Opening address 2010 competition law conference

Australian Rugby Union Ltd v Hospitality Group Pty Ltd & Ors

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Australian Rugby Union Ltd v Hospitality Group Pty Ltd & Ors

  1. The reference to the judgment of Gyles J is a reference to a passage in Australian Rugby Union Ltd v Hospitality Group Pty Ltd & Ors (2000) 173 ALR 702 at [83] where Gyles J comments upon observations of Burchett J in News Ltd v Australian Rugby Football League Ltd (1995) 58 FCR 447 at 478. In News Ltd, Burchett J observed that “the concept of substitutability as a matter of economic theory expresses the basis on which competition may in reality, at least potentially, and at least in the long run, cover a wider field than that marked out by dealings in a particular product” and further observed that framing the market “too narrowly” will “exclude part of the action to be observed” in the market with the result that the market must be “sufficiently broadly delineated”. Burchett J also observed that “commercial reality” would be overlooked if immediate or potential substitutes “significantly restraining the market power of an undertaking” were overlooked.

  2. Accordingly, it seems that Burchett J had in mind, as part of the market, substitutes which “significantly” restrained the market power of an undertaking although the decision is generally regarded as an expression of support for a broad or wide approach to market definition.

  3. Gyles J in Australian Rugby Union Ltd v Hospitality Group Pty Ltd criticised the reasoning of Burchett J in adopting an expansive approach to market definition (as one in which “it is essential that the market be sufficiently broadly delineated”) and emphasised that the purpose of the adoption of s 4E of the TPA was not to specify a wider rather than narrower market but to ensure that the economic understanding of a market as applied in overseas jurisprudence would be applied in Australia, consistent with the analysis undertaken by the Full Court in Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 332 per Lockhart, Wilcox and Gummow JJ and particularly the passage quoted at para 55 of this paper.

  4. In other words, substitution at the margins or some examples of substitution do not broaden the market in a way which would result in the dilution of the effects test, for all practical purposes, for prescribed conduct under the Act. The Full Court in the above quote at [621] adopted the approach of Gyles J to the question of substitutability of major sports but noted that such an approach would not necessarily lead to the conclusion that sports channels featuring marquee sports are not substitutable. In considering the scope of s 4E, the Full Court noted the observation of Professor Corones that “market boundaries should embrace the narrowest range of possible substitutes and only close substitutes should be included” and also noted Professor Corones’s conclusion that the term “otherwise competitive with” in the s 4E definition of “market” should be regarded as no more than “a synonym for ‘substitutable’”.

  5. The Full Court however departed from that conclusion and construed the reference to “substitutable” as a use of the word in a narrow sense whilst the words “or otherwise competitive with” include degrees of “substitutability”.

Market Definition – The Question

  1. At [1870], Sackville J noted that market definition is a tool to facilitate analysis of the processes of competition and of market power and, that being so, the focus of the inquiry must be on the close constraints on Fox Sports as a supplier of sports channels to pay television platforms during the period 1998 to 2000 especially as the existence of the wholesale sports channel market was in issue because Seven contended that Foxtel’s acquisition of the AFL pay television rights and Fox Sports’ acquisition of the NRL pay television rights increased the market power of Fox Sports and Foxtel as suppliers of sports channels thus substantially lessening competition in the contended market.

  2. The Full Court at [623] expressly agreed with that approach and said the existence of a sports channel market in which Fox Sports and C7 were competing depended upon Seven showing that C7’s sports channel with AFL matches (and NRL matches licensed to Optus) were in competition with Fox Sports’ channels with NRL matches, and the competition must be a “close constraint” upon Fox Sports, “closeness being a question of degree”.

  3. As to Seven’s complaint that the primary judge came to a finding of a retail pay television market in reliance on constraints imposed upon contended wholesale suppliers by pay television platforms, the Full Court accepted at [624] that the possible direct acquisition of rights by the platforms was relevant to the functional dimension of the market, the identification of other market participants and barriers to entry.

The SSNIP Test

  1. The Full Court at [631] accepted that the SSNIP test could not be applied quantitatively since there was no evidence of a competitive price. The Full Court regarded the SSNIP test as simply an aid to focusing the inquiry which must proceed upon all evidence concerning the dimensions of the alleged market including evidence of conduct, actions, steps and the opinions of the participants. The Full Court noted that to “a large extent” the appeal addressed the way in which the primary judge dealt with that evidence and use of the SSNIP test to assist him in doing so and in concluding that C7 and Fox Sports were not substitutes in either demand or supply in the alleged market. That conclusion was anchored on four propositions. First, Seven’s expert evidence did not support the contended market. Secondly, an AFL sports channel could not compete with an NRL sports channel. Thirdly, the evidence of conduct said to be occurring in the alleged market was not referable to the subsistence of such a market and fourthly, the views of the market participants had to be discounted for reasons mentioned shortly.

  2. The Full Court accepted the primary judge’s view that Seven’s expert evidence did not support a wholesale sports channel market and then considered the primary judge’s assessment of the conduct evidence and the views of market participants. That evidence was analysed against the background of market structures.

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