Online Trading, Competition and Consumers: What Smart Retailers Need To Know ACCC Deputy Chair Dr Michael Schaper NORA Retail Deep Dive Sydney, August 2014

Key Issues for Online Retailers Refusal to deal Exclusive dealing Drip pricing Fake online reviews Price comparison websites Group buying Consumer guarantees Price discrimination Product safety Resale price maintenance

Outline The ACCC: What we doThe Australian Consumer LawEmerging consumer issuesCommon competition questionsFurther information

1. What We Do Competition & Consumer Act 2010 Lawful Competition Consumer Protection & Product Safety Regulated Infrastructure Making Markets Work

The ACCC: What We Do National regulator: oversees laws on consumer protection, equitable competition, product safety, infrastructure access Also regulates some specific industries (such as energy, telecommunications), industry codes (franchising, horticulture) and price monitoring (airports, postage, stevedoring) An independent statutory agency within the Treasury portfolio Seven commissioners (statutory appointments), offices in each state Dual educative and enforcement function Enforcement agency … does not set policy

Part of the Competition & Consumer Act 2010 (previously known as the Trade Practices Act 1974) Covers matters such as: o Unsolicited sales practices o Misleading & deceptive conduct o Unfair contract terms o Consumer guarantees o Product safety Applies to all businesses, regardless of whether products are sold in a ‘bricks and mortar’ shop or online Enforced by both ACCC and state/territory fair trading agencies… ACCC responsible for issues that have a national dimension 2. Australian Consumer Law

Misleading or Deceptive Conduct / False or Misleading Representations Penalties: Misleading or deceptive conduct: injunction, damages, disqualification order False or misleading misrepresentations: Up to $220,000 – individuals, $1.1 million - corporations. To promote honesty & fair dealing, ACL bans businesses from: –engaging in any form of conduct that is misleading or deceptive, or is likely to mislead or deceive –making false or misleading representations (claims, statements) about goods, services, land, employment opportunities, or certain businesses activities What sort of conduct is likely to mislead or deceive? Need to consider the overall impression created - is false or inaccurate?

3. Fake Online Reviews Online reviews increasingly popular consumer resource ACCC concerned about increase in paid for and fake reviews. Businesses & review platforms need to ensure consumers are not misled. Three core principles to abide by: be transparent about commercial relationships don’t post/publish misleading reviews omitting negative reviews can be as misleading as posting fake reviews.

Electrodry Case: Alleged Fake Online Reviews July 2014: ACCC took court action against A Whistle (1979) Pty Ltd, franchisor of the Electrodry Carpet Cleaning business. It is alleged testimonials were written and posted by people associated with, or contracted to, Electrodry - and not by its genuine clients (as the testimonials implied). ACCC alleges that Electrodry’s conduct resulted in fake testimonials appearing on review sites, including Google and True Local. It is alleged Electrodry induced (or attempted to induce) franchisees to make false or misleading representations by posting fake testimonials online. Photo source: SMH Online

What is Drip Pricing? Process where a headline price is advertised at the beginning of an online purchasing process … but additional fees and charges which may be unavoidable are then incrementally disclosed. Draws consumers into an online purchase process … but fails to provide sufficient upfront disclosure of the additional fees. Unfairly impacts on both consumers (misled about total cost) and honest other firms (who disclose full price upfront).

Drip Pricing Court Action Against Jetstar & Virgin In June 2014, the ACCC instituted separate proceedings in the Federal Court against Jetstar Airways Pty Ltd and Virgin Australia Airlines Pty Ltd The ACCC alleges each airline engaged in misleading or deceptive conduct and made false or misleading representations in relation to particular airfares The ACCC alleges ‘booking and service’ fees applied to the majority of online bookings – but were not immediately obvious. Should have been disclosed upfront, prominently within headline prices. Photo source: 2GB Online

Price Comparison Websites Especially are popular in energy, travel and insurance sectors. Can improve transparency and promote competition; however, can sometimes mislead consumers in significant ways. Issues can include market coverage, disclosure of commercial relationships, frequency of data updates, privacy and accessibility issues. ACCC working with industry to improve standards; may also take enforcement action where appropriate.

Court Action Price Comparison Websites: ACCC v Energy Watch 2012: Federal Court ordered Energy Watch Pty Ltd to pay $1.95m for misleading advertising. Former CEO ordered to pay $65,000 for his voiceover role in misleading radio advertisements. Misleading advertising related to claims about the firm’s price comparison service and savings consumers would make by switching energy retailers. Court found the advertising had: –falsely represented that the Energy Watch service compared the rates of all or many of the energy providers in a person's area. –falsely represented the level of $ savings that residential and business energy users would make if they switched energy retailer via Energy Watch.

Group Buying In December 2013, the Federal Court ordered Scoopon to pay pecuniary penalties of $1 million for making false or misleading representations to both businesses and consumers about : refund rights, price of some deals business costs and risks, and the rate of voucher redemptions. In June 2014, the ACCC took court action against Spreets Pty Ltd. We allege Spreets engaged in misleading and deceptive conduct and made false or misleading representations about: the price of certain deals ability to redeem vouchers refund rights. The ACCC and other fair trading agencies were concerned about: shoppers being misled about their refund rights price and restrictions on a deals not clearly and accurately stated

Product Safety All businesses who supply products to Australian consumers must comply with Australian product safety laws. Need to ensure online consumers can properly assess whether the product is safe: clearly display warnings & product labelling use good quality product images provide clear product descriptions, including recommended usage and age-grading for children’s products check the requirements of Australian safety standards and bans prior to listing a product for sale Consumer product safety online guide is available at

Selling Safe Products Online: Are You Aware Of Mandatory Reporting? Suppliers must notify the ACCC if they become aware that a consumer good they supply may have caused death or a serious injury or illness Includes online suppliers Reports must be provided within two days Is not an admission of liability or responsibility Reports must include details (to the extent known) about: –the product –the death or injury –the supplier’s response

4. Imposing Minimum Resale Prices Retailers should be free to set their own prices. It is illegal for suppliers to: –put pressure on businesses to charge their RRP or any other set price (e.g. by threatening to stop supplying to firm) –stop resellers from advertising, displaying or selling goods from the supplier below a specified price There is nothing wrong with suppliers using a RRP list - as long as prices on that list are really just recommended (not enforced!) Penalties Individuals – Up to $500,000 per contravention Corporations – $10 million per contravention OR three times the total value of the benefits obtained by one or more persons OR 10% of the annual turnover of the company in the preceding 12 months

Supplier of Aquarium Products Prevented Online Discounts In August 2011, AquaDepot Imports admitted to engaging in resale price maintenance by ceasing to supply an online retailer who discounted aquarium products below a specified price.

Exclusive Dealing Exclusive dealing arrangements are a feature of the Australian retail environment. A common complaint from online businesses is that suppliers will not provide them with certain goods because they sell online. Restrictions may be prohibited under the Act if the restriction results in a substantial lessening of competition. Penalties Individuals – Up to $500,000 per contravention Corporations – $10 million per contravention OR three times the total value of the benefits obtained by one or more persons OR 10% of the annual turnover of the company in the preceding 12 months

ACCC Infocentre: