Regent's Pty Ltd v Subaru (Aust) Pty Ltd

[1998] FCA 730

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES  - misuse of market power - termination of dealership for sale and service of Subaru motor vehicles - refusal to supply genuine parts - market definition - whether wholesale parts market - relevance of substitutability of non‑genuine parts - relationship between parts and vehicles - purpose of refusal.

TRADE PRACTICES - misuse of market power - whether market for authorisation of grant/privilege/benefit of authorised dealer status in relation to resale of Subaru spare parts to the public.

TRADE PRACTICES - misuse of market power - whether market for provision of service comprising grant of privilege/benefit of authorised dealer status in relation to servicing, maintenance, repair of Subaru vehicles (including manufacturer approved warranty work)

Trade Practices Act 1974 (Cth), ss 4E, 4F(b), 46(1), 46(3), 46(4)(b)

Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177, followed
News Limited v Australian Rugby Football League Ltd & Ors (1995) 58 FCR 447, followed
Re Tooth & Co Ltd; Re Tooheys Ltd [1979] ATPR 18, 174, considered
Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158, considered
Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission of the European Communities [1979] ECR 1869; [1979] CMLR 345, considered
Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581, followed
QIW Retailers Ltd v David’s Holdings Pty Ltd (No 3) (1993) 42 FCR 255, followed
Eastman Kodak Co v Image Technical Services, Inc 504 US 451 (1992), considered

REGENTS PTY LTD (ACN 008 706 894) v SUBARU (AUST) PTY LTD (ACN 000 312 792)
WAG 150 of 1995

R D NICHOLSON J
PERTH
24 JUNE 1998

GENERAL DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 150 of 1995

BETWEEN:	REGENTS PTY LTD (ACN 008 706 894) Applicant
AND:	SUBARU (AUST) PTY LTD (ACN 000 312 792) Respondent

JUDGE:	R D NICHOLSON J
DATE OF ORDER:	24 JUNE 1998
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The application be dismissed.

1. Costs be reserved pending:

(a)the applicant filing and serving written submissions within 14 days.

(b)the respondent filing and serving answering submissions within a further 14 days.

(c)there be liberty to apply in relation to costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAG 150 of 1995

BETWEEN:	REGENTS PTY LTD (ACN 008 706 894) Applicant
AND:	SUBARU (AUST) PTY LTD (ACN 000 312 792) Respondent

JUDGE:	R D NICHOLSON J
DATE:	24 JUNE 1998
PLACE:	PERTH

REASONS FOR JUDGMENT

HIS HONOUR:  In this application the applicant claims the respondent has misused its market power contrary to s 46 of the Trade Practices 1974 (Cth) (“the Act”).  The applicant seeks damages pursuant to s 82 of the Act, with interest.  Additionally the applicant seeks orders to the effect the respondent approve the applicant as an authorised dealer in Subaru maintenance and service (including warranty works) and spare parts on the respondent’s usual terms and conditions for such dealers with consequential orders to ensure supply of spare parts and accessories for Subaru motor vehicles on usual trading terms and conditions and all information, authorisations, training and materials as is usually provided to authorised dealers.

Factual background

The respondent is the exclusive distributor and wholesale supplier of Subaru motor vehicles, genuine Subaru parts and service authorisation in Australia.  Between 1973 and 1995 it authorised the applicant to sell Subaru motor vehicles and spare parts for Subaru motor vehicles and to service and repair Subaru motor vehicles.  In August 1995 it gave notice to the applicant its Subaru dealership would be terminated, effective 31 December 1995.  The applicant wished to continue with the sale of Subaru cars, parts and service.  However a challenge by it to the termination was rejected by the respondent.

On 22 December 1995 and prior to the termination of the franchise taking effect, the applicant sought from the respondent the continued supply of spare parts for Subaru motor vehicles and the continuation of supply of the services comprised by the grant or privilege or benefit of authorised dealer status for spare parts and the servicing, maintenance and repair of Subaru motor vehicles (including warranty work).  The respondent refused that request without explanation.

On 23 January 1996 the applicant repeated its request for the supply of the same goods and services, which request the respondent again refused without explanation.  The substance of the applicant’s requests on 22 December 1995 and 23 January 1996 was the same, as was the substance of the respondent’s refusal of those requests.  Together these refusals are described as “the refusal to supply”.

There is no dispute the applicant was and is particularly capable and qualified in the servicing, maintenance and repair of Subaru motor vehicles and the sale of Subaru spare parts.  Although the applicant at no stage accepted its termination as an authorised dealer in Subaru cars was commercially reasonable, nothing turns on that issue in the applicant’s case.

Legal framework

Subsection 46(1) of the Act, which contains the proscription upon which the applicant relies, provides:

“46. (1)   A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of -

(a)eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b)preventing the entry of a person into that or any other market; or

(c)deterring or preventing a person from engaging in competitive conduct in that or any other market.”

It is common ground this subsection requires (1) definition of the relevant market; (2) a finding of fact as to whether there is a substantial degree of power in that market; (3) consideration of whether advantage has been taken of the market power; and (4) a finding of the purpose for which any taking of advantage occurred.  The applicant’s case is the refusal to supply represents the taking of advantage by the respondent of a substantial degree of power in a market for the purpose of deterring or preventing the applicant from engaging in competitive conduct in that market.

Reference is made subsequently to other relevant provisions in the Act.

MARKET AND MARKET POWER

Market concept in law

1. The starting point is the Act.  Although “[t]he existence of a market is vital to anyone seeking to invoke s 46” (Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 209 per Toohey J), the concept of what comprises a market is addressed only in one respect by the Act. Section 4E provides:

“For the purposes of this Act, unless the contrary intention appears, “market” means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first‑mentioned goods or services.”

Burchett J in News Limited v Australian Rugby Football League Ltd & Ors (1995) 58 FCR 447 at 478 at first instance considered this provision and particularly the words “or otherwise competitive with”, emphasised a legislative intention to specify a wider rather than a narrower market.

Subsection 46(4)(b) provides a reference to a market is a reference to a market for goods or services.  It is not in dispute, having in mind the definition of “goods” and “services” in s 4 of the Act, that the spare parts sought by the applicant are “goods” and the grant of authorisation as a dealer is a “service”.

1. Apart from that important statutory provision the word “market” “is not susceptible of precise comprehensive definition” (Queensland Wire Industries at 195 per Deane J) and is to be understood as “a term of art in this area of law and economics”:  News Limited at 476 per Burchett J. It is to be understood as “an area in which the exchange of goods or services between buyer and seller is negotiated” (Queensland Wire Industries at 199 per Dawson J) and as “an area of potential close competition in particular goods and/or services and their substitutes” (Queensland Wire Industries at 195 per Deane J).

1. The notion of competition is the key (News Limited at 476) per Burchett J who at 476 and 477 relied upon the following Trade Practices Tribunal Statements of the interaction between the ideas of competition and market. In Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 at 190; 8 ALR 481 at 517 (approved in Queensland Wire Industries at 188 by Mason CJ and Wilson J; Dawson J at 199-200; and Toohey J at 210) the Trade Practices Tribunal (“the Tribunal”) said:

   “A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them (if there is no close competition there is of course a monopolistic market).  Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices.  So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive.  Let us suppose that the price of one supplier goes up.  Then on the demand side buyers may switch their patronage from this firm’s product to another, or from this geographic source of supply to another.  As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another.  Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.

   It is the possibilities of such substitution which set the limits upon a firm’s ability to ‘give less and charge more’.  Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question:  If the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction?”

