Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd

Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd - [2008] FCAFC 141 - FCAFC 2008 case summary — Zoe

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INTRODUCTION 1 This appeal concerns the lawfulness of certain conduct of Baxter Healthcare Pty Ltd (Baxter), a manufacturer and supplier of sterile fluids and PD products and fluids (as explained in [17]-[22] below). 2 The Australian Competition and Consumer Commission (the ACCC) alleged that Baxter had variously contravened ss 46 and 47 of the Trade Practices Act 1974 (Cth) (the Act) by negotiating, tendering for, and entering into five long-term contracts between 1998 and 2001 with New South Wales, South Australia, Western Australia, Queensland and the Australian Capital Territory through their respective State Purchasing Authorities (SPAs). 3 The five contracts in issue (the impugned Agreements) were: (1) the 1998 New South Wales Supply Agreement between Baxter and NSW made in June 1998 for the supply of its entire requirements of certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 18 May 1998 to 30 April 2003 (the 1998 NSW Agreement); (2) the 2001 South Australian Supply Agreement between Baxter and SA made on or about 1 May 2001 for the supply of its entire requirements of certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 1 April 2001 to 30 March 2006 (the 2001 SA Agreement); (3) the 2001 Western Australian Supply Agreement between Baxter and WA made on or about 2 May 2001 for the supply of its entire requirements of certain sterile fluids and 90 per cent of its requirements for PD fluids for the period 1 March 2001 to 28 February 2006 (the 2001 WA Agreement); (4) the 2001 Queensland Supply Agreement between Baxter and QLD made on or about 17 April 2001 for the supply of its entire requirements of sterile fluids (excluding PN fluids) and 92.5 per cent of its requirements for PD fluids for the period 1 June 2001 to 31 May 2004 (the 2001 QLD Agreement); and (5) the Australian Capital Territory Health Agreement between Baxter and the ACT made in or about March 1988 for the supply of its entire requirements of certain sterile fluids and 90 per cent of its requirements for PD fluids for the period March 1999 to April 2003 upon the terms of the 1998 NSW Agreement (the 1999 ACT Agreement). 4 In essence, at trial the ACCC alleged that sterile fluids other than PD fluids, and perhaps PN fluids, could be viewed as bulky water-based products, described as "high volume low value", in which Baxter had an effective monopoly. It was the only manufacturer in Australia of those products, as importation costs of carrying "water on water" made competition in relation to sterile fluids very difficult. Although Baxter was also the main manufacturer in Australia of PD fluids, being fluids of lesser volume or bulk and of higher value, its PD fluids were exposed to real import competition. The ACCC then claimed that the "bundling" of PD products with the "monopoly" sterile fluids by Baxter in its tenders eliminated from effective competition the rival PD fluids suppliers as they either did not wish to, or could not, compete with Baxter in the supply of sterile fluids. 5 The ACCC then alleged that Baxter had contravened s 46 of the Act by taking advantage of its substantial market power in the sterile fluids market for the purpose of harming competitors or preventing competition in the PD fluids market. It did so by negotiating and entering into the impugned Agreements with NSW, SA, WA, QLD and the ACT requiring each of those States and the ACT to acquire sterile fluids exclusively from Baxter and between 90 and 100 per cent of its PD fluids from Baxter. That was because Baxter offered prohibitively high item-by-item prices (the so-called "cherry pick" prices) as one of its bases for tender so as to compel the States to agree to exclusive supply contracts for the supply of sterile fluids, bundled with PD products, for lengthy periods. The "bundled" prices were significantly lower than the item-by-item tender, in effect for a sole supply agreement. That conduct, the ACCC alleged, took advantage of Baxter's market power in the sterile fluids market or markets, because otherwise it would not or could not have been able, under competitive conditions, to force the States to take the bundled offer by threatening prohibitive prices for sterile fluids. That conduct, the ACCC also alleged, harmed both actual and potential competition in the PD fluids market, namely two foreign entities through their Australian subsidiaries Fresenius and Gambro (referred to in [31]-[33] below), because those companies were unable to compete in the market or markets for sterile fluids. Hence, it was alleged, Baxter sought to eliminate or substantially damage its competitors Fresenius and Gambro in the respective PD fluids market or markets, and to deter or prevent them and other potential competitors from engaging in competitive conduct in the respective PD fluids market or markets. 6 The ACCC presented a series of alternate markets to make out its claimed contraventions of s 46 of the Act. They included Baxter's taking advantage of a substantial degree of power in the sterile fluids market or markets, by negotiating and entering into the impugned Agreements with a purpose or purposes contrary to s 46(1)(a) or s 46(1)(c) in relation to the PD fluids market or markets, either a national market or separate markets in NSW, SA, WA and QLD. As the findings of the primary judge about the relevant markets are no longer in issue, it is not necessary to refer to the other putative markets put forward by the ACCC. 7 The allegations of the ACCC concerning contravention of s 47 of the Act were based largely upon the same factual matters. In addition to its tendering conduct, the ACCC claimed that from 18 May 1998, 1 April 2001 and 1 March 2001 Baxter had supplied sterile fluids and PD fluids to NSW, SA and WA respectively under the 1998 NSW Agreement, the 2001 SA Agreement and the 2001 WA Agreement, and from 1 June 2001 it had supplied sterile fluids and PD fluids to QLD under the 2001 QLD Agreement. The conduct was said to be offering to supply, or the supply, of those products, or their supply at a particular price, on the condition that the State would not, or would only to a limited extent, acquire such PD fluids from a competitor of Baxter. Thus exclusive dealing as described in s 47(2) of the Act was said to be satisfied. The various claims under s 47 were also made in a framework of a range of alternative markets, by reference to markets variously for PD fluids, LVP fluids, PN fluids, IS and more broadly sterile fluids (as those terms are explained in [17]-[22] below. The conduct was the negotiating, entering into and supplying pursuant to each of the impugned Agreements. The wrongful substantial purpose alleged was to substantially prevent, hinder or lessen competition in one of the four following markets: separate State-bound geographic markets for PD fluids; a combined national market for PD fluids; a separate national wholesale market for LVP fluids, PN fluids and IS; or a combined national wholesale sterile fluids market. Additionally, and alternatively to the purpose alleged, it was said that the conduct had the effect or likely effect of substantially preventing, hindering or lessening competition in those markets.

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THE DECISION AT FIRST INSTANCE AND THE APPEAL 8 The primary judge determined that the Act, in the circumstances, did not apply to, or operate in respect of, the conduct of Baxter complained of by the ACCC (Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 581, (2005) ATPR 42-066). The reason for that conclusion was that the States and the ACT were entitled to Crown immunity in respect of their conduct in negotiating and entering into the impugned Agreements. The States and the ACT were not carrying on business in calling for tenders, negotiating or entering into the impugned Agreements: see s 2B of the Act. No relief was sought directly against them. The primary judge then concluded that Baxter, as the counterparty to the impugned Agreements, was entitled to derivative Crown immunity in respect of the conduct complained of. 9 Consequently, the proceedings were dismissed. 10 The primary judge, however, considered the outcome if the Act had applied to Baxter's conduct notwithstanding that the Act did not, in the circumstances, apply to the conduct of the SPAs of each of the States and the ACT. His Honour would have found that only one contravention of s 46 of the Act had been made out. That was the contravention of s 46 by entering into the 2001 SA Agreement by reason of what is called Offer 1A made by Baxter to SA (the Offer 1A Contravention). 11 His Honour would also have concluded that Baxter contravened s 47 of the Act by its conduct in its tenders for, and negotiations in relation to, each of the impugned Agreements, but not by entering into the impugned Agreements themselves. 12 The ACCC appealed from that decision. Baxter by Notice of Contention challenged the conclusions of the primary judge which were adverse to it. The Full Court dismissed the appeal: Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2006) 153 FCR 574; [2006] FCAFC 128. The Full Court's conclusion was that, as the primary judge had found, the provisions of the Act did not apply to, or operate in respect of, the conduct of Baxter in negotiating and entering into and supplying under the impugned Agreements with the SPAs of the States and the ACT. 13 The High Court reversed that decision: Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 81 ALJR 1622. The High Court remitted the matter to the Full Court to consider the other issues raised on the appeal from the first instance decision. They include matters raised by the ACCC and matters raised by Baxter in its Notice of Contention.

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BACKGROUND 14 The hearing at first instance was prolonged and the evidence complex. The primary judge made carefully considered findings on a range of issues relevant to the principal matters in contention. Most of his Honour's findings on background matters were not challenged on appeal. The following background is taken very largely from the reasons for judgment of the primary judge. Where there is a factual finding challenged on appeal which is significant to the outcome of the appeal, it is discussed when considering the grounds of appeal. 15 Baxter is the Australian operating subsidiary of Baxter International Inc (BI Inc), a global medical products and services company incorporated in the United States. BI Inc has three divisions, namely BioScience (products relating to blood), Renal (dialysis products) and Medication Delivery (intravenous products). Baxter supplies in Australia products of each of those divisions. Baxter in fact manufactures in Australia the majority of the products it supplies in Australia. Relevantly, it manufactures and supplies intravenous (IV) solutions, peritoneal dialysis (PD) fluids and parenteral nutrition (PN) products. 16 The alleged conduct took place in the context of State-wide tender invitations issued by each of NSW, SA, WA and QLD for the supply of certain sterile fluids to public hospitals, clinics and other facilities funded by the States and Territories. (As the judge at first instance did, I shall call them "Health facilities"). Baxter tendered, in each instance, by offering to supply tender items on an item-by-item basis (at so-called high "cherry-pick" prices), and alternatively to supply the same items on an exclusive sole supply basis for a lengthy period and for substantially lower prices. The sole supply included PD fluids. 17 The invitations to tender, in each instance, concerned irrigating solutions (IS), large volume parenteral (LVP) fluids, PN fluids and PD fluids and products. LVP fluids are sterile fluids that are administered intravenously by slow infusion therapy for the purpose of re-hydration, the administration of drugs, resuscitation, and fluid and electrolyte replacement. LVP fluids are used when the amount of fluid required is greater than 250 ml and are used to treat approximately 80 per cent of all patients admitted to hospital. There are no products that are substitutable for any or all LVP fluids. At all relevant times, the largest purchasers of LVP fluids were the relevant SPAs on behalf of Health facilities. And, at all relevant times, there was an established and entrenched demand for LVP fluids by Health facilities, private hospitals, medical practices and ambulance services. 18 Small volume parenteral fluids (SVP fluids) are used to perform or facilitate injections and reconstitute pharmaceuticals. They are stored in volumes of 250 mls or less in vials, ampoules and small bags. They are administered intravenously, but not by slow infusion therapy. 19 PN involves the provision of nutrition by intravenous sterile solutions to provide all or part of a patient's nutritional requirements where the patient is unable to digest food. PN fluids are produced by dissolving water soluble ingredients such as amino acids, glucose or salt in water, and then placing the solutions in containers. There are about 30 types of PN fluid used by hospitals and nursing homes. Enteral nutrition (EN) involves the provision of food to a patient via the digestive tract, either by mouth or by tube inserted into the stomach or small bowel. PN and EN fluids are produced in separate facilities to avoid cross-contamination due to their different qualities. EN is less expensive than PN, and is safer because of a lower risk of infection. EN also maintains the nutrition of the gut mucosa better than PN as PN is only utilised when EN is not feasible. PN and EN are substitutable, unless the patient's gastro-intestinal tract is not functioning. There is an established and entrenched demand for PN fluids. At relevant times, the largest purchasers of PN fluids were the relevant SPAs on behalf of their respective Health facilities. 20 IS are aqueous based products used generally in hospitals for a range of purposes, including washing or cleaning wounds or in surgery. They are sterile, but are not suitable to perform the function of LVP fluids, so they cannot be substituted for LVP fluids. There are no products substitutable for IS. There is an established and entrenched demand for IS. They are used in almost every operation or surgical procedure. They are used by hospitals, medical practices and ambulance services. At relevant times the largest purchasers of IS were the relevant SPAs on behalf of their respective Health facilities. 21 PD is a form of dialysis treatment for chronic renal failure. Renal failure can also be treated with haemodialysis and related treatments (HD) or by kidney transplant. PD removes waste products from the blood by osmosis using the peritoneum, that is the membrane covering the intestinal organs in the abdominal cavity, as a filter. The process involves using a surgically implanted catheter and a sterile dialysis solution which is introduced into, and removed from, the patient's peritoneal cavity several times a day. Most PD treatments are self-administered. PD treatment can be administered whilst ambulatory, or during sleep. I shall use the term "PD fluids" to include PD fluids and ancillary PD products such as lines for fluid connection, locks for the connections and bags for fluids, simply for the purpose of consistency. 22 HD treatment involves the patient's blood flowing outside the body through disposable bloodlines into a specially designated filter: the dialyser. The dialyser assumes the function of an artificial kidney and the dialysis solution carries away waste products. The process is controlled by an HD machine, and is usually required by a patient about three times a week. HD itself does not involve the use of sterile fluids, although some related treatments do so. As did the trial judge, we shall use the term HD to cover all those treatments. 23 Subject to certain medical conditions, PD and HD are not mutually exclusive. Some patients have a choice of treatment. The advantage of PD is that it is portable and easily administered at home or in the workplace. It is often recommended for patients with some residual renal function as it maintains that function for a longer period than HD. PD however can only be used by a patient with a functioning peritoneal membrane, and it carries a risk of infection, so patients are often forced to move from PD to HD. Eligible patients may remain on PD for five to eight years before the peritoneal membrane fails. 24 A range of factors influences choice about using PD or HD: age, health, residual renal function, convenience, the desire for the more intermittent HD treatment, diet and others. In Australia in 2001, there were about 5,000 HD patients and about 1,915 PD patients. In 2002, the annual treatment cost for PD was $20,000 to $25,000 per patient and for HD was $24,000 to $55,000 per patient. 25 There is an established and entrenched demand for PD fluids. The purchasers of PD fluids are the Health facilities and a very small number of private hospitals. As kidney disease in Australia is increasing, so too is the number of patients requiring dialysis. At relevant times, the largest purchasers of PD fluids were the relevant SPAs on behalf of their respective Health facilities. Historically, PD has been provided to patients through the public hospital system. Each SPA purchases the total needs of PD patients within the State. The prices paid for PD fluids vary between States. PD patients, even though self-administering, require regular trained monitoring, generally only available at major public hospitals with renal units. 26 The primary judge concluded that there was an Australia-wide sterile fluids market, which included LVP, IS and PN fluids, and a separate Australia-wide PD fluids and products market (which, again for ease of reference, I shall call the PD fluids market). Those conclusions were not challenged on appeal. Consequently, beyond the above descriptions of the functions of the various products, it is not generally necessary to separately refer to the particular fluids or products in these reasons beyond the categories of sterile fluids and PD fluids. Nor is it generally necessary to refer further to the evidence and findings directed to identifying the relevant markets. Those issues, alive at trial, are no longer contentious. In general terms, the sterile fluids market was a broad one comprising a range of sterile fluids for the purposes described, but excluding dialysis products, and the PD fluids market was a separate market for the supply of dialysis products (excluding HD). 27 His Honour's reasons for the conclusion that there were two relevant markets, should be briefly noted. Although warehousing and distribution of product is necessarily local, the conduct complained of was alleged to have its effect in preventing competition in the one non-substitutable product market for PD fluids. That market would be supplied by importation or by local manufacture. The ability of a competitor to compete with Baxter depended upon the competitor getting a sufficient share of PD sales nationally to make it worthwhile to sustain the cost of the proposed competitive activity in, or into, Australia in relation to PD. That would be so whether PD fluids were imported or manufactured locally. Baxter manufactures within Australia at one plant and supplies PD fluids to all States of Australia, to New Zealand and to the Pacific Islands. 28 The structure of the industry, involving specialist renal companies, assisted in recognising the important difference in function between sterile fluids (LVP, IS and PN) on the one hand and PD fluids on the other. The sterile fluids products and PD fluids are functionally quite separate, and are non-substitutable. They attract separate and distinct patient bases. PD is the product foundation for specialist renal companies. Because imported PD fluids is a viable option compared to local manufacture, the fact that it may be uneconomic to manufacture only PD fluids in Australia and the fact that Baxter could manufacture PD fluids in Australia in the same plant and with the same equipment as it produces sterile fluids, did not point to one only sterile fluids (including PD fluids) market in Australia. There were therefore separate Australia-wide markets for sterile fluids and for PD fluids. 29 The primary judge concluded that PD fluids have a separate importance to Baxter as a high value product, "sufficiently segregated and distinct" to be viewed separately from sterile fluids. 30 There were four entities identified as competitors or potential competitors of Baxter in the sale of sterile fluids and PD fluids in Australia. They are Gambro (Gambro), a subsidiary of Gambro AB, a Swedish company, Fresenius AG (Fresenius), a publicly listed German company, B Braun Australia Pty Ltd (B Braun), a subsidiary of B Braun Melsungen AG (B Braun AG), a German based multinational health care organisation, and Abbott Australasia Pty Ltd (Abbott), a subsidiary of the US health care products and services company Abbott Laboratories. 31 Gambro AB has been involved in renal dialysis for many years. It commenced business in Australia in 1975. It is a specialist renal and dialysis company. It has manufactured haemofiltration fluids in Australia from 1985 and has been selling imported HD fluids in Australia since 1986. Since 1991 it has been manufacturing HD fluids in Australia. It has manufactured PD fluids in Australia since 1990. From a time well before the impugned Agreements, it was making a concerted effort to gain HD and PD business in Australia. It supplies, and provides support for, renal equipment and it owns and operates dialysis clinics. It manufactures HD concentrates and solutions for PD and haemofiltration. It offers the full range of HD products. Its PD products are extensively used in the Sydney Dialysis Centre and in other major hospitals. 32 Frensenius is also a worldwide company. One of its three divisions, Fresenius Medical Care, operates in Australia. It is a worldwide specialist dialysis group. From 1996, Fresenius began offering HD and PD fluids in Australia, and it manufactures HD fluids in Australia and imports other HD products. It imports PD fluids. Through another of its divisions, it has supplied PN fluids in Australia through Baxter. 33 Each of Gambro, Fresenius and Baxter regard themselves as competitors in the global dialysis industry. In Australia, Fresenius regarded Gambro as the dominant HD supplier in 1996 but with a small share of the PD fluids market, and it regarded Baxter as the dominant PD supplier but with a small share of the HD market. Fresenius by the hearing claimed to have some 50 per cent of the HD products market, but less than 5 per cent of the PD fluids market. 34 The ACCC claimed that the impugned Agreements and their predecessors, and the conduct leading up to them, had prevented both Gambro and Fresenius from making any headway in the PD fluids market. 35 Abbott at material times imported and supplied in Australia EN fluids and products. Until 1992 it manufactured and supplied LVP in Australia but it no longer does so. It also imported and supplied PN fluids in Australia in 1987 only. 36 B Braun AG supplies some 40 per cent of each of the North American and German markets for IV fluids. It manufactures sterile fluids and PD fluids, but not in Australia. In Australia B Braun supplies certain intravenous therapy, a colloidal volume replacement and surgical instruments. Although B Braun has a full range of IV products, haemodialysis products and some PD fluids registered under the Therapeutic Goods Act 1989 (Cth) (the TGA), including about 80 per cent of the LVP fluids called for in the 1997 NSW request for tenders, it did not sell them in Australia at the relevant time. It did not have any PN fluids registered in Australia. 37 The primary judge noted that certain other companies participate and have participated in Australia in the selling of "relevant or cognate" products. Tyes Healthcare Australia Pty Ltd sells saline solutions in Australia, largely to pharmacies, as lens cleaners; it does not market that product as IS. It does not intend to market a full range of saline solutions. Five other companies were noted as manufacturing or selling IS in small quantities. Astra Zeneca, an Australian subsidiary of a British based multinational group and one of Australia's leading suppliers of pharmaceuticals, used to manufacture IS but has ceased to do so, and also does not intend to manufacture LVP fluids although it has a plant capable of doing so. 38 It is also convenient to note certain other findings made by the primary judge which were not, or are no longer, contentious. They concern the history of State contracts, prior to the impugned Agreements, for the supply of sterile fluids and PD fluids. His Honour accepted that Baxter's conduct in relation to the contracts in issue should be evaluated in the context of what had occurred before the impugned conduct: Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 at [34] and [273]. 39 Until the mid 1980s, no company had an exclusive supply agreement for the supply of sterile fluids or PD fluids. In about 1983 Baxter successfully tendered to QLD for a sole supply agreement for the supply of IV and PD fluids and IS for a 2 year period. Soon after, NSW awarded an exclusive supply agreement for IV fluids to Abbott. In 1985, NSW contracted with both Abbott and Baxter for the supply of IV fluids, and between 1985 and 1992 Baxter met some 85 per cent of NSW's requirements for IV fluids. A change to Commonwealth State funding arrangements in about 1990 led to States commencing to purchase PD fluids in their own right. 40 In tender processes in 1987 and in 1990 in QLD, Baxter made alternative offers on the basis of item-by-item prices for all products covered by the tender, and on the basis of guaranteed sole supply of all items. The exclusive supply prices were significantly lower. Baxter won the bid on a sole supply basis. The 1990 contract was for three years. In 1993, QLD entered into a further three year exclusive supply agreement with Baxter for IV, IS and PD fluids. In negotiations QLD declined to extend the exclusive supply agreement to five years, or to extend it to PN fluids. It also secured assurances from Baxter about service standards, local manufacture and technological developments. 41 Between 1991 and 1993, Baxter also had a sole supply agreement with SA in relation to sterile fluids and PD fluids, having tendered on a sole supply price and alternatively on higher item-by-item prices. A further sole supply agreement was entered into on 18 May 1993. It ran to 28 February 1996. 42 In 1995, SA called for tenders for pharmaceutical supplies to its Health facilities including LVP and PN fluids and IS, and separately for dialysis fluids. Baxter tendered both on an item-by-item basis and a sole supply basis to supply the pharmaceutical supplies, the latter with an offer of sole supply of dialysis fluids. Baxter also tendered to supply PD fluids and HD products, on an item-by-item basis and bundled, in response to the dialysis fluids tender. Gambro and Fresenius also tendered to supply PD fluids and HD products in response to the dialysis fluids tender. Baxter won both tenders on price. 43 In 1997, QLD issued a combined tender for PD, HD, IV and IS fluids. It did not cover PN fluids. Baxter's tenders followed a similar pattern. Its three-year bundled bid on a sole supplier basis was accepted, based on price and product quality. The contract included a negotiated five per cent allowance for the trialling of PD fluids from other PD companies. 44 In 1991, Baxter contracted with WA for the sole supply of IV fluids, IS, PN and PD fluids, having tendered on an item-by-item basis and on a sole supply bundled basis at lower prices. In 1994, a fresh exclusive supply agreement for five years for the supply of IV, IS, PN and PD fluids was made, operative from 31 January 2005. The bundled tender of Baxter was accepted in preference to its item-by-item pricing. The term was selected by WA, in the light of its understanding that Fresenius would soon be selling PD fluids and that B Braun within two years was to enter the market for sterile fluids and PD fluids. 45 In 1992, other suppliers had expressed concern to NSW (in the context of tendering as a consortium) about the way tender processes were constructed by NSW. Those concerns did not lead to a restructuring of the tender processes. During the 1992 tendering process, Abbott decided to close its Australian manufacturing plant for IV fluids. Baxter then became the sole local manufacturer of sterile fluids. NSW invited it to tender on an exclusive supply basis for a range of periods covering both sterile fluids and PD fluids. In October 1992, Baxter submitted to NSW an item-by-item offer, an offer to supply for five years based on its current market share, and an exclusive supply offer for five years. The item-by-item pricing proposal was seen by NSW as "excessive" price escalation. In January 1993, NSW formally invited tenders for the supply of IV, IS, PN and PD fluids. There were a number of tenderers, but all but Baxter related to some only of the products. Baxter tendered on an item-by-item basis and a bundled offer for exclusive supply, the latter (after negotiation) at a significantly lower cost. On 29 April 1993, NSW contracted with Baxter for the exclusive supply of sterile fluids and PD fluids for five years. In the course of negotiations, NSW through its relevant officers was aware of, and referred to, the option of acquiring sterile fluids from overseas; it extracted from Baxter a commitment to continue to manufacture locally during the term of the agreement, as well as a series of service commitments. The service commitments were monitored during the course of the contract. 46 That was the scene to the time of the impugned conduct. 47 As the primary judge pointed out, up to that time the structure of the tenders was established by the States, and in various respects they had negotiated successfully with Baxter as to particular terms of the contracts ultimately entered into. 48 The primary judge then addressed the history of tendering, negotiating and entering into the impugned Agreements. As his Honour did, I shall call that "the impugned conduct". 49 On 27 June 1997, NSW issued a Request for Expressions of Interest for the supply of sterile fluids and PD fluids. Baxter, Fresenius, Gambro and B Braun responded. Gambro and Fresenius expressed interest restricted to PD fluids. B Braun stated a capacity to supply IV, PN and PD fluids and IS. That was followed by a Request for Tenders issued on 8 October 1997 for the supply of LVP, PD and PN fluids and products and IS for a two year period. The Request for Tenders also asked for tenders for a one year period, and permitted alternative tenders specifically including bundled offers on a sole supplier basis. The same four entities tendered: Gambro and Fresenius to supply PD fluids; B Braun to supply LVP, PN and PD fluids and products and IS (though not covering some lower volume products); and Baxter. Baxter submitted five tenders covering all products: item-by-item bids, for one or two years; an item-by-item bid for two years limited to IS, PN and PD; and bids for all products on a bundled, exclusive supply basis for two or five years. 50 The primary judge noted Baxter's then understanding of whether B Braun had the capacity at this time to compete in respect of IV fluids, as an importer. His Honour found that Baxter regarded B Braun as a competitive threat, though it anticipated winning the sterile fluids contract. 51 There was a substantial difference between Baxter's item-by-item prices and its pricing of its bundled offers; the latter was less than two-thirds of the former. The item-by-item prices were also nearly 80 per cent higher than the then current prices. Hence, Baxter understood that, unless B Braun was to take the bulk of the sterile fluids contract (and to do so it would have to import them), the financial pressure on NSW to take Baxter's PD fluids and products was "enormous". The internal analysis of the bids by the NSW Contract Management Subcommittee recognised that the potential cost of accepting the limited offer of another supplier and then taking Baxter's item-by-item pricing for other items including sterile fluids would be "unacceptable". It first preferred to accept Baxter's two year bundled bid, to give some encouragement to alternative suppliers such as Fresenius and B Braun to stay in the Australian market. After further negotiations with Baxter, to secure concessions permitting some PD fluids to be sourced from other suppliers, NSW decided on 28 April 1998 to enter into the 1998 NSW Agreement. It was a five year bundled contract with Baxter, on a sole supply basis, allowing for 10 per cent of PD products to be sourced from other suppliers. 52 Baxter was invited by SA to negotiate directly for a new contract. Baxter on 18 May 1998 made two bundled offers for IV fluids, IS, PN and PD fluids for different terms but they were not taken up. Its existing contract in the meantime rolled over on a monthly basis from its nominal expiry date on 30 April 1998, ultimately until 2001. 53 In mid 2000, SA invited new tenders for pharmaceutical products, including LVP, PD and PN fluids and IS, for a two year period with a one year option. The tender offered the option to supply both or either IV fluids and PD fluids, and to extend the tender to all renal fluids including HD fluids. It also allowed for a bundled exclusive supply bid. 54 Tenders were received from Baxter, Gambro and Fresenius. Gambro and Fresenius tendered for dialysis products and Baxter for all products. Baxter made two offers: an item-by-item offer for two years with two one year options, and a bundled bid on an exclusive basis for five years. 55 Baxter was then invited to make a further offer on a five year term, excluding those renal items the subject of a supplementary tender, that is PD fluids. In essence, SA sought a volume discount for the exclusive supply of sterile fluids. Baxter on 11 December 2000 made a further offer (Offer 1A) for the sole and exclusive supply of sterile fluids excluding PD fluids. Baxter in Offer 1A offered no discount from its item-by-item prices for sterile fluids in its first offer. It was appreciated by SA that there was no competitive tenderer for non-renal fluids. Baxter's bundled offer for both sterile fluids and PD fluids was almost 25 per cent less than its item-by-item offer. It was also cheaper than its item-by-item offer for sterile fluids alone and cheaper than its Offer 1A for exclusive supply of sterile fluids alone. Baxter's Offer 1A exposed that it would not give a discount for exclusivity on sterile fluids unless it also was given exclusivity for PD fluids. It was then decided by the State Supply Board of SA to accept Baxter's five year exclusive bundled offer, with a negotiated allowance to purchase PD fluids from other suppliers. The evidence indicated that the decision was taken because the cost premium of the other options was not acceptable. 56 Until 1998, Baxter had supplied sterile fluids to the ACT exclusively and Baxter and Gambro supplied its PD fluids. On 2 November 1998, Baxter proposed an exclusive sole supply of sterile fluids and PD fluids. That proposal was accepted on 7 March 1999, although the ACT may have had a different view as to the extent of the exclusivity. Following a request for proposals to supply dialysis fluids to Canberra Hospital for both PD fluids and HD, on 24 May 2001 Fresenius was awarded that contract so Baxter was no longer the exclusive supplier of PD fluids. Baxter claimed that arrangement was in breach of the agreement of 7 March 1999. Baxter later in September 2001 asserted the right, in the circumstances, to be paid for its supply in accordance with its new price list. Until the hearing, however, it was paid only the former price which followed the NSW contract price, so despite its legal stance Baxter appears to have taken no firm action to enforce its claim. 57 On 3 May 2000, QLD issued a tender request for sterile fluids (excluding PN fluids), for a period of one year with two further one year extensions. The tender provided for 7.5 per cent of dialysis products to be procured from alternative PD suppliers. Baxter's three tenders were on an item-by-item basis for the proposed term; an exclusive supply agreement for all specified products for the proposed term; and an exclusive supply agreement for all specified products and PN fluids for three years. Fresenius and Gambro tendered for the supply of HD and PD fluids, although not for all PD fluids. The tenders were evaluated on an unbundled basis. Baxter was the selected tenderer for all products, subject to negotiation as to price. The primary judge concluded that Baxter's bundled tenders thus had no effect on the decision to award the contract to Baxter. Baxter was then on 1 May 2001 contracted to supply for three years all products on a sole supply basis, except for 7.5 per cent of PD products, for three years in accordance with its bundled pricing offer. The decision was taken as Baxter was regarded as providing the best quality and service. The evidence was that QLD did not, in the circumstances, see itself as having a lack of bargaining power because the contract terms were relatively short and the volume was not high. 58 The Health Supply Services Division (HSS) is the relevant administrative arm of WA. Through the HSS, WA had contracted with Baxter for the supply of sterile fluids and PD products in 1991 and again in 1995, the latter contract being for five years. 59 On 26 May 2000, HSS issued a request for tender for sterile fluids and PD fluids. It contemplated a sole supplier system, and specified a five year term. Baxter made three offers: an item-by-item priced bid for the five year term, and combined bids for all items with a volume discount for three year and five year terms. The price differences in the three offers were substantial. Comparing the two offers for five years, the bundled offer for sterile products was about two-thirds of the item-by-item cost; and the bundled offer for all sterile fluids and PD fluids was about three quarters of the item-by-item cost. The item-by-item offer was some 65 per cent over the then current cost. Both Fresenius and Gambro also tendered in relation to PD fluids. The primary judge said it was plain to the HSS that the cost or "price" of not taking a Baxter sole supply arrangement for all products was huge, unless sterile fluids could be sourced elsewhere. After negotiations, Baxter agreed that its bundled offer for five years should allow 10 per cent of PD fluids to be sourced from other suppliers. On that basis, the bundled exclusive supply offer of Baxter was accepted for sterile fluids and PD fluids for the five year term. 60 The primary judge also made findings about conduct subsequent to the impugned conduct. 61 In May 2003, NSW and Victoria together invited tenders for the supply of IV, PD and PN solutions and IS for a period of one year, to be submitted on an item-by-item basis. Baxter tendered on that basis, but was informed its prices were not acceptable. It then raised the possibility of a volume discount contract, and submitted a more favourable pricing structure based upon volume discounts for total supply of IV and PN solutions and IS, and not less than 80 per cent of PD fluids. That offer was accepted, but on the basis that NSW and Victoria would not guarantee a minimum share of 80 per cent of the PD fluids market. Baxter acceded to that, rather than expose itself to PD fluids being fully sourced from Fresenius and/or Gambro. Hence, Baxter thereafter no longer had a guaranteed exclusive supply agreement in relation to PD fluids with NSW. 62 His Honour also considered the extent of competition in the sterile fluids market. He concluded that, at the time of the impugned Agreements and to the hearing, none of the competitors of Baxter was likely to enter the sterile fluids market (for LVP and PN fluids and IS) because of the costly and time consuming TGA registration process; secondly, because of high freight importation costs for such bulky items as IS; and, thirdly, because of the high entry cost of establishing a manufacturing plant in Australia relative to the size of the market. 63 He explained that the procedures for registration, and maintaining registration, under the TGA, require time and expense. The distribution of products of the kind under consideration are permitted only if registered. However, his Honour said that, whilst that may impede rapid entry to the market or markets, the TGA registration process itself was not a barrier to entry to the relevant markets of any real magnitude. 64 It is also significant to note that his Honour did not place weight on the evidence of clinicians as to the relative product quality, technological innovation, and servicing by Baxter and its actual or potential competitors, or the desirability of clinical choice. Such matters, depending upon factual findings, might have informed the assessment of the extent of Baxter's market power if the facts might have demonstrated that Baxter secured and held its position in the market despite superior quality products, technological innovation, or service. But his Honour found the evidence directed to these topics was inconclusive. 65 The primary judge also noted that no attempt had been made by Baxter to analyse the "cherry pick" prices by reference to the cost base or the increased marginal cost of production, positing any given reduction in volume throughput of its plant.

