Canterbury Law Review
Price fixing has become a busy area of competition law in Australasia. There have been a number of decisions from both the Australian Federal Court and the New Zealand Commerce Commission. Also, the respective enforcement agencies have announced they are going to get tough on hard core cartels.
Despite all this activity, there are still unresolved issues on price fixing. The main one concerns market division and whether it constitutes hard core cartel activity falling within s 30 of the Commerce Act 1986 ('the Act'). Market division is an issue because of the actions of respective New Zealand Governments. In February 1999 the then National Government proposed a number of changes to the Act. One was to expand s 30 to include market allocation, output limitation and bid rigging of tenders or auctions. The effect was to deem such practices as a substantial lessening of competition. In other words, the practices were to be per se illegal. The initiative for the reform derived from a 1998 OECD recommendation on hard core cartels. This called for 'concerted action against price fixing and other anti-competitive agreements among competitors that amount to "hard core" cartels.' New Zealand adopted the recommendation in February 1998. On 1 June 1999 the Government introduced the Commerce Amendment Bill which contained an amendment to s 30. The major premise of the reform was that market allocation constituted hard core cartel activity. Commentators and courts usually employ the term 'market division' rather than 'market allocation'. This article will use the former term.
Things did not go to plan. Following submissions, on 5 April 2000 the newly elected Labour Government abandoned the proposed amendment to s 30. Its reasons were that the change would capture many procompetitive agreements, such as franchises. The Government also believed that s 30 already captured hard core cartel market division.
This article discusses whether the Government is correct in its assumption that s 30 captures cartel market division but not procompetitive agreements. Whether s 30 captures or exempts procompetitive market division agreements depends on whether every agreement that literally constitutes a fixing, controlling or maintaining of prices breaches s 30. This can be a problem as not every agreement that literally fixes, controls or maintains prices harms competition. On the contrary, such agreements may be procompetitive. Section 30 must be able to distinguish between cartel market division and procompetitive market division. This is the issue of characterisation. In other words, do, or should, courts characterise every agreement that literally fixes price as price fixing under s 30? The case law is inconsistent. Some courts consider they can engage in characterisation, while others regard it as impermissible. The Commerce Commission vacillates in its views.
This article uses market division as a springboard to discuss these issues. To that end, Part II briefly describes market division. As s 30 makes price fixing per se illegal, Part III discusses the rationale for per se offences. Part IV sets out the rationale for market division being per se illegal. In doing so, it examines the economics of market division. It argues that in the vast majority of cases a per se rule against market division is fully warranted. In these situations, market division is hard core cartel activity. However, in some cases the market division may be a necessary part of a procompetitive joint venture. In such cases, a per se rule should not apply. United States antitrust law, which has a per se rule against market division, has dealt with the distinction between cartel market division and procompetitive market division. To that end, Part V examines the United States law on market division and characterisation. Although New Zealand's law differs from the United States, the latter should influence the New Zealand position. Accordingly, Part VI examines whether s 30 captures cartel market division. In doing so, it discusses what 'controlling' price means. It concludes that s 30 captures cartel market division. Part VII then considers whether New Zealand courts have the flexibility under s 30 to avoid capturing procompetitive agreements that literally fall within s 30. In short, it discusses characterisation and the conflicting decisions on the issue. Part VIII offers some conclusions.
New Zealand has to rely on s 30 to go after hard core cartel market division. In Australia, especially after Rural Press v Australian Competition and Consumer Commission, the exclusionary provision sections of the Trade Practices Act 1974 (Cth) are the weapon of choice. So much so that the Australian Competition and Consumer Commission (ACCC) does not even allege that market division constitutes price fixing. Until 1990, the Act's definition of an exclusionary provision in s 29 was substantially similar to that in Australia. Section 29 thus could capture certain types of market division. In 1990 Parliament amended s 29 of the Act by including a new s 29(1)(c). This provides:
The particular person or the class of persons to which the provision relates is in competition with one or more of the parties to the contract, arrangement or understanding in relation to the supply or acquisition of those goods or services.
This amendment has the effect (inter alia) of removing market division from the scope of s 29. The target of market division is customers. These will rarely be competitors of the parties to the agreement. Furthermore, in 2001 Parliament further amended s 29 by exempting an 'exclusionary provision' which a defendant shows not to have the purpose or effect 'of substantially lessening competition in a market'. These reforms eviscerate the per se nature of the New Zealand exclusionary provision section and leave s 30 as the only route to go after market division as a per se breach of the Act.
Various types of market division exist. One can categorise them as follows:
(i) Customer Market Division: This is an agreement among competitors not to compete for the business of particular customers. The competitors allocate specific customers among themselves. They agree that they will not sell to, or try to sell to, each others' designated customers.
(ii) Territorial Market Division: This is an agreement among competitors not to compete with each other in particular territories. Competitors divide or allocate markets along geographic lines. They agree to confine their sales efforts to their allocated geographic area.
(iii) Product Market Division: This is an agreement among competitors not to compete with each other in the sale of a particular product. Competitors divide or allocate markets along product lines. They agree that a product one competitor sells will not be sold by the others. An example is that one competitor will sell only small appliances while the other will sell only large ones.
(iv) Functional Market Division: This is an agreement among competitors not to compete with each other in particular levels of distribution. Competitors divide or allocate markets along functional lines. An example is that one competitor will sell only at the wholesale level while the other will sell only at the retail level.
(v) Time of Sale Market Division: This is an agreement among competitors not to compete with each other at certain times. Competitors agree with each other to limit their competition to defined time periods. Examples are where competitors agree not to sell on a certain day of the week, at certain hours, or for a period of months during the year.
Some of these categories overlap. It is difficult to see how customer market division and functional market division differ. Customer market division should capture all types of functional market division. Functional market division involves restraints on who can sell what. One firm will only sell to wholesalers, while another will only sell to retailers. This is merely a form of customer market division, as one can view the agreement as involving restraints on customers. One firm will sell only to wholesale customers, while the other will sell only to retail customers. Some agreements among competitors will involve a combination of the above market division categories. Product and geographic market division often go hand in hand.
As mentioned above, if market division falls within s 30, it is per se illegal. Per se illegality is a well known competition law concept. It is necessary to examine why.
One of competition law's primary concerns is with agreements between competitors. The reason for concern is that such agreements increase the risk of anticompetitive action, expand market power, create an anticompetitive restraint not otherwise possible, and surrender important decision making autonomy on matters of competitive significance. Bork identified the two ways in which agreements can harm competition:
(a) the parties agree to remove some or all competition existing or likely to exist between themselves.
(b) two or more parties agree to injure competitors and thereby injure the competitive process itself.
Competition law has two methods of analysing potentially anticompetitive agreements. The first method is to analyse the agreement closely. This involves a court examining its purpose and pro and anticompetitive effects. It weighs up both pro and anticompetitive effects to determine whether an agreement on balance is anticompetitive or not. Courts define the market in which the agreement occurs and assess the impact of the agreement in that or related markets. The analysis also involves assessing the market power of the parties to the agreement. Courts also assess the parties' justifications for the agreement. In New Zealand, such an assessment occurs under s 27 of the Act. A court will condemn an agreement under s 27 if it has the purpose or effect or likely effect of substantially lessening competition in the defined market. The courts in the United States call such an analysis an 'assessment under the rule of reason'.
The second method of analysis does not involve a detailed consideration of an agreement. Rather, once a plaintiff has proved that an agreement is of a certain type, courts will condemn the agreement without further ado. Courts will not examine its purpose or effect in the market. They will not usually bother even defining the market, nor will they consider whether it has procompetitive potential. They will be deaf to the defendants' justifications for the agreement. In New Zealand, three types of agreement fall under this second method of analysis. First, are agreements between two or more competitors containing exclusionary provisions (agreements that amount to group boycotts). Prior to 2001, s 29 of the Act prohibited such agreements outright. Second, are agreements between competitors that fix, control or maintain the price of goods or services (horizontal price fixing). Section 30 deems such agreements to substantially lessen competition. Third, are agreements between a supplier and resupplier whereby the resupplier agrees not to sell goods below a specified minimum price (vertical price fixing or resale price maintenance). Section 37 prohibits such agreements outright. Once a plaintiff establishes an agreement involves one of the three above types of conduct, that is the end of the story. A breach of the Commerce Act 1986 ensues.
The courts in the United States call such agreements 'per se illegal'. The three above types of agreements are per se illegal in the United States. So too, are agreements involving horizontal market division. The United States also has an attenuated per se rule against tying. Unlike New Zealand's statutory provisions, these per se rules are judge-made law. Despite the Supreme Court having declared the per se rules to 'have the same force and effect as any other statutory commands', it has moved two practices out of the per se category. These are vertical market division and maximum resale price fixing.
As this category was 'invented' in the United States, it is helpful to examine the judicial justifications for per se offences. The Supreme Court provided the classic rationale in Northern Pacific Railway v United States:
there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable - an inquiry so often wholly fruitless when undertaken.
The description, 'pernicious effect on competition and lack of any redeeming virtue', is pivotal in determining whether an agreement warrants per se treatment. The Supreme Court has expressed the formulation in various ways. A per se agreement has 'no single purpose except stifling of competition.' It is 'manifestly anticompetitive' or 'plainly anticompetitive.' Such an agreement 'always or almost always tend[s] to restrict competition and decrease output' rather than to 'increase economic efficiency and render markets more competitive.' It has 'predictable and pernicious anticompetitive effect' and 'limited potential for procompetitive benefit.' It is 'likely to have predominantly anticompetitive effects.' If one can describe an agreement as above, it deserves per se condemnation. There is simply no point in examining it fully under s 27. A court will reach the same result whether it examines the agreement summarily or in great detail. Thus, as a Yale Law Journal Note points out, economic reliability is the chief reason for the per se treatment of certain agreements. A number of other concomitant benefits flow from the per se rule. Trials involving full blown examination of an agreement can be very long. In the case of per se illegal agreements, the per se rules reduce the length of trials. This is worthwhile given that the result will almost always be the same in any case. Another benefit of per se illegality is that it provides predictable and certain guidelines for businesses. Firms are more likely to follow clear rules than opaque ones. As the United States Supreme Court noted in Continental TV Inc v GTE Sylvania Inc:
per se rules tend to provide guidance to the business community and to minimise the burdens on litigants and the judicial system of the more complex rule of reason trials...
Another advantage of the per se rules is that they maximise deterrence. A straightforward rule against certain types of behaviour has far more deterrent effect than one that requires searching examination of that behaviour. This is especially so when that behaviour almost always has a 'pernicious effect on competition and lack[s] any redeeming virtue.' Of course, another effect of per se rules is that in trials involving them, a plaintiff or prosecutor invariably wins.
A consequence of per se rules is that in some cases they will result in a court condemning an agreement when, if it had examined it fully, it would bless it. The Supreme Court has acknowledged this. It justifies this on the grounds of ease of administration. In Arizona v Maricopa County Medical Society, the Court noted:
For the sake of business certainty and litigation efficiency we have tolerated the invalidation of some agreements that a fullblown inquiry might have proved to be reasonable.
In United States v Container Corp of America, Marshall J explained the rationale for the per se approach as follows:
Per se rules always contain a degree of arbitrariness. They are justified on the assumption that the gains from imposition of the rule will far outweigh the losses and that significant administrative advantages will result. In other words, the potential competitive harm plus the administrative costs of determining in what particular situations the practice may be harmful must far outweigh the benefits that may result. If the potential benefits in the aggregate are outweighed to this degree, then they are simply not worth identifying in individual cases.
Stevens J explained the matter further in Federal Trade Commission v Superior Trial Lawyers Association:
The per se rules in antitrust law serve purposes analogous to per se restrictions upon, for example, stunt flying in congested areas or speeding. Laws prohibiting stunt flying or setting speed limits are justified by the States' interest in protecting human life and property. Perhaps most violations of such rules actually cause no harm. No doubt many experienced drivers and pilots can operate much more safely, even at prohibited speeds, than the average citizen ...
In part, the justification for these per se rules is rooted in administrative convenience. They are also supported, however, by the observation that every speeder and every stunt pilot poses some threat to the community. An unpredictable event may overwhelm the skills of the best driver or pilot, even if the proposed course of action was entirely prudent when initiated. A bad driver going slowly may be more dangerous than a good driver going quickly, but a good driver who obeys the law is safer still.
One can only justify making an offence per se illegal on the grounds of economic reliability. The other benefits of business guidance, deterrence and saving of resources flow from the economic reliability ground. One could justify making all Commerce Act 1986 offences per se illegal on the concomitant benefits. However, this will not wash. Over-deterrence is just as harmful as under-deterrence.
The Act's existing per se offences all have a grounding in economic reliability. Price fixing under s 30 is inherently anticompetitive. A freely determined price for goods and services is crucial to the functioning of the free market. Price fixing cartels have no offsetting efficiency benefits. They are unambiguously inefficient. They deserve per se condemnation.
So too, are agreements containing exclusionary provisions under s 29 (or boycotts) fundamentally anticompetitive. As the United States Supreme Court noted in Klor's Inc v Broadway Hale Stores Inc, group boycotts are per se illegal because they interfere with a central principle of competition law, viz; the 'freedom of traders ... to sell in accordance with their own judgment.' The Supreme Court expanded this justification in Northwest Wholesale Stationers Inc v Pacific Stationary and Printing Co, where it observed:
Cases to which this Court has applied the per se approach have generally involved joint efforts by a firm or firms to disadvantage competitors by 'either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.' In these cases, the boycott often cuts off access to a supply, facility, or market necessary to enable the boycotted firm to compete, and frequently the boycotting firms possessed a dominant position in the relevant market. In addition, the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive. Under such circumstances the likelihood of anticompetitive effects is clear and the possibility of countervailing procompetitive effects is remote.
Restriction of the freedom of traders to set price is also the justification for making resale price maintenance per se illegal under s 37 of the Commerce Act. It also involves the fixing of prices - albeit vertically. Whether resale price maintenance deserves per se condemnation is controversial. However, world wide competition law has treated it harshly (or made it per se illegal) for a very long time. Section 37 continues that tradition. Whether market division deserves per se condemnation depends upon whether it has a grounding in economic reality, ie, whether it is a practice which has a 'pernicious effect on competition and lack[s] any redeeming virtue.'