In Re Tooth & Co Ltd; Re Tooheys Ltd [1979] ATPR 18, 174 at 18, 196 the Tribunal stated:

“[C]ompetition may proceed not just through the substitution of one product for another in use (substitution in demand) but also through the substitution of one source of supply for another in production or distribution (substitution in supply).  The market should comprehend the maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another.  In an economist’s language, both cross‑elasticity of demand and cross‑elasticity of supply are relevant.” [Emphasis added].

Where there is effective competition “it is the on-going substitution process which ensures any achievement of market power will be transitory” (Professor M Brunt, “ ‘Market Definition’ Issues in Australia and New Zealand Trade Practices Litigation”, (1990) 18 ABLR 86 at 96 cited by Burchett J in News Limited at 481).

1. The notion of substitutability requires “the ascertainment of the cross-elasticities of both supply and demand, that is to say, the extent to which the supply of or demand for a product responds to a change in the price of another product” (Queensland Wire Industries at 199 per Dawson J).  A high cross elasticity of demand indicates close substitutability and thus evidence the items in question are in the same product market:  Heydon, Trade Practices Law, vol 1, p 1601.  Cross elasticity of supply must also be considered.  Other important factors include buyer attitudes to the use of products; suppliers own market behaviour and the suppliers own pattern of trade:  Heydon, at 1605‑1606 and 1607‑1608 respectively.  While “the defining feature of a market is substitution” (Queensland Wire Industries at 188 per Mason CJ and Wilson J), “elasticities and the notion of substitution provide no complete solution to the definition of a market” (Queensland Wire Industries at 199 per Dawson J).

1. The process of defining a market is therefore “an inexact one”, involving “a question of degree” (Queensland Wire Industries at 199 per Dawson J) and “not to be assessed according to any fixed measure, but by an exercise in judgment, and having regard to the statutory purpose the Court is endeavouring to carry out” (News Limited at 480‑481 per Burchett J). It is the market or markets in which the respondent has a substantial degree of power which is relevant for the purposes of the application of subs 46(1). As said by Mason CJ and Wilson J in Queensland Wire Industries at 187:

“In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant’s market power.  Defining the market and evaluating the degree of power in that market are part of the same process...”.

Dawson J (at 200) stated the need to define the relevant market “arises only because the extent of market power cannot be assessed otherwise than by reference to a market”.

1. The task is to find the point at which “different goods become closely enough linked in supply or demand to be included in the one market” (Queensland Wire Industries at 199 per Dawson J).  This is a “focusing process” requiring the Court to “select what emerges as the clearest picture of the relevant competitive process in the light of commercial reality and the purposes of the law” (French J in Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 at 178 cited by Burchett J in News Limited at 479). It is the substitution possibilities “in the long run” to which regard must be had (French J in Singapore Airlines at 169 cited by Burchett J in News Limited at 479).

1. The outer limits of a particular market are “likely to be blurred”; their definition commonly involving assessment of the “relative weight to be given to competing considerations in relation to questions such as the extent of product substitutability and the significance of competition between traders at different stages of distribution”:  Queensland Wire Industries at 196 per Deane J.  The determination of the market will also require examination of such matters as the pattern and structure of trading, the possibility of substitution, barriers to entry and related matters:  Australian Meat Holdings Pty Ltd v Trade Practices Commission (1989) ATPR 40‑932.

1. The concept of a sub-market “refers to an area of competition narrower than a market” but has no statutory base and is to be taken “as a tool of analysis rather than an element of a legal standard of liability” (Singapore Airlines at 181 per French J cited by Burchett J in News Limited at 479).

1. Whether dealings in a particular product can constitute a market will depend on whether the circumstances require the market to be more broadly delineated.  This in turn will depend on whether the concept of substitutability leads in reality and in the long run to coverage of a wider field:  cf News Limited at 478 per Burchett J; S G Corones, Restrictive Trade Practices Law (1994), p 105.  The view of Corones is a single brand market may exist where the evidence supports a finding that consumers purchase a product solely in reliance upon its brand name and not in reliance upon the physical qualities of the product (Corones, p 104).  Spare parts not readily interchangeable for those of other machines may also lead to a finding of the existence of such a market:  cf Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission of the European Communities [1979] ECR 1869; [1979] CMLR 345 cited by Corones, p 105.

1. The market will require description being given of its functional levels and its geographic scope:  Re Tooth at 18,197.

Markets as pleaded

The statement of claim pleads the markets in which the respondent has a substantial degree of power as each of the following:

“(a)the wholesale market for the supply of spare parts for Subaru motor vehicles to retailers;

(b)the market or alternatively markets for the provision of the service or alternatively services comprised by the grant of the privilege or benefit of Authorised Dealer status in relation to:

(1)servicing, maintenance and repair of Subaru vehicles including manufacturer approved warranty work;

(2)resale of Subaru spare parts to the public;

(c)the market for the provision of the service comprised in the supply of technical information and training for the undertaking of service and repair works on Subaru motor vehicles; and

(d)the market for the supply of specialist equipment for the service and repair of Subaru motor vehicles.”

In presenting its case the applicant contends the markets identified in pars (c) and (d) are ancillary to those identified in pars (a) and (b).

The applicant’s principal case therefore contends the respondent has a substantial degree of power in a wholesale market for spare parts for Subaru motor vehicles.

The only cases in which Australian courts have upheld brand based market definitions are no longer regarded as reliable authorities.  In Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 5 ALR 465, a dealership termination case, it was held there was a market for Datsun vehicles on the Gold Coast of Queensland. In J.Ah Toy Pty Ltd v Thiess Pty Ltd (1980) 3 ATPR 40‑155 Forster J accepted the respondent, being the only wholesaler of Toyota vehicles and parts in the Northern Territory, was plainly in the position substantially to control a market for goods. As French J pointed out in AutSix Pty Ltd v Wellington Place Pty Ltd (1993) 15 ATPR 41‑202 at 40, 840, the former decision pre‑dated the operation of s 4E and that section was not considered in the latter decision. He accepted as a result of that enactment and the dicta of the Court in Queensland Wire Industries there is now a strong emphasis on supply substitutability as an element of market definition.  Similar doubt has been expressed in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581 at 590 per Wilcox J and QIW Retailers Ltd v David’s Holdings Pty Ltd (No 3) (1993) 42 FCR 255 at 262 per Spender J.

The applicant’s case therefore arises for consideration in the context where there is no present Australian authority recognising such a market in which the requirements of s 4E of the Act have been fully considered. The definition in that section so far as it relates to the notion of substitutability is an inclusive one and is therefore consequently not by itself determinative.

Overseas authorities

There are, however, overseas authorities which have recognised the existence of a single brand parts market.  The applicant’s case relies on these authorities.

The first is Hugin, a decision of the European Court.  That decision was heard by way of appeal seeking the annulment of a Commission Decision relating to a proceeding under Article 86 of the European Economic Community Treaty (“the EEC Treaty”) or alternatively seeking the cancellation or reduction of a fine imposed by that decision.  Article 86 of the EEC Treaty provides in part:

“Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.”

The Commission Decision was that such an infringement had occurred by the appellants as a consequence of their refusal to supply spare parts for Hugin Cash Registers to Liptons Cash Registers and Business Equipment Ltd and by the first appellant prohibiting its subsidiaries and distributors within the Common Market from selling such spare parts outside its distribution network.

The appeal required the Court to determine the relevant market and whether the appellants had a dominant position within it; to examine the conduct within that market; and to consider whether the requisite effects on trade between Member States were established.