[23]

THE CONCLUSIONS OF THE PRIMARY JUDGE 66 The primary judge, after considering all the evidence and recording his findings on primary factual matters, considered the case of the ACCC separately under ss 46 and 47 of the Act. 67 As to the case under s 46, his Honour first observed that there was no dispute as to the principles applicable under s 46 derived from the decisions of the High Court in Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 (Boral Besser); Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 (Melway); and Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 (Queensland Wire). Those cases, and Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 (Rural Press) dictated consideration of each of the following elements: market definition; whether Baxter had a substantial degree of power in a relevant market or markets; whether Baxter had taken advantage of that market power; and whether Baxter had a proscribed purpose when doing so. Those elements must be considered sequentially, and must all co-exist and be connected for a contravention of s 46 to be made out. 68 The primary judge then concluded that: (1) There is an Australia wide - (a) sterile fluids market (it was not necessary to decide if that included PN fluids, or to decide whether the geographical sterile fluids market was broken into separate LVP, IS and PN fluids); and separately (b) PD fluids market. (2) Baxter held a substantial degree of market power in the Australia-wide sterile fluids market at relevant times, that is between 1998 and 2001; and (a) Baxter did not generally, that is by its conduct leading to all the impugned Agreements, take advantage of its substantial market power in that market by tendering separately by an item-by-item priced tender and a considerably lower bundled price for sterile fluids and PD fluids on an exclusive supply basis; but (b) Baxter did take advantage of its substantial market power in that market in its presentation of Offer 1A to SA by its "point blank refusal to give a discount for volume" on sterile fluids. (3) Baxter's purpose in its tendering strategy - (a) was not to eliminate or substantially damage competitors in the sterile fluids market or the PD market - relevantly the competitors were Fresenius and Gambro in the PD market. His Honour found that Baxter's substantial purpose was to frame a bid structure involving a credible item-by-item price offer and the alternative bundled offer to "maximise the chances of bringing about circumstances in which the bids of competitors with substantially equivalent [PD] products could only be accepted at a significant cost penalty", and that such a purpose did not come within s 46(1)(a) of the Act; (b) was to make the rival PD fluids bids of Fresenius and Gambro uncompetitive in the sense of being unacceptable, because of the credible cost alternative of Baxter's item-by-item offer. It was to meet the developing competition in Australia to supply PD fluids. It was substantially to prevent rival bidders for PD fluids and products from being able to put forward bids that were realistically competitive by the existence of credible alternative high item-by-item pricing. It was therefore to deter or prevent Fresenius and Gambro from engaging in competitive conduct in the PD fluids market, contrary to s 46(1)(c) of the Act. It was to foreclose the likelihood or restrict the possibility of a competitor's bid having any realistic prospect of success. (4) Subject to the derivative Crown immunity issue, Baxter had contravened s 46 of the Act by making Offer 1A in SA, with the purpose prohibited by s 46(1)(c); but had not otherwise contravened s 46 of the Act. 69 The primary judge's conclusions concerning s 47 of the Act started by pointing out that there was no real dispute that the pleaded impugned conduct was conduct which fell within s 47(2), and so also fell within s 47(1) of the Act, if s 47(10) were satisfied. Hence, his Honour identified the contravention of s 47 turned upon whether Baxter's impugned conduct either had the purpose of substantially lessening competition, or had or was likely to have the effect of substantially lessening competition, within the meaning of s 47(10)(a) or (b). Section 4G says that "lessening competition" includes "preventing or hindering competition". 70 His Honour concluded that Baxter's conduct in responding to the request for tenders, and in negotiating the impugned Agreements with NSW, SA, WA and QLD, contravened s 47 of the Act because that conduct had the purpose of substantially lessening competition, and because it was to ensure, as far as possible, that the competitive process in tendering would not bring about realistically competitive bids for PD fluids by bundling or tying PD fluids to sterile fluids, and by providing a credible alternative which would make a choice of any rival's PD tender financially damaging to the State. It had the effect of substantially lessening competition in the same way. 71 If the competitive process were viewed more expansively, beyond the operation of the tender process, the primary judge would not have concluded that Baxter had the purpose referred to in s 47(10)(a) or that its conduct had or was likely to have had the effect of substantially lessening competition as referred to in s 47(10)(b). Hence, his Honour's conclusion in respect of s 47 (subject to the derivative Crown immunity issue) was dependent upon his identification of the relevant competitive process. 72 As I noted above, as the primary judge then concluded that the Act did not apply to the impugned conduct of Baxter in any event because of derivative Crown immunity. In the result, the proceeding was dismissed.

[24]

THE AMENDED NOTICE OF APPEAL AND THE NOTICE OF CONTENTION 73 There were 26 grounds of appeal in the Amended Notice of Appeal concerning the conclusions of the primary judge about the application of s 46 of the Act to the impugned conduct, and two grounds of appeal concerning the application of s 47 of the Act to the impugned conduct. 74 The ACCC did not contend that his Honour had erred in his understanding of the relevant legal principles, but that he had erred in properly applying s 46 to the facts and so had erroneously concluded that, apart from the Offer 1A Contravention, Baxter had not contravened s 46. The grounds of appeal challenged the general conclusions, as well as identifying particular conclusions which were said to be wrong, and particular factual findings which were said to be wrong. 75 The grounds of appeal concerning s 47 are only generally expressed, no doubt because the only reason why the primary judge did not find contraventions of s 47 was his conclusion that Baxter enjoyed derivative Crown immunity. 76 In essence, the ACCC on appeal first attacked the primary judge's conclusions that Baxter did not take advantage of its substantial degree of market power in the sterile fluids market (except by making Offer 1A to South Australia). Then it attacked the conclusion that Baxter's purpose in taking advantage of that market power was not caught within the net of s 46(1)(a). It therefore sought to have substituted declarations that Baxter's impugned conduct generally contravened s 46 of the Act (not limited to its conduct in relation to Offer 1A to South Australia). 77 Baxter, by its Notice of Contention, firstly attacked the conclusion that it had substantial market power in the Australia-wide sterile fluids market. Secondly, it sought to sustain the conclusion that it did not take advantage of its market power in that market. In that regard it contended that the primary judge made certain findings adversely to it which should be corrected and would also support the conclusion of the primary judge. Thirdly, it contended that the primary judge's conclusion that it had taken advantage of its market power in that market in relation to Offer 1A to SA was erroneous, and should be set aside. Fourthly, whilst seeking to maintain the conclusion that it did not in any event have the purpose proscribed by s 46(1)(a), it contended also that there were other findings on that topic which were erroneously made and should be corrected, so that the conclusion should be maintained in any event. Fifthly, Baxter contended that the conclusion that it had the purpose proscribed by s 46(1)(c) was erroneous and should be set aside. 78 As with the ACCC's contentions, the 19 grounds in the Notice of Contention identified comprised allegedly erroneous factual findings, allegedly erroneously legal conclusions by misapplication of the relevant legal principles, and additional contentions about findings which should have been made, or about how certain evidence should have been used, or not used, to demonstrate further error on the principal issues ventilated. 79 It is convenient to address the grounds of appeal and Baxter's grounds of contention together as they deal separately with: (1) whether Baxter had a substantial degree of power in the Australia-wide sterile fluids market; (2) whether Baxter took advantage of its power in that market by engaging in the impugned conduct; (3) whether Baxter took advantage of its power in that market by its conduct in relation to Offer 1A in South Australia; (4) whether Baxter had the purpose proscribed by s 46(1)(a) in engaging in the impugned conduct; (5) whether Baxter had the purpose proscribed by s 46(1)(c) in engaging in the impugned conduct. 80 I shall then address Baxter's Notice of Contention concerning the conclusion adverse to it that, but for the existence of derivative Crown immunity, it had contravened s 47 of the Act. 81 Each of the grounds in the Amended Notice of Appeal, and in the Notice of Contention, were identified either in those documents or in the course of oral submissions as related to one or other of those five principal issues. They will each be addressed within that general structure.