Whether market division deserves to be a per se offence depends on whether it is hard core cartel activity. To assess this, it is necessary to examine the economics of cartels and market division. The classic hard core cartel is price fixing. Here two or more parties agree to restrict competition between themselves by setting fixed or minimum prices below which they will not sell. By forming a cartel, its members, by acting together, behave like a single firm monopolist. The result is reduced output and higher prices. This leads to a misallocation of resources (allocative inefficiency). Similarly, no productive efficiencies will result. In some cases, due to economies of scale, a monopolist may be able to lower its cost curve. This does not occur with a price fixing cartel as the scale of participating production units does not change. A price fixing cartel is even worse than a monopoly from a consumer welfare perspective Invariably individual cartel members have different cost curves. Some will be more efficient than others. Accordingly, a cartel will agree on a price which enables its least efficient member to make a profit. Price fixing cartels are thus unambiguously inefficient - both allocatively and productively. As they never produce any beneficial productive efficiencies and invariably restrict output and increase price, they deserve their per se illegal status. Most market division agreements have the same effect. Territorial market division can have the same effect as a price fixing cartel. Such agreements not only eliminate competition on price: they eliminate all competition. Members of a price fixing cartel remain free to compete on non-price areas. These areas include service, quality, delivery services, return policy, sales promotion, and innovation. Effective market division not only eliminates all this non-price competition, but also price competition. Thus, a firm in a market division agreement can become a monopolist in its own area. It will equate its own marginal cost and marginal revenue and produce less and charge more. The agreement necessarily prevents the more efficient firms who are parties to the agreement from entering the divided market. The agreement protects the least efficient producers. By eliminating all competition, market division, as many commentators have noted, is even more harmful to consumers than price fixing cartels. As with price fixing, market division will result in increased prices. An example is Palmer v B R G of Georgia. This involved a territorial market division where after a competitor had left the territory, pursuant to the agreement, prices increased by more than 200 per cent.
Market division can cause further harm. It can prolong the life of price fixing cartels. It makes them more stable. Price fixing cartels are notoriously unstable. This is due to cartel members having different cost curves. Some members will be more efficient than others. Yet the cartel must agree on a single price. This must be one such as to cover the least efficient member's cost. The more efficient members may well feel chagrined at such a price. They will have the incentive to cheat. They do so by offering lower prices than the agreed one. By cheating secretly, firms can impose small losses on the cartel as a whole but reap large gains to themselves. Once other cartel members have detected these secret price cuts, cheating may spread and lead to the cartel's collapse. The United States Supreme Court recognised these cartel management difficulties in Business Electronic Inc v Sharp Electronics Co, where it noted:
Cartels are neither easy to form nor easy to maintain. Uncertainty over the terms of the cartel, particularly the prices to be charged in the future, obstructs both formation and adherence by making cheating easier.
Market division helps cure the cheating problem. By enabling each member to have a monopoly in the divided market, market division reduces the incentive to cheat.
Furthermore, market division makes it easier to detect cheating. A divided market has greater visibility of sales to markets or customers. Members of the cartel can more easily monitor cartel behaviour and punish cheaters. Thus, market division leads to more effective price fixing cartels. This is why price fixing and market division often go hand in hand. All this justifies a per se rule against customer and territorial market division. As Posner J has noted in Blue Cross & Blue Shield United v Marshfield Clinic:
The analogy between price fixing and division of markets is compelling. It would be a strange interpretation of antitrust law that forbade competitors to agree on what price to charge, thus eliminating price competition among them, but allowed them to divide markets, thus eliminating all competition between them.
Similarly, Walker has noted market division
is in a sense more inherently anti-competitive than price-fixing. Excess capacity will often lead to surreptitious discounts or rebates which will lessen the impact of a price agreement, but a market-sharing agreement is designed to create an area of monopoly in which competitors themselves, and hence price competition, are totally absent.
Time of sale market division does not have the same direct effect on price as territorial and customer market division. However, it too deserves per se condemnation. A restriction upon time of sale is a limitation on competition. As Bork notes, its 'sole purpose is to increase the [conspirators'] income by restricting output'. The reduced output to consumers is that they now have less convenience in shopping. Bork further notes that '[c]onsumers who lose the convenience of shopping ... are deprived of something that is as much an economic good as is money.'
While the case for a per se rule against market division is compelling, business behaviour and agreements are not black and white. In certain circumstances, market division can be procompetitive. Not all market division is hard core cartel activity. The OECD recommendation recognised this, stating '[t]he hard core cartel category does not include agreements, concerted practices, or arrangements that (i) are reasonably related to the lawful realisation of cost-reducing or output-enhancing efficiencies'. These procompetitive effects can exist in the context of joint ventures, intellectual property licences and franchises. All these can literally constitute market division.
Joint ventures have no legally defined meaning. However, they generally encompass the joining together of previously separate firms to provide a new product or service, promotion, distribution, or research. They differ from mergers in that the participating firms do not integrate all their functions. They also differ from cartels as cartelists do not cooperate jointly to produce or market a product or services. Unlike joint ventures, cartels involve no integration of resources, nor do they have any scope for achieving efficiencies. Joint ventures may involve loose contractual arrangements or significant integration of resources akin to a merger. There are varied reasons why a firm might enter into a joint venture. One reason is that joint ventures can have significant procompetitive features. These generally arise by two means:
(i) they can enable joint ventures partners to do things at lower cost; or
(ii) they can enable joint venture partners to do and have things they would otherwise have to buy or do without.
Joint ventures can achieve the first feature in a number of different ways. By combining, firms can obtain economies of scale. This means they can produce more cheaply. They can achieve efficiencies beyond their individual capacities. They may be able to achieve a minimum efficient scale of production to do things which a single firm could not. By combining assets, joint venture partners can decrease their risk, eliminate duplication of resources and access complementary assets. This can reduce costs. It also enables new participants to enter a market which previously was less than competitive. The great benefit of such joint venture agreements is that they can achieve efficiencies without eliminating all competition between the joint venture partners. Economic theory teaches that the participating firms will pass these efficiencies on to consumers. Joint ventures can achieve the second feature if the joint venture partners contribute complementary technologies to research that may create a new product or service. Similarly, the joining of capital and assets may also enable the joint venture partners to produce a new product which no individual joint venture partner could produce by itself. One must be careful, however, as not all so called 'joint ventures' are actually procompetitive. They may merely be a cartel in sheep's clothing. As Pitofsky has noted, defence counsel invariably call naked cartels 'joint ventures'. Similarly, the restraints in a joint venture may be far too wide when one considers the purpose of the venture. Use of the term 'joint venture', by itself, does not justify competition law immunity or lack of scrutiny. The comments of the District Court in United States v Timken Roller Bearing Co are apposite:
If a joint venture or partnership is formed for the purpose of a lawful business enterprise and restraints result from the right to protect an established business interest no violation of law occurs. But if the association is formed for the purpose of continuing a combination to allocate exclusive sales territories in the world, to fix prices and to eliminate competition both within and without the combination, it cannot hide from the effects of the law under the cloak of a joint venture or partnership. Were it otherwise, an easy way could be found to circumvent the law by entering into agreements purportedly to protect a joint venture or partnership.
If a joint venture is not a disguised cartel, restraints in the form of market division may be vital to the integrity of the joint venture. This is especially so in the case of a joint venture which creates a new product or service. The joint venture may spend significant amounts of money in promoting the new product or service. This can be in the form of advertising or product or service demonstrations. Exclusive territories facilitate these activities. One of the joint venture partners, or one of the joint venturer's distributors, may decide not to contribute to this advertising or promotion. Rather, it will rely on another distributor in the same geographic area to do all the work. It relies on the other's efforts to attract consumers. In this way, it takes a free ride on the other's efforts. Because it has not undertaken the advertising or promotion, it can afford to undercut the other distributors. Consequently, it will take sales away from the other distributors. Other distributors will be chagrined at this and not advertise or promote the product or service as aggressively. This puts the entire joint venture at risk. Territorial market division prevents this free riding occurring. Each distributor has an area for which it is responsible. It can promote the product or service heavily without the fear of another firm free riding on its efforts. Cheap prices may also damage the image of the product or service. This is so especially if it is a high quality one. Thus, territorial market division may be essential to the promotion and marketing of a product or service.
Free riding is not just a problem with marketing or promotion. A product may require specialised servicing after sale. Again, a firm may decide to skimp on this and rely on the efforts of other distributors in the same geographic market. Territorial market division prevents this sort of free riding.
Territorial market division also is necessary if a joint venture is producing or marketing a new but risky product or service. Firms or distributors may be reluctant to do so unless they can be assured of some degree of certainty of sales which an exclusive geographic market provides.
Small firms sometimes join together to compete against large national chains. They create their owned branded products or services. Free riding is a threat to this. So also, is competition between the small firms. Rather than concentrate on competing against their larger rivals, they may spend their time in cutting each other's throats. Territorial market division helps solve this problem.
It also encourages distributors and joint venture partners to exchange useful information. One firm may solve a problem that all joint venture partners face or come up with an innovation in selling or dealing with the service or product. Such a firm is more likely to share this with its partners and other distributors if it does not compete in the same geographic market. In this way, the territorial market division enhances the operating efficiency of the joint venture. Another benefit of such market division is that it is useful in tracing defective products.
Customer market division can also contribute to the efficiency of a joint venture. One partner may have specialised knowledge. It can provide this to the type of customer who needs it. The other partners can concentrate on all the other customers. Some joint venture partners may be bigger than others. They have sufficient economies of scale that they can fill large orders more cheaply than their partners. By allocating large customers to this partner, the joint venture is able to take advantage of economies of scale.
Thus, rather than being hard core cartel activity, market division restraints in the context of joint ventures can be procompetitive and efficiency enhancing. They are also essential to those joint ventures.
Market division restraints can also be vital components of intellectual property licences. For example, small firms may band together to create a new brand. They may be too small individually to develop and promote a trade mark. They can do so jointly. By having a licence containing territorial market division, they prevent free riding. The same is true of patents. It is more expensive to develop a product than to duplicate it. A patent holder may also lack the resources to market it. Thus, it licenses it to other firms. This can ensure that more product gets to more people and helps spread the development costs over a greater output. Territorial and customer market division can prevent free riding, as with joint ventures. Such restraints are necessary to encourage beneficial licensing. Field of use restrictions in patent licences are a form of customer market division. For the same reasons as with joint ventures, such customer restrictions can be efficiency and output enhancing.
One can view franchise systems as a type of joint venture. Firms join together to produce a uniform product or service. As with joint ventures, franchises can access finance and materials which they could not access by themselves. This enables franchises to compete more effectively with larger rivals. As with joint ventures, market division restraints can be vital for the integrity and effectiveness of franchise systems for the same reasons.
Any law which condemns market division per se must be able to distinguish hard core cartel market division from procompetitive market division which is necessary to a true joint venture or the like. United States antitrust law is the source of the per se rule. It also blesses procompetitive market division. It does so by the process of characterisation. It is instructive to examine this process to see what lessons it offers for New Zealand competition law. While the two systems of competition law differ, these differences have been overstated. The Sherman Act 1890 contains two sections outlawing anticompetitive conduct. As a result, the Supreme Court has created specific rules to implement the Sherman Act's procompetitive provisions. It is the judge made rules that are relevant to New Zealand competition law.
Market division is per se illegal under s 1 of the Sherman Act. The classic case is United States v Topco Associates Inc, where the Supreme Court held:
One of the classic examples of a per se violation of section 1 is an agreement between competitors at the same level of the market structure to allocate territories in order to minimise competition ... This Court has reiterated time and time again that' [h]orizontal territorial limitations ... are naked restraints of trade with no purpose except stifling of competition.'
Subsequent Supreme Court decisions have endorsed Topco. In Business Electronics, the Court, citing Topco, said 'a horizontal agreement to divide territories is per se illegal.' To the same effect is Palmer, where the Court, following Topco, held that market division involving actual or potential competitors is per se illegal. The Supreme Court cases have involved territorial market division. However, the per se rule is wider than this. The courts in the United States have applied it to not only territorial market division, but also to customer, product, supplier, and time of sale, market division agreements.
This is not the end of the story. Relying on Supreme Court decisions involving price fixing, a boycott, and an output limitation scheme, several Circuit Court of Appeals have not applied the per se rule to agreements that literally involve market division. Indeed, some cases have blessed literal market division agreements. These cases have focused on the issue of characterisation. Before discussing these cases, it is necessary to examine the evolution of the per se rule and the above mentioned Supreme Court cases.
The first United States market division case was United States v Addyston Pipe & Steel Co. The defendants were six competing producers of cast iron pipe. They divided the country into territories for themselves, jointly fixed prices for each territory and divided business among themselves. Their purpose was to fix prices low enough to discourage new entry. The prices though were higher than what would have resulted in a competitive market. The defendants argued the agreements were necessary to avoid ruinous competition and that the prices were reasonable. The Sixth Circuit Court of Appeals rejected this. Taft J held that such restrictions were illegal unless they were ancillary to a procompetitive agreement. He said that '[n]o conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract.'
As the territorial market division and price fixing were not ancillary to a main lawful purpose, the Court struck down the restraints. The case focuses mainly on the price fixing and as such it does not shed much light on market division.
The next case was National Association of Window Glass Manufacturers v United States. This involved a time of sale market division. The defendants were competing manufacturers of hand-blown glass. Hand-blowing of glass was outdated technology. Most glass came from newer mechanical factories. To stay in business, the defendants agreed that they would operate only during half the year. By doing so they avoided competition for scarce labour. Without the agreement they would have lost to the more efficient new technology. The agreement was blatantly anticompetitive as it protected inefficient manufacturers and undoubtedly prevented prices falling. However, the Court upheld the agreement stating that its purpose was 'to meet the short supply of men.' Following Window Glass came United States v National Lead Co. Here the defendants pooled their patents and allocated markets for the manufacture and sale of titanium. The Supreme Court held this resulted in the 'domination of an entire industry.' It held the territorial market division was illegal even though selected plants of the defendants competed vigorously.