The view taken by the Commission of the question of market was that while the appellants had only a relatively small share of the cash register market - which was very competitive - it enjoyed a monopoly throughout the world because the parts for the appellant’s cash registers were not inter-changeable with the parts of other makes and could not otherwise be economically reproduced and because the first appellant controlled the supply of them.  It therefore held a dominant position in the common market for the supply of spare parts and for the maintenance and repair of its machines in relation to maintenance and repair companies which needed a supply of those spare parts.

On appeal it was contended for the appellants the supply of spare parts and of maintenance services was not a separate market but was an essential parameter of competition in the market for cash registers as a whole.  It was contended in that market, after-sales service and the quality of repair and maintenance services, including the supply of spare parts, constituted such a significant competitive factor the appellant ran those services at a loss.  The issue before the Court therefore was whether the supply of spare parts constituted a specific market or whether it formed part of a wider market.

To resolve that question the Court considered it necessary to determine the category of clients requiring such parts.  So far as concerned users of cash registers, the Court found their spare parts requirements were not manifested directly and independently on the market and their market was essentially for the provision of services and not for the sale of a product such as spare parts, the refusal to supply of which formed the subject matter of the Commission’s Decision.  However, there was a market for the appellant’s spare parts required by independent undertakings which specialised in the maintenance and repair of cash registers, in the re‑conditioning of used machines and in the sale of used machines and the renting out of machines.  This was a specific demand for the appellant’s spare parts, since those parts were not inter‑changeable with spare parts for cash registers of other makes.

The Court concluded the appellants occupied a dominant position in that market but its conduct in the market did not have the requisite effects on trade between Members States.  It was therefore appropriate the Commission’s Decision be annulled.

For the respondent it is contended this Court should not be influenced by the decision in Hugin particularly because of the absence of any equivalent in the EEC Treaty of s 4E of the Act and because the position on the evidence there was that the spare parts for Hugin Cash Registers were not inter‑changeable with the parts of other makes so there were no non-genuine parts.

It is relevant to mention in relation to European authority that in their judgment in Queensland Wire Industries Mason CJ and Wilson J, having referred to s 4E of the Act, said at 188:

“This process of defining a market by substitution involves both including products which compete with the defendant’s and excluding those which because of differentiating characteristics do not compete.  In Hoffman La Roche v Commission [1979] 1 E.C.R. 461; 3 C.M.L.R. 211 the Court of Justice of the European Communities [1979] 1 E.C.R., at p.516; 3 C.M.L.R., at p.272 said:

‘The concept of the relevant market ... implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned.’

Conversely, in determining in United Brands v Commission [1978] 1 E.C.R. 207; 1 C.M.L.R. 429 whether other fruits should be excluded from the market which bananas served, the European Court said at p.227; at pp. 482-483:

‘For the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits  that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible.’ ”

Likewise in his reasons Toohey J at 210-211 supported the statement “the definition of the relevant market requires a consideration of substitutability both on the demand and on the supply side” by general reference to Wyatt and Dashwood, The Substantive Law of the EEC, 2nd ed (1987) at 400-405; Hawk, “European Economic Community and United States Anti‑trust Law:  Contrasts and Convergences”, Australian Business Law Review, vol 16 (1988) 282 at 297‑299 and other United States references.

In Volvo A B v Erik Veng (UK) Ltd [1989] 4 CMLR 122 it was accepted that the relevant market was single brand spare parts (panels) so that the manufacturer of those parts could hold a dominant position in that market.  However, this was where the parts were non‑substitutable because of industrial property rights in them held by the manufacturer.

The applicant’s case also places reliance upon the recognition of a parts market by the Supreme Court of the United States in Eastman Kodak Co v Image Technical Services, Inc 504 US 451 (1992). There a majority of the Court upheld a decision of the Court of Appeals for the Ninth Circuit reversing a decision to grant summary judgment for Kodak made by the District Court. The matter was argued on the basis appropriate for summary judgment: the evidence of the respondent was taken at its highest, and the Court considered the arguability of the concept of a parts market. No determinative findings of fact could therefore be made.

The critical issue in the case was whether a manufacturers’ conceded lack of power in the inter‑brand market for its equipment was somehow consistent with its possession of “market”, or even “monopoly”, power in wholly derivative after‑markets for that equipment.  The circumstances in which this arose were for the manufacture and sale by Kodak of photocopiers and micrographic equipment.  Kodak also sold service and replacement parts for its equipment.  Eighteen independent service organisations began servicing the Kodak equipment.  Kodak subsequently adopted policies to limit the availability of parts to them and to make it more difficult for them to compete with Kodak in servicing Kodak equipment.  (Kodak was therefore, in one respect, operating on the same functional level as the independent service organisations in contrast to the present respondent in relation to the applicant).

The independent service organisations instituted action in the District Court alleging Kodak’s policies were unlawful under ss 1 and 2 of the Sherman Act, 26 Stat. 209 as amended, 15 USC §§ 1 and 2 (1988 ed., Supp. II).  Section 1 declares to be illegal every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations.  Section 2 creates a felony in respect of every person who monopolises or attempts to monopolise or to combine or to conspire with other persons to do so in relation to any part of the trade or commerce among the several States or with foreign nations.

The Court found there was sufficient evidence of a tying arrangement in that Kodak had tied the sale of service and parts.  Whether this offended s 1 was dependent on whether Kodak had appreciable economic power in the tying market, (no tying is alleged in the applicant’s case).

For Kodak it was contended the existence of market power in a service and parts markets absent power in the equipment market made no economic sense so there should be a legal presumption against such a finding.  That is, it was contended as a matter of law the basic economic reality is competition in the equipment market necessarily prevents market power in the after-markets.  The Court found there was no such basic economic reality.  Furthermore, it found Kodak had failed to demonstrate the organisation’s inference of market power in the service and parts markets was unreasonable.

In upholding the Court of Appeals rejection of summary judgment pursuant to s 2 of the Sherman Act the Court rejected the submission for Kodak that, as a matter of law, a single brand of a product or service can never be a relevant market under that Act.  It said the relevant market for anti‑trust purposes is determined by the choices available to Kodak equipment owners (in Australian terms, the demand side only).  It accepted (at 482 and 486) the market could be only found after a factual inquiry into the commercial realities faced by consumers (again, the demand side).

Scalia J, with O’Connor and Thomas JJ in agreement, dissented.

For the respondent it is sought to distinguish this decision from the present case on a number of grounds.  Firstly it is said there were no non-genuine parts.  Secondly, there is in the Sherman Act no equivalent of s 4E. It is apparent from the judgments the notion of substitutability was in the mind of the Court as an issue in market definition but not from the supply side. Thirdly, it is said because of the “rule of reason” in American anti-trust law, the Court frequently treats what it describes as sub-markets as markets in their own right: News Limited at 490 per Burchett J. However, the reliance on the rule of reason had been waived in the District Court (see Eastman Kodak at 490) although considerations of reasonableness were nevertheless involved in the majority judgment arising from Matsushito Electric Industrial Co v Zenith Radio Corp. 475 US 574 (1986). Finally, it is said the market definition in the case was influenced by the extent of Kodak’s power in the photographic market, something hardly comparable to Subaru’s share of the car market in Australia (approximately 2 per cent).

