s actions in Lorain Journal, the record in this case comfortably supports an inference that the monopolist made a deliberate effort to discourage its customers from doing business with its smaller rival.

And so on. That is the way the Americans approach it. It is submitted it is wholly consistent with the Anglo‑American evidential jurisprudence: one proves a case; one waits for rebuttal evidence and, if it does not come in, then one wins.

That brings me to what the appellant submits is the nub of the matter, paragraphs 33 to 37 of its submission, which is a contention that it is entitled to exclude competition because its aim in excluding competition was to preserve the distribution system which it had found in the past to be efficacious. I have made the submissions to your Honour already that the Act says quite the contrary.

GUMMOW J: Well, we have been through that, have we not?

MR NETTLE: We have. The only other thing I wished to do was to draw your Honours’ attention in support of those contentions to pages 1096 in volume 5, which is the letter from Gordon & Gotch of 11 October 1989.

GUMMOW J: We have been taken to that, too.

MR NETTLE: You have, but you have not been taken to page 1102 where, in the paragraph just below line 25, reference is made to the attempts to fix the price by the use of this distribution system, nor have you been taken, if your Honours please, to page 1082 which was Melway’s communication to Robert Hicks Auto Fashions. We draw your Honours’ attentions to line 25:

there will be some rationalisation necessary in both sales and distribution to the various sectors of the market and I suggest you contact either Terry Greenwood or Sue Dain or Gordon and Gotch…..to discuss these matters further. All efforts will be made to see that a fair and reasonable transition occurs.

Finally, on this matter, at page 1086 ‑ ‑ ‑

GUMMOW J: There is a reference at 1082 line 31 “and the orderly marketing of our product”.

MR NETTLE: Yes. With respect, we all know what orderly marketing usually means and clearly it did just mean that. Last, if your Honours please, page 1086, the proof of the orderly marketing proposition, your Honour Justice Gummow, at line 19:

As indicated in my telephone conversation I hope the rationalisation will lead to a more controlled pricing policy on the publications and increased sales.

So Melway is in there. Melway is in there with Gordon and Gotch and Gordon and Gotch are running the system on their behalf to control the pricing policy for regulated marketing. It is submitted that there was, if not a ton, then there was a great deal of objective evidence and subjective evidence, quite apart from inference as a matter of hypothetical analysis which entitled Justice Merkel and the majority to come to the conclusion which they did. Your Honours, last on this matter, can I show you three American decisions which are very useful.

GUMMOW J: Just before you do that, 1086, as Justice Hayne points out, the penultimate paragraph:

The designated area for supply…..any variation from this will not be tolerated –

MR NETTLE: You have got it, your Honour. And, as it was not, we need to come individually, but thank you, because it leads in, most conveniently, into the K Mart and the Repco incidents which were further evidence – the K Mart incident which I have explained where K Mart sought tenders from distributors and distributors were warned off by Melway, and the Repco incident where our man sought to supply Repco outside his exclusive area and was warned off because of the threat made to him by the others.

Your Honours, Graphic Products v Itek 717 F 2d 1560 (1983) is a decision to which we wish to go next, Eleventh Circuit Court of Appeals. At page 1576 paragraph [14]:

When the evidence supports a finding that vertical restrictions on intrabrand competition seek to and do enhance inter‑brand competition – in any of a variety of ways – we have not hesitated to uphold them under the rule of reason.

The reason, if I may say so, that they do not hesitate to uphold it is because when the inter‑brand pro‑competitive effects outweigh the intra‑brand anti‑competitive effects, the purpose can be seen not so much as to exclude or deter competition but to enhance it in the market in which the defendant is dominant. He controls his intra‑brand competition in order the more effectively to compete against other competitors in the inter‑brand competition. I drop about ten lines after the reference to Del Rio Distributing:

However merely offering a rationale for vertical restraint will not suffice; the record must support a finding that the restraint in fact is necessary to enhance competition and does indeed have a pro‑competitive effect.

Then the last few lines, that column:

Absent direct evidence of positive effects on competition, careful analysis of the pro-competitive rationales offered for a restraint in the light of the record is essential, in that sometimes one can pro‑competitive rationale will apply to a given case, whereas a second will not.