By this stage the Supreme Court had declared price fixing per se illegal. As yet, price fixing was the only practice in this category. Timken Roller Bearing Co v United States moved market division close to per se illegal classification. This involved an agreement between Timken (an American company), British Timken Limited (a UK subsidiary of the American company) and French Timken (a French company jointly owned by Timken and British Timken). The defendants produced and sold anti-friction bearings throughout the world. The defendants were parties to agreements which licensed the trade mark 'Timken'. They also allocated territories in which the parties would market Timken bearings, fixed prices on the prices of products of one sold in the territory of another, co-operated to protect each other's markets and to eliminate outside competition, and restricted imports and exports to and from the United States. The defendants argued these agreements were fine as they were ancillary to a joint venture and necessary to protect the shared trade mark. The Supreme Court disagreed. It held that regardless of the agreements' purpose, the then evolving doctrine making price fixing illegal per se 'plainly establish[es] that agreement providing for an aggregation of trade restraints such as those existing in this case are illegal under the Act.' It also held that the agreements went far beyond the trade mark's purpose of 'merely afford[ing] protection to a name'.
Timken did not definitively establish a per se rule against market division. The defendants had considerable market power and the agreements seriously affected price. The agreements would have breached the rule of reason. Furthermore, the Court emphasised the 'aggregation of trade restraints' in finding liability. The case did not determine whether market division without price fixing was a per se offence. The next case, United States v Sealy Inc, also involved an aggregation of restraints. Sealy licensed 30 manufacturers of mattresses and bedding products to make and sell such products under the Sealy name and trade mark. It advertised Sealy products regionally and nationally. It enjoyed less than 20 per cent of the national market for such products. The 30 licensees owned substantially all of Sealy's stock. As part of its licensing, Sealy allocated each licensee an exclusive territory and fixed the retail price at which each licensee could sell products. One could call this arrangement a joint venture. The licensee/manufacturers combined to develop a new mattress with a standard design and national advertising. The arrangement enabled the participants to take advantage of joint purchasing, research engineering, advertising and merchandising. The licensee/manufacturers funded this national advertising. The territorial restraints prevented one licensee from free riding on another's local advertising effort and were not overly wide. Sealy appointed new licensees in territories not covered by an existing licensee or ones that were inadequately served. Sealy did not attempt to bring competing mattress manufacturers into the arrangement. Indeed, competing manufacturers had similar schemes. Whatever the Sealy arrangement was, it was not a hard core cartel. The government argued that price fixing and market division were always per se illegal. The District Court held the price fixing restraints were per se illegal but upheld the market division. The government appealed. Sealy did not dispute the price fixing finding. The Supreme Court struck down the territorial restraints. As in Timken, it relied on the aggregation of trade restraints. It held 'this aggregation of trade restraints including unlawful price fixing and policing' was 'unlawful under section 1 of the Sherman Act without the necessity for an inquiry in each particular case as to their business or economic justification, their impact in the market place or their reasonableness.' It also held the market division unlawful as 'they gave to each licensee an enclave in which it could and did zealously and effectively maintain resale prices free from the danger of outside incursions.'
The Court appeared to suggest that in some cases market division could be procompetitive and not per se illegal. It said:
It is urged upon us that we should condone this territorial limitation among manufacturers of Sealy products because of the absence of any showing that it is unreasonable. It is argued, for example, that a number of small grocers might allocate territory among themselves on an exclusive basis as incident to the use of a common name and advertisements, and that this sort of venture is should be welcomed in the interests of competition, and should not be condemned as per se unlawful. But condemnation of appellee's territorial arrangements does not require us to go as far as to condemn that quite different situation, whatever might be the result if it were presented to us for decision.
This suggested that market division by itself in certain circumstances might not be per se illegal. Ironically, the next case the Supreme Court faced involved facts similar to the Sealy hypothetical. This was United States v Topco Associates Inc. There, 25 small to medium sized regional grocery chains formed a co-operative association called Topco. Topco bought large quantities of grocery items and redistributed them to members. It also developed a private label merchandise programme for its members. The trade mark 'Topco' appeared on many of its grocery products. It gained large consumer appeal. Only about 10 per cent of the total goods members sold bore the Topco name. Many of Topco's rivals had their own branded goods. These were large national supermarket chains such as A & P and Safeway. The individual members of Topco were generally too small to market private labels, but joining Topco enabled them to do so. Topco licensed its members to sell trade marked Topco brand products only in an exclusive territory. The licence also generally prohibited members from selling such goods to other retailers. It also prohibited members from selling outside the exclusive territory.
The Topco arrangement was similar in structure to the one in Sealy. Its members were geographically dispersed and had different market shares in their respective markets. These ranged from 1.5 per cent to 16 per cent, with the average being 6 per cent. Only the three largest national chains, A & P, Safeway and Kroger, exceeded Topco's sales volume. The United States government sued alleging a per se breach of s 1 of the Sherman Act. The District Court disagreed. It refused to apply the per se rule. It determined that the territorial market division, although eliminating intrabrand competition in Topco products, was reasonable as it promoted and enhanced interbrand competition with national grocery chains. The Supreme Court reversed this decision. It held that geographic market division among competitors was per se illegal. It rejected Topco's argument that the arrangements actually increased competition as it enabled Topco to compete more effectively with the national chains. The Court did note the efficiencies of private labelling. However, it refused to consider whether the territorial market division was necessary to the success of the private label programme. Nor did it consider that Topco lacked market power. As for the restrictions on intrabrand competition increasing interbrand competition, the Supreme Court held that assessing this was beyond its competence and was a job for Congress. Not to apply the per se rule would 'leave courts free to ramble through the wilds of economic theory in order to maintain a flexible approach.'  The Court made it clear that horizontal market division, by itself, was a per se offence. It stated that '[t]o the extent that Sealy casts doubt on whether horizontal territorial limits, unaccompanied by price fixing are per se violations of the Sherman Act, we remove that doubt today.' Topco is an unsatisfactory decision for a number of reasons. First, the agreements were anything but a hard core cartel. Rather than reducing output and increasing price, they did the opposite. By increasing competition with the large chains, the Topco agreements benefited consumers. The agreements hardly had a 'pernicious effect on competition and lack[ed] any redeeming virtue.' Why would firms with 6 per cent in the market, and who faced strong competition from larger rivals, wish to engage in cartel activity? Second, the territorial market division was necessary to the success of the private label campaign. Topco's members could only create a nationally known 'Topco' brand by advertising nationally. If two or more members could sell Topco branded products in the same market, one member could stop advertising and benefit from the advertising of the other. It would free ride on the efforts of the other. Without the cost of advertising, it could undercut other members. If this occurred, in the end no Topco member would advertise. The market division was crucial in allowing the small Topco members to compete with the large national chains who could afford to produce and market their own products and market their own exclusive labels by themselves. Third, the decision outlawed all forms of territorial market division. However, the Supreme Court approved a consent decree which contained a form of market division. The decree allowed Topco to assign each member 'primary areas of responsibility', specify warehouse sites and fix business locations for its members. The decree also enabled Topco to cancel the membership of firms who performed inadequately and to require those members who sold outside their areas of responsibility to pay a pro rata share of legitimate advertising and promotion costs for those areas. This was less restrictive than the original Topco agreements, but was still essentially a form of market division. Fourth, the Supreme Court was not prepared to consider the merits of restrictions on intrabrand competition leading to an increase in interbrand competition. Yet, it took such a ramble through the wilds of economic theory in Continental TVInc v GTE Sylvania Inc. This involved vertical market division. In overturning the per se rule against such a practice, it expressly adverted as to how restrictions in intrabrand competition can lead to an increase in interbrand competition. Not to do so would be to engage in 'formalistic line drawing.' This is undoubtedly what the Supreme Court did in Topco. However, the Sylvania Court, citing Topco, did say that there is 'no doubt' that restrictions involving horizontal market division would be illegal per se.'
Topco laid down a strict per se rule against horizontal market division and seemed to leave no scope for characterisation. This changed in a series of cases starting in 1979. The first was Broadcast Music Inc v Columbia Broadcasting System (BMI). This involved agreements by two copyright collecting agencies. These agreements literally fixed prices. The Second Circuit Court of Appeals applied the per se rule. The Supreme Court reversed this decision. It refused to apply the per se rule. It noted that '[n]ot all arrangements among actual or potential competitors that have an impact on price are per se violations of the Sherman Act or even unreasonable restraints.' The Court observed:
As generally used in the antitrust field, 'price fixing' is a shorthand way of describing certain categories of business behaviour to which the per se rule has been held applicable. The Court of Appeal's literal approach does not alone establish that this particular practice is one of those types or that it is 'plainly anticompetitive' and very likely without 'redeeming virtue'. Literalness is overly simplistic and often over broad. When two partners set the price of their goods or services they are literally 'price fixing', but they are not per se in violation of the Sherman Act. See United States v Addyston Pipe & Steel Co ... Thus, it is necessary to characterise the challenged conduct as falling within or without the category of behaviour to which we apply the label 'per se price fixing'. That will often, but not always, be a simple matter.
Before characterising an agreement as price fixing, a court had to examine its purpose and effect:
in characterising this conduct under the per se rule our inquiry must focus on whether the effect and, because it tends to show effect ... the purpose of the practice is to threaten the proper operation of our predominantly free market economy - that is whether the practice facially appears to be one that would always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to 'increase economic efficiency and render markets more rather than less competitive.'
Here the agreement was not a 'naked restraint of trade' (ie, a cartel), but rather accompanied a useful integration of competitors. The Court observed that 'joint ventures and other co-operative arrangements are not usually unlawful, at least as price fixing schemes, where the agreement on price is necessary to market the product at all.'
BMI shows that before the Supreme Court characterised literal price fixing as price fixing and applied the per se rule, it was willing to consider the argument that rivals could engage in literal price fixing if the price restraint was a necessary part of an efficiency enhancing integrated endeavour that enabled the participants to market a product that otherwise would not be available. This is in direct contrast to the formalistic line drawing in Topco. In Arizona v Maricopa County Medical Society, another price fixing case, Powell J (albeit in dissent) noted:
It is settled law that once an arrangement has been labelled as 'price fixing' it is to be condemned per se. But it is equally well settled that this characterisation is not to be applied as a talisman to every arrangement that involves a literal fixing of prices. Many lawful contracts, mergers and partnerships fix prices. But our cases require a more discerning approach. The inquiry in an antitrust case is not simply one of 'determining whether two or more potential competitors have literally fixed a price ... [Rather], it is necessary to characterise the challenged conduct as falling within or without the category of behaviour to which we apply the label per se price fixing. That will often, but not always be a simple matter.' ... Before characterising an arrangement as a per se price fixing agreement meriting condemnation, a court should determine whether it is a 'naked restrain[t] of trade with no purpose except stifling of competition.' ... Such a determination is necessary because 'departure from the rule-of-reason standard must be based on demonstrable economic effect rather than ... upon formalistic line drawing.'... As part of this inquiry, a court must determine whether the procompetitive economies that the arrangement purportedly makes possible are substantial and realisable in the absence of such an agreement.
National Collegiate Athletic Association v Board of Regents involved an output limitation scheme. This is per se illegal. However, the Supreme Court held that in factually complex situations, courts can conduct an initial screening to determine whether the challenged activity is likely to have a predominantly anticompetitive effect. The Court judged the restraint under the rule of reason as the case involved 'an industry in which horizontal restraints on competition are essential if the product is to be available at all.' Focusing on the distinction between per se and rule of reason analysis, the Court stated 'there is often no bright light separating per se from Rule of Reason analysis. Per se rules may require considerable inquiry into market conditions before the evidence justifies a presumption of anticompetitive conduct.' Thus, characterisation may not be a simple task.
In Northwest Stationers v Pacific Stationery and Printing Co, the Supreme Court dealt with a concerted refusal to deal or group boycott. This practice, too, is per se illegal. The Supreme Court refused to characterise the conduct as per se illegal, despite it literally being a group boycott. The Court, commented on the per se rule and group boycotts:
'Group boycotts' are often listed among the classes of economic activity that merit per se invalidation under s 1 of the Sherman Act. Exactly what types of activity fall within the forbidden category is, however, far from certain. '[There is more confusion about the scope and operation of the per se rule against group boycotts than in reference to any other aspect of the per se doctrine.' L Sullivan, Law of Antitrust 229-230 (1977). Some care is therefore necessary in defining the category of concerted refusals to deal that mandate per se condemnation.
It noted that when the Court had applied the per se rule
the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive. Under such circumstances the likelihood of anticompetitive effects is clear and the possibility of countervailing procompetitive effects is remote.
The cases show how important characterisation is. A strict or literal interpretation or application of the per se rules will result in courts condemning much procompetitive and/or efficiency enhancing behaviour. That, as the Supreme Court noted, would be a bad thing. Unfortunately, the Supreme Court did not provide a doctrinal basis to the issue of characterisation. This has led courts and commentators to devise techniques of characterisation.