[25]

DID BAXTER HAVE A SUBSTANTIAL DEGREE OF POWER IN THE AUSTRALIA-WIDE STERILE FLUIDS MARKET? 82 Before dealing with the contentious elements of s 46, it is convenient to set out its relevant provisions. Section 46(1) provides: A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of - (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that or any other market. 83 It was not contended by Baxter that the primary judge had misunderstood the concept of a substantial degree of market power, or had misconceived the decisions explaining that concept. Indeed, its written submissions substantially replicate his Honour's recital of what those cases illustrate. 84 Baxter contended that market power can only be determined by examining what it was capable of doing over a reasonable or appreciable period of time. It further submitted that the evaluation of the degree of market power must be made within the "wider area of rivalry", by which it meant the strength of Fresenius and Gambro in relation to HD, and the countervailing power of the SPAs to "dictate the structure of the markets" and to facilitate entry of others to the two markets found to exist. It also submitted that it could not successfully raise its prices to "supra-competitive" levels so as to deter or damage its competitors and to recoup "losses" caused by price cutting, so it could not have had a substantial degree of market power at the time of the impugned conduct. 85 The primary judge decided that Baxter had a substantial degree of power in the Australia-wide sterile fluids market in the relevant period of 1998-2001 for a combination of reasons. First, his Honour found that Baxter was the only local manufacturer of a broad range of sterile fluids, although an importer such as B Braun might over time have entered the market as a competitor, so as to impose "a degree of restraint" on Baxter as to how it behaved. Baxter understood itself to have a dominant market share in sterile fluids and that it was likely to maintain it; that it was likely to win the sterile fluid tenders; and that to a degree Baxter could charge what it liked for sterile fluids even though it knew there was potential import competition. 86 Baxter had been the sole and dominant manufacturer in Australia of sterile fluids for 6-9 years; no competitor had sought to challenge Baxter in that market since the exit of Abbott in 1992 as the last local competitor. And the products were price inelastic and essential, and the constraints did not deny Baxter a confident expectation that it would be successful in sterile fluids tenders. 87 His Honour also noted that there was a body of countervailing State power, because Baxter was dealing with government agencies. There was also a real capacity in the SPAs to set the tender terms, such as not tying products or permitting the tying of products in tenders. Potentially Baxter stood to lose large parts of its market share by a small number of decisions by buying SPAs, and that competitors could be sponsored by the States if Baxter's behaviour sufficiently motivated them to do so. Behaviour sufficient to provoke such a backlash was unlikely. Hence, although he found that Baxter could not act as if unconstrained entirely, it had considerable room to behave as a sole supplier in the market. Although Baxter had a real degree of flexibility over what it charged, as confirmed by its own witnesses, the capacity for the States to control the shape and operation of the markets was demonstrated when they denied the opportunity to tie products together, as shown by events in NSW and Victoria in 2003, and by the ACT refusal to pay the prices apparently specified under the 1998 ACT Agreement, so that Gambro and Fresenius were able to make greater inroads into Baxter's market share in the PD fluids market. 88 His Honour also noted the conflicting evidence of officers of the SPAs of QLD and NSW that they did not believe there was an imbalance of bargaining power between them and Baxter, and on the other hand the evidence of officers of the SPAs of WA and SA that they lacked bargaining power. 89 There was, his Honour also found, no sufficient evidence to conclude as to the margins for sterile fluids. 90 However, the overall picture led the primary judge to conclude that during the period 1998-2001 Baxter had a substantial degree of power in the sterile fluids market. As noted, it had been the sole Australian manufacturer of sterile fluids since 1992 and the dominant, and nearly exclusive, supplier of sterile fluids since that time. Sterile fluids were an essential product. The price was inelastic. There were significant barriers to entry into the market. The other local manufacturer had ceased production in 1992, when it could not justify maintaining its plant without a guaranteed market share and a price increase. Since then, no supplier of sterile fluids had sought to challenge Baxter in that market. Import competition faced significant barriers by the costs of importation and, to a lesser degree, by the TGA registration period and costs. Baxter confidently expected to be successful in its sterile fluids tenders, and short of sufficiently provocative behaviour on its part, it was unlikely that the SPAs would financially sponsor another entrant into the market. And, his Honour found, Baxter had a real degree of discretionary freedom as to its pricing for sterile fluids. 91 Obviously, Baxter's Notice of Contention primarily requires consideration at this point. Before dealing with it, it is convenient to consider the separate matter raised by the ACCC in its Amended Notice of Appeal relating to the issue of market power. 92 The ACCC submitted that the primary judge erred in failing to find that Baxter was slow to introduce improved products as an illustration of, or as a consequence of, it having a substantial degree of market power in the sterile fluids market. I have referred to his Honour's view on that topic at [64] above, namely that the evidence did not enable a conclusion to be drawn one way or another. 93 It may be accepted that conduct beyond mere pricing may indicate a substantial degree of market power. Re Queensland Co-operative Milling v Defiance Holdings Ltd (1975) 25 FLR 169 at 188-189 (QCMA) says that quality and innovation are important dimensions of the "price-product-service packages offered to consumers and customers", within which there should be independent rivalry. QCMA was referred to by the High Court in Boral Besser without any adverse comment on that particular element of its reasoning. In Boral Besser, there is no express reference to quality and innovation being important dimensions of the "price-product-service packages", but it is noteworthy that McHugh J in Boral Besser at [288] commented: Market power also includes the power to sell less in terms of quality or quantity at the same price or to sell products on terms and conditions which a firm without market power would not be able to enforce - this being an element of market power that arises in conduct other than "predatory pricing". But market power is not equivalent to the mere cutting of prices.

[26]

Also, as a general observation, a lack of competitive pressure may give rise to the expectation that innovation will be delayed. 94 There was certainly evidence which supported the factual contention of the ACCC. It included evidence concerning Baxter's decision not to introduce the Luer lock system for connecting patients on dialysis to PD bags until the late 1990s, even though the earlier "spike" system was considered inferior because it gave rise to a greater risk of infection. The ACCC also submitted that Baxter had bargained for longer term exclusive bundled supply contracts as the "price" for introducing new technological advances. The ACCC referred to the evidence of the witnesses who addressed that topic, some of which was not challenged in cross-examination, including that of Dr Chapman, the Director of the Renal Unit at Westmead Hospital, and Mr Garland who was between July 2001 and February 2003 employed by Fresenius and before then from 1980 had been a Clinical Nurse Consultant at St Vincent's Hospital. 95 Mr Garland said that the NSW agreements, including the 1998 NSW Agreement, "reduced the ability of clinicians to treat their patients with what they thought were appropriate products [ie- non-Baxter products]". In his opinion, Baxter was only releasing new PD products into the market when convenient, instead of in response to user need, whereas Gambro and Fresenius had superior products and were trialling new products and techniques. However, as the primary judge pointed out, despite Mr Garland's claim that the St Vincent's PD Clinic was being held "to ransom" by Baxter, staff at the Clinic continued to place new patients on Gambro products in the period up to the 1998 NSW Agreement, and thereafter. 96 Some evidence which could have supported Baxter's use of technological advances as a bartering factor to secure long term exclusive supply contracts was given by Mr Kemp of NSW Supply concerning the negotiations in 1998 leading up to the 1998 NSW Agreement, including his perception of Baxter's motives and as to what was said by Baxter in those negotiations. That evidence is by no means conclusive in support of the ACCC's proposition. Also, there was evidence to the contrary from Baxter officers to the effect that Baxter preferred or required long term contracts so as to be able to recoup the significant expenditure required to produce innovations such as Freeline Solo (a twin bag system) rather than as the "price" for innovation. That evidence was given by Messrs Bragg, Lee and Wallace on behalf of Baxter. There was also evidence from clinicians that the price of the Freeline Solo system was expensive, and that Baxter had proposed the higher price to support the significant capital expenditure required to offset the cost of production of the Freeline Solo system, and so to make it more readily accessible in terms of price. In other words, Baxter had delayed introducing that product option because the price to justify the capital expense of plant improvements to produce it more cheaply was not attractive to its customers. The primary judge made no specific finding on those matters. In my view, the state of the evidence as identified in the course of submissions does not point firmly either to the conclusion that Baxter sought long term contracts as the "price" for product development, or on the other hand that it did so to make product development economically warranted. 97 The only specific product development said by the ACCC to be delayed by Baxter to secure longer term contracts was the Luer lock system. Baxter's evidence explained that delay as a management decision, made by an assessment of whether Australian users would pay the additional cost of the newer and admittedly better technology, and that it was introduced at the request of the NSW SPA when negotiating the 1998 NSW Agreement. The primary judge did not expressly address that evidence. It is not inherently improbable, or for any particular reason unreliable. It fits in with his Honour's overall conclusions on this general topic. So too in other ways does the evidence of Dr Irish and Mr Kinkade, both independent of Baxter, as well as that of the Baxter employees whose evidence is recited in his reasons, as to why that product improvement was not introduced by Baxter earlier than 1998. 98 I have considered all that material. I am not persuaded that Baxter delayed the introduction of new technology or product improvements because it had substantial market power in the sterile fluids market, so that its conduct evidences the existence of that market power. I consider that, overall, the evidence on the topic is inconclusive. That accords with the conclusion of the primary judge on that topic. 99 I turn to the matters raised by Baxter's Notice of Contention. 100 Baxter contended that the conclusion of the primary judge that it had substantial market power in the sterile fluids market should not have been reached if the observations of the High Court in Boral Besser at [121] and [188] had been properly applied. 101 In particular, Baxter pointed to the evidence of the strong countervailing power of the States; their control and dictation of the tendering process which allowed for rapid gains and losses in market share; Baxter's low margins; its lack of significant pricing discretion (inconsistent with an express finding of the primary judge to the contrary); and its inability to recoup any losses by selling at prices below the marginal cost of production. 102 The ACCC submitted in response that, notwithstanding his conclusion, the primary judge in fact gave too much weight to the evidence of the States' control of the tendering processes. It also contended that the capacity of the SPAs to freely share information and to work collaboratively in the tender processes enabled, or led to, a form of "signalling" by Baxter that the SPAs may suffer significant economic detriment by not accepting the bundled bids. The ACCC sought to draw some comparison with the circumstances involving perceived threats of enforcement made in Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529 at [222] (Universal Music). 103 The evidence about the extent of Baxter's market share in the sterile fluids market was carefully considered by the primary judge. His Honour found Baxter was the dominant supplier of sterile fluids in Australia. That is, of course, only an indicator of market power: see Boral Besser at [121] and [188]. As those passages in Boral Besser point out, where pricing behaviour is in issue, regard should be had to the extent to which the impugned conduct was constrained by Baxter's competitors, both actual and potential in that market, or was constrained by those acquiring its products in that market: s 46(3) of the Act. The primary judge approached the issue in that light. 104 Clearly the SPAs decided the mechanism by which suppliers were selected, and ultimately the terms upon which tenders were accepted. They also had the ultimate resource of sponsoring or otherwise facilitating a competitor into the Australia-wide sterile fluids market. A threat to do so had been made by NSW in the context of earlier negotiations. Baxter was vulnerable to the SPAs making such a threat. And, if Baxter by its tenders or its negotiations behaved in such a way as to provoke an SPA or several SPAs to expend public resources on funding or facilitating a competitor into the sterile fluids market (presumably including the support of a local manufacturing facility), Baxter would be vulnerable to a very significant loss of market share. Indeed, the "all or nothing" foundation in the tenders, at least as one of their options, meant that, if Baxter were unsuccessful, it stood to lose a significant market share of either the sterile fluids market or the PD fluids market or both by the decisions of a small number of SPAs. That would follow from the actual extent of its market shares in each of those markets before the impugned conduct. The primary judge recognised those matters, and had regard to them in deciding whether Baxter had a substantial degree of power in that market. Baxter, for its part, did not go so far as to contend that, necessarily, the existence of those factors meant that it did not have substantial power in that market. 105 Baxter submitted that two incidents illustrated the extent of the constraints upon it in the sterile fluids market, and hence that it did not have the degree of market power as found by the primary judge. 106 One incident concerned the conduct of the ACT by entering into a contract with Fresenius on 24 May 2001 for the supply of dialysis fluids, when Baxter claimed to have an exclusive supply agreement with the ACT under the 1998 ACT Agreement, and then the ACT in effect thumbing its nose at Baxter's claim that, if it were no longer the sole supplier, it was entitled to be paid at its item-by-item prices. As I noted above at [56], the ACT simply continued to pay Baxter at the same prices as applicable under the 1998 NSW Agreement. In its submission, Baxter said the ACT was able to act with impunity in the way it restructured its arrangements for exclusive supply of PD fluids and HD and related treatments, despite having an existing supply obligation to Baxter in relation to PD, and that such conduct was strong evidence that Baxter did not have a substantial degree of power in the sterile fluids market. 107 The second incident referred to by Baxter was the outcome of the negotiations in 2003 by which Victoria and NSW were able to secure prices tendered on an exclusive supply basis but without any commitment to exclusive supply. It is referred to in [61] above. 108 I am not persuaded that those two matters lead to the conclusion, in all the circumstances, that Baxter did not have a substantial degree of power in the Australia-wide sterile fluids market at material times. Nor do they demonstrate error on the part of the primary judge. The assessment of the existence of a substantial degree of power in a market is one of fact. It requires a consideration of all the circumstances. That is what the primary judge did. His Honour took into account each of the particular incidents referred to above. 109 In the case of the ACT's response to Baxter, as his Honour observed, there is (or at least was to the time of these proceedings) a dispute between the ACT and Baxter as to whether the 1999 ACT Agreement (by picking up the 1998 NSW Agreement) gave Baxter the exclusive right to supply PD products to the ACT. The ACT asserted the right to, and did, call for tenders to supply PD fluids and HD fluids and products separate from sterile fluids, notwithstanding the 1999 ACT Agreement. Its later conduct was in relation to the PD fluids market (and more generally dialysis products). That was a market which, as the primary judge found, was a much more competitive market. Baxter disputed that the ACT had that right. The dispute was not apparently brought to resolution, at least so far as the evidence exposed. Baxter also asserted the right, although it has not apparently enforced the right, to charge the ACT the higher item-by-item prices once the ACT commenced to source PD products from Fresenius. As noted, for its part the ACT disputed that Baxter could do so and continued to pay the prices applicable under the 1998 NSW Agreement. That dispute also was not resolved by the time of the hearing. The incident does not, in my view, do much more than show Baxter's commercial reaction to those circumstances. Its reaction was also given at a time when it was aware of the ACCC's general concerns about the impugned Agreements. I do not think that this incident weighs much in the scale when all the evidence about the existence of Baxter's market power in the sterile fluids market is considered. 110 The events in 2003 in relation to the NSW and Victorian tender demonstrate, as the primary judge indicated, a capacity in the SPAs to "control the shape and operation of the relevant markets". That was and is a factor to be taken into account. The primary judge did so. 111 There are a number of other matters pointing to the existence of Baxter having a substantial degree of power in the sterile fluids market. I think that the balance lies quite firmly in support of the primary judge's conclusion. The trial judge referred to the evidence of Mr Lee and Mr Browne of Baxter which accepted that to a degree Baxter could charge what it liked for sterile fluids. That was not a finding of unrestrained pricing. As the primary judge found, there were constraints on Baxter's pricing. I have noted them above. And, as his Honour found, Baxter's pricing of sterile fluids was not extravagant. He said at [576]-[578]: There was a body of evidence from which it can be concluded that the margins on sterile fluids were not large. Certainly that was the view of Abbott in 1992. Mr Bhargava of Fresenius Kabi said that margins on standard solutions were low. Mr Crawford of B. Braun said that there were very low margins on IV generic solutions. Neither Mrs Smith nor Professor Nalebuff (for the ACCC) sought to analyse the sterile fluid margins. In submissions some examples were put to me to support the proposition that sterile fluid margins were commercially healthy. Without, however, some more rigorous analysis I am not prepared to draw any conclusions as to the margins for sterile fluids and what that tells me about market power. As Mr Ergas said in some of his evidence, the existence of margins, which are not unreasonably large, tends to reveal a degree of constraint on the firms setting prices. 112 In Boral Besser at [62]-[63], the point was made that evidence that customers can push prices towards costs, so that profit margins can be controlled, may indicate that an entity does not have substantial power in a particular market. The restraint on Baxter in the present case, where bundled exclusive supply tenders were either requested or permitted, was the potential reaction of the SPAs to Baxter's tender strategy. Baxter could not tender, or at least could not wisely tender, in terms that, practically, would push the SPAs into financing or otherwise substantially facilitating another supplier of sterile fluids into the Australian market. But the evidence did not enable the primary judge to find that Baxter's pricing was subject to further constraint than that, and it was not the evidence of Baxter's officers that it was subject to further restraint. The evidence, in particular, was not such as to enable the primary judge to conclude that Baxter had only a fine margin on its sterile fluids, or that the position of the SPAs forced it to price at narrow margins above cost. As I noted earlier, his Honour was unable to make any finding as to Baxter's margin above its marginal costs of production on sterile fluids as it presented its prices in its various tenders. 113 The level of constraint identified was one to be taken into account in deciding if Baxter had a substantial degree of power in the sterile fluids market. That is a level of constraint applicable in any domestic market where there is one local manufacturer, where there are substantial customers with the apparent capacity to underwrite overseas suppliers into the local market albeit at considerable cost and in the face of substantial barriers to entry, and where there are overseas suppliers of the product who - in the face of the barriers to entry - to the time of the relevant conduct, have chosen not to participate in the local market for that product. Such circumstances do not, in my view, necessarily mean that the local supplier of that product does not have a substantial degree of power in that local market. 114 I have referred above to the factors which I consider, and the primary judge considered, lead to the conclusion that Baxter had a substantial degree of power in the Australia-wide sterile fluids market. For the reasons, given I am not persuaded that the primary judge fell into error in reaching that conclusion. Indeed, in my view, notwithstanding the matters argued by Baxter on appeal, I agree with his Honour's conclusion.

[27]