The second of the decisions is Microsoft, to which I have taken your Honours already, at page 7. That is to say, it is not enough just to say that there were pro-competitive effects in order to demonstrate that the anti‑competitive effect was not the purpose. That is the last stanza at page 7 of the unreported decision in Microsoft:

If the evidence reveals a significant exclusionary impact in the relevant market, the defendant’s conduct will be labeled “anticompetitive” – and liability will attach – unless the defendant comes forward with specific, procompetitive business motivations that explain the full extent of its exclusionary conduct.

And Aspen, to which we have taken your Honours already, at page 484, makes exactly the same proposition with the cache of the Supreme Court behind it.

Your Honours, thus it is submitted on the basis of, as it were, the rebuttal of those six arguments which are put against us and were put against us yesterday in the course of our learned friends’ submissions, that so far from it being demonstrated that Justice Merkel and the majority erred, they were clearly right to hold, if the test be as articulated in Queensland Wire one of looking forward to a more competitive market and asking, “Is it as a matter of ordinary human experience, logic, rationality and evidence likely, that the defendant would have done what he did without market power?”, the answer undoubtedly is no. They were entitled so to come to that decision. They did not need to go into reams and chapter and verse of factual analysis, although the factual analysis is there and is highlighted in the written submission. It was enough to see that there was evidence and admission of dominance and of purpose and of exercise of the power to withhold supply in order to achieve that purpose.

Might we turn very briefly to the subject of proscribed purpose. I said to your Honour the Chief Justice an hour and a half and I have forgotten now when I started.

GLEESON CJ: You started more than an hour and a half ago.

HAYNE J: It is called leading with your chin, Mr Nettle.

MR NETTLE: If I do not do it, the other side will. Proscribed purpose: Justice Merkel, as your Honours know, found at 1310 that there was the proscribed purpose. Justices Sundberg, Finkelstein and Heerey also found that there was that proscribed purpose. Your Honours have seen the admission. I have taken you to the materials. You have seen the supporting materials about holding. It cannot seriously be contested now, at this stage on appeal, that there was not the purpose.

But I do want to add some material, if I may, because it really puts it away, from the cross-examination of some of the witnesses. In particular, I want to show you the K Mart incident at page 376 in the appeal book. At the bottom of page 376 of the appeal book, Mr Garratt puts a question to Mr Godfrey, the director of Melway, at line 44:

Mr Godfrey, in about August of 1997 K Mart and Target came to see your company about tendering jointly for their requirements of Melways?---Yes.
They had a meeting at which you were present?---Yes.

That evidence then goes on at page 383 where he was shown the letter which was sent by Melway to the would be tenderers and asked were not the terms of it calculated to deter distributors from tendering. That letter is at page 1231 of the appeal book, and in particular, it says:

Accordingly you –

the distributors –

should be aware that we will monitor the position should the change which is proposed occur and in the event that we believe that this change may result in the prospect of a diminution…..to the totality of sales outlets then we will consider our position with a view to taking such steps as we consider appropriate to maintain overall sales levels. This may involve changes to distribution arrangements.

So there is the threat, silk glove though it was, that if you go ahead with a tender to K Mart, you can look out for your distribution arrangements. The question is put at appeal book 383, line 36, where Garratt says:

That’s your best answer?---Yes.
Looking at (c), “We are not in any position to guarantee continuity of pricing.” What were you intending by those words…..Well, as I said, this letter was written for me, but I took it that it was meaning that, as you’ve heard, from time to time over the years we have to increase prices.

which was a disingenuous answer, and it is changed. It is chased, then over to page 384, first by his Honour the trial judge at line 21, then by Mr Garratt, and the sequence concludes at appeal book 385, line 10:

It went to all three? – Yes.
So would it be accurate to say a factor in sending the letter was to discourage all three from participating in the tender? – I wouldn’t have said so.

Two more questions then, at line 21:

Would you agree that it is a purpose of discouraging them to participate in the tender? – I suppose, yes. You can read that into it I suppose.

KIRBY J: This was a letter advised by the lawyers, apparently?

