Morning Star ordered to pay $50,000 for Commerce Act breach
16 March 2006
Computer parts and systems wholesaler Morning Star Computer Limited has been ordered to pay $50,000 plus $3,624 costs in the Auckland High Court, following an admission that it contravened the Commerce Act by preventing computer parts resellers from advertising its products below certain fixed prices.
The Commerce Commission laid charges against Morning Star for alleged resale price maintenance in October 2005, following an investigation into the conduct of the company over a two-week period in July 2004.
Morning Star admitted that, between 2 and 12 July 2004, it contacted sixteen or more computer parts resellers by telephone to induce them to refrain from advertising six Morning Star products below prices specified by Morning Star. Employees at Morning Star also threatened to impose penalties on those retailers who did not comply with the suggested pricing, and offered benefits to those who did.
Commission Chair Paula Rebstock noted the seriousness of the conduct: "Resale price maintenance prevents price competition in the market."
"By setting retail prices that resellers must follow, suppliers remove consumers' ability to shop around for the best price. In this instance, Morning Star attempted to inhibit competition by actively coercing resellers to sell at the prices it recommended, including threatening resellers with financial penalties."
During the course of its investigation, the Commission obtained backdated price comparison information from the PriceSpy website, a website providing pricing information on products, such as computer parts, available throughout New Zealand from various resellers. The information showed a number of resellers raised their advertised prices for the six products to the prices specified by Morning Star on or around the date of the communication from Morning Star.
In her judgment, Justice Frater commented that the conduct had the result of depriving the market of price competition. However, she also noted that Morning Star had co-operated with the Commission during its investigation and has since instigated a Commerce Act training programme for all staff.
Section 37 of the Commerce Act 1986 prohibits resale price maintenance by suppliers.
Resale price maintenance occurs when a supplier of goods specifies the minimum price that a reseller can charge for those goods. Suppliers are allowed to issue recommended retail prices for goods, but they cannot enforce any minimum price.
Penalties the Courts may impose for breaches of the Commerce Act include:
- Pecuniary penalties of up to $10 million or three times the value of any commercial gain, expected or actual, resulting from the breach;
- Pecuniary penalties of up to $500,000 on an individual; or
- Order an individual to be excluded from managing a business.