The bottom line

While most business minded individuals are aware of the Trade Practices Act 1974 (Cth) ('Act') and the general policy which drives the behaviour of the Australian Competition and Consumer Commission (ACCC), many are unaware of the strict application of the provisions that apply to third line forcing under the Act.

'Third line forcing' or 'tying arrangements' are terms used to describe one type of exclusive dealing. Generally, third line forcing refers to the practice of a supplier making a supply of one set of goods or services to a customer on the condition that the customer purchases another set of goods or services from an unrelated third party supplier.

Specific examples of behaviour that may be third line forcing include:
(a) a label offering a discount on the purchase of stock if the retailer finances the purchase with a preferred finance provider;
(b) a screenprinter giving discounts on fabric purchased by a designer on the condition that the designer has purchased a certain value of goods from a specified accessories supplier; and
(c) a lender requiring a retailer to insure secured stock with a certain insurer.

One ramification of engaging in third line forcing is the possibility that the ACCC will seek the imposition of monetary penalties under the Act in addition to any damages or other remedies sought.  For a corporation this penalty can be as much as:
(a) $10 million;
(b) the value of the benefit received in relation to the third line forcing conduct; or
(c) 10 per cent of annual turnover.
Individuals, including directors, may also face a penalty of up to $500,000.

Third line forcing can sometimes be excused through a notification process which exists under the Act.  If a company provides the ACCC with notice of the conduct that would otherwise be third line forcing and can show that the benefits to the public of that conduct would outweigh the likely detriments to the relevant market then the conduct may be exempted from the operation of the Act. Public benefits usually considered by the ACCC include fostering business efficiency, improving product quality and promoting competition in certain markets.

Fashion businesses should keep third line forcing risks in mind and can do this by considering whether arrangements that involve 3 or more parties contain obligations that might constitute third line forcing.