Some commentators suggest the cases endorsed 'quick look' or 'facial examination' techniques for literal per se illegal practices. In California Dental Association v FTC, the Supreme Court favoured the 'quick look' terminology. It held that it employs the quick look technique when 'an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets.' According to these techniques, before a court decides whether to characterise a literal per se agreement as belonging to the per se illegal category, it conducts a preliminary inquiry (or 'quick look') to see whether the per se rule should apply. This involves assessing its purpose and effect. If the agreement's probable tendency to restrict output outweighs its procompetitive effects, a court will characterise it as per se illegal. A defendant must identify 'significant procompetitive effects achieved through the integration of productive capacity that are unattainable in the absence of the agreement' to avoid the per se label. Whether the defendant has market power is irrelevant to this exercise. A classic example of the quick look technique is Easterbrook J's decision in Chicago Professional Sports Ltd Partnership v National Basketball Association. This involved an output limitation scheme whereby the NBA reduced the number of Chicago Bulls basketball games shown on a superstation from 25 to 20. Output limitation is per se illegal. Easterbrook J ignored the NBA's claim that its conduct could not be condemned without proof that it possessed market power in a defined market. He quickly examined the proffered justifications for the rule and found them lacking. He held the NBA had not offered or developed any procompetitive justification for the reduction. Consequently, he condemned it without further ado. Other commentators and courts relying on BMI suggest the quick look method of characterisation only applies when a new product or service results from the literal per se illegal restraints. The restraint must be essential to this product or service. In Blue Cross, Posner J held that the per se rule against horizontal market division applied 'provided [it] is not one of those cases in which a division of markets or other cartel like activity is actually essential to the provision of a lawful service.' The facial examination technique is another version of the quick look technique. Courts examine the restraint to see whether it is one that 'facially appears to be one that would always or almost always tend to restrict competition and decrease output, and in what portion of the market, or instead one designed to increase economic efficiency and render markets more rather than less competitive.' If the restraint is in the former category, courts apply the per se rule. Some commentators use the term 'truncated rule of reason' rather than 'quick look'. The United States antitrust enforcement agencies use their own version of the 'quick look' technique. In Massachusetts Board of Registration in Optometry, the Federal Trade Commission set out its methodology:
First, we ask whether the restraint is 'inherently suspect'. In other words, is the practice the kind that appears likely, absent an efficiency justification, to 'restrict competition and decrease output?' For example, horizontal price fixing and market division are inherently suspect because they are likely to raise price by reducing output. If the restraint is not inherently suspect, then the traditional rule of reason, with attendant issues of market definition and power, must be employed. But if it is inherently suspect, we must pose a second question: Is there a plausible efficiency justification for the practice? ... Such an efficiency defence is plausible if it cannot be rejected without extensive factual inquiry. If it is not plausible, then the restraint can be quickly condemned. But if the efficiency justification is plausible, further inquiry - a third inquiry - is needed to determine whether the justification is really valid. If it is, it must be assessed under the full balancing test of the rule of reason without further inquiry -there are no likely benefits to offset the threat to competition.
The Department of Justice uses a 'stepwise' approach to examining horizontal agreements. First, it asks 'whether it is the type of restraint that is currently recognised by the courts as being a per se violation.' Second, if the agreement is not per se illegal, it inquires whether there is a procompetitive justification. Third, if the Department finds there are significant procompetitive benefits to the agreement, it seeks to determine whether its likely anticompetitive effects outweigh its procompetitive benefits. Both agencies methods are versions of the 'quick look' technique. Interestingly, Joel Klein, former head of the Antitrust Section of the Justice Department, spoke about Topco in a speech outlining the step-wise approach. He observed:
if we were to have a case presenting facts like those at issue in the Supreme Court's decision in Topco, which involved a co-operative buying arrangement with product-name identity and a territorial division on the sales side, we would most likely move to step 2 of our analysis rather than condemn the challenged restraint as a per se violation as the Supreme Court did. In condemning the restraint as per se illegal the Court employed a formalistic approach that ignored the crucial point that the territorial restriction might have been legitimately ancillary to a procompetitive arrangement.
The Supreme Court has not provided a doctrinal basis to its pronouncements on characterisation. However, its decisions are consistent with Taft's doctrine of ancillary restraints, which he enunciated in Addyston Pipe. Under this method of analysis, agreements fall into two broad categories. The first are agreements whose 'sole object' was to restrain trade. Taft wrote '[w]here the sole object of both parties in making the contract... is merely to restrain competition and enhance or maintain prices, it would seem that there was nothing to justify the restraint.' Taft called these 'naked restraints'. Courts could condemn them without further ado. The second category of ancillary restraints are restraints contained in agreements that had a lawful business or procompetitive purpose. If the restraint was necessary and ancillary to that procompetitive purpose, the courts will bless the agreement. This is even though the restraint may be literally per se illegal. If the restraint is broader than necessary to achieve that purpose, the restraint is, to that extent, not ancillary - so a court will condemn it.
The Supreme Court has never expressly endorsed the 'ancillary restraints' doctrine. However, in Rothery Storage & Van Co v Atlas Van Lines Inc, Bork J held that BMI, Northwest Stationers and NCAA had effectively overruled Sealy and Topco and restored Taft's ancillary restraints method of analysis. This is debatable. However, Easterbrook J, in Polk Bros Inc v Forest City Enterprises Inc, used the ancillary restraints doctrine to bless an agreement containing market division provisions. There, two stores occupying the same building entered into a lease covenant whereby the parties agreed that one would not sell appliances in competition with the other. This involved both product and territorial market division. Without these restraints, the parties would never have constructed the building they occupied. The agreement to construct the building was procompetitive. The market division was necessary and ancillary to that procompetitive outcome. Invoking Taft's doctrine and NCAA (while ignoring Topco), Easterbrook J upheld the market division. In General Leaseways Inc v National Truck Leasing Association, Posner J struck down a territorial market division restraint contained in a joint venture. He held that the market division was wider than necessary to achieve the purpose of the parties' joint venture agreement. This too, is akin to an ancillary restraint analysis. In invoking characterisation when dealing with market division, not all courts refer to Taft's analysis.
As mentioned above, the Supreme Court cited Topco in Palmer where it condemned a territorial market division agreement per se. Palmer does not undermine characterisation as the agreement there was blatantly anticompetitive. It was not a joint venture, nor did it offer scope for efficiencies. There, one provider of bar review courses, HBJ, agreed to license another provider, BRG, exclusively to use HBJ's written materials and trade name in the State of Georgia. HBJ agreed not to compete in Georgia, while BRG agreed not to compete outside Georgia. HBJ had never competed in Georgia. After the parties entered into the agreement, Georgia bar review prices rose 200 per cent.
Despite the methods used by the courts, characterisation enables courts in the United States to bless procompetitive market division and quickly condemn anticompetitive agreements. Up until now, this article has discussed the economics of, and United States law, on market division. Economically the case for cartel market division being per se illegal is overwhelming. The law in the United States shows its courts have the flexibility to bless procompetitive market division while quickly condemning cartel market division. Whether the same is true in New Zealand depends upon the interpretation of s 30 of the Commerce Act 1986.
Arguably s 30 does not cover market division. If it did, there would have been no need for the proposed 1990 amendment to s 30 to include market division. Why would the Government propose an amendment to capture something that s 30 already covered? Perhaps the reason for the amendment was that s 30 did not cover market division. As mentioned above, prior to 1990, s 29 covered market division. The Australian experience, especially after Rural Press, confirms that market division falls within the exclusionary provision sections. After the 1990 amendments to s 29, this is no longer the case in New Zealand. Thus, the 1999 proposed amendment to s 30 was necessary to make market division per se illegal. The Australian Competition and Consumer Commission's practice of relying only on the exclusionary provisions [s 4D of the Trade Practices Act] to go after market division supports this. If the price fixing section [s 45A of the Trade Practices Act] covered market division, one would expect the Commission to use that section as well as s 4D. But, apparently, it never did. Against this argument is that nothing in the Government papers advocating the change to s 30 mentions difficulties with s 29 as a reason for the amendment. Rather, the impetus appears to have been the desire to implement the OECD's recommendation on hard core cartels. In any event, prior to 1990 the Commerce Commission had never used s 29 to attack market division agreements. Indeed, it had never brought any proceedings alleging market division. Any perceived difficulties with s 29 could not have been the reason for the amendment.
Also, the Australian Government has proposed criminalising serious cartel conduct. The new offence prohibits agreements between competitors to fix prices, restrict output, and divide markets with the intention of dishonestly obtaining a gain from consumers who are victims of the cartel. This is virtually the same as s 184 of the Enterprise Act 2002 (UK), which criminalises cartel conduct. It too expressly mentions market division. If market division was a form of price fixing, there would be no need to mention it expressly. This argument does not go far either. Criminal offences should be explicit and not depend upon the interpretation of words such as 'fix', 'control' and 'maintain'. Making market division an explicit criminal offence is normal activity in the sense of spelling out crimes and does not affect the interpretation of s 30.
In abandoning the proposed amendment of s 30, the Government said that s 30 already covered hard core cartels. This was arguably only confined to bid rigging and output limitation. These have been traditionally been regarded as part of price fixing. Indeed the Supreme Court case, US v Socony-Vacuum Oil Co, which established the per se rule against price fixing, involved output limitation. This and bid rigging have a more direct connection with price than market division. Also, the Supreme Court developed the per se rule against market division separately from, and not as a part of, the rule against price fixing. This was despite Socony-Vacuum declaring 'a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging or stabilising the price of a commodity ... is per se illegal'. Yet, the Supreme Court never treated market division as a subset of price fixing. This supports the idea that market division and price fixing are not the same thing.
The Government also stated the change to s 30 would not capture procompetitive agreements such as franchise agreements. Franchise agreements do not involve bid rigging and output limitation, but they contain market division agreements. Thus, the reason for withdrawing the amendment was to avoid market division, and market division alone, falling within s 30.
Whether any of these agreements are correct, and whether s 30 covers market division, depends on the words of s 30. Section 30(1) provides:
Without limiting the generality of section 27 of this Act, a provision of a contract, arrangement or understanding shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition in a market if the provision has the purpose, or has or is likely to have the effect of fixing, controlling, or maintaining, or providing for the fixing, controlling or maintaining, of the price of goods or services, or any discount, allowance, rebate, or credit in relation to goods or services.
An agreement falls within s 30 if a provision of the agreement:
(a) had the purpose or effect or likely effect of;
(b) fixing, controlling or maintaining or providing for the fixing, controlling or maintaining of;
(c) the price of goods or services or a discount, allowance, rebate or credit in relation to goods or services.
There has been one case involving s 30 and market division. Commerce Commission v Eli Lily involved customer market division. Two competitors divided customers between themselves. One would only sell to customers who bought more than $10,000 worth of products a year, while the other would only sell to customers who brought less than $10,000. The Commission alleged this constituted a breach of s 30. The defendants admitted liability under the likely effect limb of s 30. The penalty decision suggests the agreement amounted to a fixing, controlling and maintaining of prices. Such cases involving admissions of liability establish no authority. Whether market division breaches s 30 depends on the meaning of 'fixing', 'controlling' and 'maintaining'.
The meaning of 'fixing' is relatively certain. In Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd, Lockhart J adopted dictionary meanings commenting:
The Shorter Oxford Dictionary defines the verb 'fix' as: 'To fasten, make firm or stable;... to attach firmly; ... settle permanently.' The Macquarie Dictionary defines the word as: '1. To make fast, firm, or stable. 2. To place definitely and more or less permanently. 3. To settle definitely; determine; to fix a price.'
While the price need not be fixed permanently, there must be a requisite degree of certainty as to the price fixed.
In Radio 2UE, Lockhart J also adopted a dictionary meaning of 'maintaining', stating:
The verb 'maintain' is defined by the Shorter Oxford English Dictionary as: 'To continue, preserve in;... to continue in, preserve, retain'. The Macquarie Dictionary defines the word as '1. To keep in existence or continuance; preserve; retain ... 3. To keep in a specified state, position etc.'
In my view 'maintain', where used in sec 45A, has a similar connotation to the verb 'fix' in that it involves some element of continuity, not merely being momentary or transitory. Generally to maintain a price assumes that it has been fixed beforehand.
In ACCC v CC (NSW) Pty Ltd, Lindgren J doubted the last sentence from Radio 2UE stating:
The contrary is, however, arguable: it is arguable, for example, that it would 'maintain' a price not yet fixed at a minimum level if all tenderers were to reach an understanding that a component sufficiently influential on price was to be included in their tender prices.
In the circumstances of the case, Lindgren J did not have to pursue the issue as he dealt with 'controlling' of price. CC (NSW) Pty Ltd is important for its discussion of 'control'. The case involved the members of the Australian Federation of Construction Contractors. The members, including the respondent, had agreed to pay an unsuccessful tenderer's fee (UTF) of $750,000 for a particular building project. The Court found that the parties had agreed that the successful tenderer would pay the UTF to each of the three unsuccessful tenderers. The Court found that each tenderer had an independent expectation that, as a matter of fact, each of the others would, if successful, pay the UTFs out of the proceeds of the job and would take their commitment to do so into account in calculating its tender price. This was because the tenderers knew most of the facts in relation to the likely effect of the agreement on price. The amount of the UTF was a relatively small proportion of the price which each tenderer quoted for the building project. Each tenderer was free to tender whatever price it wanted. These varied. However, the UTF amounted to approximately 5 per cent of the final price of the tender.
Lindgren J held that the agreement on the amount of the UTF constituted a 'controlling' of price. He held it had the likely effect of 'controlling' price. Lindgren J held that it was not a necessary element of the notion of 'controlling' a price within [s 30] that there be some specificity as to price. However, he held 'controlling' a price meant that '[a]n arrangement or understanding has the effect of 'controlling price' if it restrains a freedom that would otherwise exist as to a price to be charged.
Lindgren J also observed:
Concretes also submits that because the supposed UTF understanding left the tenderers with a great deal of freedom as to the price which they would charge, it did not have the effect of controlling price competition and therefore did not fall within the terms of [the Australian equivalent of s 30]. It seems to me, however, that putting to one side de minimis cases, the degree of control, although relevant to penalty, is not relevant to the issue of contravention. I do not consider the degree of control here to have been de minimis (emphasis added).
Although he did not cite Lindgren J, Salmon J appears to accept a similar definition of controlling in CC v Caltex NZ Ltd, where he adopted the Shorter Oxford Dictionary definition of control: 'to exercise restrain or direction upon the free action of.'
On its face, the CC (NSW) Pty Ltd definition of 'controlling' potentially captures a great deal of conduct. In particular, it could make firms who operate at two levels of industry vulnerable to s 30 liability for input contracts.
Firm A may manufacture or supply an input X. It also uses that input to manufacture a subsequent product, Y. Firm B only sells Y in competition with Firm A. To supply Y, Firm B needs to buy input X from Firm A. Therefore Firms A and B contract for Firm A to sell Firm B input X at a set price.