In Eastman Kodak at 482 the Supreme Court recognized prior cases in which one brand of a product could constitute a separate market. The first of these is National Collegiate Athletic Association v Board of Regents of the University of Oklahoma 468 US 85 (1984) considered by Burchett J in News Limited at 485-486. The reasoning of the majority was based on the proposition college football is a unique product for which there are no available substitutes. The second was International Boxing Club of New York, Inc v United States 358 US 242 (1959), considered by Burchett J in News Limited at 484. The Supreme Court there could not find as clearly erroneous the finding of a lower court that non‑championship fights are not reasonably interchangeable for the same purpose as championship fights. The third was International Business Machines Corp v United States 298 US 131 (1936) where conditions imposed in leases of tabulating machines requiring the use of cards manufactured by the lessor violated requirements of the Clayton Act [38 Stat. at L.31, 15 USCA §14].

The case for the respondent places particular reliance on the reason given by Burchett J in News Limited at 490 for distinguishing Eastman Kodak and other United States authorities. After examining the United States decisions dealing with anti-trust suits to which sporting bodies were parties, Burchett J stated generally the judgments were much concerned with the “rule of reason” under which it may have been appropriate to start with a narrowly defined market and then to consider a wider market in the context of the pro‑competitive colour it might give a practice that appeared anti‑competitive in the narrower setting. He continued by stating the approach to market delineation adopted in the Australian cases suggest if a practice appears anti-competitive when scrutinised within confined market limits but pro-competitive once the boundaries of the market are enlarged, the market may have been too narrowly delineated in the first place. He continued at 490-491:

“It would be perverse not to remember, when selecting the market boundaries appropriate to a particular case, that the purpose of the Act is the preservation and promotion of competition.  That is the purpose in the implementation of which the choice of a market is to be instrumental.  Therefore, situations where an American court would apply the Rule of Reason because a restriction would actually strengthen a sports league in its endless competition with other sports are cases where an Australian court should consider whether both realism ... and policy require the selection of a wider sports market.”

The further overseas authority on which the applicant relies as giving recognition to a parts market is that of a Competition Tribunal in Canada in Director of Investigation and Research v Chrysler Canada Ltd (1989) 27 CPR (3d(1)).  The Competition Tribunal there ordered Chrysler Canada accept the complainant as a customer for the supply of Chrysler parts on trade terms usual and customary to its relationship with him as they existed prior to the date on which he was told his orders to Chrysler Canada would not be fulfilled.  It required the Competition Tribunal to apply the provisions of s 75(1) of the Competition Act, RSC 1985, CC‑34 cast in very different terms to that of s 46 of the Act.  The case concerned a market at an upper wholesale functional level in which all orders were by part numbers.  Although the Competition Tribunal was constituted by a judge, the decision is not that of a court.

With that caution in mind, I nevertheless consider from this examination of overseas decisions there is no a priori reason why a single brand parts market cannot be established at law. Whether it can be will depend on the precise evidence in the particular case and, in Australia, proper regard being given to s 4E of the Act with its consequent attention to the supply side as well as the demand side of the market. Overseas authorities cannot be determinative but provide insight into the application of relevant concepts in different statutory environments.

Consumer evidence

In Queensland Wire Industries at 191 Mason CJ and Wilson J said “the object of s 46 is to protect the interest of consumers, the operation of the section being predicated on the assumption competition is a means to that end.”  In Eastman Kodak at 482 the Court held the market could only be defined after a factual inquiry into the “commercial realities” faced by consumer. It follows the best evidence of market definition issues is usually that of market participants and users of services: Mark Lyons at 591 per Wilcox J; cf Corones, at 91‑92.

For the applicant it is contended the character of the witnesses which it has called - being persons able to provide practical and independent market evidence for mechanical workshops, smash repairers and independent parts suppliers, stands in contrast to that of the evidence called for the respondent which, with one exception, is drawn from its employees and consultants.  The respondent contests the significance of this saying neither party called any of the very relevant participants, namely car salesmen or the public.

It is common ground the Court should approach the question of market definition purposively and otherwise without a bias towards either an unduly narrow or broad definition.

Market power

Given that defining the market and evaluating the degree of power in it are part of the same process, it is necessary to turn to market power.

Subsection 46(4)(c) of the Act provides a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.  Subsection 46(3) provides:

“(3)     In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of-

(a)competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b)persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.”

The word “substantial” as it appears in s 46 has been interpreted as meaning real and of substance rather than trivial or minimal:  Mark Lyons at 591 per Wilcox J.

In Queensland Wire Industries at 188 Mason CJ and Wilson J defined market power as the ability of a firm to raise its prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost which an efficient firm would incur in producing the product.  Matters which may indicate a corporation has a substantial market power are:  large market share; existence of significant barriers to entry; lack of constraint in settling prices by reference to supply costs; and the number and size of buyers and sellers.

THE WHOLESALE MARKET FOR SUBARU PARTS

The primary market for which the applicant contends is a wholesale market for Subaru parts for retailers.

Functional levels

It is common ground the respondent operates at a wholesale level, as compared to the functionally different level at which authorised dealers compete, namely, the retail market.  I find the relevant functional levels to be as follows.  Firstly, the manufacturer of genuine spare parts for Subaru motor vehicles is Fuji Heavy Industries (“Fuji”).  Secondly, the international wholesaler of Subaru parts is Inchcape Ltd (“Inchcape”).  Inchcape is also a wholesaler for parts for at least two other vehicle marques.  Thirdly, the Australian wholesaler of genuine parts is the respondent, which is a member of the Inchcape Group.  Fourthly, the retail level comprises the applicant and Australian authorised dealers who are the only persons to which genuine parts are distributed.  The applicant is also an authorised dealer and service provider for the SEAT and Volkswagen vehicle marques.

Genuine and non-genuine parts

By “genuine” parts it is meant parts made by Fuji for Subaru vehicles.  These carry the stamp of Subaru.

By “non-genuine” parts it is meant parts which fit Subaru vehicles but which are not genuine parts.  The respondent’s case relies on three types of non-genuine parts:  (1)  original equipment manufacture parts made by Fuji which are identical to genuine parts but without the Subaru stamp; (2)  grey parts being either generic parts which fit a range of vehicles or parts made by manufacturers other than Fuji to specifically fit Subaru vehicles; and (3)  second-hand parts obtained from wreckers and second-hand part suppliers.

It is common ground that where non-genuine parts exist for genuine parts, the non‑genuine parts are interchangeable with genuine parts.  Some non‑genuine parts are inferior to genuine parts but some are at least equal.

The issue of substitutability of non‑genuine parts for genuine parts was extensively explored in evidence at the trial.

Accessories

In judging the evidence in relation to this submission there is a preliminary issue whether accessories should be taken into account as spare parts.  For example, the fitting of an air conditioner to a car is included in lists of parts items.  The applicant submits such items should be ignored for the purposes of this case.

The new Shorter Oxford Dictionary, Clarendon Press, Oxford 1993 vol 1, p 13 relevantly defines accessory as “an additional or subordinate thing; an adjunct, an accompaniment; ...”.  The Macquarie Dictionary 2nd ed, p 99 defines the word as “a subordinate part or object; something added or attached for convenience, attractiveness, etc., such as a spotlight, heater, driving mirror, etc., for a vehicle”.

From the evidence of the applicant’s Spare Parts Manager, Mr Keating, it is apparent the department which he manages bears the name “Parts and Accessories”, so the distinction is drawn between the two.  In the evidence of Mr Keating and the applicant’s Operations Manager, Mr Kirwan‑Ward, it was apparent the majority of accessories were sold at the point of car sale and so were distinguished in that respect from parts.  The respondent’s National Sales Manager (Parts and Accessories) Mr McMahon did not agree accessories were not parts.  The respondent’s National Customer and Technical Service Manager, Mr Ashby, distinguished hard parts as being those parts other than accessories.

