Omni channel without omni risk: How to manage multiple channels to market under Australian competition law

Most businesses today have multiple channels to market. Channel management can be commercially tricky and there are also significant legal risks, particularly if different methods of distribution - direct to consumer, reseller, intermediary, agency - are chosen for different channels. This article discusses the top 5 competition law risks for consumer-facing businesses, and how to manage them.

• 1. Channel management: Coordination and information sharing
• 2. Channel management: Pricing controls and resale price maintenance
• 3. Merger control
• 4. Unfair contract terms
• 5. Greenwashing and ESG collaboration

1. Channel management: Coordination and information sharing

The commercial driver:There are various legitimate reasons a company may wish to coordinate and share information with its channel partners, like driving efficiency, expanding into new markets and planning and supporting product promotions.

The risks: When a company towards the top of the supply chain (a manufacturer or importer) sells directly to consumers (including through an online store), and uses other channels (like bricks and mortar retailers, aggregators or other online retailers), the company will often compete with channel partners, and each of its channel partners will compete with each other. Cartel conduct and concerted practices risks can arise out of certain types of coordination with, and amongst, channel partners. This can happen where competing supply chain participants agree on any component of price (including discounts), the allocation of customers or geographic markets or any restriction on supply, or where exclusivity arrangements are mismanaged. Even where a company has a structure in place that manages those risks, it must still be alert to the potential for sharing competitively sensitive information with channel partners to present a competition law issue.

How to mitigate: First, it is important to obtain legal advice when structuring distribution systems and drafting contracts to avoid common pitfalls. Second,wesuggest implementing practical guidance and training for all team members that deal with channel partners. This should include "hard" rules about what to avoid and "softer" guidelines covering how best to communicate and document dealings with channel partners in a way that furthers business outcomes without activating legal risks. Third, structural and procedural frameworks may also be needed. For example, in some circumstances, it may be necessary to "ring fence" certain information received from channel partners in order to avoid problematic information flows and usage.

2. Channel management: Pricing controls and resale price maintenance

The commercial driver:Companies may wish to encourage the resale of their products by channel partners at prices that reflect the value of their brand (particularly for premium products) and discourage selling below those prices. Companies may also want to ensure consistent pricing levels across channels, and/or prevent undercutting.

The risks:Competition law prevents companies that supply products for re-supply from stopping channel partners discounting or incentivising them to price above a certain level - this is known as resale price maintenance. It is also illegal for competitors (which can include the company and its channel partners, like aggregators and white-labellers) to agree on any component of the price they supply their goods or services - this could be price-fixing, a form of cartel conduct (which can be prosecuted criminally).

How to mitigate: Great care must be taken when considering omni-channel pricing controls due to the risk of both horizontal price-fixing and also resale price maintenance. There are some structures under which pricing can be vertically controlled. Agency arrangements with resellers are one example. However, even in a vertical context, in addition to resale price maintenance issues, horizontal price-fixing considerations must be taken into account, and much care must be taken at the pricing and promotion stages. In some cases, restructuring wholesale pricing arrangements may help achieve the desired price outcome.

3. Merger control

The commercial driver: With the economy slowing, opportunities may arise to acquire competitive or complementary businesses, or businesses whose operations would allow the acquirer to vertically integrate or expand into new geographic markets. This can be an attractive way to grow market share, increase efficiencies and/or reduce input costs.

The risk: Mergers and acquisitions that are likely to substantially lessen competition are prohibited. Engagement with the Australian Competition and Consumer Commission (ACCC) is advisable where the products or services supplied by the parties to a potential merger are substitutes or complements for one another, and the merged firm would have a market share of over 20% in any market. The ACCC review process usually takes around 6-12 weeks, but more complex cases may require up to 6 months. A significant overhaul of Australia's merger laws was announced in April 2024. The changes, which will come into effect on 1 January 2026, will introduce a mandatory notification regime for transactions over certain (yet to be determined) thresholds, and add greater accountability and transparency in the review process by the ACCC.

Consistent with the ACCC's current focus upon mergers that could reduce choice for consumers and put further pressures on the cost of living, the changes to the merger laws seek to prevent "creeping acquisitions" that entrench a dominant position in a market. Channel structures will therefore be very relevant to whether or not smaller acquisitions are captured by the laws.

How to mitigate: Where there is a potential competition impact, seek expert competition law advice early so as to avoid the risk of regulatory clearance destabilising deal strategy and timelines. Stay tuned for further updates from us on the mandatory notification regime.

4. Unfair contract terms

The commercial driver:Businesses generally aim to minimise exposure and maximise flexibility under standard form contracts to put themselves in the optimal commercial position.

The risk:The prohibition against "unfair" contract terms in consumer and small business standard form contracts was broadened at the end of 2023, and large penalties now apply. This means it is now illegal for standard form contracts to contain unfair terms, and for businesses to rely on them. Penalties apply for each "unfair" term. The prohibitions also now capture a much larger group of business than previously; business with up to 100 employees or less than $10 million turnover now count as "small". This is all much more hard-line than previous position, where a term found to be "unfair" was simply deemed void and was unable to be relied upon.

The way to mitigate:Businesses should ensure they have reviewed all standard form contracts that they offer consumers or small businesses and obtained expert legal advice on potentially unfair contract terms. A view will need to be taken, based on available precedent and guidance materials, on whether terms are "unfair", or whether they are protecting legitimate commercial interests. To create a compliance record, the outcomes of the review process, like the reasons for amending certain terms and not others, should be recorded in a format that can be easily presented to the ACCC if needed. If consumers or small businesses raise concerns about particular standard form contract terms, a conservative approach may be prudent, given the stakes are now higher.

5. Greenwashing and ESG collaboration

The commercial driver: Due to the growing weight that consumers and other stakeholders are placing on environmental and sustainability, businesses want to continue to make, and are often seeking ways to increase the visibility or scale of, their claims in this space.

The risks: The risks are twofold -

• There is a risk under the Australian Consumer Law around "greenwashing" itself - the risk of making false or misleading representations about sustainability characteristics or achievements. This is becoming a significant disputes risk for companies globally from both consumer groups and regulators, and the ACCC is an active enforcer in this space. In particular, stating "net zero" ambitions or making claims of carbon neutrality, without substantiating evidence and adequate due diligence, will present material risk.
• There is also a risk under competition law where companies seek to collaborate with their competitors in order to either achieve or measure ESG-related outcomes - such initiatives can be positive for sustainability but risk breaching competition laws.

The ACCC has established a dedicated taskforce to focus on these issues. Read our article here.

The way to mitigate: Businesses must ensure the impression created by ESG claims is aligned to facts and supported by evidence. For planned collaborations, expert advice should be sought early on structure and approach to pre-empt competition law concerns.