MR NETTLE: Yes, it was.

KIRBY J: It lacked the spontaneity of emotional responses to the situation. On the other hand, it was done on advice, so it cuts both ways.

MR NETTLE: And therefore it is even more powerful. That, after taking advice, they would still, albeit in a concealed sort of way, threaten discontinuance of the distribution arrangements, if the tender were entered into.

Lane’s evidence is also instructive. He conceded at page 462 of the appeal book that a fair description of the letter was that it insinuated that it was not desirable to tender. But I will take your Honours, however to page 475 to the other aspect of the matter which was the Repco incident. What happened here was David and Paul were another distributors. Their area of distribution was service stations. Repco, an after market organisation, was classed as being within service stations. Repco sought supply from Pawsey. Pawsey was pleased to do the deal, albeit at a reduced price. David and Paul complained to Melway that Pawsey was moving in on their exclusive territory and, thus, reducing the price at which they were able to sell. The arrangement was stopped – stopped dead. Pawsey pulled out. The evidence is given at line 24:

What did you say to them?

this is to Mr Lane, the marketing director:

No, Paul and David were complaining to me that Repco’s sales force was selling into service stations competing against them. So I contacted –

them, and so it goes on, concluding over the bottom of the next page. Your Honours, I am moving quickly because I am in excess of my 1½ hours. Each of those transcript references is set out in the submissions.

Finally, I wanted to say something about the seven factors which are put against us. In the applicant’s submissions at paragraph 46, which are responded to in paragraphs 48 and 49 of our written submissions, the applicant asserts seven factors said to be in support of its contention that there was good commercial reason to refuse supply. Can I preface the submissions I am about to make by saying this: in accordance with our principal submission, we contend, with respect, that it does not matter what their reasons were. The question is purpose.

So much would seem to be clear, not only from the law, the Australian authorities and the American authorities. But if, contrary to all understanding, commercial purpose were relevant in the way in which it is on the second leg, the “bottleneck” test in the United States, so that if it were possible to escape liability by demonstrating that, as a matter of objective fact, there was a commercial justification, the evidence here just did not go anywhere demonstrating that there was a commercial justification.

If I can ask your Honours to turn to the applicant’s submissions at paragraph 46. The first bit of evidence given, or said to be given, in paragraph (a) is that wholesalers dealt with customers and the market they know as specialists, as if there were some overriding legitimate commercial purpose to be served by making sure that that situation continued, rather than one of excluding competition.

The evidence which the appellant cites in support of it is in the evidence of Mr Jones, the relevant marketing person from McEwans hardware stores. So far from demonstrating that he would have preferred to deal with one, the evidence which he gives at 153 is that he would have preferred to have a multiplicity amongst which to choose.

KIRBY J: What page was that – 153, was it?

MR NETTLE: I am sorry, this is Mr Pawsey’s evidence. I have given your Honours the wrong thing. I was referring to (b). If I can pass briefly to (a), the evidence about which reference is made in paragraph (a) is that:

Wholesalers deal with customers and a market they know –

but, contrary to that contention, the evidence which is given is evidence given by Pawsey and it is evidence not about the Victorian market in which Melway was dominant but evidence about the Sydney market in which it was not dominant and into which it was seeking to break. The evidence which is given at lines 25 through to 36 is that in order to be able to crack into that market which is so much saturated and satisfied by the local product, it would be necessary to have someone who is on the ground in Sydney and knows the turf and that is why it would be difficult for someone like Pawsey in Melbourne to do it. It says literally nothing about the Victorian market with which we are concerned.

At page 188 of the appeal book at lines 10 and 11 he points out that it is a question not of expertise but simply knowing the arrangements there in order to be able to get the ins with the persons who deal in the product. The second passage at paragraph (b) is the more important where it is said that the commercial justification demonstrated by the evidence was that significant retailers preferred to deal with but one distributor. The evidence which is relied upon is at page 174 of the appeal book, which is Jones, the man from McEwans. The evidence which he gives is pretty inconclusive. At the top of page 175:

It’s important to you as a major customer in your sector that you receive goods from a distribution system which is orderly and reputable?---Definitely.