The evidence of the link between new car sales and the sale of accessories was accompanied by further evidence from Mr Keating that after termination of the dealership no accessories had been sold as a consequence.  This evidence leads to the inference, whatever the usage of the word “accessories” by either the applicant or the respondent, that accessories would be unlikely to play any part in the spare parts wholesale market for which the applicant contends.

There is also the fact the pleading of the market itself refers only to “spare parts”.  On its face this is a reference to parts other than accessories.  There being evidence this is the appropriate description of the market contended for, I consider the pleading should be understood to refer to spare parts other than accessories.

Applicant’s contentions

The case for the applicant contends the evidence of both parties establishes that, in comparison with the range of genuine Subaru parts exclusively available to the respondent, few non‑genuine parts for Subaru were available.  It is submitted the significance of this is that it is indicative of the respondent’s market power.

It is further submitted on behalf of the applicant the absence of non-genuine parts competition to a majority of the genuine parts supplied by the respondent was explained by the small market for parts for Subaru cars relative to other makes of cars, making it uneconomic for non-genuine Subaru suppliers to manufacture, and importers and wholesalers to stock, a wide range of non‑genuine Subaru parts.  It is submitted this enhances the respondent’s power in the market.

There are a number of evidentiary bases said to support a finding to this effect.

The first is the Subaru National Parts List  (“the Parts List”) as partially analysed by the applicant.  That analysis relates only to the first 10 pages of the Parts List and includes accessories.  That analysis shows 81 per cent of parts lines in those pages have no non‑genuine equivalent.  It also shows the value of parts without non‑genuine equivalent is $7,973,572 as against $4,431,865 for parts with non-genuine equivalent.  The value of bumper cars (one only of the relevant accessories) is $796,584.

The key points the applicant’s case draws from the analysis and evidence are:

(1)   the first ten pages of the Parts List represent 630 line items sold by the respondent during 1997;

(2)   the total number of line items sold by the respondent during 1997 was in the order of 12,000 line items;

(3)   the total value of sales represented by the first ten pages is only $12.4 million, compared to the total sales of $24 million;

1. even within the first ten pages (comprising so called “fast moving parts”), only 117 (19 per cent) of the 630 parts lines are shown as having a non‑genuine equivalent;

(5)   the evidence of the respondent’s Parts Manager (Mr Wager) is that he is only aware of 488 of the 12,000 part lines having non‑genuine equivalents;

1. the 488 non-genuine equivalents represent less than 4 per cent of the 12,000 part lines;

(7)   the evidence is the respondent in fact has 32,699 parts available for supply;

1. based on Mr Wager’s evidence that the lower volume the part, the less likelihood of there being a non‑genuine equivalent, it is reasonable to assume, on the respondent’s own evidence, that only something in the order of 488 (1.5 per cent) of the 32,699 parts available from the respondent are available in non‑genuine form;

1. in terms of value, of the $12 million sales by the respondent shown in the first ten pages, only 29 per cent of those sales involve parts having a non-genuine equivalent.  Either percentage would be much lower again if total sales of $24 million were taken into account.

Secondly, the applicant’s case turns to evidence of practical industry experience (from Messrs Kirwan‑Ward, Keating, Weedon [a former State Sales Manager of Subaru], Arnoldi [who manages a business which was previously an authorised repairer and seller of spare parts for Subaru], Tink [a mechanic whose business regularly services Subaru vehicles], Philippi [the Supply Manager of Coventrys] and Bird [the State Manager of Repco Auto Parts]) which shows that, save for a limited number of consumables and fast moving wear and tear parts, most parts for Subaru vehicles could only be purchased in genuine form from the respondent.  This was also supported by reference to catalogues of non‑genuine parts.

The applicant’s Service Manager, Mr Oakley, testified about 50 per cent of current customers opt for non‑genuine brake pads, clutches or CV joints (the non‑genuine parts used by it).  Customers were told of the choice between these genuine and non‑genuine parts and the fact the latter were “quite a bit cheaper” but the 12 month warranty did not cover labour costs of replacement.  In cross‑examination he testified that whenever the applicant was going to fit non‑genuine parts it did not refer to the customer to make the choice.  It did so only if it thought it looked like losing the job, because most people preferred genuine parts.

Mr Keating testified the reason the applicant did not stock more non‑genuine Subaru parts was their lack of availability, the better warranty for and quality of genuine parts and the fact few customers come for non‑genuine parts.  In cross‑examination he accepted there was nevertheless a significant number of non‑genuine parts sold by the applicant.

Mr Kirwan‑Ward testified some customers would no longer come to the applicant because it was not an authorised dealer.

Thirdly, the applicant’s case relies on consumer evidence.  The proprietor of a smash repair business (Mr Bowra) testified there are very few non-genuine parts available for the range of Subaru vehicles, particularly compared to other leading vehicle brands.  Evidence from independent parts suppliers Coventry’s (Mr Philippi) was that of the approximate 140,000 line items they stock, only a very small proportion of these are for Subaru vehicles.  Evidence to similar effect was given by Mr Bird of Repco.  This occurred because they focus on stocking fast moving parts, mainly for high volume and popular makes of vehicles (Subaru being a relatively small volume vehicle).  It is also submitted this enhances the respondent’s power in the market.

It is to be noted the evidence relied on in the second and third submissions is evidence of conduct in the retail rather than the wholesale market.

Respondent’s contentions

On the evidence the following concessions are made for the respondent:

(a)Market penetration by non-genuine parts is less in the repair area than the service area.

(b)It is less for slow moving parts than fast moving parts.

(c)It is less for new cars than for older cars (which obviously require more repair parts).

(d)The vast majority of parts lines do not have non-genuine equivalents.

(e)Some owners (especially, no doubt, owners of newer cars) prefer or may even insist on genuine parts.  It is a reasonable inference many repair or service providers simply do not ask before fitting non-genuine parts.

(f)Some non-genuine parts are inferior to genuine parts but some are at least equal.

It is common ground only a small proportion of the parts which will fit Subaru vehicles are substitutable with parts for other makes of vehicle.

As the respondent puts it, the small proportion of substitutable parts is not, however, determinative of the definition of the market contended for.  The relevant questions are as to market penetration by dollar value and volume and as to potential market penetration if the respondent were to put up its parts prices.  It is submitted for the respondent that when those matters are examined they demonstrate very substantial market penetration.

Inter-relationship of car and parts market

(a)Difference in gross profit margins and pricing

It is established as a fact there is a very large difference between gross profit margins earned by the respondent on the sale of parts (around 50 per cent) and on the sale of motor vehicles (7‑14 per cent).  This was explained by the respondent’s witnesses as being due to two factors.  The first is close and vigorous competition in relation to the supply of new motor vehicles (for which many substitution possibilities exist) - see the cross-examination of Mr Burt, the Managing Director responsible for directing, providing or supporting the services provided by Martec Pty Ltd (a consulting services firm) to the Australian Automotive Industry.  The second is the relative absence of competition in relation to parts for Subaru motor vehicles (there being relatively few substitution possibilities in terms of numbers of parts).  The respondent’s witnesses supported this.  The Managing Director of the respondent, Mr Amery, testified in cross-examination that selling cars was a much more competitive activity than selling parts and this accounted for the difference in gross profits between cars and parts.  Mr Burt’s evidence, also in cross‑examination, was the sale of parts was less price sensitive.

