Competition Update - April 2019
Last week, the Commerce Commission (Commission) warned a Christchurch-based business for attempting to fix prices via WhatsApp messages. It is a reminder that all improper communications between competitors can give rise to serious consequences.
This reminder is particularly timely given the Cartel Criminalisation Bill was enacted this month, making cartel conduct a criminal offence subject to seven year jail terms from April 2021 and giving the Commission powers to intercept private communications, including texts and emails.
On 18 April 2019, the Commission issued a formal warning to Christchurch pipeline maintenance firm, Quik-Shot Limited, for discussing prices via WhatsApp messages with a competitor (Pipeworks).
Pipeworks' parent company Fletcher Construction reported the behaviour (presumably) taking advantage of the Commission's Cartel Leniency Policy to obtain immunity from any Commission enforcement action.
Pipeworks employees had sent WhatsApp messages to Quik-Shot's director letting him know what Pipeworks was quoting for an upcoming project, and recommending a price range that Quik-Shot should use to win the contract. The director of Quik-Shot confirmed receipt and submitted a quote in the recommended range.
The Commission's view was that this was a price fixing understanding between competitors – because the WhatsApp exchanges had the purpose and/or effect of controlling or maintaining the prices that Quik-Shot submitted to the customer.
In this instance, the Commission chose to issue a formal warning (rather than commence proceedings) because the conduct:
- was limited in duration (an isolated occurrence); and
- unsuccessful (the customer ultimately chose to proceed with the higher priced offer submitted by Pipeworks).
A copy of the Commission's warning letter can be viewed here.
This enforcement action is very much limited to the facts. In other cases, the mere fact that cartel conduct is limited in duration and unsuccessful has not resulted in the Commission agreeing to take no enforcement action where the conduct is intentional and a clear breach of the law. This lack of consistency may well cause problems for the Commission's enforcement in the future.
Internationally, there is an increasing trend for cartel conduct to occur on social media. In the same week, the US Department of Justice (DOJ) announced that the president of an e-commerce company had pleaded guilty to using "social media platforms and encrypted messaging applications, such as Facebook, Skype and WhatsApp, to reach and implement their illegal [price fixing] agreement."1 In making that announcement, the DOJ said:
“The Department and its law enforcement partners are committed to detecting and preventing collusion carried out using encrypted messaging applications and social media platforms.”
The New Zealand Commission's power to monitor social media channels will increase once cartel conduct becomes a criminal offence in April 2021 as the Commission will gain the surveillance and interception powers of other criminal enforcement agencies under the Search and Surveillance Act 2012.
Businesses should consider using the two-year lead-in time to review their compliance regimes, and ensure their employees are well educated on the types of conduct and communications that give rise to risks under the cartel prohibitions.
If you have any questions about the above, or about readying your business for the criminalisation of cartel conduct, please contact Sarah Keene or Troy Pilkington.