DID BAXTER TAKE ADVANTAGE OF ITS MARKET POWER? 115 The conclusions on this element of a contravention under s 46 attracted both the appeal from the ACCC, and the Notice of Contention of Baxter. 116 The ACCC contention both at trial and on appeal was that Baxter's alternative offer strategy, combining an exclusive bundled offer at considerably lower prices with an alternative item-by-item priced offer, amounted to it taking advantage of its substantial market power in the Australia-wide sterile fluids market. It submitted that the primary judge erred in concluding that Baxter did not generally take advantage of its market power by its alternative offer strategy (save in respect of the Offer 1A Contravention). There were many separate grounds of appeal touching on this issue. In the course of submissions they were not all addressed separately, but were "themed". I shall endeavour to maintain the ACCC's themed approach in our consideration of them. 117 Baxter contended that the primary judge erred in finding that, in relation to the conduct constituting the Offer 1A Contravention, it had taken advantage of its market power in the Australia-wide sterile fluids market. It also sought to sustain the primary judge's general conclusion that it had not (save for the Offer 1A contravention) taken advantage of its market power by engaging in the impugned conduct. Its Notice of Contention raised several steps in the factual analysis or reasoning of the primary judge which were said to have been taken in error. Those contentions are also addressed in the "themed" consideration of the submissions. 118 Before turning to the contentions, it is desirable to note in a little detail how the primary judge reached his conclusion. 119 His Honour's starting point was that, excluding Offer 1A in SA in 2000, from the 1980s and including the impugned conduct, none of Baxter's offers had been made over opposition of the SPAs and none of the exclusive contracts, including the impugned Agreements, had been forcibly extracted from the SPAs. Offer 1A was the only occasion when Baxter had been asked to provide a volume discount for the long term exclusive supply of sterile fluids divorced from PD fluids. The history of Baxter's tenders over that time revealed the willing participation of the SPAs in bids structured in that way, and in some instances specific requests for bids structured in that way. His Honour described those matters as "an essential background" to the claim that Baxter, by the impugned conduct, took advantage of its substantial degree of power in the sterile fluids market. 120 The primary judge had been referred to a number of US cases dealing with bundling, and certain expert evidence given at the hearing on that topic. He said it assisted in understanding how, by linking products in a competitive market with products in a less competitive or non-competitive market, one can impede the success of competitors or potential competitors in the former market. His Honour said that Baxter's clear (and stated) purpose was to win as much of the available business as possible, and that is why its bids were structured as they were, linking PD fluids to sterile fluids in the only bids which were below the item-by-item listed prices. 121 The alternative offer strategy was clearly, as his Honour accepted, to make the choice of a supplier of PD fluids other than Baxter an expensive alternative and one unlikely to be taken other than on non-cost considerations. The alternative item-by-item offer was presented as, and had to be seen as, a real alternative by the SPAs. There was no attempt by Baxter to offer a discount for the exclusive supply of sterile fluids without including PD products. 122 The primary judge continued at [588]-[589]: … subject to the quality of Baxter's products being radically inferior (which, the evidence revealed, was not the case), the alternatives to the Baxter bundled offer were significantly more expensive. The purpose of Baxter plainly was to structure a bid so as to maximise the likelihood of winning all business including PD products by ensuring that, through a credible alternative higher price, there was a very high cost disincentive to purchase competitive PD products. The internal documents of Baxter make that plain. Baxter's intention, his Honour found, was that its item-by-item prices were to be taken seriously by the SPAs but not that they be accepted. It knew that, so long as its item-by-item prices were taken seriously, there would be no incentive on the part of the SPAs to change supplier. 123 Despite those findings, the primary judge identified two major evidential hurdles to concluding Baxter would not or could not have structured their bids in the way they had in the absence of its market power. The first concerned the circumstances surrounding the 1998 NSW Agreement. The second was the absence of analysis of the item-by-item prices "as monopoly prices, not being ones capable of being charged in a market in which Baxter did not have a substantial degree of market power. His Honour regarded the two points as related. 124 As to the first point, the primary judge said at [593]-[594]: In relation to the tendering for the 1998 NSW contract, there is no basis for concluding that Baxter was aware that B. Braun would not obtain or did not have approval for its Penang factory. B. Braun had products registered for 80 per cent of the sterile fluids range of products in the request for tender. There was evidence that Baxter was aware of that. Mr Crawford's evidence was that import competition for sterile fluids was possible. In those circumstances, it cannot be concluded that Baxter would not rationally behave, or could not have behaved, as it did in a market in which it was not able to take advantage of its market power. Set in the context of the history of the various tenders, I cannot conclude that in respect of any of the bids (leaving aside Offer 1A in SA) there was a relevant taking advantage. The tender structures either permitted, or in some cases expressly encouraged, exclusive supply tenders over all products. 125 As to the second point, his Honour said at [595]: When one appreciates that there was no attempt to analyse the item-by-item prices by reference to costs (by either Baxter or the ACCC), or by reference to what might be a monopoly pricing or otherwise, beyond the difference between the bundled prices and the item-by-item prices, it is difficult to draw specific and particular conclusions about the item-by-item costs. Against a background of some evidence of the low margins for sterile fluids, it is therefore difficult to conclude that those prices could not have been offered as an alternative in circumstances where Baxter did not have a substantial degree of power in the sterile fluid market prices. On the other hand, Offer 1A in the SA bid, albeit dealing with one buyer in a national market, demonstrated a "fairly high-handed approach". The response to the SA invitation, was to offer no discount from the item-by-item prices for the exclusive and long term supply of sterile fluids to SA. The primary judge said that Baxter would not have so acted if it did not have confidence in its position in the sterile fluids market. Hence, he found, Baxter's "point-blank" refusal to give a discount for volume in Offer 1A for sterile fluids was a taking advantage by Baxter of its substantial degree of market power. 126 The ACCC's general argument was that the primary judge, in his reasoning, overlooked or placed too little emphasis on Baxter's deployment of "prohibitively high" item-by-item prices and failed to consider its making of its offers as part of its alternative offer strategy rather than merely offers on an exclusive bundling basis. It was argued that this approach lead his Honour into the error of looking at the bundled offers severally, in the context of them being permitted or invited by the several SPAs, rather than looking at them as part of the alternative offer strategy. In essence, it was argued that the analysis that Baxter did not take advantage of its substantial degree of power in the market because it was only presenting tenders in a form the SPAs invited or permitted failed to consider the alternative offer strategy of Baxter. The alternative offer strategy was not itself, so it was argued, permitted or encouraged by the SPAs. It was also submitted that his Honour's general approach did not sit comfortably with his reasoning on the topic in relation to Offer 1A to SA, as it recognised the impact of Baxter's alternative offer strategy. 127 Before addressing those general contentions, it is appropriate to consider the specific features of his Honour's reasons which were the subject of ACCC contentions. The more general contentions should be assessed in the light of the factual context as established after these individual features are considered. 128 The first of those specific matters concerned his Honour's findings about Baxter's item-by-item prices at [595] of his reasons. They are set out above. 129 It was common ground that there was no attempt either by the ACCC or by Baxter to analyse Baxter's item-by-item prices by reference to its costs. However, findings indicated that the item-by-item prices were quite substantially greater than the bundled exclusive supply offers, although the difference was not the same when dealing with each SPA. The tenders based on item-by-item costs were also generally very much higher than the prices being paid by the several SPAs at the time their respective impugned Agreements were being negotiated. Baxter's own evidence was that those prices were taken from its "basic hospital price list" from time to time, and were prices that it did not expect to be accepted. It did not suggest in evidence that its item-by-item prices represented any particular relationship to its overall manufacturing cost base, or to the increased marginal cost of production should any particular volume of sales be lost. Moreover, its prices in relation to the Offer 1A contravention were such that the bundled cost for sterile fluids and PD fluids was less than the cost proposed by Offer 1A for exclusive long term sterile fluids only. Baxter proffered in evidence no satisfactory explanation for those features of its alternative offer strategy. 130 Once his Honour had determined that Baxter had a substantial degree of power in the sterile fluids market, in my view the fact that there was no analysis of the item-by-item prices "as monopoly prices", that is (as the primary judge explained) prices not capable of being charged in a market in which Baxter did not have a substantial degree of power does not of itself show that Baxter did not take advantage of its market power by its alternative offer strategy. In Boral Besser, Gleeson CJ and Callinan J said at [136]: In Queensland Wire (113), Mason CJ and Wilson J defined market power as the ability of a firm to raise prices above supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product. Each side in the present case called an economist as a witness. They both defined or described the market power of a supplier in terms of its ability to raise prices above supply cost without losing business to another supplier. Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply; or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as the critical test; and it is pricing behaviour that is the relevant conduct in the present case. 131 The alternative offer strategy of Baxter, when it had the ability to raise its sterile fluids prices above supply cost without rivals potentially taking away its sterile fluids market share (which is the essence of a substantial degree of power in a market), may well demonstrate taking advantage of its market power notwithstanding the absence of available analysis of its item-by-item prices as "monopoly prices". In other words, in my view, Baxter may have taken advantage of its market power even if its item-by-item prices were not totally unconstrained and were not in fact greatly in excess of its costs of production. Whether it did so is a matter to be determined in all the circumstances. It is important to recall that, as the primary judge found, Baxter had a substantial degree of power in the sterile fluids market but was in fact constrained to some degree by the risk of provoking the SPAs into sponsoring another entrant into that market. 132 There was, as the primary judge observed, some evidence of low margins for sterile fluids. There was no evidence, at least none identified in submissions, to explain any of the particular features of Baxter's item-by-item pricing and bundled offer pricing referred to above. It may be accepted that Baxter's item-by-item prices were based on its general price list and were in fact charged to smaller customers in its routine business. But the fact that it could offer, as it did in relation to the Offer 1A Contravention, to supply bundled sterile fluids and PD fluids at a price less than the offered price to supply exclusively sterile fluids suggests that its item-by-item sterile fluids pricing was not constrained by competition. Indeed, the finding that it had a substantial degree of power in that market carries with it the finding by implication that it had a significant pricing discretion in relation to sterile fluids. That was a matter acknowledged by Baxter's own evidence. 133 I accordingly do not consider that the absence of analysis of Baxter's item-by-item prices as monopoly prices is, in the circumstances of this case, an evidential impediment to concluding that Baxter, by its alternative offer strategy, took advantage of its substantial degree of power in that market. 134 The second evidentiary hurdle was identified by the primary judge, namely Baxter's level of awareness of B Braun as a potential competitor in the sterile fluids market when negotiating the 1998 NSW Agreement. That factor is to be measured in the light of his Honour's findings that Baxter (through the General Manager Mr Lee) expected to win the LVP and IS tender for NSW, although it regarded B Braun as a commercial threat in that tender "to a degree". His Honour accepted that Baxter saw B Braun as a competitive threat for the NSW tender in 1997, although it anticipated winning the sterile fluids contract. B Braun was, at the time, not a local manufacturer and Baxter knew that. Consequently, it was faced with the barriers to entry in the sterile fluids market discussed above, although it was unclear to Baxter whether it had TGA registration for many elements of sterile fluids. Baxter did not believe that B Braun could tender for the full range of sterile fluids. It was also unclear to Baxter the extent to which B Braun might tender at prices below its costs of production and importation to secure market share. In addition, Baxter believed in any event that NSW firstly could not commit to B Braun for the supply of all sterile fluids because it did not have TGA registration for the full range of sterile fluids, and secondly that NSW would not risk having B Braun as its sole supplier of sterile fluids. 135 In fact, B Braun did not have TGA registration for its sterile fluids at the time, and on the evidence did not obtain such registration at any time material to the impugned conduct. 136 The first important point to note is that there was no evidence, at least as identified in submissions, that Baxter regarded B Braun as a real competitor in the sterile fluids market in relation to the impugned Agreements, other than in relation to the 1998 NSW Agreement. 137 As to the 1997 and 1998 negotiations with NSW, there is, of course, no direct tension between the finding that Baxter had a substantial degree of power in the sterile fluids market and the finding that, to an extent, it felt constrained from taking advantage of that market power because it erroneously believed or may have believed that it did not have such power in that market. 138 The ACCC contended that the primary judge should not have accepted Baxter's evidence, in particular through Mr Lee, that in respect of the tender for, and negotiations in relation to, the 1998 NSW Agreement, Baxter regarded B Braun as a potential participant in the sterile fluids market. The relevant evidence was given primarily by Mr Lee, Baxter's Managing Director at the time. His Honour had the opportunity of seeing Mr Lee give his evidence. He said that he approached Mr Lee's evidence with great caution, and gave detailed reasons for that caution. As to one topic, he described Mr Lee's evidence as verging on the ridiculous. Mr Lee did not, when cross-examined initially, refer to B Braun as a restraint upon Baxter's tendering structure or costing in relation to sterile fluids in relation to the 1998 NSW Agreement. At the commencement of his cross-examination, the following exchange took place: Q. Mr Lee, you were involved in relation to the 1998 tender in New South Wales, were you not? A. Yes. Q. It's fair to say, isn't it, that at the time of putting in the tender, you expected that, at least in relation to IV fluids and irrigating solutions, Baxter would secure the contract? A. Yes. Q. There was no doubt about that in your mind, was there? A. I don't - well, I'm not sure. We say yes, we were hoping we would. Q. You fully expected to secure the contract, at least in relation to sterile fluids and IV solutions? Q. Sorry, LVPs and irrigating solutions? A. Well, it depends on who else was going to bid for the contract, but we expected - we hoped we would retain the business that we had. Q. You expected, did you not, that you would probably win an exclusive contract for IV fluids and irrigating solutions? A. Yes. 139 The primary judge at [460] of his reasons referred to another part of his cross-examination in the following terms: Mr Lee was asked about "product leveraging" and he agreed that it is where a company bundles a product in respect of which it has substantial power with a product in respect of which it does not have market power, or where a company uses one product to sell another product. Furthermore, he understood how leveraging or bundling could secure, maintain or expand a company's market share. Despite this understanding, however, he denied that Baxter's bundling of IV products with PD products was product leveraging, because he said that the products had different usages and that this bundle was directed toward securing throughput and volume for the Toongabbie plant as opposed to expanding or preserving PD market share. This explanation was inconsistent with the understanding of "leveraging" that Mr Lee claimed to have. I do not accept Mr Lee's evidence in this regard. I find that he viewed the package of PD fluids in contracts with sterile fluids as bundling or leveraging and that it was directed to preserving or expanding Baxter's PD market share, and thereby maintaining plant throughput. As there appears, Mr Lee's explanation for bundling as part of its alternative offer strategy was rejected. 140 In the two immediately following paragraphs of the reasons of the primary judge, his Honour also expressly rejected other pertinent elements of Mr Lee's evidence. Paragraphs [461]-[462] record: Mr Lee also denied that Baxter's bundling was for the purpose of keeping Fresenius and Gambro out of PD market. When asked to explain how Gambro and Fresenius could possibly compete with bundled bids, he said that he simply did not know, which was how he answered the question before the ACCC in the s 155 hearing. When further pressed, he suggested that they could have put in a better tender. I reject this evidence. I find that the arrangement of the offers was understood by Mr Lee to have the consequence that it would be difficult, if not impossible, for Gambro or Fresenius to put in more attractive bids on price for PD fluids without their, in some fashion, combining with another supplier of sterile fluids to match Baxter's scope of supply. Indeed Mr Lee ultimately conceded that if it were true that Baxter was giving away its PD in SA then it would have been impossible for Gambro and Fresenius to compete. This reflected the reality of which Mr Lee was aware. The purpose of the bundling in the exclusive supply contract was not to prevent others such as Gambro and Fresenius putting in a tender, but it was to prevent such tenders as they put in being realistically competitive. Later, Mr Lee also denied that bundling was in response to a threat of competition in PD and denied that it was part of an action plan to meet the entry of Fresenius by tying up State contracts with bundles. I reject this evidence. Whilst it was not a strategy which was forced on the States by Baxter, it was part of Baxter's intended method of defeating Fresenius and Gambro in the PD market. 141 The primary judge also rejected Mr Lee's evidence as to why Baxter priced its item-by-item prices at the levels it did: Mr Lee said that was having regard to the risk of losing volume in other States when their contracts came up for renewal. His Honour, to the contrary, found that they were set at a level to be taken seriously as a credible alternative and to maximise the apparent benefit for the State in taking the bundled offer. 142 Nevertheless, in his recital of Mr Lee's evidence and his findings about it, the primary judge noted one aspect of his evidence: There was no material to found a conclusion that Mr Lee, or others at Baxter, knew in 1998 that B Braun would not obtain TGA approval for its Malaysian factory (and so be able to supply - albeit as an importer - a significant amount but not the full range of sterile fluids). 143 I do not consider that the state of the evidence, or the findings based upon his Honour's reasons at [593] and quoted in [124] above, necessarily means that Baxter could not, or did not, take advantage of its market power in the sterile fluids market by its alternative offer strategy by engaging in the impugned conduct. 144 There was no evidence from Baxter that its belief about B Braun's competitive position at the time of the NSW negotiations in 1998 persisted to the time of negotiations with the other States. B Braun did not receive registration under the TGA for its products, including certain products within the grouping of sterile fluids, manufactured at its Malaysian plant. 145 Although Mr Lee said he did not know that its registration had been refused, the primary judge did not record his acceptance of that evidence and, in view of his Honour's caution about accepting Mr Lee's evidence generally, I do not place any weight on that part of his evidence. It would be surprising if the holder of the very strong position in a local market did not keep a close watch on its potential competitors. The response of Baxter to the SA request for a volume discount for long term supply of sterile fluids, namely no discount from its item-by-item prices, clearly supports an inference that Baxter was aware in 2000 and 2001 that it had no real competitors in the sterile fluids market. It is to be remembered that Baxter through Mr Lee had said the item-by-item prices had never previously been charged to any Hospital facility and were not expected to be acceptable to the SPAs. 146 The position is obviously more subtle in relation to the negotiations leading up to the 1998 NSW Agreement, if it be assumed (as the primary judge did) that Baxter believed B Braun was in the process of registering, or had registered, for 80 per cent of the sterile fluids range of products at about that time. However, even making that assumption, I do not think that of itself necessarily means that Baxter by its alternative offer strategy did not take advantage of its market power. 147 The evidence from Baxter was that it believed B Braun might be able to compete for up to 80 per cent of the range of sterile fluids products, and that it did not expect NSW to take the risk of having Braun as a sole supplier. Moreover, it did not expect NSW to accept its item-by-item priced tender. It was a means by which it would emphasise to the relevant SPA the economic benefits of its bundled exclusive supply tender, and by which it expected at least to induce the relevant SPA to enter into negotiations with it. It must also be remembered that B Braun, even if eligible to compete in the sterile fluids market to a degree, was in fact at the disadvantage of having the cost burden of importing sterile fluids into Australia. Hence, whilst Baxter's belief (or assumed belief) in the capacity of B Braun to compete to a degree in the sterile fluids market is a relevant matter, in my view it is but one relevant matter in assessing whether Baxter took advantage of its substantial degree of power: the market by its alternative offer strategy. 148 In the light of those considerations, it is necessary to consider whether the conclusion of the primary judge that, apart from in relation to the Offer 1A Contravention, Baxter did not take advantage of its substantial degree of market power in the sterile fluids market should be set aside. 149 As I have noted, the impugned conduct by the alternative offer strategy was either authorised by or permitted by the various tender invitations. It had been using that strategy for the best part of a decade, if not longer. As a general proposition, Baxter could have made alternative item-by-item tenders and exclusive supply bundled tenders even if it did not have market power: see e.g. per Gummow, Hayne and Heydon JJ in Rural Press at [52]. However, it is not merely the fact of alternative tenders which is significant. It is that the item-by-item prices were relatively so high compared to the alternative bundled offer, and were also so much higher than had previously been paid by any relevant SPA that Baxter did not regard those prices as "serious". 150 In my view, that feature of the item-by-item pricing tends to indicate that Baxter was taking advantage of its market power. Had there been any serious competitor in the sterile fluids market, Baxter could not rationally have made what appears to have been an unrealistically high item-by-item price for sterile fluids. It would have been constrained from doing so by the competition in the market. Its response by Offer 1A to SA shows that it felt no such constraint. 151 In the PD fluids market, as his Honour found, at least Fresenius and Gambro were significant competitors. But, faced with a bundled tender for sterile fluids and PD fluids which was less than the Offer 1A price for sterile fluids only, as SA said, it had no real economic choice. It is the same in respect of the impugned conduct generally. Unless Baxter by its item-by-item bid could present the threat of comparatively high prices for all products (including for sterile fluids) if its bundled offer was not taken, the relevant SPA was to be faced with a significant price penalty by dealing with Fresenius or Gambro in relation to PD fluids. Baxter said that was why its alternative offer strategy was adopted, including the pricing levels in its item-by-item bids. Its impugned conduct had a business rationale (cf Boral Besser at [170]), but the rationale could not be effective unless the price disadvantage of the item-by-item bid was quite dramatic. On the evidence, it was deliberately a dramatic difference. It was significantly different, as the primary judge found, to achieve that purpose but not such as to be so offensive or provocative to the SPAs that they would sponsor another overseas sterile fluids manufacturer into the market. 152 Putting aside the negotiations leading to the 1998 NSW Agreement, in my view the pricing structure of the item-by-item bids as part of Baxter's alternative offer strategy involved it taking advantage of its substantial degree of market power in the sterile fluids market. On the evidence, it created that dramatic price differential without reference to its costs of production. It suggested no economic foundation for its item-by-item pricing. Its item-by-item prices or "cherry pick" prices (a term which Mr Lee accepted) were always substantially above what the particular SPA was then paying, in some instances or items by more than 100 per cent. None of the itemised prices had ever been paid by any of the Hospital facilities of the States or the ACT. Baxter did not expect any of the SPAs to seriously consider accepting those prices; only that they be seen as credible. It was not merely its general economic status which enabled it to engage in the impugned conduct. It was able to do so because it had no real competitors in the sterile fluids market. 153 In my view, Baxter therefore took advantage of its substantial degree of market power in the sterile fluids market by engaging in its alternative offer strategy, including in particular by its pricing level for sterile fluids in its item-by-item bids. 154 I have also come to that conclusion in respect of Baxter's conduct in relation to the 1998 NSW Agreement. That conduct has to be assessed with the additional element of the assumption about Baxter's belief that B Braun was a realistic potential competitor to some degree for the supply of sterile fluids at that time. Nevertheless, there does not appear to have been any constraint by reason of that assumption upon Baxter exercising its market power in the same way as it did in relation to the impugned conduct generally. The price differential between its item-by-item prices and its bundled price was substantial. There is no evidence to suggest Baxter tempered its item-by-item prices in any way; the evidence is rather that it did not do so. Mr Lee said that the item-by-item priced bid was not a "serious tender". The pricing spreadsheets prepared by NSW exposed that Baxter's item-by-item offer created enormous financial pressure on NSW to take PD fluids from Baxter, unless B Braun was to take the bulk of the sterile fluids contract - an outcome Baxter did not expect and did not believe was possible. That tends to confirm the relatively unconstrained pricing of its item-by-item prices. 155 It may be that Baxter was able to act in that way, notwithstanding its belief about the competitive status of B Braun, because B Braun in any event (it believed) would only be able to compete for 80 per cent of the range of sterile fluids products. It may be that it was able to do so because B Braun would have faced the additional costs burdens associated with importing sterile fluids. I was not pointed to any evidence touching upon those matters. I am therefore left with Baxter's market power, the pricing terms of its item-by-item bid as part of its alternative offer strategy, and its own description of the reasons for and nature of those terms. I do not think that its assumed perception about the capacity of B Braun in the market itself displaces the inference which I have drawn generally as to Baxter's exercise of the market power when considering the negotiations leading to the 1998 NSW Agreement.