Those words are put into his mouth. But then he responds later at page 188 – I am sorry, at 182 he explains that he prefers “to deal with fewer suppliers”, line 10, because there are less accounts. He does not have as much bookkeeping. Then at page 185 the question is put to him at line 36:

Would it be more or less advantageous for you to have the distributors competing for your business rather than just one distributor coming to your business?---It would be advantageous for my company to have several distributors trying to sell me the same product.

Why? What benefits would you get…..?---I may get a price benefit and I’d be able to select who –

It is those very benefits, those very consumer benefits, which Sherman was designed to protect and which section 46 embraced that are precluded by the anti‑competitive purpose of the conduct in which this defendant engaged. It was calculated to and did achieve the result that McEwans did not get a choice of distributor so that it might bargain on price.

The third thing which is relied upon by our learned friends in paragraph 46(c) of their submission is evidence given at 117 and 120 of the transcript, that wholesalers had a system where they placed confidence to invest. This evidence, if your Honours go to it, at 120, proves no more than that Pawsey was so confident about the product which he sold that he was prepared to spend lots of money in advertising it. The contention made in paragraph (d) that:

wholesalers are committed to maximise customer service –

proves no more than that if David and Paul had had to meet competition they would have de‑emphasised the product in their product range. The evidence said to be at (e), that:

wholesalers here were able to commit to substantial purchases of stock on a “sale or return” –

goes nowhere because so was everybody else. If it was to be sold on sale and return, it would be sold on sale and return. At paragraph (f) reliance is placed upon evidence about:

the public need for the product, including unprofitable small accounts –

I mean, if you go to that evidence – and I have not got the time to do it – what it says is that where there was a distributor for service stations the man from the distributor would go along to the service station, have a look at the stocks on the shelf, see that stock was down to two copies rather than five and suggest to the service station proprietor that he puts three more back. I mean, so what, with great respect? I mean, if there is competition, the man that is in there is competing. He is going to be doing exactly the same thing, if not putting 10 copies in.

That evidence is supported, we would contend, that is to say evidence supported that it was anti-competitive by what appears at 1250 in a letter from K‑Tel to K mart where there was evidence that Mr Nagel, who replaced Pawsey, was prepared to de‑emphasise small accounts and concentrate on larger ones as a consequence of the distribution privileges which he enjoyed.

I come second last, if I may, to the US authorities. In paragraphs 46 to 56 of the applicant’s written submissions they make reference to a number of American decisions. We in turn have analysed those American decisions in paragraphs 64 to 73 of ours. With all respect, the analysis of the American authorities which appears in this appellant’s written submission in wrong. Your Honours have seen enough already of the American decisions to know that there are two considerations in the alternative, not one alone, as there is under section 46, when one comes to consider the Sherman Act.

It is clear from the authorities that you have seen already and the others which we have analysed that in the United States when the United States courts come to adjudge whether there has been conduct engaged in for the purpose of monopolisation, the test is a subjective one, conclusions about which are to be drawn inferentially from objective evidence and in respect of which the evidential onus shifts to the defendant to rebut the inference once prima facie evidence has been adduced.

GUMMOW J: Yes, I understand all that but what Mr Catterns seems to be saying is that the rule of reason from section 1 gets into section 2.

MR NETTLE: Well, that is, with respect, also wrong.

GUMMOW J: Yes.

MR NETTLE: What is said under section 2, Sherman Act, when the inquiry is whether there was purpose, is that one is to answer the question, was the purpose one of excluding competition, to put it briefly ‑ ‑ ‑

GUMMOW J: But does the rule of reasoning get involved in the essential facilities branch of section 2?

MR NETTLE: In a sense, it does.

GUMMOW J: But you say that is beside the point.

MR NETTLE: Beside the point. As your Honour knows, with great respect, it is sort of imported on a different basis under a different rubric, but it is the same sort of consideration which they look at under section 1 of the Sherman Act. But it forms no part of this. What does get involved in section 2 of the Sherman Act, quite apart from the “bottleneck” cases, is sometimes a consideration about whether in a case where there is a lack of proved purpose, the conduct of itself should, because of its effect, be regarded as so heinous as to constitute a violation. When that has been ‑ ‑ ‑

GUMMOW J: Well, be allowed to go to the jury, really.