The case for the applicant contends the higher margin for parts, as well as the power to vary price within a substantial margin, strongly supports a finding of lack of competition in the parts market contended for by it in which the respondent has substantial power.  The large difference in gross profit margins is said for it to be strong evidence of different competitive forces and thus distinct markets for cars and parts because they could not exist within the one market argued for by the respondent.  Reliance is placed on General Motors Corporation 99 FTC 464 (1982) at 530 and 584 for the proposition that different prices are recognised as evidence products fall into different markets.

The respondent seeks to answer the applicant’s case in a number of ways.  Firstly, it is asserted the true gross profit on parts is in the order of 43 per cent, 38 per cent and 44 per cent in respect of 1995-1997 respectively rather than the percentages relied on for the applicant of 51.21 per cent, 49.8 per cent and 55.3 per cent.  This difference does not in my view affect the validity of the applicant’s principal proposition.

Secondly, it is said for the respondent prices for genuine parts charged by it are comparable with the prices charged by other distributors for non‑genuine parts.  The evidence for the respondent was its decision‑making process involves pricing its parts competitively with other marques of car so such comparability is a factor taken into account.  Mr Amery’s evidence was that the price parts could be sold for is determined by the competition; that is heavy price competition is not a characteristic of the sale of parts.  This is consistent with the evidence of Professor Parry (the respondent’s expert witness) that there may be a market for motor vehicle spare parts (but not a market for a particular brand of motor vehicle spare parts):  cf Re Tooth at 18,196-18,197 cited by Spender J in QIW Retailers at 263 (fourth item).

Thirdly, it is accepted for the respondent there is less competition in the parts market than in the car market and that this is one reason for higher mark-ups in the parts area.  Furthermore, it is accepted at least in part this is because of the factors relied on by the applicant, including the desire of certain vehicle owners to have genuine parts.  However, this, it is submitted, does not on its own establish the market in parts is non‑competitive or the respondent has substantial power in such a market and so falls far short of what the applicant is required to show.

Fourthly, it is said the respondent is heavily constrained by the competition with non‑genuine parts and second‑hand parts.  There is evidence of the respondent’s management committee taking this factor into account when pricing its parts.

Fifthly, there is the evidence of Professor Parry for the respondent that the existence of gross profit margins on parts in the vicinity of 50 per cent did not assist in determining the price constraint question and did not give any indication of what sort of mark-up was represented.

Sixthly, there was evidence the respondent engaged in competitive conduct in relation to prices for parts.  The evidence of Mr McMahon supports this.  He testified that factors affecting the pricing of parts and accessories by any distributor were (a)  the availability and price of non-genuine or re‑manufactured substitutes and overseas imported genuine parts; (b) prices charged for similar parts and accessories by competing motor vehicle suppliers;  (c)  pressure by insurance companies to lower prices for parts commonly involved in smash repairs; (d)  cost price, exchange rate fluctuations, government charges, import duties and other costs; and (e)  the normal expectations of a reasonable return on parts and accessory sales.  In making his recommendations for pricing of Subaru parts he had regard to the prices of competing motor vehicle suppliers for similar parts, service parts and smash repair parts.  He regarded their costs as forming part of the cost of ownership of a particular vehicle.

It is therefore submitted for the respondent it may find the parts market less competitive than the new car market but it is a market in which it competes both with other vehicle manufacturers (to ensure new car buyers do not reject Subaru because of its expensive parts) and with manufacturers of non‑genuine parts and suppliers of second-hand parts.  It is further submitted that it cannot be inferred from the high profit margin on parts that they only exist due to lack of competition and the existence of market power in the respondent.

On the question of price sensitivity it is contended for the applicant the assumption the respondent is constrained by competitors as regards price was inconsistent with the evidence.  The applicant contends the evidence shows the respondent marks up even its competitive products by an average of 248 per cent, prices the few products for which competition exists well above the prices of the competition, consistently returns gross profit margins across the board of 50 per cent on parts and net profits on parts are between 31 to 39.6 per cent.  In support further reliance is placed on General Motors at 530 and 584 where “nearly unfettered pricing discretion” was a factor supporting a particular market.

(b)Retention parts market

Mr Burt also testified once a customer has bought a car, that is, has chosen a particular brand of car, there is much less of a possibility for substitution in that the customer has to buy the parts to fit that car, generally speaking:  cf CICRA v Renault (1990) 4 CMLR 265 at 6053.

The respondent accepts this is the case in the short term.

For the applicant it is submitted this shows the respondent’s reliance upon a market preference for genuine parts which is plainly fostered by the respondent’s own marketing.

(c)Relative costs of motor vehicles, sale and repair

There was unchallenged evidence from Mr Oakley and Mr Kirwan‑Ward concerning the cost of selling a motor vehicle relative to the cost of repairing it to the effect owners typically repair cars rather than sell them.

I do not understand Professor Parry in his statement to have said vehicle owners have long‑term substitution possibilities and they could simply purchase another vehicle.  If that is how his statement is to be understood there was no evidence customers sold vehicles for reasons relating to parts.

(d)Life cycle pricing

Mr Oakley gave evidence that on the sale of new Subaru vehicles, only very occasionally would potential buyers ask about service intervals and costs.  However, very few, if any, would ask about costs for Subaru parts generally.

The respondent brought into evidence a report of a TV programme and newspaper or magazine articles directed to establishing consumers consider the price of parts when buying cars, that is, they engage in life cycle pricing.  This evidence was not accompanied or supported by any direct evidence to enable a finding to be made by way of inference from this material on consumer attitudes generally.

The relevant issue, however, is whether the dissemination of this type of material means there is a constraint on motor vehicle distributors when they price their parts.  That is, the issue is not whether consumers now choose cars on this basis but whether they might do so if one distributor were dramatically to increase its parts prices.  The material establishes parts prices are well publicised to car buyers but does not enable inferences to be drawn beyond that.

(e)The relevance of long-term considerations

The evidence of Professor Parry was that it is important to realise in referring to substitutability in cross‑elasticity for the purpose of determining the existence of a market the reference is not to the choice facing an individual consumer in the short term.  Absence of any immediate choice in relation to parts does not mean there is no cross-elasticity in the long-term.

(f)Changes in cars serviced

Professor Parry’s evidence was also that at the wholesale level there was a further reason why there was no market for parts.  He said the repairer or parts retailer who needed a part to fit to a customer’s Subaru had long-term cross-elasticity of supply because he could decide to service other makes of car instead of Subaru’s.  In his view the market must therefore be defined by reference to all motor vehicles rather than by reference to one make.

Market for the sale of motor vehicles and ancillary services

In its defence the respondent pleads the applicant conducted its business in one of three markets.  Those are the market in Australia, alternatively Western Australia (or alternatively the Perth Metropolitan area) for the sale of motor vehicles and ancillary services.  This was supported by the evidence of Professor Parry whose opinion was the activities of the respondent extend to the wider supply of motor vehicles, parts and ancillary services which are substitutable for and compete with a range of products of other supplies of motor vehicles and related parts and services.  The respondent’s case in this respect is supported by reference to the evidence relating to the inter-relationship between cars and parts as well as issues relevant to market power, being primarily the alleged ability of the respondent to charge what it chooses for its parts.

I accept submissions for the applicant that the evidence of Professor Parry must be read and understood with regard to the assumptions on which he testified, a number of which are not reflective of the evidence as it fell out.  Nevertheless I consider the respondent’s contentions can be made out on the evidence as a whole.

Conclusions on wholesale parts market

The critical question raised by this application is whether the circumstances in which the respondent operates in relation to parts, with its particular feature of limited lines but high volume/value interchangeability, amounts to a situation in which there is a sufficient degree of effective competition concerning Subaru spare parts to evidence a Subaru parts wholesale market.  In my view such a market is not made out.  I reach that view for the following reasons.