[28]

DID BAXTER TAKE ADVANTAGE OF ITS MARKET POWER IN RELATION TO OFFER 1A IN SOUTH AUSTRALIA 156 It is apparent that, for the reasons given in the preceding section of this judgment, Baxter's Notice of Contention on this topic should be rejected unless there are peculiar features relating to the Offer 1A Contravention. 157 The primary judge's conclusions on this issue are at [596]-[597] of his reasons. They are in the following terms: Offer 1A in the SA bid is more problematic. It was an isolated event in dealing with one buyer in the national PD market. If Mr Browne had had any real concern about there being workable competition in the sterile fluids market at that time in SA I do not think that he would have displayed what was a fairly high-handed approach. He said that he expected some negotiation and that his Offer 1A was not expected by him to be taken at face value. That may be; and that may go to purpose, but he would not have so acted if he had not had the confidence that he undoubtedly did have in Baxter's position in the sterile fluids market at that time in SA. I am prepared to conclude that that point blank refusal to give a discount for volume in Offer 1A on sterile fluids was a taking advantage by Baxter of its substantial degree of market power. Mr Browne was between 1998 and 2001 the national sales manager of Baxter. He became involved in the tender processes only about the time the 1998 NSW Agreement was made, and thereafter was responsible for the preparation and structure of Baxter's tenders to SPAs in response to tender invitations. 158 Baxter's submissions on this part of its Notice of Contention urged that Offer 1A to SA should be treated as being in the same position as the other impugned conduct, and should not have been the subject of a different finding that Baxter had taken advantage of its substantial degree of market power in relation to Offer 1A. 159 I have had regard to Baxter's conduct in relation to Offer 1A above. In an Australia-wide sterile fluids market, I think its conduct (as his Honour found) showed an approach on the part of Baxter which revealed its confidence in its position in the market, and then the terms of its response revealed Baxter taking advantage of its market power. It shows Baxter's confidence in its position in that market not just in SA but Australia-wide. That awareness of its position in the market provides a background to the finding that, in the manner outlined above, Baxter took advantage of that market power. 160 There are no particular features of Baxter's conduct in relation to the Offer 1A contravention which Baxter identified and which would lead to a different conclusion. Baxter referred to Offer 1A being made in response to a request, and as being a step in the process of responding to the SA invitation to tender within the tender structures established by SA. It also referred to Offer 1A being put forward in the expectation of negotiation, not in the expectation of its acceptance. Each of those matters is correct, as it was generally in relation to the impugned conduct. But it does not directly address the level of pricing within the item-by-item bid and the bundled bid, or in the case of SA the further bid to exclusively supply sterile fluids for a period. Baxter's Offer 1A was to exclusively supply sterile fluids for a long term period at the same price as its item-by-item prices. Those prices, on Baxter's own evidence, were not seriously presented as prices it expected to have accepted. Offer 1A was to supply exclusively sterile fluids for a long term period at a cost to SA which was greater than its tendered offer to supply exclusively sterile fluids and PD fluids for the same term. 161 Finally, Baxter pointed out that it was not the ACCC case that the making of a particular isolated offer by Offer 1A was a contravention of s 46. I have reached the view that Offer 1A is both helpful in assessing Baxter's understanding of its position in the Australia-wide sterile fluids market at the time, and that the making of Offer 1A was part of the alternative offer strategy of Baxter which, by the pricing of the item-by-item bids or - in the case of Offer 1A, the non-bundled bid - amounted to Baxter taking advantage of its substantial power in that market. 162 Accordingly, the conclusion of the primary judge that Baxter took advantage of its market power in the making of Offer 1A is, in my view, correct.

[29]

WHETHER BAXTER'S PURPOSE WAS FOR THE PURPOSE SPECIFIED IN S 46(1)(a) OF THE ACT 163 The ACCC attacked the conclusion of the primary judge on this topic. His Honour found that Baxter's impugned conduct was not for the purpose of eliminating or substantially damaging a competitor in the PD fluids market. The ACCC accepted that the relevant competitors were Fresenius and Gambro. 164 It was not ultimately part of the ACCC case that Baxter's conduct was directed to any competitors in the sterile fluids market. 165 The primary judge noted that the impugned conduct took place in a bidding system under the control of the buyer. Secondly, his Honour accepted that it was vital to Baxter to ensure the maximum throughput of product at its Australian manufacturing plant - the size of the markets for sterile fluids and dialysis products in Australia required Baxter to produce both sterile fluids and PD fluids there. Hence, his Honour found at [603]: … I accept that there was a clear and definite reason for the otherwise commercially understandable desire to obtain as much business as possible and to maintain maximum throughput through the plant. And his Honour accepted that the capital investment and fixed costs of production made local manufacture viable only if Baxter maximised the volume of fluids produced at its plant. 166 Further, his Honour accepted Baxter's evidence that its purpose by its alternative offer strategy was to get as much business as possible for Baxter, and was not to "exclude another tenderer from being a competitor of Baxter", or was not to "stop or discourage another tenderer from offering competitive products on other occasions". That, as was noted, had to be understood by reference to Baxter's internal documents. 167 By reference to Baxter's documents, the primary judge found that Baxter, by its alternative offer strategy involving bundling PD fluids with sterile fluids on the one hand and a credible higher priced item-by-item tender on the other, aimed at making the bids of Gambro and Fresenius in respect of PD fluids unlikely to be acceptable. Its purpose was expressed in the following finding: Baxter believed that likelihood was that it would maintain its position in the supply of sterile fluids and it could ensure that the real and present reality of competition in the PD market could be practically eliminated as long as the credible alternative to sole supply from Baxter in respect of all products was very costly. 168 Hence, his Honour concluded at [608]: Thus, it seems to me clear that the purpose involved, as a substantial purpose, was to frame a bid structure involving a credible item-by-item alternative to maximise the chances of bringing about circumstances in which the bids of competitors with substantially equivalent products could only be accepted at a significant cost penalty. Although he had earlier recognised that, having the "benign" aim of maximising throughout did not mean that there may nevertheless be the purpose or a substantial purpose (see s 4F(1)(b) of the Act) as expressed in s 46(1)(a), the primary judge concluded that the purpose found at [608] was not a purpose within s 46(1)(a) of the Act. 169 The ACCC contended on appeal that, upon those findings, the primary judge had simply reached the wrong conclusion. 170 Baxter, by its Notice of Contention, argued that there was error in the finding of the primary judge that its purpose was to structure its bids so as to prevent Fresenius and Gambro from being able to put forward bids that were realistically competitive, as the bundled bids of Baxter made the choice of any rival PD fluids bid too financially disadvantageous to the States and the ACT. However, in the course of submissions on the appeal, senior counsel for Baxter indicated that the challenge to those factual findings were not pressed. Rather, the argument sought to be advanced was the significance or otherwise of those findings to the ultimate conclusions about Baxter's purposes in relation to s 46(1)(a) and s 46(1)(c) of the Act. 171 Again, the applicable principles to determination of the issue of purpose were not contentious. Mason CJ and Wilson J in Queensland Wire at 191 pointed out the competition is necessarily "deliberate and ruthless", so that more effective competitors injure the less effective by taking sales away. In Melway, Gleeson CJ, Gummow, Hayne and Callinan JJ at [29] quoted with approval a point made by Scalia J in the Supreme Court of the United States in Eastman Kodak Co v Image Technical Services Inc (1992) 504 US 451 at 488 where he said: Where a defendant maintains substantial market power, his activities are examined through a special lens: Behaviour that might otherwise not be of concern to the antitrust laws - or that might even be viewed as procompetitive - can take on exclusionary connotations when practiced by a monopolist. Also, it was accepted that a corporation does not have to achieve its purpose in order to contravene s 46(1) of the Act. It is the purpose, not its fulfilment, which completes the contravention. See e.g. Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (2003) 129 FCR 339 at [333]. It is also apparent that the consequence of conduct does not necessarily demonstrate the existence of a proscribed purpose when the conduct is undertaken. Competition enables the efficient to gain market share at the expense of the inefficient. 172 The ACCC asserted that it is a small step from desiring to make competitors' bids uncompetitive to desiring to eliminate or substantially damage them, especially where the corporation concerned has a substantial degree of power in the market. 173 The primary judge did not, in the context of purpose and s 46(1)(a), expressly refer to Baxter's attempts to secure long term exclusive bundled contracts. There was evidence that it did so, sometimes by submitting a tender for a term longer than that proposed by the relevant SPA. Except in relation to the 2001 WA Agreement, Baxter's tenders in respect of the other impugned Agreements all sought longer terms than the invitation to tender stipulated. There is no submission that the SPAs could not have negotiated far shorter terms, or that the pro rata price differential between the item-by-item tenders and the bundled exclusive supply tenders would have differed. I do not, however, consider that this additional element informs Baxter's purpose so that the assessment of it by the primary judge was erroneous. There was no evidence identified in submissions that the longer terms sought (whether from two years to five years in the case of NSW, or from two years plus a one year option to three years in the case of SA, or from one year plus two one year options to three years in the case of QLD) placed Baxter's commercial considerations in any different light. Its purpose of getting as much of the market as possible, including by bundling PD fluids at the expense of its competitors in the PD fluids market, was founded upon its commercial desire to maximise its plant output. The achievement of longer term contracts better fulfilled that commercial objective. Nor did the ACCC identify any evidence which suggested that Gambro or Fresenius were rendered any more vulnerable in the PD fluids market by the term of the impugned Agreements being somewhat longer than the initial invitation to tender may have specified. 174 The primary judge made the findings referred to in [168] above. He rejected the ACCC's contention that Baxter's purpose in its alternative offer strategy was to eliminate or substantially damage Gambro or Fresenius in the PD fluids market. In my view, his Honour's conclusion that Baxter's purpose was not within s 46(1)(a) should be upheld for the reasons given by his Honour.

[30]

WHETHER BAXTER'S PURPOSE WAS FOR THE PURPOSE SPECIFIED IN S 46(1)(c) OF THE ACT 175 The primary judge found that Baxter, in engaging in the impugned conduct, had the purpose or a substantial purpose of deterring or preventing Gambro and Fresenius in the PD fluids market from engaging in competitive conduct in that market, contrary to s 46(1)(c). That conclusion was attacked by Baxter's Notice of Contention. 176 In his reasons, the primary judge drew a distinction between the purpose of deterring or preventing a competitor from engaging in conduct in the PD fluids market (which his Honour did not consider was Baxter's purpose) and, on the other hand, the purpose of preventing rival bidders in the PD fluids market being "competitive", or likely to succeed over Baxter's bid. His Honour said that was the purpose or a substantial purpose of the alternative offer strategy. At [610] of his reasons, the primary judge said: The purpose in so constructing the bids in question was, it seems to me, plainly to meet the developing competition for PD fluids in Australia from Fresenius and Gambro. That the approach was encouraged or tacitly or expressly approved by the SPAs is not to the point. Baxter could have structured its bids otherwise. It did not. It offered a tie or bundle at, largely, historical prices, and a credible threat of an alternative with much higher prices. The purpose was to make rival PD bids uncompetitive in the sense of unacceptable, because of the credible cost alternative of Baxter's item-by-item offer. 177 Then his Honour concluded that that purpose fell within s 46(1)(c) of the Act. He said that the phrase "competitive conduct" should be understood in a practical business sense, reflecting the subject, scope and purpose of the Act, and in particular referred to the protection of consumers through the preservation of the competitive process. His Honour continued at [613]: Looked at in that way I have no doubt that Mr Lee, Mr Browne and the other senior executives concerned at Baxter, and thus Baxter, had a substantial purpose in structuring the bids in a way to prevent rival bidders (Fresenius and Gambro) for PD products from being able to put forward bids that were realistically competitive by the existence of credible alternative high item-by-item pricing. In the tender bidding system prevailing, albeit structured and dictated by the buyers (the SPAs), the purpose was to create circumstances in which Fresenius and Gambro could not put forward realistically competitive bids and so prevent them engaging in conduct that was, in a real sense, competitive. True the act of Baxter did not impinge directly on Gambro or Fresenius doing anything. Rather, it was directed to affecting the environment in which their actions (their bids) would be judged. Bearing in mind the aim and purpose of the legislation that, it seems to me, is to prevent Fresenius and Gambro from engaging in relevant conduct, because of the controlling or focal role for the adjective "competitive". 178 The primary judge was not unmindful of the nature of competition, including that a corporation will inevitably endeavour to make its rival's bids uncompetitive. In the normal course, that is done by cost competition, product quality, service or other attributes of or related to the products. But, as his Honour correctly identified, Baxter was assumed for the purposes of his consideration of purpose in s 46(1)(c), to have taken advantage of a substantial degree of power in the sterile fluids market. I have concluded that it was in fact taking advantage of that market power. 179 Based upon the evidence, his Honour found that the "core … of the purpose of the bundle or tie", or more broadly the alternative offer strategy, was to foreclose the likelihood or restrict the possibility of the Gambro or Fresenius bids for PD fluids having any realistic prospect of success. That was, he said, illustrated or reflected in the "stubbornness" of Baxter's attitude to the request by SA for a tender for the long term exclusive supply of sterile fluids, because a discount for exclusive supply of volume of sterile fluids only would have exposed the Gambro and Fresenius bids for PD fluids to realistic prospects of acceptance. Baxter's attitude was to prevent those prospects and so to protect its PD fluids revenue stream. 180 Baxter's primary contention was that his Honour erred in the passage quoted above from [613] of his reasons, in essence by failing to give the words in s 46(1)(c) their literal or grammatical meaning. It submitted that the purpose required involved the aim of deterring or preventing a person from engaging in competitive conduct in a market, so the focus should have been upon whether Baxter's purpose was to impede either Gambro or Fresenius from tendering for PD fluids. His Honour had found that Baxter had not directly impeded either Gambro or Fresenius from tendering for PD fluids. They had in fact done so. Baxter's secondary, and alternative contention was that, because in fact Gambro and Fresenius tendered for the PD fluids in relation to the impugned Agreements and also subsequently tendered to do so, and had by the hearing a stronger position in the PD fluids market, Baxter could not rationally have had the purpose proscribed by s 46(1)(c). 181 I have earlier referred to the well known passage in the judgment of Mason CJ and Wilson J in Queensland Wire at 191 about the nature of competition. In Boral Besser, Gleeson CJ and Callinan J at [80] also recognised "the danger of confusing aggressive intent with anti-competitive behaviour". The Act, relevantly for present purposes s 46(1)(c), indicates where the line should be drawn between legitimate aggressive conduct and anti-competitive behaviour. 182 To this point, I have concluded that at material times Baxter · had a substantial degree of power in the sterile fluids market; and · by its alternative offer strategy, including the pricing of its item-by-item bids and the comparative pricing of its bundled exclusive supply bids, had taken advantage of that market power by engaging in the impugned conduct. The construction and application of s 46(1)(a) to (c) to determine the existence or otherwise of a proscribed purpose is the last separate step in the process of deciding if a contravention is established. As a matter of construction, each of the subparagraphs should be given a separate scope of operation. In this case, because Gambro and Fresenius were already participants in the PD fluids market. It was also common ground that only the purposes referred to in s 46(1)(a) and s 46(1)(c) were potentially relevant. 183 It is clear enough that s 46(1)(a) refers to a purpose directed to a competitor in a market. It requires a subjective purpose or intention to damage a competitor in a market in which both the putative infringer of s 46 and the competitor who is the object of the purpose compete. So much is plain from Queensland Wire and Melway. That market, in this case, was the PD fluids market. 184 Section 46(1)(c) clearly does not cover the same purpose of, or conduct by, the putative infringer. It refers to the purpose or intention to impede a person from "engaging in competitive conduct" in a relevant market. It is carefully expressed to relate both to persons who are not presently competitors in that market (but where the purpose is not to prevent the entry of that person into the market: see s 46(1)(b) of the Act) and to persons who are already participants in that market. But it directs attention not merely to that other participant or potential participant in that market, but to the intended effect of the conduct in question upon that participant or potential participant being able to compete in that market. It is at that point that the Act, for present purposes, draws the distinction between permitted competitive conduct and conduct which, by reason of the market power of one participant, is contrary to the Act. 185 In my view, s 46(1)(c) thus contemplates the potential infringer being aware of the state of competition in the relevant market. Its awareness of that state of competition, and then of possible conduct by a participant or potential participant in that market, will inform the question whether its purpose was, or one of its substantial purposes was, to impede that participant or potential participant from engaging in competitive conduct in that market. In Melway, Gleeson CJ, Gummow, Hayne and Callinan JJ said at [38]: When regard is had to the state of competition in the relevant market, the purpose may be pro-competitive. For example, competition in the retail market may be fostered by inhibiting the engagement in certain conduct by wholesalers or other "middle men". Or there may be explanations of the arrangements which justify the conclusion that restricting competition was no part, or no substantial part, of the purpose of the manufacturer. Their Honour's observations indicate that the relevant purpose is that directed to the effect of the impugned conduct upon competition in the relevant market by impeding another participant or potential participant from engaging in competitive conduct in that market. 186 I respectfully agree with the primary judge that the construction of s 46(1)(c) which he adopted is consistent with the objects of the Act. Section 2 identifies its objects relevantly as enhancing the welfare of Australians through the promotion of competition. The construction of s 46(1)(c) which his Honour adopted also accords with practical business sense. It accords with the meaning of the words used, as well as their relationship with s 46(1)(a). 187 Baxter, having a substantial degree of power in the sterile fluids market, took advantage of that power by the impugned conduct. It did so to secure as much of the supply of sterile fluids and PD fluids as it could. It did so for obvious commercial reasons. In doing so, it had the purpose of shutting out Gambro and Fresenius from being able to put forward bids for the supply of PD fluids which could be accepted by the SPAs except at a significant cost penalty. The significant cost penalty existed by reason of the bundled offers, and the fact that Baxter in the sterile fluids market had a substantial degree of power, and took advantage of that power by its alternative offer strategy. Baxter did not compete separately with Gambro and Fresenius in the PD fluids market, whether by price or quality of product or service or otherwise. It sought to avoid competing with them directly by taking advantage of its market power in the sterile fluids market. Its purpose, as the primary judge found, was to deter or prevent Gambro and Fresenius from engaging in competitive conduct in the PD fluids market by shutting them out from effectively being able to compete in that market. 188 I do not accept Baxter's alternative contention. The primary judge found, upon analysis and assessment of the evidence, that Baxter's purpose by its impugned conduct was to shut out Gambro and Fresenius from being able to effectively compete in the PD fluids market in relation to the tender invitations from the SPAs. The outcome of its alternative offer strategy shows that its purpose was fulfilled. The fact that both Gambro and Fresenius were, before the impugned conduct, its competitors in the PD fluids market and remained its competitors in that market after the impugned conduct does not mean that Baxter did not have the purpose referred to in s 46(1)(c). Nor does the fact the Gambro and Fresenius tendered in various ways for all or part of the PD fluids supply contracts available in the tendering invitations of the SPAs. Nor does the fact that, in the period of time after the impugned conduct, Gambro and Fresenius may have increased their respective market shares in the PD fluids market. 189 I therefore agree with the primary judge that Baxter's purpose in engaging in the impugned conduct fell within s 46(1)(c), so that it contravened s 46(1) of the Act.