MR NETTLE: Quite, and when that has been considered, then they say sometimes the court is entitled to look at whether there were commercial justifications. But we can eschew all of that because we are concerned only with, if one can so term it, the purest train of Sherman section 2 purpose cases, one is to look at what is the purpose. The Americans approach “purpose” in exactly the way that we do in each of the cases which are set out.

Because of the time, your Honours, I am going to jump over all that detailed analysis and just say, by way of conclusion - I have dealt with the implications of the judgments below. It is submitted they do not have the dire consequences that the commentators have said they have. When I turn to the question of remedy, of course it is conceded that it is a difficult subject.

GUMMOW J: The references to Pont Data, to get them on the transcript ‑ there are two Pont Data Cases: 27 FCR 460 at 490 and 27 FCR 492 which deal specifically with the remedies problem which is flagged at the first one of those pages.

MR NETTLE: If your Honour pleases, I am obliged to you. Can I add that in Microsoft reference is made at page 4 of the unreported decision which has been provided to the Court to the decision of the Federal Circuit Court in Intergraph Corporation v Intel Corporation 195 F 3d at 1346 and there is in that case a discussion in the United States Supreme Court of the way in which relief may be moulded so as not to go too wide.

GUMMOW J: Sorry, what page of Microsoft?

MR NETTLE: Microsoft page 4, two thirds of the way down, 12 lines up from the bottom, reference to Intergraph. I do not have a copy of that decision, but it discusses the principles generally. I beg your pardon, your Honour, it is Microsoft, under the heading “Maintenance of Monopoly Power by Anticompetitive Means”.

GLEESON CJ: Yes.

KIRBY J: It is page 3 of the print that we have.

MR NETTLE: Thank you, your Honour.

GUMMOW J: Is the reference 195 F 3d 1346?

MR NETTLE: Yes, your Honour. Your Honour, to bring the matter back to our case, the facts are that in this case the judge sought direction from both counsel as to the form of order which should be made. Reference was made to Mr Justice Brennan’s formulation, to which I think Justice Gummow referred yesterday, that in some circumstances it may be appropriate to mould an order by reference to purpose.

It was on that basis that the trial judge, Justice Merkel, did mould it by reference to purpose and at the Full Court level. Mr Pannam, who then appeared for the appellant expressly disavowed any attempt to criticise the formulation. He accepted it as being if not adequate then acceptable in the circumstances.

As I have said to your Honours already, because I don not want you to proceed upon an incorrect assumption, for reasons which have since occurred, the injunction has ceased to be of utility to the respondent as opposed to the remedy in damages which most certainly is not.

GLEESON CJ: Thank you.

MR NETTLE: Therefore, in one way, there is no great purpose in continuing to prosecute the claim for injunction but, it having been sought and having been obtained and recognising that the formulation of such an injunction is difficult, it is submitted that it was an appropriate order to be made. It was, to the extent that one is able in a case of this kind precisely defined by reference to the conduct which was found to contravene and it prohibited only a future contravention of that kind.

If your Honours please, those are the submissions for the respondent.

GLEESON CJ: Thank you, Mr Nettle. Yes, Mr Catterns.

MR CATTERNS: May it please the Court, I will be very brief about this. Your Honours, at the bottom of page 197 of Queensland Wire his Honour Justice Deane says:

That purpose could only be, and has only been, achieved by…..virtue of BHP’s substantial power –

That is our case, your Honours. Our friends failed to prove that this refusal could only have been achieved by virtue of our market power. In answering the question his Honour Justice Deane asked himself, we say no. We could have achieved this without the market power. That is all the point of our evidence about benefits of distribution, legitimate purposes.

Your Honours, in many ways, the way his Honour Justice Deane put it, where his Honour says they could do this only because of their market power is just the mirror image of the question put by your Honour, as senior counsel for BHP, which I took the Court to yesterday. Each of their Honours uses the word “only” - each judgment. That, we submit, is the end of our learned friend, Mr Burnside’s, argument about facilitated.