1. There is cross-elasticity of demand at the wholesale level because a retailer can cease selling parts for Subarus and sell parts for other makes or non‑genuine parts.

There is cross-elasticity of supply at the wholesale level.

This matter may be tested by reference to the question of price sensitivity.  If the price of Subaru parts was raised, buyers (retailers of parts) may switch their patronage to other marques of cars/parts or to non‑genuine parts.  On the supply side, the manufacturers of Subaru parts and non‑genuine parts can adjust their production plans.  In the case of the Subaru parts, the respondent - as a member of a group having a number of automobile distributorships in Australia - could change to other marques.  There is, therefore, both cross‑elasticity of supply and of demand.

1. The cross-elasticity of supply and demand at the wholesale level is supported by cross-elasticity at the retail level.  Although arguably not strictly relevant, the evidence led on the retail market was not objected to on that basis.

As to cross-elasticity of supply and demand at the retail level, there is evidence of substitution between Subaru parts and non‑genuine parts and between their respective sources of supply.  An important question to be answered here is whether the degree of substitution - high in volume and value but low in lines - is sufficient to be regarded as strong substitution.  In my opinion it is.  I reach that view because the evidence establishes there are few transactions, and hence little need for competition, in relation to the vast number of lines of Subaru spare parts.  Where there are transactions is where there is volume and value and it is there the evidence shows strong substitution.

1. As to the evidence and contentions on the issue of pricing, I accept the evidence of Mr Amery that the high prices of Subaru spare parts result from substantial regard by the respondent to prices for such parts in relation to other marques of cars.  It is not therefore open to inference that the prices only exist due to lack of competition in a market for Subaru parts.  Rather the price results from the pricing of parts being competitive with other marques of cars and parts.  That is a competition evidencing the interconnection and complementarity of the parts and car markets, as the case for the respondent contends.  The parts of other marques cannot themselves be competitive with Subaru parts but the latter is competitive with the pricing policies of other marques of cars in relation to parts because of its potential to bring about substitution of one of those other marques for Subaru cars and parts.

1. This conclusion is arrived at by application of s 4E of the Act. It is consistent with Australian authorities favouring a wide market definition.

It is supported by reference in particular to News Limited at 490 where Burchett J said:

“The approach to market delineation adopted in the Australian cases discussed earlier in these reasons would suggest that if a practice appears anti‑competitive when scrutinised within continued market limits, but pro‑competitive once the boundaries of the market are enlarged, the market may have been too narrowly delineated in the first place.  I am not asserting that a particular case might not be better explained otherwise.  But the paradox of a practice or arrangement being both anti-competitive and pro-competitive at the same time may fairly lead to a reconsideration of the market within which the practice of arrangement ought properly to be seen as operating.”

1. The case brought for the applicant is not one which accords with the circumstances in any of the overseas authorities relied on for the applicant.  The degree of wholesale and retail substitutability and complementarity of the parts and cars distinguishes the present case from them.

It follows that I consider, taking as required the long-run view, the true market for the purposes of s 46 of the Act is that supported by the evidence of Professor Parry, namely the market for the of supply of motor vehicles, parts and ancillary services (the latter being considered below).  The market for parts at the wholesale level and the market for parts for Subaru vehicles at the wholesale level are properly to be seen, in my view, as sub-markets, the latter being encompassed within the former.

MARKET FOR AUTHORISATION OF GRANT/PRIVILEGE/BENEFIT OF AUTHORISED DEALER STATUS IN RELATION TO RESALE OF SUBARU’S SPARE PARTS TO THE PUBLIC

It is accepted for the applicant there is no direct authority in Australia for the proposition there can be either a separate market for the authorisation of sale of genuine parts for Subaru vehicles or for service and repair of Subaru vehicles.  For the respondent acknowledgment is made this aspect of the case does credit to the ingenuity of the applicant’s advisers.

The applicant’s case is that the authorisation markets are derivative markets to the primary market for the wholesale supply of Subaru vehicles. It is said applying the test of substitutability laid down in s 4E and followed in Queensland Wire Industries, it can be seen from the evidence the authorisation provided by the respondent for the sale of Subaru spare parts to the public is an unique service for which no substitute exits.  It is said no other service in Australia is substitutable because, accepting a limited range of non-genuine parts being (488 lines out of 30,000), only this service confers the right, privilege or benefit of entitlement to distribute the vast majority of parts available to fit Subaru motor vehicles.  This is supported by reference to evidence of the lack of inter-brand substitutability between the providers of Subaru parts and/or service and repairs and other authorised parts/service dealers because none has the same features.

The contention is the owners of Subaru vehicles get their parts and service from dealers who have the capability to provide that and those dealers in turn derive their capabilities from any authorisations available, in this case provided only by the respondent.  It is said to follow that the markets in question, so far as the respondent is concerned, are for the supply to dealers of parts and authorisations for parts and service for Subarus.  Those markets are at a different functional level to that of dealers but are ultimately derived from, and reflect, the same non‑substitutable requirements of consumers.

It is further submitted, approaching the question of market in the required way, the Court should see the withholding of the unique services (that is authorisations), which the respondent has available, has the potential to seriously impact upon the availability of Subaru parts and service to consumers.  It is said if the respondent has the power by the services it provides to significantly affect a significant and definable group of consumers (as it does) then it should not be allowed to escape the supervision of s 46 of the Act by the adoption of unduly broad academic market definition which ignores the commercial realities facing consumers.

The case for the respondent makes a number of responses.  The first is there is a cross‑elasticity of demand with authorisations for other marques so, if exorbitant prices or unreasonable terms were demanded by a distributor, a dealer could take another authorisation.

Secondly, it is said there is a cross‑elasticity of supply, so in that situation the respondent could distribute different marques of vehicle in Australia, as the group of which it is a member already does.

Thirdly, it is submitted the fact a particular acquirer in a market may have reasons for preferring particular services or goods does not mean other goods or services do not possess substitutability.

Fourthly, there is evidence other people such as Mr Tink, Mr Arnoldi and Ultra Tune can and do service Subarus without authorisations.  Finally, the respondent points to the uniqueness of this suggested type of market.

From the findings and decisions which I have made in relation to the suggested wholesale Subaru parts market it is apparent I consider the evidence establishes the complementarity of that market and the market for cars.  It follows I consider the submissions for the respondent on the respective cross‑elasticities are correct.  Its other submissions added to that foundation provide the proper answer to this aspect of the applicant’s case.

MARKET FOR PROVISION OF SERVICE COMPRISING GRANT OF PRIVILEGE/BENEFIT OF AUTHORISED DEALER STATUS IN RELATION TO SERVICING, MAINTENANCE, REPAIR OF SUBARU VEHICLES (INCLUDING MANUFACTURER APPROVED WARRANTY WORK)

The applicant’s case for this market relies on the submissions made in relation to the market for authorisation of the sale of parts.  Additional considerations are relied on however.

Reference is made to two United States authorities said to recognize such a market.  In Eastman Kodak at 481‑482 the Supreme Court said the relevant market for anti‑trust purposes was to be determined by the choices available to the Kodak equipment owner. It continued:

“Because service and parts for Kodak equipment are not interchangeable with other manufacturers’ service and parts, the relevant market from the Kodak equipment owner’s perspective is composed of only those companies that service Kodak machines”.

In Picker International Link v Leavitt 865 F.Supp. 951 (D.Mass. 1994) 951 at 958 the United States District Court held a reasonable fact finder could conclude a single product market existed for the service of Picker CT Scanners.  The matter was being decided on a motion for summary judgment and was designated as one which would have to be tried if it were material to the outcome of the case.