[32]

Exclusive dealing (1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing. (2) A corporation engages in the practice of exclusive dealing if the corporation: (a) supplies, or offers to supply, goods or services; (b) supplies, or offers to supply, goods or services at a particular price; or (c) gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation, on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the goods or services or, if that person is a body corporate, a body corporate related to that body corporate: (d) will not, or will not except to a limited extent, acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation; … (10) Subsection (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in subsection (2) … unless: (a) the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition; or (b) the engaging by the corporation in that conduct, and the engaging by the corporation, or by a body corporate related to that corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition. … (13) In this section: (a) a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances; (b) a reference to competition, in relation to conduct to which a provision of this section other than subsection (8) or (9) applies, shall be read as a reference to competition in any market in which: (i) the corporation engaging in the conduct or any body corporate related to that corporation; (ii) any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate; supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services; and (c) … 191 Pursuant to s 4G the term "lessening competition" includes "preventing or hindering competition". Subsection 47(10) requires that any relevant lessening of competition be "substantial". In Rural Press at [41], Gummow, Hayne and Heydon JJ said, concerning similar language in s 45: The relevant questions in this case are whether the effect of the arrangement was substantial in the sense of being meaningful or relevant to the competitive process, and whether the purpose of the arrangement was to achieve an effect of that kind. 192 In footnote 67 (which follows that paragraph) their Honours referred to differing views expressed in the authorities concerning the meaning of the word "substantial" in this context. As the footnote indicates, their Honours preferred to leave some aspects of that matter unresolved. However they considered that the various authorities did not support the proposition that it was sufficient that the relevant effect was "quantitatively more than insignificant or not insubstantial". 193 There was no dispute that Baxter's impugned conduct amounted to conduct that fell within s 47(2). That is quite clear: its alternative offer strategy included offering to supply sterile fluids and PD fluids on the condition that the relevant SPAs would not acquire, or would acquire only to a limited extent, PD fluids from any competitor of Baxter in the PD fluids market. 194 Consequently, its impugned conduct contravened s 47(1) provided it also came within s 47(10). As the primary judge recognised, that depended upon whether Baxter's impugned conduct either had the purpose of substantially lessening competition, or had or was likely to have had the effect of substantially lessening competition within the meaning of either s 47(10)(a) or s 47(10)(b). Section 47(13) explains relevantly that any such lessening of competition refers to competition in any market in which Baxter or the target of the conduct (Gambro or Fresenius) supplies or was likely to supply goods, or would do so but for the conduct complained of. In the present circumstances, the market principally so affected was the PD fluids market. 195 The ACCC alleged that Baxter had the purpose of substantially preventing, hindering or lessening competition in the Australia-wide PD fluids market by the impugned conduct, by eliminating or damaging Fresenius and Gambro as competitors in the PD fluids market and/or deterring or preventing each of them and other potential suppliers from engaging in competitive conduct in that market. Its references to "eliminating or damaging" competitors and "deterring or preventing" competitive conduct are apparently derived from s 46 of the Act, that section being the primary focus of the ACCC claim. 196 The ACCC alleged a similar purpose (substantially preventing, hindering or lessening competition) in the Australia-wide sterile fluids market. That allegation was also particularized by reference to the allegations concerning s 46, so that the ACCC appeared to be relying on Baxter's purpose in connection with competition in the PD fluids market. 197 The specific factual material said to demonstrate s 47 purposes included: · a short extract from a document of unknown date, allegedly created in 1999, and obtained from Baxter, which asserted that "much of our APD activity will be focussing on ensuring that entering the Australian market for Fresenius will not be a viable option"; · a statement by Mr Browne, then director of Baxter's northern sales region, to the effect that when the various tenders were submitted, he knew that Gambro and Fresenius would not be able to match Baxter's bundled offers; · Baxter's alternative offer strategy with the bundled offers providing substantially lower overall prices; · that Baxter knew that each SPA had limited available funds and would accept the bid which offered the lowest priced sterile fluids; · that to compete with Baxter's bundled offers, a competitor's offers would have to match its prices for all, or substantially all, relevant products or be otherwise comparable with such offers; · that Baxter knew that Gambro and Fresenius could not match its prices for the range of products specified in the requests for tenders, except in the short-term, and therefore could not compete effectively in the PD fluids market; · that Baxter's offers made it unattractive for Gambro and Fresenius to attempt to compete in the PD fluids market; and · that Baxter monitored compliance with the restrictions on SPAs' capacities to source PD fluids from its competitors. 198 The ACCC also claimed, concerning the effect or likely effect of the impugned conduct upon competition in the PD fluids market, that: · the supply of PD fluids required a substantial financial investment by a supplier or potential supplier in manufacture or importation, distribution and clinical support systems; · it is likely that such systems would be required in each of the individual states; · there were difficulties in changing PD fluids used in treating a patient because of the need to retrain medical and clinical staff and the patient; · revenue available to suppliers of PD fluids supplying 10 per cent or less in the PD fluids market was insufficient to justify the necessary level of investment; · Baxter has obtained at least 90-95 per cent of the PD fluids market; · competitors were unable to increase their market shares of the PD fluids market beyond 10 per cent because of the existence of Baxter's long-term supply agreements providing for exclusivity or substantial exclusivity in the sterile fluids market and the PD fluids market; · Gambro and Fresenius had been unable to obtain a minimum efficient scale of production in the PD fluids market because they had been unable to supply more than 10 per cent of PD fluids in each of the markets; and · Baxter has not kept up with technological developments in its supply of PD fluids, this being the result of lack of competition brought about by its long-term supply arrangements. 199 The alleged effect or likely effect on competition in the sterile fluids markets by the impugned conduct was alleged by the ACCC to be that: · sterile fluids required substantial financial investment by a supplier in distribution, manufacture or importation; · transport costs are high and margins low so that, in order to compete with Baxter, it would be necessary that a competitor have a production facility in Australia capable of manufacturing sterile fluids, involving "substantial sunk costs"; · in order to justify such investment it would be necessary to attract sufficient demand for sterile fluids within a relatively short period so as to generate an acceptable return on capital; · PD fluids are "high margin" products and therefore able to be imported for competitive supply, but that Baxter's existing supply agreements rendered or would render it uneconomical for competitors so to do; · as a result of Baxter's various agreements for supply of all products (including PD fluids) it was not possible for competitors or potential competitors to obtain any significant market share in sterile fluids, including PN fluids; and · Fresenius Kabi and B Braun had been unable to obtain a minimum efficient scale of production in the various fluids because of their inability to supply products in the market due to Baxter's earlier agreements and the impugned Agreements. 200 The primary judge recorded that Baxter's conduct fell within subs 47(2), and that the only disputed question was whether the requirement of subs 47(10) had been satisfied. At [620]-[621] his Honour observed: In order that the conduct of Baxter be assessed by reference to s 47 a number of matters need to be borne in mind. The preventing or hindering of competition must be of the competitive process: Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752 at 40,732, [2000] FCA 38 AT [114]; ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 478; and Universal Music Australia Pty Ltd v ACCC, at [242] and [266]. Competition or the competitive process is the means of protecting the interests of consumers: Queensland Wire at 191.. The identification of the competitive process and thus competition which may be affected requires a temporal reference point. The relevant time period in which to judge or assess the competitive process will depend on all the circumstances of the case, including the structure of the industry and the asserted anti-competitive conduct. 201 The primary judge then identified two "levels" at which the relevant conduct and purpose might be examined. The first was "at a relatively high level of generality and long range time period". This involved consideration of issues such as viability of competitors' entry into the market, whether Fresenius was dissuaded (by Baxter's conduct) from building a factory in Australia and whether lost tenders might render competitors unable to bid competitively in later years. The second "level" focused on "the tender process as the chosen competitive process". Such focus was said not to involve the direct examination of the matters identified in connection with the higher "level" although "these matters may flow from the discussion". The task was rather to examine "the purpose and effect of the conduct on the operation of the tender process as the mechanism that had been chosen by the SPAs as buyers for them to buy goods in the market". This observation was not implying any concerted action by SPAs in calling tenders, other than that on behalf of New South Wales and Victoria in 2003 referred to above. Baxter's conduct in connection with that transaction is not directly the subject of these proceedings. 202 His Honour at [624] found that Baxter's purpose in engaging in the conduct which contravened s 47(2) of the Act was: … to structure the bids made by it in a way to prevent rival bidders for PD products from being able to put forward bids that were realistically competitive, by the existence of credible alternative high item-by-item pricing. The purpose was to ensure, as far as possible, that the competitive process of the tender process would not bring about realistically competitive bids for PD products by tying or bundling PD products to sterile fluids, and by providing a credible alternative which would make a choice of any likely available PD product financially damaging to the State. 203 His Honour then concluded that this was a purpose of lessening competition, considering that suppliers in the relevant field were asked to bid on the hypothesis that each would be competing in a process which would be conducted so as to enable each, subject to price and quality considerations, to have a realistic prospect of success. The primary judge observed that, if rivals have equivalent products, and there is no reason to think that one is less efficient than another, conduct which enables one rival to ensure that another's bids cannot be realistically competitive in the tender process requires examination. His Honour said that the bids other than Baxter's were "not competitive by reason of the realistic consequences that will occur to the buyer if the condition imposed by one rival on its offer to supply is not complied with". The perceived consequences of not accepting Baxter's bundled offer hindered the effective operation of the tender process in relation to PD fluids, and his Honour concluded that Baxter had that purpose. In other words the relevant hindering was the deterrence of the respective SPAs from accepting competing offers. Baxter's purpose, by reason of its effect upon the tender process, was substantially to hinder the competitive process and so substantially to affect competition. 204 The primary judge also observed that his reasoning did not apply so as to impugn conduct by Baxter, after acceptance of a tender, namely entering into a contract and supplying goods pursuant thereto because by then the tender process was complete. The primary judge considered that it was necessary to consider such other conduct at the "higher" level, that is having regard to circumstances in the market as a whole and in a wider temporal framework. 205 The primary judge also decided that Baxter's purpose was to "substantially" lessen competition, because it was meaningful or relevant to the "competitive process". His Honour indicated that he had not taken the question to be whether the relevant effect was "quantitatively more than insignificant or not insubstantial" because he was applying the measure of sustainability approved in Rural Press at [41] and [108]. 206 By the same process of reasoning as applied to his assessment of purpose, the primary judge also concluded at [629] that Baxter, by its impugned conduct, substantially lessened or was likely to substantially lessen competition because its conduct had substantially hindered the tender process for PD fluids. That was the effect intended by Baxter. His Honour made the point of saying at [629A] that to so affect each State tender process was to lessen competition or be likely to do so in a meaningful way for the Australian market. 207 The primary judge then considered whether s 47(10) was enlivened in relation to what he had called the "higher" level of the market. 208 His Honour accepted that Baxter's main purpose was to deny market share to its competitors in the PD fluids market by the impugned conduct in relation to each tender. But he concluded that it had no wider purpose of impeding or hindering the competitive process in that market more generally or at the "higher level". In particular, his Honour took account of the influence which the SPAs had upon the tender process and Baxter's inability to prevent its competitors (all large multi-national corporations) from "taking any steps" in relation to the Australian PD fluids market. As to the effect or likely effect at the "higher" level of Baxter's impugned conduct, his Honour at [635] he observed that: … it might be said that what was at stake was competition for the market, and as long as rivals were able to compete on the next occasion and as long as there had been no impairment of the ability of the States to choose the competitive process that they desired, then no harm had been done to the competitive process. 209 In my view, his Honour meant by the term "competition for the market" no more than competition for market share generally (that is, apart from the market share which was at stake in each of the tender processes) in the PD fluids market. I do not think he was suggesting that there may have been room for only one supplier in the Australian market. His Honour rejected a claim that Fresenius had been deterred by Baxter's conduct from building a PD fluids manufacturing plant in Darwin. His Honour further pointed out that it was possible for competitors to compete by supplying imported PD fluids. The primary judge noted Gambro's unwillingness to produce PD fluids at its existing plant because of its inability to attract a larger market share, but he did not attribute this to Baxter's conduct, save to the extent that such conduct prevented increased market share; Gambro was able to compete using imported PD fluids, or if it wished to manufacture them in Australia. 210 His Honour then considered the effect or likely effect of Baxter's conduct in the sterile fluids market. There was evidence that Fresenius Kabi (a company associated with Fresenius) had considered the possibility of establishing a plant in Australia to manufacture IV and PN fluids. His Honour considered this evidence to be "largely speculative". In any event, he found there was no reason why such a plant could not be built. No conduct by Baxter had made it more difficult to do so. There was no evidence that Baxter's conduct had affected Fresenius Kabi's capacity to supply PN fluids. The managing director of B Braun, Mr Crawford, had said that B Braun had the capacity to compete using imported sterile fluids, but without the same capacity to offer discounts as it would have if they were manufactured locally. One reason for B Braun's decision not to build a plant was the existence of Baxter's long-terms contracts. The long-term nature of such contracts made expenditure in Australia riskier in terms of sunk costs since loss of a major contract for a significant period of time would expose such capital expenditure to under-utilization or non-utilization. Of course Baxter would face the same problem if such a competing plant were established. 211 The primary judge concluded that the bundling of sterile fluids and PD fluids had not made it more difficult for B Braun to compete in the sterile fluids market, "except to the extent that it made an exclusive bid (sterile fluids and PD) by Baxter more likely to be successful". However his Honour concluded that B Braun could compete by importing sterile fluids and PD fluids, subject only to its obtaining appropriate TGA approval of its overseas plant and investing in inventory and a supply chain. In any event, it appeared that B Braun did not regard itself at that time as competing with Baxter, Fresenius and Gambro in some aspects of quality of its PD fluids. 212 His Honour concluded at [639]: … Thus for the suppliers of sterile fluids the impediments are caused by the size of the market, the flexibility enjoyed by Baxter in local production, the risk of large sunk costs and the existence of long-term centralized contracts (even assuming no bundling) which sees large portions of the market bid for and won or lost at long-term intervals. 213 His Honour continued at [640]: I do not think that the existence of the bundled contracts, other than by shutting out PD competitors for the contract period, raised barriers to entry in any substantial way. It merely delayed to another time in the future the opportunity for market entry for that State. Though to the extent, as they did, that Gambro and Fresenius had on-going costs in their business in Australia, those costs were being denied revenue and so, in one sense, increased. 214 His Honour then returned to the notion of competition in the market, observing at [641]: …each rival remains a viable, robust and substantial force in the supply of sterile fluids and PD products in Australia … . Whilst there are some incumbency advantages such as entrenched supply capacity and patient inertia, there are no long term impediments to Gambro and Fresenius effectively competing for PD - if one ignores any future bundling of sterile fluids with PD or to B Braun, Fresenius Kabi, Abbott or others competing for the sterile fluids market. 215 His Honour thus concluded that, although competitors had made decisions about their conduct based upon Baxter's conduct, those decisions had not had the effect of substantially lessening competition in any relevant market. Their capacity to compete had not been reduced. To the extent that competitors had chosen not to invest in the Australian market, his Honour did not accept that such investment decisions had been caused by Baxter's conduct, or that they had led to a lessening of competition in any market or were likely to do so. 216 As noted earlier in these reasons, the primary judge was not satisfied that Baxter had failed to keep up with technological developments in its supply of PD fluids. Its conduct had not led to a lack of innovation on its part in the way alleged by the ACCC. 217 Hence, the contravention of s 47(1) as explained in s 47(2) was made out - that is s 47(10) was engaged - by Baxter's purpose, and the effect or likely effect, of its impugned conduct in the market for PD fluids assessed at the point of, and in relation to, the tender processes themselves. But, his Honour concluded that Baxter did not have the purpose by the impugned conduct, nor did its conduct have the effect or likely effect, of substantially lessening competition in the sterile fluids market or the PD fluids market more generally. 218 Baxter, by its Notice of Contention, submitted that the primary judge erred in looking to the purpose and effect of its conduct in connection with the tendering process, rather than to its purpose or effect in relation to the sterile fluids market or the PD fluids market beyond the immediate effect of successfully winning each of the tenders, and so at that time to hold or to increase its market shares in each of those markets. 219 The ACCC for its part, sought to uphold the approach of the primary judge in considering s 47(10) by reference to the competitive process which was the tender process. It also submitted that, at the more general or "upper" level of the market, the primary judge should have found that Baxter had the purpose by the impugned conduct of substantially lessening competition in the PD fluids market, or that its conduct had that effect. Finally, it contended that the primary judge erred in failing to conclude that Baxter had contravened s 47 by the process leading up to the 1999 ACT Agreement. 220 The 1999 ACT Agreement was not arrived at by Baxter directly engaging in its alternative offer strategy in an open tender process, but by a direct proposal from Baxter built upon the 1998 NSW Agreement: see [56] above. The primary judge regarded that point of difference as significant, as he confined his conclusion that (subject to the derivative Crown immunity that he found it enjoyed) s 47 had been contravened to Baxter's conduct leading up to the impugned Agreements with NSW, SA, WA and QLD. 221 It is convenient to deal with the ACCC contention first. 222 On the appeal, the ACCC did not contend that Baxter contravened s 47 in relation to the ACT by procuring the 1999 ACT Agreement. Rather, its focus was upon Baxter's conduct in raising the prices in the 1999 ACT Agreement to a higher level when it perceived that the ACT exceeded the 10 per cent limit on acquiring PD products from suppliers other than Baxter. That conduct is referred to in [56] above, and further discussed in [106] above. Baxter claimed to be entitled, in those circumstances, to lift its prices. Although apparently its invoicing reflected the claimed price increases, it continued to be paid by the ACT at the prices applicable on the exclusive supply basis (as provided in the 1998 NSW Agreement) and to supply sterile fluids and PD fluids to the ACT. 223 In my judgment, that conduct on the part of Baxter taken in isolation from its conduct in relation to the SPAs generally does not amount to a contravention of s 47 of the Act. 224 It is not necessary to consider in detail whether its conduct in relation to the ACT amounted to exclusive dealing as defined in s 47(2). I shall assume that it does, although whether in fact it does may have required careful consideration of the evidence to be satisfied that Baxter supplied or offered to supply sterile fluids and PD fluids to the ACT, or did so at a particular price on the condition that the ACT would not acquire, or would not acquire to a limited extent, PD fluids from Fresenius or other suppliers of PD fluids. Whilst it has formally asserted a position which would satisfy that description, what it has in fact done does not fully accord with its formal position. 225 On the assumption referred to, the fact is that Baxter has supplied PD fluids to the ACT since 2001, together with Fresenius, and has been paid by the ACT for the PD fluids (and in its case the sterile fluids) it has supplied at the bundled sole supply rates specified in the 1999 ACT Agreement. In those circumstances, in my view, its formal position is not shown to have the purpose, or to have the effect or likely effect, of substantially lessening competition in the Australia-wide markets for either sterile fluids or PD fluids. 226 If that conduct is not viewed in isolation, but is taken together with the impugned conduct involving its alternative offer strategy in relation to the other SPAs, then its conduct may inform the determination of whether Baxter's conduct (which, in relation to those SPAs, is acknowledged to constitute exclusive dealing) falls within the mantle of s 47(10) beyond the particular competitive process which involved directly the tenders themselves. 227 That is the subject of the other substantial contention by the ACCC on s 47 of the Act. 228 The ACCC maintained the contention on appeal that Baxter's conduct had both the purpose and the effect or likely effect of substantially impeding or hindering "the wider competitive process in the market" (a term used in its notice of appeal). 229 It is necessary to identify the basis upon which the ACCC attacked the primary judge's decision. The ACCC case concerning purpose was effectively that Baxter sought to damage its competitors by maximizing its market share by the impugned conduct, so that its purpose was to substantially lessen competition in the market. The ACCC also argued that the effect or likely effect of such conduct was to inhibit competitors from acquiring a greater market share and so longer term to impede them from competing in the market. 230 The ACCC then identified more specifically the impacts upon the PD fluids market and the sterile fluids market as being that Gambro was unlikely to invest in production facilities whilst it was prevented from supplying PD fluids in excess of the stipulated percentages of 10 per cent, in the case of SPAs other than Queensland, and 7.5 per cent in the case of Queensland; that Fresenius Kabi was less likely to establish a plant to manufacture IV and PN fluids or to supply PN fluids in the sterile fluids market; and that bundled contracts had raised entry barriers in the PD fluids market because they made it very difficult for a competitor in the PD fluids market to supply PD fluids alone whilst bundled tenders were permitted, including permission for the alternative pricing strategy available to a largely unrestrained supplier of sterile fluids. In essence, the ACCC contended that the impugned conduct substantially lessened competition in the PD fluids market beyond the immediate impact of Baxter's successful tenders, and was intended to do so. It referred to the evidence of Mr Bragg (an employee of Baxter) that the size of the PD fluids market meant that it would not be viable for a competitor to establish a plant in Australia to produce PD fluids alone. Although acknowledging that there was other inconsistent evidence about that fact, the ACCC said that Mr Bragg's evidence indicated Baxter's attitude to the likely effect of its alternative offer strategy upon competition. It then argued that, because Baxter's conduct would make it practically impossible for a competitor to supply PD products alone, so that a competitor in that market would have to offer sterile fluids also in order to compete, his Honour should have applied a "future with and without" test and have identified that a consequence of Baxter's conduct was, in relation to either or both markets, that purchasers would not use the open tender process. 231 In my judgment, no error has been shown in the understanding of the evidence by the primary judge, or in his Honour's findings based upon that evidence. There was clear evidence that, despite the immediate impact of the impugned conduct resulting in the impugned Agreements for quite extended terms, both Gambro and Fresenius would remain, and had remained, in the market to supply PD fluids. They had previously supplied PD fluids in that market, and they continued to do so. There was no substantive foundation for a finding (contrary to the finding made by his Honour) that they would not compete with Baxter when next the various SPAs sought contracts for the supply of PD fluids. The evidence showed, moreover, that in 2003 the NSW and Victorian SPAs structured the tender process so as to inhibit bundling in a way that enabled Baxter, in relation to that tender, to take advantage of its market power in the sterile fluids market to the detriment of participants in the PD fluids market. There was also evidence, albeit for the reasons already given of comparatively little weight, that since 2001 the ACT had also been procuring PD fluids from Fresenius to a significant degree. That evidence indicates another SPA's awareness of the ability to structure its tender processes so as to isolate the tenders for sterile fluids and for PD fluids. That was, of course, what SA had done when inviting Offer 1A in the course of its tender process. 232 I also agree with the primary judge that there was, and remained, a capacity for Baxter's competitors in the PD fluids market to import PD fluids so as to compete in that market in the future. As noted above, that is what they had done and had continued to do. In particular I agree with his Honour that Baxter's alternative offer strategy in the period in issue was directed only at securing the SPA tenders which were from time to time on offer in the relevant period. The "before and after" analysis then shows that, apart from the market for the supply of PD fluids being impaired by the grant of exclusive supply contracts to Baxter by the impugned Agreements during their currency, the competitive market for PD fluids supply in Australia persisted. 233 In my judgment, his Honour correctly concluded that Baxter's purpose by engaging in the impugned conduct was simply to secure the impugned Agreements. Its purpose was not, in the longer term, to cause its competitors to drop out of the market to supply PD fluids, either to acquirers of those fluids other than the SPAs or, when the SPAs severally came again to call for tenders for the supply of PD fluids, to prevent or hinder those competitors from tendering for those contracts. Nor was it to hinder B Braun or Fresenius Kabi or any other supplier from taking such steps as they considered appropriate to manufacture in Australia or to supply sterile fluids to that market. There was no clear evidence to suggest Baxter's purpose was to exclude or impede others in the sterile fluids market. Its purpose was directed to holding its high share of the PD fluids market in the face of its competitors' tenders in that market. 234 I also agree with the primary judge that Baxter's conduct, aimed at securing the impugned Agreements, did not have the effect of substantially lessening competition in either the PD fluids market or in the sterile fluids market, or of being likely to have had that effect, beyond in fact securing the impugned Agreements. The reasons why the PD fluids market was not substantially lessened, other than by the consequences of the subversion of the competitive process which was the tender process, have already been discussed. The suggestion that the sterile fluids market was substantially lessened was based largely on the assertion that Fresenius Kabi was deterred from establishing a manufacturing plant for some sterile fluids in Australia by Baxter's exclusive dealing. His Honour did not make that finding. I respectfully agree with that finding, for the reasons his Honour gave. 235 His Honour found that s 47(10) was engaged by reason of Baxter's steps towards securing the impugned Agreements. That is the matter which was the subject of Baxter's Notice of Contention, and to which I shall next turn. But for the reasons given, I agree that the PD fluids market in the wider sense was not, or was not likely to be, substantially lessened by the improper use of the tender process, accepting that the impact of the impugned Agreements was to remove the opportunity to supply the PD fluids to which those Agreements related from the market for their respective periods. 236 The ACCC made the point that there was no express finding that there was a minimum efficient scale whereby only one manufacturer could supply an Australian market with PD fluids, or for that matter an Australian market for sterile fluids. The fact that there was no such express finding does not demonstrate error in the approach of the primary judge or in his overall conclusion on this issue. His Honour was aware that Gambro since the mid 1990s had been reluctant to produce PD fluids at its manufacturing plant in Dandenong, although it could (and did) import PD fluids and Baxter was itself manufacturing PD fluids for Gambro to offer in the PD fluids market. The tender structure was set by the SPAs, as was ultimately the length of any exclusive supply contracts. There was no conduct of Baxter which would, or was likely to, preclude the SPAs from varying their tender structures (as occurred in 2003 in relation to the NSW/Victoria tender processes). The impugned Agreements expired at different times. Progressively, over the several years after the impugned Agreements expired, the opportunity to tender to supply PD fluids to the SPAs would arise. The finding that Gambro and Fresenius (and perhaps others) would remain in the PD fluids market over that period, and so be able to participate in any later tender processes - assuming such processes were not subverted by conduct of Baxter contravening ss 46 or 47 of the Act - supports his Honour's conclusion. The conclusion is no less available because his Honour did not make the express finding referred to in the submission. In the circumstances of this matter, he did not need to make such a finding to reach his conclusion. 237 As I have said, I share the view of the primary judge that the market for the supply of sterile fluids was not substantially lessened, or likely to be substantially lessened, by the impugned conduct resulting in the impugned Agreements. The market for sterile fluids remained unchanged: Baxter had a substantial degree of power in that market, vulnerable to general import competition if it provoked the SPAs to support such competition, and in any event vulnerable specifically to B Braun's threat to secure TGA approval for its sterile fluids products which it proposed to manufacture in its Malaysian factory and to import. That was a threat which it might give effect to at a time of its choosing. The competition in that market was not, in any real way, materially altered by Baxter's impugned conduct. Such competition as there was in the sterile fluids market remained both in relation to the supply of sterile fluids other than to SPAs, and as the impugned Agreements came to an end (at different times) in relation to the supply of sterile fluids to SPAs. The evidence does not go so far as to support a finding that the terms of the several impugned Agreements had the effect on competition in the sterile fluids market to which s 47(10) refers. 238 I turn then to consider Baxter's Notice of Contention. 239 As noted, it attacked the approach of the primary judge in assessing its purpose for engaging in the impugned conduct, and in assessing the likely effect of the impugned conduct, by looking at the tender process itself as the relevant competitive process. That is what his Honour called the "lower" market focus. 240 Baxter's attack was really upon whether, for the purposes of s 47(10), it was legitimate to look at immediate as opposed to longer term effects of the impugned conduct upon the market, or put another way whether the competitive process could properly be identified as it stood at the particular time of the tenders and the impairment of competition assessed at that time. It was also argued that his Honour erred by aggregating the impugned conduct, or its purposes or effects, by treating the alternative offer strategy as one body of conduct over the period that the impugned conduct was undertaken, and that for the purposes of s 47(10) his Honour should have disaggregated that conduct and looked at the purpose or effect of each of the tenders to the several SPAs separately. If that were done, it was argued, neither Baxter's purpose, nor the effect of its conduct, would have been to substantially lessen competition in the Australia-wide PD fluids market, or the Australia-wide sterile fluids market. 241 In my judgment, the primary judge was correct to look at the purpose and effect of Baxter's conduct by reference to the tender process or processes and their potential or actual outcomes. The focus of s 47(2) relates to particular transactional behaviour by a participant in a market. It is accepted that, by engaging in its alternative offer strategy, Baxter did engage in the practice of exclusive dealing. Section 47(10) then directs attention to the purpose or effect of the exclusive dealing: does it have the purpose or effect of substantially lessening competition? By reason of s 4G, that means asking whether it has the purpose or effect of preventing or hindering competition. Then s 47(13)(b) makes it clear that the reference to "competition" is a reference to competition in any market in which either Baxter or any person whose business dealings are limited or restricted by the conduct participates. Relevantly, that is principally the PD fluids market. 242 Those provisions direct attention to the purpose or effect of the impugned conduct upon competition in the market for the supply of PD fluids. That market, at the times of the impugned conduct, included the market for the supply of PD fluids to the several SPAs. In fact, it is clear that the supply of PD fluids to the SPAs represented a significant part of the market. By its impugned conduct, Baxter sought to cut its competitors in that market out of the opportunity to supply PD fluids to the SPAs. That is, Baxter sought, by engaging in exclusive dealing, to prevent or hinder its competitors competing to supply PD fluids to that part of the market. The proscription of exclusive dealing is precisely to prevent that from happening which did happen, provided s 47(10) is satisfied. The immediate competition in the market for the supply of PD fluids at the time of the proscribed conduct was for the opportunity to supply PD fluids to the relevant SPA. That competition was affected by Baxter's exclusive dealing. It was Baxter's purpose to do so: it wanted to win that competition in the market by exclusive dealing, that is by making its competitors' tenders for the supply of PD fluids realistically unacceptable to the SPAs by bundling its tenders and by its alternative offer strategy. 243 In my view, it was appropriate for the primary judge to consider whether Baxter's conduct had the purpose or effect of preventing or hindering Gambro and Fresenius from competing in the market for the supply of PD fluids to the SPAs. Of course, it may have done so legitimately. It may have done so by price, quality or service differentials in relation to PD fluids. But it could not lawfully do so by engaging in exclusive dealing, if its conduct had the quality described in s 47(10). 244 In answering that question, namely did Baxter's conduct have the quality described in s 47(10), there is no reason to exclude the immediate effect of the impugned conduct from consideration of whether the purpose or effect of substantially lessening competition. It would make no sense to do so, given s 47 proscribes exclusive dealing precisely because it may substantially lessen competition in a market in which the issue is the opportunity to supply to that market at that time. There is no legislative expression which supports a construction of s 47 which would add into s 47(10) the test of whether the conduct substantially lessens competition except to the extent that it is immediately lessened by the conduct itself. To so state that proposition is to demonstrate that it should not be accepted. In the present circumstances, the real and immediate competition was (or included) the competition through the tender processes to supply PD fluids to the SPAs. Indeed, I would take one step further than the primary judge. The exclusive dealing did not come to an end by the making of the tenders. It extended to the entering into each of the impugned Agreements (other than the 1999 ACT Agreement). The entry into the sole supply agreements was the perfection of Baxter's intention to secure that part of the market to itself by its exclusive dealing. 245 The relevant control, in my view, is that imposed by s 47(10): the need for there to be a purpose or effect or likely effect of substantially lessening competition in a market. Whether exclusive dealing does substantially lessen competition is a complex issue of fact to be decided in each case upon the whole of the evidence. If a tender process is subverted by exclusive dealing, it may or may not have the specified quality depending upon a range of matters: the suppliers in the market and their relative positions and vulnerabilities; the acquirers in the market and their relative positions; the extent of the market on offer by the particular tender; and no doubt other matters. 246 Once one moves then to consider that complex factual issue, in my view - provided it was legitimate to treat the impugned conduct in an aggregated way (as I think the primary judge may have done) - his Honour was clearly correct in the conclusion he reached. 247 Baxter's alternative offer strategy was to hinder or prevent Gambro and Fresenius from being able to compete in the tender processes of the SPAs and to secure that part of the market then on offer to itself. Its purpose, to paraphrase in terms of s 47(10) and s 47(13), was to lessen the competition in the tender processes by making its rivals' tenders unacceptable to the SPAs on economic grounds so as to restrict or limit the opportunity for Gambro and Fresenius to supply, or being likely to supply, PD fluids to the SPAs. The effect or likely effect of Baxter's conduct was that it would be awarded the contracts over the tenders of Gambro and Fresenius. Its alternative offer strategy achieved its purpose and had that effect. 248 The primary judge, of course, had to address the issue of substantiality. There was no firm submission on the part of Baxter that, if its impugned conduct was to be aggregated so that it was assessed by reference to all the dealings with the SPAs, there was not or was not likely to have been a substantial effect on competition in the market for PD fluids. 249 As noted, Baxter by its Notice of Contention urged that s 47 was not contravened because its conduct in relation to the several tenders to the SPAs did not have the purpose or effect of substantially lessening competition. The market for PD fluids was an Australia-wide market, and Baxter argued that no one tender or set of tenders to an SPA had the purpose or effect of substantially lessening competition in that market. 250 The primary judge addressed that concern in [629A] of his reasons where he said: To conclude that the interference with the State tender process substantially affects or is likely to affect competition is not to undermine my earlier conclusion that the PD market is an Australia wide one. Rather, though the States are of varying sizes, to affect each State tender process was, in my view, to lessen competition or be likely to do so in a meaningful way for the Australian market. This can be seen either by reference to the meaningful number of PD patients in each State (including in South Australia, though not a huge number there) or as affecting tender processes in sovereign States within the Australian market. 251 Consistently with my consideration of the manner in which s 47(10) is to be applied in relation to the impugned conduct, I think it was necessary for the effect of that conduct to be assessed separately when it was undertaken in the tender processes for each of the impugned Agreements (other than the 1999 ACT Agreement). However, in my judgment, for the reasons briefly adverted to by the primary judge, that does not result in his Honour's conclusion about s 47 being overturned. 252 It is clear that, in the market for the supply of PD fluids, the supply to the SPAs was an important component. The evidence indicated that collectively that supply represented a very significant proportion of the market. The evidence shows the separate numbers of patients in each of those States for whom PD fluids were necessary. That indicates that in the Australia-wide market, the supply of PD fluids to each of the four State SPAs was itself an important part of the market. The process of tendering was an occasional but prolonged one, varying over a period of a few months to many months. The opportunity to supply PD fluids to each SPA did not arise concurrently, although the SA and WA tender processes substantially overlapped in time. The fact which emerges is that, because the opportunity to supply each SPA with sterile fluids did not occur simultaneously but occurred over a progressive period of time, each tender process represented an opportunity to supply to a significant acquirer of PD fluids in the Australia wide market. 253 Consequently, even if for the purposes of s 47 each tender process should be viewed separately, in my view the primary judge could have decided, as he did, that the conduct of Baxter had the purpose or effect, or likely effect, of substantially lessening competition in the market for the supply of PD fluids. I respectfully agree with the conclusion of the primary judge.