Using the CC (NSW) Pty Ltd definition, such a contract for input X amounts to a controlling of the price for product Y. The price the parties agree for input X restrains the freedom Firms A and B have to charge for product Y in competition with each other. If input X represents a significant input cost for product Y, the agreed price for X will have a more than de minimis effect on the price of Y. It will be a 'controlling' under s 30. This would be problematic as without agreement on the supply price of input X, there can be no competition over product Y. Yet the supply contract for input X is per se illegal. Such an interpretation would prevent competition and defeat the Act's purpose.
This issue arose in ACCC v Pauls. There the respondents, Malanda, Pauls and ACF, were involved in the supply of processed milk in the Northern Territory. Malanda and ACF produced raw milk. Both Malanda and Pauls were also wholesalers of the processed milks. Thus both Malanda and Pauls were suppliers to each other of inputs and competitors of products using those inputs.
The ACCC alleged (inter alia) that a processing and packaging contract between Malanda and Pauls breached s 45A of the Trade Practices Act. The contract established the price Pauls would pay Malanda for raw milk and the price Malanda would pay Pauls for processed packaged milk. This allegedly breached s 45A because the contract had the purpose or likely effect of controlling or maintaining the price for wholesale milk which Pauls and Malanda sold in competition. Paul's acquisition cost of raw milk was a substantial input cost in the production of processed milk for wholesale and thus a substantial part of the wholesale price of processed milk. In essence, the ACCC alleged that the agreement on the price of the input (raw milk) had the effect of controlling the price at which Pauls would sell its wholesale processed milk in competition with Malanda. A strict application of CC (NSW) Pty Ltd definition of 'controlling' suggests liability, as agreement on the cost of the input (raw milk) restrains freedom on the price of the final product (wholesale processed milk). O'Loughlin J followed the CC (NSW) Pty Ltd definition, yet found no liability. He held the input cost (ie cost of raw milk to Pauls) would always have existed as a restraint on the selling price of wholesale processed milk, whether there was an agreement between Pauls and Malanda or not. Pauls always had to buy raw milk from someone if it was to sell wholesale processed milk. The raw milk was thus an unavoidable cost. Therefore the input supply agreement did not operate to restrain a freedom that would otherwise exist as to a price to be charged for wholesale milk. The cost of raw milk always existed as a restraint on the wholesale processed milk price, irrespective of whether there was a contract. Accordingly there was no controlling of price. O'Loughlin J distinguished this input price from the UTF in CC (NSW) Pty Ltd. The parties only imposed that as a result of agreement. It was not an unavoidable cost and restrained freedom on the level of the final tender price.
O'Loughlin J's decision provides welcome clarification on the meaning of 'controlling' and avoids capturing normal commercial activity. But CC (NSW) Pty Ltd has not been universally acclaimed. In ACCC v Australian Medical Association (WA) Branch Inc, Carr J disagreed that, de minimis cases aside, the degree of control was not relevant to contravention. He observed:
With due respect to [Lindgren J] I disagree with that proposition ... the word 'control' must be read in context with the words 'fixing or maintaining'. I accept, of course, that there are degrees of control. But in my view it is more consistent with the authorities which I have cited above, to regard the word 'control' in section 45A as indicating a degree of control towards a higher end of the scale.
Support for Carr J's view comes from Radio 2UE, where the Full Federal Court observed:
In our view the word 'fixing' in s 45A takes colour from its general context and from the words used with it - 'controlling or maintaining' - and not every determination of a price, following discussion between competitors, will amount to a price 'fixing'. There must, we believe, be an element of intention or likelihood to affect price competition before price 'fixing' can be established. This will often be a matter of inference, requiring no direct evidence for it to be established.
Heydon suggests that it may not be correct to split 'fix, control or maintain' into its constituent elements except by reference to price fixing being more traditionally observable. Lindgren J noted this view in CC (NSW) Pty Ltd but held he did not have to decide the issue. Hampton notes that 'fix, control and maintain' appears to derive from Socony-Vacuum which declared that combinations with the purpose and effect of raising, depressing, fitting, pegging or stabilising the price of a commodity are per se illegal. If 'fix, control or maintain' has the same function as the Socony-Vacuum formulation, one should not split the phrase. Furthermore, 'fix, control or maintain' suggests a sliding scale of interference with price. Lindgren J's definition gives 'control' the broadest meaning. Not splitting the phrase would be more in line with the purpose of making price-fixing per se illegal. In any event, difficulties arise in what Lindgren J means by 'de minimis cases aside'. The UTF fee in CC(NSW) Pty Ltd was 5 percent of the final tender price. Is this the threshold for de minimis? Or, is it something less? Applying the above definitions to market division, cartel market division falls within the scope of s 30. The aim of s 30 is to prohibit competitors from eliminating price competition between themselves. Customer, territorial and product market division goes even further. Competitors agree to eliminate all competition between themselves in respect of certain customers, products and territorial areas. This includes price competition. This must lead to a breach of s 30. It does not amount to a fixing of prices as the parties to the agreement remain free to charge what they like to their sector of customers or product or territorial area. This means the requisite degree of certainty required for fixing is missing. It, however, amounts to a controlling of price. This is whether one uses Lindgren J's definition or Carr J's refinement.
Without the market division agreement, prices would rise and fall due to the laws of supply and demand under competition. With the agreement, prices are subject to the dictates of the one firm in the market. If this does not constitute control of prices, nothing does. Liability could arise under any or all of the purpose, effect, or likely effect, limbs. Similarly, liability may arise for customer, territorial and product market division as maintaining prices under Lockhart J's Radio 2UE definition. As Heydon notes:
The width of 'maintenance' means that market sharing between the major competitors in a market may fall within s 45A, as where one corporation agrees not to compete on certain lines or in certain geographical areas, and another corporation enters a reciprocal obligation with respect to others. In appropriate circumstances, suppliers to them and buyers from them might be confronted by prices not open to adjustment by shopping around as much as if the corporations had directly agreed on a single price. Their agreement has the effect of maintaining price.
Again, liability may arise under any or all of the purpose, effect, or likely effect, limbs. However, the effect or likely effect limbs will be most common. Thus s 30 captures hard core cartel market division. However, as mentioned above, not all market division agreements are cartel-like behaviour. To the contrary, they can be procompetitive and efficiency enhancing. To hold such agreements per se illegal price fixing would be a bad thing. The issue is whether s 30 is flexible enough to capture cartel market division yet bless procompetitive market division. This necessarily involves the issues of purposive interpretation and characterisation.
A literal approach to s 30 would involve courts striking down procompetitive joint ventures and other types of cooperative arrangements that contain price fixing or market dividing restraints. This is despite these restraints being an essential part of the joint venture or cooperative arrangement. To avoid this, courts can engage in characterisation. To do so, courts would examine the joint venture or cooperative arrangement to determine whether it is the type of behaviour that Parliament intended s 30 to declare per se illegal. In doing so, courts should adopt a purposive approach to interpreting s 30 and rely on Radio 2UE.
New Zealand courts have stated that a purposive approach is necessary in interpreting the Commerce Act. In Union Shipping Ltd v Port Nelson Ltd, the High Court noted:
The [Commerce Act] is legislation of a type where the Court should not hesitate to adopt necessary purposive approaches in line with Northland Milk Vendors Association Inc v Northern Milk Ltd  1 NZLR 530 paying due respect to legislative policy.
In Northland Milk Vendors, the Court of Appeal noted:
The responsibility falling on the courts as a result is to work out a practical interpretation appearing to accord best with the general intention of Parliament as embodied in the Act - that is to say the spirit of the Act... Obviously therefore a great deal turns on the need for the courts to appreciate and give weight to the underlying ideas and scheme of the Act.
Furthermore s 5(1) of the Interpretation Act requires a purposive interpretation.
One of the ways of finding the purpose of an Act is its long title. The Commerce Act's long title was '[a]n Act to promote competition in markets within New Zealand'. As the Court of Appeal noted in Tru Tone Ltd v Festival Records Retail Marketing Ltd, the Act 'is based on the premise that society's resources are best allocated in a competitive market where rivalry between firms ensures maximum efficiency in the use of resources.' In 2001, the Commerce Amendment Act repealed the long title and replaced it with a new purpose provision, s 1 A. This provides that '[t]he purpose of this Act is to promote competition in markets for the long-term benefit of consumers within New Zealand.' Courts have interpreted s 1A as having essentially the same meaning as the former long title.
Section 30 aims to prohibit hard core cartels. An efficiency enhancing or a productive joint venture with market division or price fixing restraints is the opposite of a cartel. Rather than resulting in decreased output and increased prices, such joint ventures result in increased output and decreased prices. In the words of Tru Tone, they 'ensure maximum efficiency in the use of resources'. In respect of market division, even the OECD recommendation states that 'the hard core cartel category does not include agreements ... that are reasonably related to the lawful realisation of cost-reducing or output enhancing efficiencies.' This suggests that the OECD did not want literal market division agreements that reduce costs and enhance output to fall into the category of per se illegal agreements. A strict or literal interpretation of the s 30 would result in that undesirable situation. Such a literal approach would not only frustrate the purpose of going after hard core cartels, but also of the Act itself.
The deeming provision of s 30 is not dispositive. As Bennion notes, '[i]n construing a deeming provision it is necessary to bear in mind the legislative purpose.' The purpose of deeming price fixing and market division to be a substantial lessening of competition is because of its 'pernicious effect of competition and lack of any redeeming virtue.' That is true of most price fixing and market division, but it is not true of price fixing and market division contained in procompetitive joint ventures. In the situation of joint ventures, the deeming provision for price fixing and market division creates a legal fiction. Such restraints in joint ventures patently do not create a substantial lessening of competition. In these situations, courts have regard to the legislative purpose. As James LJ noted in 1881:
When a statute enacts that something shall be deemed to have been done, which in fact and in truth was not done, the Court is entitled to and bound to ascertain for what purpose and between what persons the statutory fiction is to be resorted to.
Bennion notes that '[t]he intention of a deeming provision in laying down an hypothesis, is that the hypothesis shall be carried as far as necessary to achieve the legislative purpose but not further.' The rationale behind deeming price fixing and market division a substantial lessening of competition is that it is hard core cartel activity. However, not all price fixing and market division falls within this category. From the above discussion, a court should apply the deeming provision to those situations where a court can characterise the market division and price fixing as hard core cartel activity. If not, then the deeming provision should not apply. If it does, a court will end up condemning procompetitive efficiency enhancing agreements, that is, things the Commerce Act is meant to encourage. A literal interpretation would badly frustrate the purpose of the Commerce Act. As Areeda has noted, '[a] sensible jurisprudence cannot frame abstract rules in English and then instruct subordinates to apply them without regard to their purpose or rationale or impact upon society.'
Australian authority also supports New Zealand courts engaging in characterisation when dealing with the per se provisions. The locus classicus is Radio 2UE Sydney Pty Ltd v Stereo FMPty Ltd. Radio 2UE involved s 45A of the Trade Practices Act 1974. The case involved the radio industry - shortly after the introduction of FM stations. At that time, FM stations faced fierce opposition from the established AM stations. Two Sydney FM stations produced a combined rate card for advertisers on their two stations. The advertising rates appearing on the combined card were the sum of each station's individual rate. Each station determined and charged its own rates independently. Each station could change its own rate at any time. Radio 2UE, a competing AM station sued, alleging the combined card was a breach of s 45A.
At first instance, Lockhart J held that the setting of the combined card did not involve the fixing, controlling, or maintaining prices. However, in an obiter comment on characterisation, relying on United States authorities, he said:
The Court's task is to characterise the conduct before it in a given case. Care must be taken in performing that task because by its very nature, the violation of s 45A is deemed, for the purpose of s 45 to substantially lessen competition per se. Such a finding may have far reaching consequences to the competitors concerned. It is important to distinguish between arrangements (I use this expression for convenience to encompass also contracts and undertakings) which restrain price competition and arrangements which merely incidentally affect it or have some connection with it. Not every arrangement between competitors which has some possible impact on price is per se unlawful under the section.
Nor in my view was s 45A introduced by Parliament to make arrangements unlawful which affect price by improving competition. It is fundamental to both s 45A and 45 that the relevant conduct, in purpose or effect, substantially lessens competition or would likely to do so. If competition is improved by an arrangement I cannot perceive how it could be characterised as a price fixing arrangement within the ambit of those sections.
The Full Federal Court upheld the decision but did not comment on Lockhart J's obiter statement. Lockhart J thus put characterisation squarely in front of the Australian courts. According to Lockhart J, characterisation is permissible, if not obligatory, when dealing with the per se provisions.
Some commentators reacted in horror to this interpretation of s 45A. They regarded it almost as eviscerating s 45A. They argued that it was contrary to the Act's purpose of deeming price fixing to be a substantial lessening of competition. They argued that Lockhart J had introduced a rule of reason analysis to price fixing. However, Baxt praised Lockhart J's analysis saying it introduced 'the correct antitrust principles from the United States.' According to Baxt, the decision stopped the fears of Australian commentators who thought 'that where per se offences were introduced in the legislation the courts would be likely to read these provisions too rigidly, and not adopt what has been described in the American jurisprudence as a rule of reason approach.' Similarly, in New Zealand, Stevens and Dean praised Lockhart J's decision. They noted that 'the New Zealand courts will also need to evaluate carefully the efficiencies and other procompetitive advantages (if any) flowing from the arrangement, before characterising practices as "price fixing".'
Despite the shrillness of Radio 2UE's critics, no Australasian court has said Radio 2UE is wrong. To the contrary, a number of Federal Court decisions have favourably cited Lockhart J's comments on characterisation. In New Zealand, Elias J favourably referred to Radio 2UE in Commerce Commission v Caltex New Zealand Ltd. Elias J expressly cited Lockhart J's comments that '[i]f competition is improved by an arrangement I cannot perceive how it could be characterised as a price fixing arrangement'. However, in Commerce Commission v Taylor Preston Ltd, Fisher J held 'that once a price fixing provision has been established it is to be conclusively assumed that it is inherently anticompetitive.' Fisher J referred to 'the deeming provision as an irrebuttable presumption'. This seems to cut back the scope for characterisation. However, neither characterisation, nor Radio 2UE, was in issue before Fisher J. The issue was the relationship between the deeming provision and the penalty sections of the Act. Furthermore, Fisher J's comments were obiter.