So, your Honours, this is a matter of proof and we are happy to embrace the formulation by his Honour, Justice Deane, and the mere embracing of that proposition does not end the matter. It is a question of proof and our friends say the answer must be yes. It cannot be believed. That is just another way of saying it axiomatic. Here, nobody did anything more than assert that these are 50,000 sales which we could not refuse absent market power.

It depends on many facts, your Honours: how a competitor would behave, in your Honour the Chief Justice’s example; other good reasons – Porsche and Gucci; expertise and competitiveness of the existing distributors that we put forward. These are factual matters, reminding your Honours that at page 153 Mr Pawsey dropped out of Sydney because he lacked expertise in that market.

Now, your Honours, if there is a hole in Queensland Wire, it is a hole which, with great respect, infects his Honour Justice Deane’s reasoning. Two: it is very hard to find any reasoning on why BHP could only have done this without the market power, ie, that it could not. I have attempted to put forward what I, respectfully, accept is a slim piece of reasoning, namely that they did not do this with any other product. If there is a hole that is where it is, your Honours.

As to the product selling itself, the evidence was the product essentially sells itself in store, full stop. Effective distribution is critical to the success of Melway. So when it gets to K Mart, fine, people buy it for Fathers Day, but distribution was critical. There was a great deal of evidence, as I have said many times, on the benefits of distribution. Our learned friends did not below, did not even attempt to prove the contrary. I will not take your Honours back to that, needless to say. Part of the submissions on this, which I submit were again that it was axiomatic, can be seen in volume 3, 605 to 606, where some of the oral submissions are recorded. It does not have to be Porsches or drugs to be sensible to distribute this way.

Your Honours, our friends make much of the admission as to purpose at pages 418 to 419. I have made a submission about reading that in context. It really is the opposite side of the purpose of distribution. There is no holding by his Honour Justice Merkel that this is our only purpose. I remind your Honours that paragraphs 1 to 4 ‑ ‑ ‑

GUMMOW J: It does not have to be. It needs to be a substantial purpose.

MR CATTERNS: No, your Honour, I am only on taking advantage. I quite agree, with respect, your Honour. I was not going to address anything more on that. But this was not their only purpose. Part of their purpose was the distribution system - Justice Merkel at pages 635 and 643 in the Intellectual Property Reports. There was strong retail price competition, as his Honour Justice Merkel held, at IPR 632, appeal book 1294. The Lane evidence was about the utterly silly example, with respect, of Melways in Sydney.

Finally, your Honours, our learned friends did not prove that this use of market power was taking advantage, thereby shifting the burden to us. They did not even try to. That is our principal submission. In short, both our friends at trial and the judges about whose judgments we complain took the view that it was axiomatic. May it please the Court.

KIRBY J: Do you want to say anything about the noblesse oblige or puissance oblige theory, because the statute does not say “misuse its advantage”, it ‑ ‑ ‑

MR CATTERNS: I fully accept that, your Honour. It is just a factual question as expressed by his Honour Justice Deane. We embrace that. Could you have done this without the power or, as his Honour Justice Deane put it the other way round, you could not have done this

without the power. That is what his Honour held and that is the factual matter that has to be determined.

KIRBY J: If you apply Justice Deane’s approach.

MR CATTERNS: Yes, your Honour.

KIRBY J: And you could not have done it without the power here.

MR CATTERNS: No, your Honour, we could have done it without the power. That is the point of all my examples about distribution.

KIRBY J: Yes, but they, it seems to me, come up under “purpose”. If you take the puissance oblige approach, then you simply say you are a market dominator. With that come certain obligations and you simply look at the facts.

MR CATTERNS: Your Honour, my obligation is not to take advantage of my market power, and the way to test that is to ask the question his Honour Justice Deane asked himself: was I only able to do this with my market power? Not proved, for the reasons I have submitted. With respect, the noblesse oblige or puissance oblige approach that your Honour puts to me leaves out the second requirement. May it please the Court.

GLEESON CJ: Thank you, Mr Catterns. We will reserve our decision in this matter. We will adjourn for a short time to reconstitute.

AT 12.15 PM THE MATTER WAS ADJOURNED

[2000] HCATrans 320

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