[43]

Impugned conduct 265 ACCC impugns Baxter's conduct in tendering for, negotiating and entering into supply agreements with the various SPAs. The agreements are identified in the reasons prepared by Mansfield J. There was a tendency to treat Baxter's conduct as constituting a consistent course of conduct over an extended period of time and to assume that the circumstances surrounding the making of the NSW, Western Australian and Queensland Supply Agreements were substantially the same. However there were potentially significant differences. The relevant evidence is summarized in the judgment at first instance and in the reasons prepared by Mansfield J. I need only refer to certain features of it. 266 Each supply agreement (other than the ACT Health Agreement) was made as the culmination of a tender process. In each tender, Baxter made two or more offers, at least one of which proposed the bundled supply of sterile fluids and PD fluids and at least one other proposed an item by item supply at prices contained in a price list used by Baxter (at least nominally) for private hospitals. Not surprisingly, the item by item prices for sterile fluids were substantially higher than were the prices in the bundled offers. It may be that the item by item prices for PD fluids were also significantly higher than those in the bundled offers. The evidence is unclear. 267 In each tender process various competitors tendered for the supply of PD fluids. Some competitors tendered for the supply of some of the sterile fluids. As far as I can see, no tenderer other than Baxter tendered for the whole range of sterile fluids and PD fluids. It is common ground that competitors could not match the sterile fluids prices contained in the bundled offers. It has not been suggested that the tender prices for supply of PD fluids varied much amongst the various competitors, including Baxter. 268 In the primary judgment and on appeal it was suggested that the item by item prices in Baxter's bids were "high". The primary Judge concluded that Baxter intended that they be "credible", although it seems not to have expected that anybody would buy products at those prices. I infer that prices would be "credible" if the SPAs would have understood that in certain circumstances, they might have had to buy at those prices. 269 In each case, following the receipt of tenders, the SPA in question chose to enter into further negotiations with Baxter, a course which Baxter had probably expected. The negotiations seem to have focussed primarily upon the extent to which each SPA would be permitted to acquire PD solutions from suppliers other than Baxter. There was little or no negotiation about price, presumably because the SPAs were happy with the prices in the bundled bids and wanted the benefits which they offered. 270 The tender process which led to the 1998 NSW Supply Agreement commenced in 1997, following an earlier request for expressions of interest. Tenders were called for the supply of certain sterile fluids and PD fluids for a two year period. Alternative bases for tender were permitted, specifically including bundled offers on a sole supply basis. Baxter submitted five tenders covering all products, including item by item bids for one year and two years, an item by item bid for two years, limited to sterile fluids, and bids for all products on a bundled, exclusive supply basis for two or five years. The SPA was initially inclined to accept the two year bundled bid with whatever further concessions it could extract from Baxter. The concessions which it sought related to the extent to which it could acquire PD fluids from other suppliers and to a matter of technology. The SPA initially wanted to be able to purchase 30% of five litre PD bags and 5-10% of other PD bags from other suppliers. Baxter was agreeable to allowing 5% of purchases from other suppliers with another 5% subject to authorization by the New South Wales Health Department. In the end the parties entered into a five year bundled contract at the prices initially offered in the bundled bid on an exclusive supply basis, with an allowance for the acquisition of 10% of PD fluids from other suppliers. The technology issue seems to have been resolved by adoption of a term of five years rather than two. 271 In these negotiations price was touched upon at only one point. At some stage Baxter made two new offers, one permitting acquisition of 10% of PD fluids from other suppliers in years three to five of a five year term, the other permitting such an allowance over the full term of the agreement. The former was at the same prices as the original bundled bid. The latter was at slightly higher prices. The SPA asked Baxter to reduce the prices in the latter offer to those in the original bid. Baxter agreed. That amended bid seems to have been the basis for the eventual agreement. 272 On 3 May 2000 the Queensland SPA called tenders for the supply of sterile fluids and PD fluids for a period of one year, with two extensions of one year. The invitation to tender stipulated that the new supply contract should allow for acquisition of up to 7.5% of PD fluids from other suppliers. The previous agreement had provided for acquisition of 5% from other suppliers. Baxter submitted three tenders: an item by item tender for the proposed term, an exclusive supply agreement for all specified products for the proposed term and an exclusive supply agreement for all specified products and PN fluids for three years. PN fluids had not been included in the invitation to tender. Of Baxter's bids only the unbundled bids were examined. The bids for sterile fluids and PD fluids were examined separately, resulting in Baxter becoming the selected tenderer, subject to negotiations as to price. The primary Judge found that these facts demonstrated that bundling had no effect on Baxter's success in the tender process. On 1 May 2001 the SPA and Baxter entered into a contract for the supply for three years of all products on a sole supply basis, subject to the 7.5% allowance. 273 On 26 May 2000 the Western Australian SPA called tenders for the sole supply of sterile fluids and PD fluids for five years. Baxter made three offers: an item by item bid for five years and two bundled offers for all items, one for three years and one for five years, with discounts for volume. After receipt of the tenders, two specialist committees were established to review the bids. One committee recommended that the SPA guarantee 60% of the PD market share to Baxter, thus allowing freedom to experiment with new products. The committee also suggested that the SPA negotiate a three year contract for PD products, with two twelve month extensions, on a price per patient basis. After discussion with the SPA the committee agreed that a 10% allowance for other PD suppliers was satisfactory, although 20% was preferable. Baxter initially indicated that it was willing to allow 5% with a further 5% "upon approval". Eventually, it agreed to 10%. Subject to that matter, Baxter's bundled offer for five years was accepted. 274 There were two significant differences between the tender processes in New South Wales and Western Australia on the one hand and Queensland on the other. Firstly, the Queensland SPA had specified for a 7.5% allowance in connection with PD fluids, and such an allowance was made in the contract. New South Wales and Western Australia each negotiated a 10% allowance after tenders had been received. Secondly, Queensland selected Baxter as recommended tenderer on the basis of its item by item prices. The basis upon which New South Wales and Western Australia entered into post-tender negotiations with Baxter is not clear. 275 In mid-2000 South Australia invited tenders for various products, including sterile fluids and PD fluids. The invitation was for supply for two years with an option for a further year. The invitation indicated that the SPA might elect to offer exclusive contracts on a panel basis. Tenderers were given the option of making alternative offers for a term of two years plus a two year option, so long as such tenders provided the "most cost effective and practical solution, taking into account the totality of the requirement". The SPA subsequently issued a circular which indicated that tenderers need not supply the full range of fluids. Subsequently, PD and HD fluids were withdrawn from the tender process but then reinstated. Baxter offered to supply all products at item by item prices for two years with two options to extend for 12 months. It also made a bundled bid for all items on an exclusive basis for a period of five years with volume discounts. The SPA subsequently asked Baxter to tender for the supply of sterile fluids for five years. Renal products were to be the subject of a supplementary tender. Baxter responded with a tender which was, in effect, for the sole supply of sterile fluids with no discount on the item by item prices previously offered. There was some discussion between the SPA and Baxter as to whether it was in breach of s 46 of the Act. Baxter subsequently offered to supply all products for five years with a 10% allowance for purchasing PD products from other suppliers. This offer was accepted. This was the first occasion on which Baxter was asked outright to quote for sterile fluids excluding PD fluids. 276 Prior to 1998, the ACT had purchased sterile fluids and PD fluids from Baxter upon terms which it understood to be consistent with those prevailing under Baxter's agreement with NSW. During the 1990s sterile fluids were supplied exclusively by Baxter. PD fluids were supplied by Baxter and Gambro. In 1998, after securing the New South Wales contract, Baxter invited the ACT to formalize the basis upon which sterile fluids and dialysis fluids (including PD fluids) were purchased from Baxter. The main condition was that Baxter be accepted as sole supplier. The SPA was not particularly interested in formalizing the arrangement. Baxter eventually indicated that if it did not sign the agreement, it would not continue to receive supply on existing favourable conditions. The agreement was signed on 17 March 1999. The officer who signed it on behalf of the SPA claimed that he did not understand it to mean that the SPA could no longer purchase products from other suppliers. 277 In 2000 the SPA invited tenders for the supply of dialysis fluids (PD and HD) on a "price per treatment" basis. Proposals were received from Baxter, Fresenius and Gambro. Baxter's tender did not address PD fluids. Fresenius won the tender. Baxter asserted that under the earlier agreement, it was still exclusively entitled to supply PD products to the SPA. Subsequently, it purported to charge the SPA at its list prices rather than at those prevailing under the NSW Supply Agreement. The SPA refused to pay those prices, continuing to pay the lower prices. This dispute remains unresolved. 278 I should refer to one other contract which is not impugned in these proceedings. In May 2003 the New South Wales Department of Commerce called tenders for the supply of sterile fluids and PD fluids for a period of one year for both New South Wales and Victoria. The tender invited responses on an item by item basis. Baxter tendered on that basis. At a meeting on 18 August 2003 New South Wales and Victoria indicated that its prices were unacceptable. Baxter said that it was keen to pursue a volume discount contract. It subsequently submitted a further offer which contained more favourable pricing based upon volume discount for total usage of sterile fluids and a minimum of 80% of the available PD market. New South Wales and Victoria indicated that the offer was acceptable but that they were not willing to guarantee the identified share of the PD fluids market. At the same time NSW health services were advised that it was important to maintain Baxter's share of the PD market at 80% because its prices were based upon the expectation that this would be the case. Baxter initially protested at the lack of a volume guarantee. The SPA said that it might be "de-listed" from the contract for PD fluids so that Fresenius and Gambro would become the only suppliers. Baxter accepted the states' position so that it no longer has a guaranteed exclusive supply agreement for PD fluids with New South Wales and has not been able to charge its tendered item by item prices.