In his evidence Mr Burt in cross-examination said, as a generalisation, it would be fair to say although dealers in a particular make of vehicle are competing against each other in relation to service work for a particular make of vehicle, they are not competing so much with authorised dealers for other makes of vehicle as regards service.  He testified this was due in particular to qualified and trained technicians in that franchise which was a more important factor than each dealer network marketing itself as offering specialised services for that particular make of vehicle in which they are involved.

Accordingly it is submitted for the applicant the authorisation is a unique service having a specialist use which differentiates it from other services.  It is said the conduct allowed and facilitated by authorisation as a Subaru dealer for service and warrant work is specific to Subaru vehicles (in the same way as parts are specific to Subaru vehicles) and carries with it special and unique benefits not substitutable for anything else.  Therefore it is said the Court should identify a separate market for the authorisation.

Two further features of the evidence are relevant to the applicant’s case for this market:

(a)       Training and support

There was undisputed industry evidence training and support is available specific to Subaru vehicles and entirely provided by the respondent.  As the respondent’s witness Sturgess (the State Manager for Western Australia of Ultra Tune Pty Ltd) expressed it, the respondent provides an unique service to its dealers as regards information and training.

(b)       Manuals, diagnostic monitors and special tools

The evidence established the respondent only informs authorised dealers of the existence and uses of special tools and I so find.  It follows a potential disadvantage substantiated was that non‑authorised dealers do not receive information bulletins and are not always aware when a new parts manual or parts manual up-date was issued.

Although attempts were made in the course of evidence to lead evidence that Subaru withheld service information and special tools from non-authorised dealers, that was not established on the evidence and nor is it part of the applicant’s case.

There was evidence the respondent told its customers in 1995 in Subaru News (an information newsletter) and in warranty and service booklets issued in June 1997 that Subaru dealers were the only service centres which have factory trained staff, special tools and the equipment necessary to correctly maintain a Subaru vehicle.  This evidence was shown to be misleading to customers.  Steps had been taken to correct one edition of Subaru News.  At the most this evidence shows the respondent presented a false perception in the market its special tools were only available to authorised dealers and I do not consider any general inference can be drawn beyond the particular occasions.

It was also established special tools including diagnostic equipment manuals and manual up‑dates may be purchased by a non-authorised dealer from an authorised dealer as  part items.  This was accepted by Mr Oakley.  It was further established upon the cessation of an authorisation dealership, the respondent did not require the special tools to be re-sold to it.  Rather it offered to purchase the items with the outgoing dealers genuine parts stock.

In my opinion it follows the applicant’s case does not establish any significant disadvantage of assistance to it.  It is not therefore established that absence of authorisation is a barrier to access to the exclusive rights granted pursuant to the authorisation.

Returning to the issue of this market generally, I consider it fails for the same reasons as the submissions in relation to the wholesale market for sale of Subaru spare parts.  The market contended for by the applicant is, in my view, a sub-market of the market for cars, parts and ancillary services.  As with the wholesale parts sub-market, there is a complementarity with the wider market for cars.  The same cross-elasticities of supply and demand prevent both sub‑markets from having the character of a “market”.  Once the parts or services markets are seen to be part of a market for cars and parts, the submissions for the applicant lose their force.

PURPOSE

Although not strictly necessary to do so because of the conclusions on the issues of market, I proceed to record reasons on the question of purpose.

In addition to the requirement in subs 46(1) for the requisite purpose to be made out, it is provided by pars 4F(b):

“For the purposes of this Act -

...

(b)a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if -

(i)the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and

(ii)that purpose or reason was or is a substantial purpose or reason.”

If a corporation has a legitimate purpose and a proscribed one, and both are substantial purposes, it will contravene subs 46(1): Mark Lyons at 48,800 and 48,802‑48,803 per Wilcox J.

The applicant claims the respondent’s purpose in relation to the refusal to supply was to prevent or deter it from engaging in competitive conduct.

In advancing this case the applicant relies on subs 46(7) as well as subs 84(1) and (5) which allow the state of mind of officers of a company to be imputed to it.

In its defence the respondent pleads the applicant’s performance as an authorised dealer was unsatisfactory in that the applicant did not make a sufficient number of Subaru vehicle sales; did not make reasonable endeavours to sell a sufficient number of Subaru motor vehicles; did not  devote sufficient effort and resources to such sale and refused to implement the respondent’s reasonable suggestions intended to improve its sales performance.  It is pleaded as a consequence the respondent terminated the franchise agreement and the applicant therefore lost its status as an authorised Subaru dealer and consequently its rights pursuant to the agreement.  The Court permitted the case to be conducted on the basis the plea was sufficiently wide to be capable of encompassing both the termination of the franchise and the refusal to supply.

The respondent’s pleading is supported by the evidence of Mr Amery, that the termination of the applicant as a Subaru authorised dealer occurred for inadequate sales performance and an inadequate effort for the sale of Subaru cars.  I accept the submission for the applicant that this does not assist the respondent in relation to the refusal to supply.  There were other reasons given in evidence by Mr Amery for the refusal to supply.  The termination was made in August 1995.  The refusals to supply in December 1995 and January 1996 were given separate consideration.

Mr Amery’s evidence was there were two reasons for the refusal to supply namely, that “Subaru’s franchises, at least so far as the population centres are concerned, are a package of new car sales and supporting parts, service and warranty supply” and “[the applicant] had just been terminated for poor sales performance and I considered it inappropriate, in such circumstances, that [the applicant] should be, in effect, entitled to select those parts of the Subaru franchise which it found profitable”.  This evidence of Mr Amery was led late in the respondent’s case and without the reasons being pleaded so it is submitted for the applicant the respondent should not be able to resist its claim on such basis.

Alternatively it is submitted for the applicant Mr Amery’s reasons are so vague as to not amount to a legitimate explanation.  Specifically it is submitted there is no explanation why it is “inappropriate” for the applicant to be refused supply of parts and service, whether because of allegedly poor car sales performance or because of the way Subaru franchises had been packaged in population centres.

To this the respondent’s case replies Subaru’s franchise was a package of new cars, parts and service/warranty authorisation.  In that context, failure by the applicant to sell a sufficient number of cars and to put enough effort into such sale was a legitimate reason for terminating its franchise and refusing to grant it a limited franchise.  To do so would have required the respondent to treat the applicant as an exception to its usual policy.

I have already found the Subaru franchises are a package of new car sales and supporting parts, service and warranty supply.  It follows this submission for the respondent is correct.  Mr Amery’s first purpose was to promote competitive conduct in the market of cars.  His second purpose was a legitimate commercial reason to preserve the competitiveness of the market.

In my view, given the character of the market, the applicant’s case does not make out its pleading that, by refusing to supply the applicant, the respondent deterred or prevented it from engaging in competitive conduct.

Conclusion

Accordingly, given my findings in relation to the market as properly defined for the purposes of this matter, I consider the application should be dismissed.

I certify that this and the preceding thirty-thirty‑seven (37) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R D NICHOLSON

Associate:

Dated:             24 June 1998

Counsel for the Applicant:	J R B Ley with S M Standing
Solicitor for the Applicant:	Freehill Hollingdale & Page
Counsel for the Respondent:	D M J Bennett  QC with D M Stone
Solicitor for the Respondent:	Williams & Hughes
Date of Hearing:	9, 10, 11, 12, 13, 16, 17, 18, 19, 23 February 1998
Date of Judgment:	24 June 1998