The New Zealand Commerce Commission has vacillated in its view of Radio 2UE. It warmly embraced it in Re the Insurance Council of New Zealand Inc. Yet, in the decision authorising the interim wholesale electricity market rules, the Commission was critical of Radio 2UE and gave it the cold shoulder. By the time of the authorisation decision on the final rules for the wholesale electricity market, the Commission went back to citing Radio 2UE as authority. In Electricity Governance Board Ltd, the Commission ignored Radio 2UE. This was despite it holding that s 30 required a purposive interpretation. Ignoring the leading and most favourably cited case on characterisation was a most surprising omission.The Commission accepted that s 30 deserved a purposive interpretation and that it should adopt an interpretation that best promotes or assists the achievement of the Act's objectives. It said that this required 'a consideration of the mischief at which s 30 is directed, and the consequences that follow from adopting one possible interpretation over another.' It stated:
the Commission considers that it is significant that s 30 creates a per se breach. This per se element demonstrates that conduct, which falls within the section, was seen by Parliament to strike at the heart of the competitive process. It is conduct that is to be viewed seriously. If an interpretation of s 30 were to be adopted that brought conduct within the scope of the section that was plainly, in competition terms, commonplace and unobjectionable. That would be a strong indication that such an interpretation was wrong (emphasis added).
It gave examples of these, 'tender or auction processes (discussed in later paragraphs) that effectively set market prices for a line of goods and/or for a period of time, or exchanges for products like futures or shares, which establish rules-based markets.'
This is good as far as it goes. However, many price or market division restraints are necessary in bringing new products or services to the market. As such, they will not be commonplace. BMI provides an example as the price fixing restraints in that case were not commonplace (albeit of longstanding). Rather, the arrangement between the two copyright collecting agencies was unique. Despite being efficiency enhancing, they would not pass muster under the Commission's reasoning. Also, despite trumpeting a purposive interpretation, the Commission took a literalistic and formalistic approach to analysing the price restraints at issue. It relied on the CC (NSW) Pty Ltd definition of 'control' and determined whether the agreements resulted in an artificial interference with the setting of price. This is a literal interpretation and not the purposive interpretation involved in characterisation. Characterisation involves asking whether the arrangement resulted in something procompetitive. The next step is to ask whether the price fixing or market division restraints were integral to obtaining that procompetitive outcome. If so, a court would not characterise the arrangement as price fixing. That is a purposive interpretation. It differs greatly from the Commission's approach of looking at the restraints and asking whether they artificially interfere with the setting of price. Such an approach would result in the price fixing restraints in BMI and the market division in Polk, being per se illegal. These restraints artificially interfered with the setting of price, yet they were efficiency enhancing and procompetitive. Thus, while the Commission preached the virtues of purposive interpretation, its approach was literalistic. Perhaps this is why it ignored Radio 2UE. The Commission then went on to say:
Not all auction, tender or market arrangements will necessarily fall outside the ambit of s 30. If arrangements contain provisions or ancillary arrangements that result in prices being fixed, controlled or maintained, in the sense that there is an artificial interference with the setting of price, they will breach s 30.
While it is correct that not all auction, tender or market arrangements fall outside s 30, the Commission's use of 'ancillary arrangements' is puzzling. In competition law, 'ancillary' is a term of art. It refers to Taft's doctrine of
ancillary restraints. As mentioned above, this involves looking at the purpose of an agreement which contains price fixing or market division restraints. If the purpose is procompetitive or in pursuance of a lawful business objective, any price fixing or other restraint is ancillary to that procompetitive purpose. Such a restraint is lawful if it is no wider than necessary to obtain the procompetitive purpose. The Commission's apparent common usage meaning of 'ancillary' is unfortunate. It should have used 'collateral' rather than 'ancillary'.
Yet despite this hammering of the Commission's use of formalistic literalism, there still may be a role for literalism. Pauls provides an avenue in that O'Loughlin J held an unavoidable cost would not result in a 'control' of prices. If price or market restraints are necessary to release a product or service, such restraints are unavoidable. Using Pauls, one could argue the restraints do not restrain freedom on, or artificially interfere with, the setting of price.
In any event, case law suggests New Zealand courts will engage in characterisation. Washworld Corp v Reid is an example. The case involved a franchise dispute. One of the defendants raised the Commerce Act as a defence. It did not press it at trial. William Young J commented:
Groups of people organise themselves for business purposes in a variety of forms. Sometimes the legal relationship is simply one of employment, an employer and one or more employees working together in a single enterprise. Sometimes the association is in the nature of partnership or perhaps a quasi-partnership conducted through a closely held company. Other corporate structures are also available. So too are joint venture agreements. In a real sense, a franchise arrangement is a joint venture between the franchisor and franchisee, and sometimes between the franchisees as well. In those circumstances, I wonder whether a normal incident of the organisation of such a business venture is easily subject to review under the Commerce Act. A franchisor in the position of Washworld will not license what are in fact copycat businesses by way of franchise agreements unless able to protect itself later from the possibility of a franchisee using the franchise arrangement as a springboard for competitive activity. So, such franchise agreements with their associated restraints may in fact promote the competitive process.
With respect, William Young J's comments are profound in their insights and magnificent in their suggestiveness. They recognise that joint ventures can be procompetitive, yet might literally fall within the Commerce Act. William Young J seems to eschew such a literal or strict approach. By pointing out that restraints are necessary to the success of joint ventures, William Young J recognises the dangers of free riding. By pointing out that such restraints in joint ventures are actually procompetitive, William Young J puts characterisation in issue. The possibilities flowing from these brief comments are immense.
Other reasons exist for why judges are unlikely to interpret s 30 literally to capture all market division. They are already experienced in dealing with market division arrangements. Restrictions on the territories firms operate in, and the customers they can deal with, are common in restraint of trade cases. Judges already know how such restraints can be procompetitive. Thus, New Zealand courts are likely to engage in characterisation when dealing with market division.
The method of characterisation will be important. I have elsewhere argued that the ancillary restraints doctrine is the best method of characterisation and is permissible under the Commerce Act. Other commentators have also argued in favour of the doctrine. However, no Australasian court has yet applied the doctrine in a competition law case although one Australian court has engaged in an ancillary type analysis. Some version of the doctrine or the United Stated 'quick look' or 'truncated rule of reason' is appropriate. These methods enable courts to separate quickly procompetitive agreements from anticompetitive ones. A 'quick look' approach is vital, otherwise per se trials will become long and costly. The 'quick look' method ensures the efficacy of the per se rule. As Posner J has noted, '[t]he per se rule would collapse if every claim of economies from restricting competition, however implausible could be used to move a horizontal agreement not to compete from the per se to rule of reason category.'
The main opposition to characterisation stems from the fact that in New Zealand the parties to a procompetitive market division agreement can apply to have the Commerce Commission authorise it under s 58 of the Act. This argument goes only so far.
Authorisation is a long, difficult and costly procedure. The deeming provision means that any agreement will be deemed to have detriments that have the effect of lessening competition. An applicant will be behind the eight ball from the start. In a situation like Topco, where the firms had 6 per cent of the market, it will be unlikely that there will be sufficient benefits to overcome the deemed lessening. Yet, Topco should be a case that would fly through an authorisation application. Furthermore, if a strict interpretation approach applies to s 30, there will literally be hundreds of agreements which will contain per se illegal market division provisions in them. Are the parties to these all supposed to apply to the Commission for authorisation? The practical consequences of such a course of action would be horrific.
Characterisation is necessary to avoid declaring procompetitive efficiency enhancing joint ventures per se illegal. An objection to characterisation is that s 31 of the Act provides an exception to s 30 liability. If a joint venture comes within s 31, it falls for assessment under s 27. Again, this argument goes only so far. Section 31 is tightly prescribed and not of pellucid clarity. Only a few forms of joint ventures will come within it. Under a literalistic approach, all the other procompetitive joint ventures will be per se illegal. Furthermore some other types of procompetitive collaboration cannot be classed as joint ventures, yet will also be per se illegal. Characterisation provides the method for ensuring procompetitive joint ventures are not per se illegal.
Against this interpretation are the actions of the Australian Government. The 2003 Review of the Competition Provisions of the Trade Practices Act (the 'Dawson Report') recognised that the Australian equivalent to s 31 was too narrow as it resulted in procompetitive joint ventures being per se illegal. It recommended an amendment exempting joint ventures from per se treatment as either price fixing or as an exclusionary provision. The Australian Government accepted the recommendation and introduced legislation exempting joint ventures from the per se provisions and making them subject to a competition evaluation. If characterisation as exemplified by Radio 2UE was part of price fixing law, there should have been no need for the proposed amendment. However, it appears no one made such a submission to the Dawson Committee. Also, the proposed amendment goes further than traditional characterisation.
Rather than leave a plaintiff to show that a joint venture substantially lessens competition, it places the burden on the joint venturers to show that it does not. This change requires legislation.
Furthermore, if a literal approach applies, certain mergers will be treated more benevolently than most forms of joint venture. If the joint venturers merge, this transaction results in one entity. Section 30 will not apply as there are no longer two competitors entering into an agreement. As such, the new entity falls for assessment under the Act's merger control section, not s 30. This results in the paradoxical situation that joint ventures that do not result from the complete merger of two companies are per se illegal under s 30, whereas mergers are treated more benevolently under the merger control provisions. Characterisation is a way of ensuring this paradox does not eventuate. In short, the provisions of the Act do not foreclose characterisation as a valid method of interpretation.
Economically the case for cartel market division being per se illegal is overwhelming. In New Zealand, liability under s 30 is the only way for this to happen. Cartel market division deserves to fall within s 30. Despite the history of the proposed 1999 amendment which expressly included market division, cartel market division fits comfortably within s 30 as either a controlling or maintaining of price. No violence to the words of s 30 is necessary.
Economically market division and price restraints which are an integral part of a procompetitive, efficiency enhancing joint venture or collaboration do not deserve per se illegal status. To avoid this, courts can adopt characterisation and a purposive interpretation of s 30. Radio 2 UE provides authority. The main argument against this is that adopting characterisation may involve ignoring the statutory language. As Kirby J has noted, 'adopting [the purposive approach] does not justify judicial neglect of the language of the statute, whether in preference for historical or other materials, perceived legal policy or any other reason.' But the purpose of a rule or section can never be irrelevant, despite the literal meaning of the rule. The purpose of a rule can limit its scope and guide its application. Focusing solely on literal meaning rather than purpose can lead to error. In the context of s 30, a literal approach which eschewed characterisation would result in adverse consequences. Such an approach would impede, rather than promote, competition and consumer welfare -things that the Act is meant to encourage. Characterisation ensures this does not happen.
Taking account of the consequences of interpretation is what the Commerce Commission said should happen with s 30 in its Electricity Governance Board decision. This is legal pragmatism. A pragmatic approach to s 30 results in cartel market division and price fixing being per se illegal and such restraints which are integral to procompetitive collaborations escaping per se liability. This is how things should be. Such a pragmatic approach would benefit consumers and courts should adopt it.
[*] LLM, Practitioner, Wellington.
 Australian Competition & Consumer Commission v CC (NSW) Pty Ltd  FCA 954; (1999) ATPR 41-732; Australian Competition & Consumer Commission v Pauls Ltd  FCA 1586; (2003) ATPR 41-911; Australian Competition & Consumer Commission v The Australian Medical Association Western Australian Branch Inc  FCA 686; (2003) ATPR 41-945; Australian Competition & Consumer Commission v Leahy Petroleum  FCA 1678; Apco Service Stations Pty Ltd v Australian Competition & Consumer Commission  FCAFC 161; Commerce Commission Decision No 369; Commerce Commission Decision No 473.
 Commerce Commission Media Release, 9 December 2004; Australian Competition & Consumer Commission Media Release, 4 July 2002.
 OECD, Recommendation of the Council Concerning Effective Action Against Hard Core Cartels at www.oecd.org/dataoecd/39/4/2350130.pdf.
 Cabinet Paper ECO (98) 248, .
 Ministry of Economic Development Press Release, 'Full List of Reforms in Commerce Amendment Bill and Supplementary Order Paper', 5 April 2000.
  HCA 75; (2003) 216 CLR 53.
 Trade Practices Act 1974 (Cth), s 4D(1) provides:
(1) Aprovision of a contract, arrangement or understanding, or of aproposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if:
(a) the contract or arrangement was made, or the understanding was arrived at, or the proposed contract, or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any 2 or more of whom are competitive with each other; and
(b) the provision has the purpose of preventing, restricting or limiting:
(i) the supply of goods or services to, or the acquisition of goods or services from particular persons or classes of persons; or
(ii) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed contract, arrangement or understanding or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate.
 Australian Competition & Consumer Commission v SIP Australia Pty Ltd  FCAFC 151; (2003) ATPR 41-939.
 For a discussion of the reform of s 29 see Hampton, 'Exclusionary Provisions: A Critique of the New Zealand Reform' (1993) 1 Trade Practices Law Journal 198.
 Commerce Amendment Act 2001, s 7.
 Sullivan & Harris, Understanding Antitrust and its Economic Implications (2nd ed, 1994) 116- 117; ABA, Sample Jury Instructions in Civil Antitrust Cases (1990) B-33-B-38.
 See, eg, Polk Bros Inc v Forrest City Enterprises Inc,  USCA7 1078; 776 F 2d 185 (1985); MidWest Underground Storage Inc v Porter,  USCA10 213; 717 F 2d 493 (1983). These cases involved both customer and territorial market division.
 I use the term 'agreement' to cover 'contracts', 'arrangements' and 'understandings', the terminology employed in the Commerce Act.
 Areeda (1986) 6 Antitrust Law [1402 (a)]; cited by Thomas J in Commissioner of Inland Revenue v BNZ Investments Ltd  NZCA 184;  1 NZLR 450, 487.
 Bork, 'The Rule of Reason and the Per Se Concept: Price Fixing and Market Division Part I' (1965) 71 Yale Law Journal 775, 775.
 Fisher & Paykel Ltd v Commerce Commission  NZHC 307;  2 NZLR 731, 740.
 Section 27(1) provides:
No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose or has or is likely to have the effect, of substantially lessening competition in a market.
 Section 29(1), prior to the 2001 amendment, provided:
(1) For the purpose of this Act, a provision of a contract, arrangement, or understanding is an exclusionary provision if-
(a) It is a provision of a contract or arrangement entered into, or understanding arrived at, between persons of whom any 2 or more are in competition with each other; and
(b) It has the purpose of preventing, restricting, or limiting the supply of goods or services to, or the acquisition of goods or services from, any particular person, or class or persons, either generally or in particular circumstances or on particular conditions, by all or any of the parties to the contract, arrangement, or understanding, or if a party is a body corporate, by a body corporate that is interconnected with that party; and
(c) The particular person or the class of persons to which the provision relates is in competition with one or more of the parties to the contract, arrangement or understanding in relation to the supply or acquisition of those goods or services.
 See below for s 30.
 Section 37(1) provides:
No person shall engage in the practice of resale price maintenance.
 Price Fixing: United States v Socony-Vacuum Oil Co,  USSC 110; 310 US 150 (1940); Boycotts: Klor's Inc v Broadway Hale Stores Inc,  USSC 55; 359 US 207 (1959); RPM: Dr Miles Medical Co v John D Park & Sons,  USSC 50; 220 US 373 (1911).
 United States v Topco Assocs,  USSC 73; 405 US 596 (1972).
 Jefferson Parish Hospital District No 2 v Hyde USSC 64; , 466 US 2 (1984).
 Federal Trade Commission v Superior Court Trial Lawyers Association,  USSC 12; 493 US 411, 433 (1990).
 Continental TV Inc v GTE Sylvania Inc,  USSC 134; 433 US 36 (1997), overruling United States v Arnold Schwinn & Co,  USSC 179; 388 US 365 (1967).
 State Oil Co v Khan,  USSC 79; 118 S Ct 275 (1997), overruling Albrecht v Herald Co, 390 US 145 (1968).
  USSC 4; 356 US 1 (1958) 5.
 White Motor Co v United States, 272 US 253, 263 (1963).
 Continental TV Inc v GTE Sylvania Inc,  USSC 134; 433 US 36, 49-50 (1977).
 National Society of Professional Engineers v United States,  USSC 67; 435 US 679, 692 (1978).
 Broadcast Music Inc v Columbia Broadcasting System,  USSC 64; 441 US 1, 19-20 (1979).
 State Oil Co v Khan, S Ct 275 (1997).
 Northwest Wholesale Stationers Inc v Pacific Stationery & Printing Co,  USSC 154; 472 US 284, 298 (1985).
 Note, 'Fixing the Price Fixing Confusion: A Rule of Reason Approach' (1983) 9 Yale Law Journal, 706, 709.
 Scott, 'Price Fixing and the Doctrine of Ancillary Restraints'  CanterLawRw 9; (1999) 7 Canterbury Law Review 403.
 Note, above n 34; Baker, 'Per Se Rules in the Antitrust Analysis of Horizontal Restraints' (1991) 36 Antitrust Bulletin 641, Krattenmaker, 'Per Se Violations in Antitrust Law: Confusing Offences with Defenses' (1988) 77 Georgetown Law Journal 165; Black, 'Per Se Rules and Rules of Reason: What are They?' (1997) 3 European Competition Law Review 145.
  USSC 134; 433 US 36, 50.
 Above n 36.
 Denis, 'Focusing on the Characterization of Per Se Unlawful Horizontal Restraints' (1991) 36 Antitrust Bulletin 641, 644.
  USSC 122; 457 US 332, 344 (1982).
  USSC 10; 393 US 333 (1969).
 Ibid 341 (Marshall J dissenting).
  USSC 12; 493 US 411, 433-434 (1990).
 Trebilcock, The Common Law of Restraint of Trade (1986) 294; Commerce Commission v Taylor Preston  3 NZLR 498, 508-509.
  USSC 55; 359 US 207 (1959).
 Ibid 212.
  USSC 154; 472 US 284, 294 (1985). See, also, comments by Kirby J in News Ltd v South Sydney District Rugby League Football Club Ltd  HCA 45; (2003) 200 ALR 157, 184-186.
 Telser, 'Why Should Manufacturers Want Fair Trade?' (1960) Journal of Law and Economics 86; Bork 'The Rule of Reason and the Per Se Concept: Price Fixing and Market Division Part 2' (1966) 75 Yale Law Journal 373; Posner, 'Antitrust Policy and the Supreme Court: An Analysis of the Restricted Distribution, Horizontal Merger and the Potential Competition Decisions' (1975) 75 Columbia Law Review 282.
 Hampton, 'Resale Price Maintenance: Economic and Policy Analysis' (1989) 2 Canterbury Law Review 73, 73.
 Trebilcock, above n 44, 295.
 Gellhorn & Kovacic, Antitrust Law and Economics in a Nutshell (4th ed, 1994) 197; Ross, Principles of Antitrust Law (1993) 148.
 Sullivan, Handbook of the Law of Antitrust (1977) 226 ('the damage to competition [from market division] is likely to be even more devastating than that consequent upon price fixing'); Ross, above n 51, 148; Handler et al, Trade Regulation (1997) 332; Blair & Kasserman, Antitrust Economics (1985) 169 ('market division is even worse than price fixing and certainly deserves equally harsh treatment in antitrust terms'); Hovenkamp, Federal Antitrust Policy (1994) 1146.
  USSC 157; 498 US 46 (1990).
 Blair & Kasserman, above n 52, 164-165; Hovenkamp, above n 52, 143; Sullivan, above n 52, 164; Areeda & Kaplow, Antitrust Analysis (4th ed, 1988) 189; Stigler, 'A Theory of Oligopoly' (1964) 72 Journal of Political Economy 44.
 Hovenkamp, above n 52, 144 -145.
  USSC 75; 485 US 717, 723 (1988).
 Hovenkamp, above n 52, 146-147; Gellhorn & Kovacic, above n 51, 157; Blair & Kasserman, above n 52, 166.
  USCA7 1152; 65 F 3d 1406, 1415 (1995), cert denied, 116 S Ct 1288 (1996).
 Walker, 'The Trade Practices Act at Work' in Nieuwenhuysen (ed), Australian Trade Practices: Readings (1976) 157.
 Bork, The Antitrust Paradox: A Policy at War With Itself (2nd ed, 1993) 85.
 Ibid 86.
 OECD, above n 3, 2.
 Pitofsky, 'A Framework for Antitrust Analysis of Joint Ventures' (1986) 74 Georgetown Law Journal 1605; Brodley, 'Joint Ventures and Antitrust Policy' (1982) 95 Harvard Law Review 1523; Kitch, 'The Antitrust Economics of Joint Ventures' (1985) 53 Antitrust Law Journal 957; Weston & Ornstein, 'Efficiency Considerations in Joint Ventures' (1985) 53 Antitrust Law Journal 85; Shapiro & Willig, 'On the Antitrust Treatment of Production Joint Ventures' (1990) 4 Journal of Economic Perspectives 113.
 Auag Resources Ltd v Waihi Mines Ltd  3 NZLR 571, 575; Commerce Commission v Fletcher Challenge Ltd  NZHC 236;  2 NZLR 554, 615-616; Ongley, 'Joint Ventures and Fiduciary Obligations' (1992) 22 Victoria University of Wellington Law Review 265.
 Pitofsky, above n 63, 1607; Piraino, 'Beyond Per Se, Rule Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures' (1991) 76 Minnesota Law Review 1, 5.
 Hovenkamp, above n 52, 187; Piraino, above n 65, 3.
 Hovenkamp, above n 52, 186; Ross, above n 51, 199; Piraino, above n 65, 3.
 Hovenkamp, above n 52, 188; Kitch, above n 63, 960.
 Hovenkamp, above n 52, 189.
 Pitofsky, above n 63, 1608; Hovenkamp, above n 52, 188.
 Pitofsky, above n 63, 1606.
  USSC 81; 83 F Supp 284, 312 (1949), aff'd as modified USSC 81; , 341 US 593 (1951).
 Sullivan & Harrison, above n 11, 120-122; Gellhorn & Kovacic, above n 51, 200-201; Posner, 'The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality' (1981) 48 University of Chicago Law Review 1, 11-12; Bork, above n 60, 266.
 Marvel & McCafferty, 'Resale Price Maintenance and Quality Certification' (1984) 15 Rand Journal of Economics 346; Hovenkamp, above n 52, 188; Bork, above n 60, 444-445.
 Bork, above n 60, 447-448.
 Hovenkamp, aboven52,188-189;Ransom& Pengilley, Restrictive Trade Practices: Judgments, Materials and Policy (1985) 753.
 Bork, above n 60, 444-445; Hovenkamp, above n 52, 191.
 Bork, above n 60, 446-447.
 Ransom & Pengilley, above n 76, 752.
 Ransom & Pengilley, above n 76, 753; Hovenkamp, above n 52, 187-188.
 Pengilley, 'Antitrust Law v Intellectual Property Law: Where is the Interface?'  CanterLawRw 8; (1981) 4 Canterbury Law Review 103.
 Hovenkamp, above n 52, 190.
 Hovenkamp, above n 52, 190; Pengilley, above n 81, 130-131.
 Washworld Corp v Reid (1998) 8 TCLR 372, 387-388; Eagles, 'Franchising and the Commerce Act 1986 (1)'  New Zealand Law Journal 349, 352.
 Eagles, above n 84, 352.
 Port Nelson Ltd v Commerce Commission  3 NZLR 554, 571; Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) ATPR 41-167.
 Sherman Act 1890, ss 1, 2.
 Hylton, Antritrust Law Economics Theory and Common Law Evolution (2003); Posner, Antitrust Law (2nd ed, 2001).
  USSC 73; 405 US 596, 608 (1972).
  USSC 75; 485 US 717, 734 (1988).
  USSC 157; 498 US 46 (1990).
 Service Merchandise Co v Boyd Corp,  USCA1 385; 722 F 2d 945, 950 (1983); Mid-West Underground Storage Inc v Porter,  USCA10 213; 717 F 2d 493, 497-498 n 2 (1983); General Leaseways Inc v National Truck Leasing Ass'n,  USCA7 965; 744 F 2d 588 (1984); Reed Bros v Monsanto Co,  USCA8 11; 525 F 2d 486, 498 (1975); cert denied, 423 US 1055 (1976); Bascom Food Prods Corp v Reese Fine Foods, 715 F Supp 616, 630-632 (1989); Affiliated Capital Corp v City of Houston, 700 F 2d 236, 266 (1983) (an attempt by cable franchisors to 'cut the pie' of Houston, with the tacit approval of Mayor), vacated,  USCA5 1063; 714 F 2d 25, panel decision upheld on other grounds, 735 F 2d 1555 (1984) (en banc), cert denied, 474 VS 1053 (1986); American Motor Inns v Holiday Inns,  USCA3 486; 521 F 2d 1230, 1242 (1975) (holding franchisor engaged in horizontal market division by giving 'veto power' to franchisees who objected to new franchisees within territory); Blue Cross & Blue Shield United v Marshfield Clinic,  USCA7 1152; 65 F 3d 1406, 1415 (1984); Los Angeles Mem Colosseum v NFL,  USCA9 324; 726 F 2d 1381 (1984); Engine Specialities Inc v Bombadier Ltd,  USCA1 199; 605 F 2d 1, 8-9 (1979), cert denied, 466 US 983 (1980); Blackburn v Sweeney,  USCA7 718; 53 F 3d 825, 827 (1995); Ohio-Sealy Mattress Mfy Co v Sealy Inc,  USCA7 646; 585 F 2d 821 (1978), cert denied, 440 US 930 (1979).
 Hammes vAAMCO Transmission Inc USCA7 1226; , 33 F 3d 774, 782-783 (1994) (franchisees excluded plaintiff from participation in automatic call forwarding system. An 'out and out' scheme of customer allocation); United States v Brown,  USCA9 538; 936 F 2d 1042 (1991) (agreement barring billboard companies from competing with each other's former lease holds for one year); United States v Suntar Roofing Inc,  USCA10 71; 897 F 2d 469 (1990) (agreement not to compete for each company's established customers); United States v Cooperative Theatres, 845 F 2d 1367, 1373 (1988) (agreement not to solicit each other's customers); Mid-West Underground Storage Inc v Porter,  USCA10 213; 717 F 2d 493, 497-498 n 2 (1983); Clairol Inc v Boston Discount Center ofBerkly USCA4 1288; , 608 F 2d 114 (1979) (sales permitted to professional users but not to consumers); Tripoli Co v Wella Corp, 425 F 2d 932 (1970), cert denied, 300 US 831 (sales permitted to professional users but not to consumers); Summitt Communications Group, Docket No C-3623 (FTC 20 October 1995); Panache Broadcasting of Pa Inc v Richardson Elecs Ltd, 1 US Trade Cases [70,169], [69,818] (1993); United States v General Electric Co, 1 US Trade Cases [71,765] (1997); United States v Goodman,  USCA11 1043; 850 F 2d 1473 (1988).
 Movie 1 &2v United Artists Communications Inc USCA9 632; , 909 F 2d 1245 (1990), cert denied, 501 US 1230 (1991); United States v Capitol Serv, 765 F 2d 502, cert denied, 474 US 945 (1985) (movie theatres involved in motion picture film 'split' agreement).
 Avwood v Harry Brandt Booking Office Inc, 850 F 2d 844 (1988); Gainesville Utils Dep't v Florida Power & Light Co,  USCA5 1087; 573 F 2d 292, 300, cert denied, 439 US 966 (1978) (competing power companies conspired to divide the wholesale power market by refusing to interconnect with conspirators' rival).
 Leech v Highland Memorial Cemetery, 489 F Supp 65 (1980) (agreement among cemeteries not to perform burials on Sundays was per se illegal); Gordon v Crown Petroleum, 423 F Supp 58 (1977).
 Broadcast Music Inc v Columbia Broadcasting System,  USSC 64; 441 US 1 (1979).
 Northwest Wholesale Stationers Inc v Pacific Stationery & Printing Co,  USSC 154; 472 US 284 (1985).
 National Collegiate Athletic Association v Broad of Regents of the University of Okalahoma,  USSC 155; 468 US 85 (1984).
 Polk Bros v Forest City Enterprises,  USCA7 1078; 776 F 2d 185, 188 (1985) (product and territorial market division); Northrop Corp v McDonnell Douglas Corp, 705 F 2d 1030, 1050-1053, cert denied, 464 US 849 (1983) (customer market division); Turf Paradise Inv v Arizona Downs,  USCA9 327; 670 F 2d 813, 821-822, cert denied, 456 US 1011 (1982) (time of sale and territorial market division); Volvo North Am Corp v Men's Intl Professional Tennis Council,  USCA2 756; 857 F 2d 55, 71-71 (1991) (time of sale and territorial market division); Detroit Auto Dealers Ass'n Inc v FTC,  USCA6 915; 955 F 2d 457 (1992) (applying rule of reason to time of sale market division); Van Dyk Research Corp v Xerox Corp, 478 F Supp 1113, 1123 (1980), aff'd USCA3 733; , 631 F 2d 251 (1980).
 85 F 271 (1898), aff'd as modified USSC 169; , 175 US 211 (1899).
 85 F 271, 289.
  USSC 223; 263 US 403 (1923).
 Ibid 413.
  USSC 123; 332 US 319 (1947).
 United States v Socony-Vacuum Oil Co,  USSC 110; 310 US 150 (1940).
  USSC 81; 341 US 593 (1951).
 Ibid 598.
 Ibid 598-599.
 Gellhorn & Kovacic, above n 51, 198.
 338 US 350 (1967).
 US Trade Cases [71,258] (1964).
  USSC 180; 388 US 350, 357-358 (1967).
 Ibid 356.
 Ibid 357, n 4.
  USSC 73; 405 US 596 (1972).
 United Stated v Topco Associates, 319 F Supp 1031 (1971).
  USSC 73; 405 US 596, 609 n 10.
 Ibid 609 n 9.
 United States v Topco, US Trade Cases [74,485] (1973), aff'd, 414 US 801 (1973) (per curiam); see Mueller, 'The Sealy Restraints: Restrictions of Free Riding or Output' (1989) Wisconsin Law Review 1268, 1269 n 74.
  USSC 134; 433 US 36 (1977).
 Ibid 59.
 Ibid 47 n 28.
  USSC 64; 441 US 1 (1979).
 Ibid 23.
 Ibid 9 (citations omitted).
 Ibid 19-20 (citations omitted).
 Ibid 23.
  USSC 122; 457 US 332 (1982).
 Ibid 361-362 (citations omitted).
  USSC 155; 468 US 85 (1984).
 Ibid 101.
 Ibid 104 n 26 (citation omitted).
  USSC 154; 472 US 284 (1985).
 Ibid 294.
 Ibid (citations omitted).
 Halverson, 'The Future of Horizontal Restraints Analysis' (1988) 57 Antitrust Law Journal 33, 37; Vogel v American Society of Appraisers,  USCA7 852; 744 F 2d 598, 603 (1984).
 Brunet, 'Streamlining Antitrust Litigation by "Facial Examination" of Restraints: The Burger Court and the Per Se Rule of Reason Distinction' (1984) 60 Washington Law Review 1.
 1 US Trade Cases, [72,529] (1999).
  USCA7 552; 961 F 2d 667, 674-676 (1992). See, also, Law v NCAA, 134 F 3d 1010, 1020 (1998).
 Brunet, above n 138. See BMI  USSC 64; 441 US 1, 23 (1979).
  USCA7 1152; 65 F 3d 1406 (1995), cert denied, 116 S Ct 1288 (1996).
  USCA9 2728; 64 F 3d 1406, 1416 (1995).
 Brunet, above n 138.
  USSC 64; 441 US 1, 1920 (1979).
 Hampton, above n 9, 207.
 110 FTC 549 (1988).
 Ibid 604 (emphasis in original).
 Klein, 'A Stepwise Approach to Antitrust Review of Horizontal Agreements', Speech, Washington DC 7 November 1996. See, also, ABA, The Rule of Reason Monograph 23 (1999).
 Ibid 3.
 Ibid 4.
 85 F 271 (1898), aff'd as modified USSC 169; , 175 US 211 (1899).
 85 F 271, 282-283.
  USCADC 214; 792 F2d 210 (1986), cert denied, 479 US 1033 (1987).
 Business Electronics and Palmer, both post-dating Rothery, favourably referred to Topco.
  USCA7 1078; 776 F 2d 185 (1985). See, also, Blackburn v Sweeney,  USCA7 718; 53 F 3d 825 (1995).
 774 F2d 588 (1984).
  USSC 157; 498 US 46 (1990).
  HCA 75; (2003) 216 CLR 53.
 Costello, 'Criminal Penalties for Serious Cartel Behaviour' press release and attached note, 'Proposed arrangements for criminalizing serious cartel conduct', 2 February 2005.
 Ministry of Economic Development, above n 5.
 Ross, above n 51.
  USSC 110; 310 US 150 (1940).
 Ibid 221-223.
 Ministry of Economic Development, above n 5.
 HC, Auckland, Fisher J, 30/4/99: Caveat Lector: the writer drafted the pleadings alleging the market division fell within s 30.
 Rural Press Ltd v Australian Competition and Consumer Commission (2003)216 CLR53, 80-81.
 (1982) 4 ATPR 43,912, 43,921.
 Trade Practices Commissions v Parkfield Operations Ltd  FCA 27; (1985) 59 ALR 589; Trade Practices Commission v Service Station Assn Ltd (1992) 109 ALR 465; Trade Practices Commission v Service Station Ass Ltd  FCA 405; (1993) 116 ALR 643.
 (1982) 4 ATPR 43,912, 43,921.
 (1999) ATPR 43,477, 43,503-43,504.
 Ibid 43,510-43,511.
 Ibid 43,509.
 Ibid 43,511.
 (1999) 9 TCLR 305, 311.
 Tonking, 'Competition at risk? New forms of business cooperation' (2002) Competition and Consumer Law Journal 169, 186-189.
 Australian Competition & Consumer Commission v Pauls Ltd  FCA 1586; (2003) ATPR 41-911.
 Ibid 46,626.
  FCA 686; (2003) ATPR 41-945.
 Ibid 47,261.
  ArgusLawRp 52; (1983) 48 ALR 361, 363.
 Heydon, Trade Practices Law (2nd ed, 1989) 2244.
 Australian Competition & Consumer Commission v CC (NSW) Pty Ltd (1999) ATPR 43,477, 43,503-43,504
 Hampton, 'Price Fixing' in Hawes (ed), Butterworths Introduction to Commercial Law (2005) 594.
 US v Socony-Vacuum Oil Co,  USSC 110; 310 US 150, 221-223 (1940).
 Ross, above n 51, 57-58; Blair & Kasserman, above n 52, 169; Gellhorn & Kovacic, above n 51, 197; Hovenkamp, above n 52, 6, 11; Sullivan, above n 52, 225-226; Handler, above n 52, 332.
 See the authorities cited atn 169.
 Heydon, above n 183, 2225.
  NZHC 61;  2 NZLR 662, 700.
  1 NZLR 530, 537.
 Section 5(1) provides:
5. Ascertaining meaning of legislation-
(1) The meaning of an enactment must be ascertained from its text and in the light of its purpose.
(2) The matters that may be considered in ascertaining the meaning of an enactment include the indications provided in the enactment.
(3) Examples of those indications are preambles, the analysis, a table of context, headings to Parts and sections, marginal notes, diagrams, graphics, examples and explanatory material, and the organisation and format of the enactment.
  NZCA 179;  2 NZLR 352, 358.
 Giltrap City Ltd v Commerce Commission  1 NZLR 608, 627; Air New Zealand v Commerce Commission (No 6)  NZHC 1010; (2004) 11 TCLR 347, 400-401.
 OECD, above n 3, 2
 Bennion, Statutory Interpretation (2nd ed, 1993) 663.
 Ibid 735-736.
 Exparte Walton (1881) 17 ChD 746, 756.
 Bennion, above n 196, 736.
 Areeda, 'The Changing Contours of the Rule of Reason' (1988) 54 Antitrust Law Journal 1, 28.
 (1982)4ATPR43, 912.
 Ibid 43,920.
 (1993) ATPR 40,367.
 Blakeney & Freilich, 'The Per Se Prohibition of Price Fixing in Australia' (1986) 60 Australian Law Journal 668; Warner & Trebilcock, 'Rethinking Price Fixing Law' (1993) 38 McGill Law Journal 679, 713; Vary, 'Price Fixing: Flawed Past, Uncertain Future' (1995) 3 Trade Practices Law Journal (1995); Tonking, above n 176.
 Baxt, 'Trade Practices-Price Fixing and Maintaining and a Rule of Reason in Australian Courts' (1983) Australian Law Journal 423, 424.
 Stevens & Dean, 'Horizontal Price Fixing and Competition Collusion: In Search of Workable Boundaries' in Ahder (ed), Competition Law and Policy in New Zealand (1991) 155, 177.
 Australian Competition & Consumer Commission v Pauls Ltd  FCA 1586; (2003) ATPR 41-911, 46,621; Australian Competition & Consumer Commission v Leahy Petroleum  FCA 1678, ; Australian Competition & Consumer Commission v CC (NSW) Pty Ltd  FCA 954; (1999) ATPR 41-732, 43,511-43,512.
  2 NZLR 78.
 Ibid 83.
  3 NZLR 498.
 Ibid 509.
 (1989) 2 NZBLC 104,477.
 Commerce Commission Decision No 277, [130-134].
 Commerce Commission Decision No 280.
 Commerce Commission Decision No 473.
 Ibid [126.]
 Ibid .
 Ibid footnote 21.
 Ibid .
 Ibid .
 (1998) 8 TCLR 372.
 Ibid 387-388.
 Van Roy, Guidebook to New Zealand Competition Laws (1991) Chapter 14.
 Scott, above n 35.
 Corones, 'Substantial Lessening of Competition - Twenty Years On' (1994) 22 Australian Business Law Review 239, 258-264; Hampton, 'Aspects of the Commerce Act' in Borrowdale (ed), Butterworths Commercial Law in New Zealand (1986) 613, 359-660.
 Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) ATPR 41-128.
 General Leaseways Inc v National Truck Leasing Association,  USCA7 965; 744 F 2d 588, 595 (1984).
 Section 61 (b) of the Commerce Act provides:
The Commission shall not make a determination granting an authorisation [pursuant to an application under section 58(1) t o(4)] of this Act unless it is satisfied that-
(a) the entering into of the contract or arrangement or the arriving at the understanding; or
(b) the giving effect to the provision of the contract, arrangement or understanding; or
(c) the giving or the requiring of the giving of the covenant; or
(d) the carrying out or enforcing of the terms of the covenant-as the case may be, to which the application relates, will in all the circumstances result, or belikely to result, in a benefit to the public which would outweigh the lessening in competition that would result, or would be likely to result or is deemed to result therefrom.
 Commerce Commission Decision No 473, .
 Section 31 provides:31. Joint venture pricing exempt from application of section 30
(1) For the purposes of this section-
(a) Joint venture means an activity in trade-
(i) Carried on by 2 or more persons, whether or not in partnership; or (ii) Carried on by a body corporate for the purpose on enabling 2 or more persons to carry on that activity jointly by means of their joint control, or by means of their ownership of shares in the capital, of that body corporate or an interconnected body corporate: (b) A reference to a contract or arrangement entered into, or an understanding arrived at for the purposes of a joint venture shall, in relation to a joint venture by way of an activity carried on by a body corporate in terms of paragraph (a)(ii) of this subsection, be read as including a reference to the memorandum and articles of association, rules, or other document that constitute or constitutes, or is or are to constitute, that body corporate.
(2) Nothing in section 30 of this Act applies to a provision of a contract or arrangement entered into, or an understanding arrived at for the purposes of a joint venture, to the extent that the provision relates to-
(a) The joint supply by the parties to the joint venture, or the supply by the parties to the joint venture in proportion to their respective interests in the joint venture, of goods jointly produced by those parties in pursuance of the joint venture; or
(b) The joint supply by the parties to the joint venture of services in pursuance of the joint venture, or the supply by the parties to the joint venture in proportion to their respective interests in the joint venture, of services in pursuance of, and made available as a result of, the joint venture; or
(c) In the case of a joint venture carried on by a body corporate in terms of subsection (1)(a)(ii) of this section-
(i) The supply by that body corporate of goods produced by it in pursuance of the joint venture; or
(ii) The supply by that body corporate of services in pursuance of the joint venture, not being services supplied on behalf of the body corporate by a person who is the owner of shares in the capital of the body corporate, or a body corporate that is interconnected with such a person.
 Review of the Competition Provisions of the Trade Practices Act (2003) 133-143.
 Trade Practices Legislation Amendment Bill (No 1) 2005 (Cth). The Bill did not pass in the Senate.
 Copperweld Corp v Independence Tube Corp,  USSC 137; 467 US 752 (1984); Texaco Inc v Dagher, US Supreme Court 04-805, 28/2/06.
 Shapiro & Willing, above n 63, 119.
 Network Ten Pty Ltd v TCN Channel Nine Pty Ltd  HCA 14; (2004) 59 IPR 1, 24 (footnotes omitted).
 Peaceable Planet Inc v Ty Inc,  USCA7 161; 362 F 3d 986 (2004).
 Richard Posner is the foremost legal pragmatist. For discussions of pragmatism, see Posner, Overcoming Law (1995); Posner, Law, Pragmatism and Democracy (2003).