[44]

Market power 279 In this area I agree generally with the conclusions and reasons of Mansfield J and need only add a few comments. 280 In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 188, Mason CJ and Wilson J defined "market power" as: … the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time, supply cost being the minimum cost an efficient firm would incur in producing the product … . 281 In that case, Dawson J said at 200: The term "market power" is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner. …. But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal … . The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices. Thus Kaysen and Turner define market power as follows: "A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions." 282 In Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at [43], the majority said: The notion of market power as the capacity to act in a manner unconstrained by the conduct of competitors is reflected in the terms of s 46(3). 283 At [44], their Honours observed: Section 46 of the Act requires, not merely the co-existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power. 284 In Boral Besser Masonry Ltd v ACCC (2003) 215 CLR 374 at [136]-[138], Gleeson CJ and Callinan J said, after referring to the above extracts from Queensland Wire: Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply; or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as a critical test; and it is pricing behaviour that is the relevant conduct in the present case. Power, that is, the capacity to act without constraint, may result from a variety of circumstances. A large market share may, or may not, give power. The presence or absence of barriers to entry into a market will ordinarily be vital. Vertical integration may be a factor. Financial strength is not market power, although if a firm has market power, its financial resources might be part of the explanation of that power. The financial ability to survive a price war is not market power, or a manifestation of characteristics that give market power, if, when the price war is over, the market is still highly competitive. Power in a supplier ordinarily means the ability to put prices up, not down. But if a market is not competitive, and a firm puts prices down, seeking to eliminate a potential rival, in the expectation that it will thereafter be in a position to raise prices without competitive constraint, its ability to act in that manner may reflect the existence of market power. 285 Although Baxter's alleged market power has been described in a number of ways, they all focus on its capacity to raise its prices for sterile fluids. It has not been suggested that the prices for sterile fluids in the bundled offers demonstrated market power. ACCC's case is rather that Baxter had the capacity to increase its prices for sterile fluids above those tender prices. At [451], the primary Judge observed: Mr Lee [Baxter's managing director] in his affidavit evidence also outlined his intentions, expectations and purpose in submitting the kind of bid made to NSW in 1998. See [214] above. The thrust of these expectations was said to be as follows. He expected Gambro and Fresenius to bid on PD products and B. Braun to bid on eight codes of IV fluids (which constituted 80 per cent of Baxter's volume). He expected that NSW would reject Baxter's offers and seek to further negotiate, with the result that ultimately, Baxter would win an exclusive contract for IV fluids and irrigating solutions and about 80 per cent of the PD business through post-tender negotiations. As a worst case scenario, Mr Lee considered that B. Braun might win 40-60 per cent of the IV market, but not 100 per cent because it did not have such capacity. Accordingly, he asserted that the "cherry pick" price was calculated having regard to a loss of 40 to 60 per cent of IV volume and a loss of 40 per cent of PD volume. He also said that he believed that Baxter could not push prices too high as it would stimulate interest from overseas manufacturers. 286 The primary Judge rejected the assertion that the item by item prices were fixed by reference to anticipated lost volume. It is the last sentence of the above extract which is primarily relevant. At [481] his Honour observed: Mr Lee agreed that if any of the States had chosen the "cherry pick" prices, other companies would have had an incentive to enter the sterile fluids market during or at the end of the five years. 287 It is reasonable to infer that the item by item prices were intended to be prices which competitors could not, in the short term, match. I infer that Baxter, with its knowledge of the market, was well able to identify appropriate price levels. I infer that Baxter's market power was sufficient to enable it to demand prices in excess of its supply costs and the prices in the bundled bids and, in the short term, up to the item by item prices. 288 Baxter submitted that its failure in 2001 to prevail over the ACT's decision to take PD fluids from other suppliers, and its failure to maintain exclusive supply arrangements in 2003 in face of the opposition from NSW and Victoria, demonstrate an absence of market power. However such failures may have been attributable to changes in market power over time or to awareness of the possibility of action pursuant to the Act, particularly after the South Australian action in 2001.

[45]

Taking advantage of market power 289 The next question is whether Baxter took advantage of its market power in the sterile fluids market in connection with its tenders for the supply of PD fluids. Again, I generally agree with Mansfield J. The relevant conduct was the making of bundled offers, at relatively low prices, for sterile fluids, and item by item offers, at relatively high prices, for those fluids, and the subsequent negotiation and making of supply agreements. The relevant power was Baxter's power to increase prices in the sterile fluids market. 290 Save in the South Australian negotiations and in the ACT, Baxter did not, in connection with the impugned agreements, expressly refuse to supply sterile fluids at prices higher than the prices in its bundled bids, but lower than prices in the item by item bids. ACCC's case must depend upon the assertion that it did so tacitly. The case must be that Baxter caused the SPAs to believe that, if they did not reach agreement with Baxter on matters other than prices, some or all of the advantageous pricing offered in the bundled bids would be lost. ACCC's case must also be that the initial item by item bids were designed to set the context in which subsequent negotiations would occur. ACCC must argue that Baxter expected that the SPAs would prefer its bundled offers (because of the prices) and seek to negotiate as to such other issues as were of importance to them. The primary issue was the extent to which they could purchase PD fluids from other suppliers. That question was never directly raised by the ACT in its negotiations, but it was the purchase of PD fluids from other suppliers which caused Baxter's concern. South Australia's attempt to obtain prices for the supply of sterile fluids without PD fluids was met by an offer of supply at the original item by item prices. In Queensland, the SPA was content to limit its right to acquire from other suppliers to 7.5%. 291 Baxter's high item by item bids were really little more than threats which reflected its market power in the sterile fluids market, a fact which was no doubt well known to the SPAs. The real point was that the bids contained no offers for the supply of sterile fluids alone, at prices which reflected reasonable discount for volume. 292 Excluding the South Australian negotiations and the ACT dispute, the only suggestion in the evidence of any discussion as to prices in connection with the impugned agreements was in connection with the 1998 NSW Supply Agreement. The SPA asked that the supplementary offer (for supply over five years with a 10% allowance for acquisition from other suppliers) be varied so that the prices reflected those in the original offer. Baxter did so. The general absence of negotiation concerning prices suggests either the unlikely conclusion that the subject was not important, or that the prices were, in effect, already agreed. Baxter was aware of its market power in the sterile fluids market and knew that the SPAs were also aware of that power. I infer that its tenders were meant to convey the message that the favourable prices for sterile fluids in the bundled bids were conditional upon bundling (including bundling of PD fluids), and that any unbundled supply would be at higher prices for sterile fluids, which prices Baxter could charge because of its market power. 293 The primary Judge declined to conclude that Baxter had exploited its market power because of two aspects of the evidence. The first was that at the time of negotiation of the 1998 NSW Supply Agreement, Baxter probably believed that B. Braun would be able to supply some, but not all, imported sterile fluids at competitive prices. The second was that there was no evidence establishing that the item by item prices were, as his Honour described them, "monopoly prices, not being ones capable of being charged in a market in which Baxter did not have a substantial degree of market power." 294 I generally agree with Mansfield J that, in light of the other evidence, those matters were not decisive on the question of whether Baxter had taken advantage of market power. The primary Judge appears to have approached these issues upon the basis that Baxter's subjective intention was relevant to the question of whether it had taken advantage of its market power, as well as to the question of purpose. The notion of "taking advantage" suggests an element of conscious choice. This is also suggested by the statement in Melway at [44] that there must be a connection between market power, conduct and proscribed purpose. However market power is a matter of degree. The circumstances in the market, as Mr Lee saw them in 1998, may have been somewhat different from those which he had perceived to exist in earlier years and as he perceived them in later years, but that does not lead to the conclusion that Baxter had no market power in 1998, or that Mr Lee had that perception. Nor does it lead to the conclusion that there was no exercise of such power as Baxter then had. 295 The dimensions of Baxter's power in 1998 were uncertain. B. Braun could have supplied imported goods, some at competitive prices. Mr Crawford (B. Braun's managing director) said that lower overseas labour costs might have reduced the price disadvantage in supplying imported products. However B. Braun's PD systems were of lower quality than Baxter's, a fact which Mr Lee would presumably have known. Mr Lee believed that B. Braun would not be able to supply the full range of sterile fluids. The extent of Mr Lee's concern over B. Braun's presence in the market was a matter of judgment. Baxter's conduct in the 1997-1998 tender and negotiations varied little, if at all, from prior and subsequent conduct in connection with other tender processes. It seems probable that when Baxter made its bundled and item by item bids in 1997-1998, it expected them to serve the same purpose as they had previously served in earlier tender processes (of which there is some evidence) and in subsequent tenders. The high item by item prices would have acted as a reminder to the SPA that Baxter could raise its prices above those specified in the bundled bids. Because of his perceptions concerning B. Braun, Mr Lee may have considered the threat to be less potent than it was in other tenders. However Baxter still used it. 296 As I understand the second point, it is that Baxter's item by item prices may have been prices which it could have charged in a market in which it lacked market power. For reasons which I have given, it seems probable that such prices were below those at which competitors could supply in the short term. That was the relevant point in determining whether Baxter had market power. 297 The NSW Supply Agreement and the Western Australian Supply Agreement were made after Baxter had implicitly indicated that it would not supply sterile fluids at favourable prices unless it received the exclusive right to supply sterile fluids and PD fluids, in the latter case, subject to some allowance for purchase from other suppliers. In both cases that conduct constituted taking advantage of market power. 298 The Queensland Supply Agreement poses some difficulty. The SPA called for tenders which allowed acquisition of up to 7.5% of its PD fluids from other suppliers. Baxter tendered for exclusive supply but subsequently agreed to 7.5%. Given that the previous contract had allowed for 5% acquisition from other suppliers, it is difficult to see why Baxter would have quibbled over 7.5%. It had previously allowed New South Wales to have 10%. On 15 December 2000 it advised Western Australia that it would allow 10%. The Queensland tender was submitted on 30 May 2000. One might infer that Baxter was probably quite willing to allow the 7.5% "leakage". It seems that in its tender it did not take account of the SPA's stipulation as to such leakage. This might suggest that Baxter intended to remind the SPA of its position in the market. However the primary Judge said nothing in his reasons concerning the level of item by item prices in this tender. There was a general assumption throughout the reasons and in argument on appeal that all tenders were on, more or less, the same basis. However, if Baxter's item by item prices in the Queensland tender were high in the sense explained by Mr Lee, it is difficult to understand how the SPA's assessment of those tenders led to Baxter being the recommended tenderer, given that the sterile fluids and PD fluids tenders were assessed separately. One possible explanation is that Baxter was happy to accept a bundled agreement with the 7.5% leakage and so reduced its item by item prices. Another is that those assessing the PD fluids tender were generally happy with the item by item offer, presumably because it was competitive. Alternatively, they may have been aware of the pressure to deal with Baxter on a near sole supply basis in order to maintain discounts for sterile fluids (as alleged by ACCC). However there is no evidence of this. 299 The evidence leads me to doubt whether there was an exercise of market power in connection with the Queensland Supply Agreement. However, in view of my conclusions as to purpose, it is not necessary that I take this matter further. 300 In its negotiations with South Australia, following the submission of its tenders, Baxter clearly took advantage of its market power in the sterile fluids market. It refused to supply sterile fluids on a sole supply basis at prices below the original item by item prices. It was able to do this because of its market power in the sterile fluids market. It did so because of the proposed exclusion of PD fluids from the sole supply agreement. In the case of the ACT, Baxter's threat that it would withdraw existing favourable pricing if the exclusive supply agreement was not signed constituted taking advantage of market power. It is not clear that its attempts to supply at higher prices after the ACT demonstrated its intention to buy PD products from other suppliers was an exploitation of market power. It may have been an exploitation of a contractual right.

[46]

Purpose 301 For the reasons given by Mansfield J I agree that no purpose proscribed by s 46(1)(a) was established. The only remaining question is whether a purpose proscribed by s 46(1)(c) was established. ACCC must establish that Baxter actually had the purpose of deterring or preventing competitive conduct in the PD fluids market. Such purpose may be inferred from words and from conduct. 302 At [461] his Honour found that: The purpose of the bundling in the exclusive supply contract was not to prevent others such as Gambro and Fresenius putting in tenders, but it was to prevent such tenders as they put in being realistically competitive. 303 At [478] the primary Judge said of the item by item bids: They were set at a level to be taken seriously as a credible alternative and to maximise the apparent benefit for the State in taking the bundle: to demonstrate the value of the bundle. 304 At [482] his Honour found that Baxter knew that the states "behaving rationally" would have found those bids unacceptable. 305 I accept that there is a distinction between preventing competitors from tendering and preventing them from tendering so as to be successful. However I am unable to discern the difference between trying to win a tender and trying to prevent competitors from winning (or being "realistically competitive"). 306 The following findings are also relevant: 307 At [603]: Thus, I accept that there was a clear and defensible reason for the otherwise commercially understandable desire to obtain as much business as possible and to maintain maximum throughput through the plant. 308 At [604]: Whilst more than a little of Mr Lee's evidence was difficult to accept and unsatisfactory, in light of the history of Abbott and other manufacturers leaving the market and of Mr Bragg's evidence, I am prepared to accept Mr Lee's evidence that the level of Baxter's capital investment and the fixed costs component of its production are such as to make local manufacture viable only if it maximises the volume of fluids manufactured at Toongabbie. Mr Lee said the following in paragraph 11.5(w) of his affidavit: "With respect to each tender, my concern has been to compete for that business against all other tenderers (whoever they might be) with a view to winning as much business for Baxter as is possible. I have never intended or expected that any tender by Baxter, or subsequent offer by Baxter in the course of negotiations with respect to a tender, would exclude another tenderer from being a competitor of Baxter. Furthermore, it has not been my intention, or expectation, that, by making offers and winning business under a tender, Baxter would, or could, stop or discourage another tenderer from offering competitive products on other occasions." I accept that evidence. It is, however, necessary to examine its limitations; and that is best done by reference to the internal documents of Baxter to which I have already made reference, in particular in discussing the evidence of Mr Lee. It is also necessary to bear in mind the limits of this evidence in terms of not intending to exclude another tenderer from being a competitor. This is not to be understood as not intending to affect competition. 309 At [607]-[608]: 607 … Baxter believed that likelihood was that it would maintain its position in the supply of sterile fluids and it could ensure that the real and present reality of competition in the PD market could be practically eliminated as long as the credible alternative to sole supply from Baxter in respect of all products was very costly. There was no evidence to support any proposition (and Baxter did not seek to say this) that the item-by-item prices reflected the increase in marginal costs of sterile fluids, should PD be lost to competitors. 608 Thus, it seems to me clear that the purpose involved, as a substantial purpose, was to frame a bid structure involving a credible item-by-item alternative to maximise the chances of bringing about circumstances in which the bids of competitors with substantially equivalent products could only be accepted at a significant cost penalty. 310 His Honour concluded that these findings did not constitute a purpose proscribed by s 46(1)(a), namely eliminating or substantially damaging a competitor. 311 In considering the operation of s 46(1)(c), his Honour said at [610]-[611]: 610 … If s 46(1)(c) is directed to deterring or preventing Fresenius or Gambro or anyone else from engaging in conduct at any time in the PD market, I do not think Mr Lee or anyone else at Baxter had such a purpose. Fresenius and Gambro (as well as B. Braun and Abbott) were large worldwide concerns. Just as Baxter did not have a purpose to damage or eliminate them, it did not have a purpose to deter or prevent them from trying to gain sales in Australia by undertaking conduct in Australia, such as by submitting competing tenders. Baxter's purpose was to bid in such a way as would prevent rival bids in the PD market being "competitive", that is likely to succeed over Baxter's bid. The purpose in so constructing the bids in question was, it seems to me, plainly to meet the developing competition for PD fluids in Australia from Fresenius and Gambro. … The purpose was to make rival PD bids uncompetitive in the sense of unacceptable, because of the credible cost alternative of Baxter's item-by-item offer. 611 I have no doubt that that was the purpose (in the sense of a substantial purpose) of Baxter. The question is whether that satisfies s 46(1)(c). 312 At [613] his Honour continued: The proposition put forward by Baxter is that the purpose of Baxter was not directed to the competitive process in that Baxter's purpose was not to deter or prevent Fresenius or Gambro from engaging in conduct in Australia, whether bidding at tenders or otherwise offering bids for their products or their products for sale. Expressed at that level of generality, I agree. However, the competitive process involves not merely the existence of an ability to put forward a rival offer, it involves the existence of circumstances which make it likely or, at the very least, feasible, that the rival offer might be successful and so might compete in a real and practical sense. The phrase "competitive conduct" can be taken to mean conduct that is competitive in a real and not nominal sense: here, not just the ability to submit paper than can be seen to be a bid of a rival, but that bid having some prospect of success, of being "competitive". … Baxter … had a substantial purpose of structuring bids in a way to prevent rival bidders (Fresenius and Gambro) for PD products from being able to put forward bids that were realistically competitive by the existence of credible alternative high item-by-item pricing. In the tender bidding system prevailing, albeit structured and dictated by the buyers (the SPAs), the purpose was to create circumstances in which Fresenius and Gambro could not put forward realistically competitive bids and so prevent them from engaging in conduct that was, in a real sense, competitive. True the act of Baxter did not impinge directly on Gambro or Fresenius doing anything. Rather, it was directed to affecting the environment in which their actions (their bids) would be judged. Bearing in the mind the aim and purpose of the legislation that, it seems to me, is to prevent Fresenius and Gambro from engaging in relevant conduct, because of the controlling or focal role for the adjective "competitive". 313 In assessing Baxter's purpose, it is important to keep in mind that although the evidence deals only with New South Wales, Queensland, Western Australia, South Australia and the ACT, there were other purchasers in the national PD fluids market, particularly Victoria, Tasmania and the Northern Territory, together with other, smaller purchasers. The evidence demonstrates that as at March 2002 Gambro had 1-2% of the Australian PD fluids market. As at December 2001 Fresenius had 5% of that market. Baxter had something less than 90%. Between 1998 and 2001 in the world PD products (including fluids) market, Gambro had 2%, Baxter had 70% and Fresenius had 17%. Fresenius is a very large corporation. Gambro is a subsidiary of a Swedish company. To some degree it specializes in renal treatment including dialysis. The primary Judge described both companies as "large worldwide concerns". 314 His Honour accepted that Baxter was motivated to maximize its market share in the PD fluids market in order to maximize utilization of its Australian manufacturing facility. The primary Judge accepted that Mr Lee (and therefore Baxter) did not intend or expect that Baxter's tenders and subsequent negotiations would exclude any other tenderer from competing in the PD fluids market, or stop or discourage any other tenderer from offering competitive products on other occasions. However his Honour found that Baxter recognized that the bundling of PD fluids with sterile fluids, coupled with the credible item by item bids, would mean that competitors' bids were likely to be unacceptable. 315 This approach invites attention to the meaning of the expression "competitive conduct". In Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238, Smithers J said at 259, in relation to an alleged breach of s 47: To my mind competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned. 316 Thus the word "competition" describes collectively all competitive conduct in the market in question, that is, all activity engaged in to promote sales in that market. For present purposes the proscribed purpose is to deter or prevent a person (generally, or as a class or classes of persons) from promoting sales in the market. It is not clear whether the purpose must be to deter or prevent all such conduct by the person in question, or merely some aspect of it. That possible difficulty may not matter for present purposes. 317 The words "deterring or preventing" also require attention. To "deter" is to "(r)estrain or discourage (from acting or proceeding) by fear, doubt, dislike of effort or trouble, or consideration of consequences". See the Shorter Oxford English Dictionary. The same dictionary defines the verb "prevent" as to "(s)top, hinder avoid. Forestall or thwart by previous or precautionary measures … Frustrate, defeat, make void (an expectation, plan, etc.). … Stop (something) from happening to oneself; escape or evade by timely action. … Cause to be unable to do or be something, stop (foll. by from doing, from being)." The combined effect of the words "deterring" and "preventing" includes persuading a person to decide to withdraw from, not to enter or not to compete in a market, as well as making it difficult or impossible for that person to do so. 318 The primary Judge considered (at [613]) that to bid for the purpose of making a competitor's bid uncompetitive was to deter or prevent competitive conduct. I do not understand his Honour to have meant that there was an over-arching, long term plan to exclude competitors from the market by repeated failures in the various tender processes. Indeed, he seems to have expressly declined to find any such purpose in the short or longer term. His Honour's finding, as I understand it, was that Baxter used its market power to maximize its chances of succeeding in each tender process in which it engaged. The primary Judge described this purpose as being to prevent Fresenius and Gambro "from engaging in conduct that was, in a real sense, competitive" by "affecting the environment in which their actions (their bids) would be judged". This related back to the earlier statement at [613] that "competitive conduct" can be taken to mean "conduct that is competitive in a real and not nominal sense". All of this means, in my view, nothing more than that Baxter tried to win every tender by making its bids more attractive than competing bids. 319 Section 46 is not primarily about bundling. It is about the abuse of market power. It is to be contrasted with s 47 which is, in part, specifically about bundling. Section 46 is also not primarily about cross-market effect. It is about the purpose with which a person exercises market power, whether that purpose relates to the market in which the power exists or to another market. The proscribed purposes identify the intended ambit of operation of s 46. The vice addressed by s 46 is exercising market power with a proscribed purpose, not bundling, creating a cross-market effect or exercising market power without a proscribed purpose. 320 In Queensland Wire the High Court considered whether the phrase "take advantage of" required that the relevant person have done something "reprehensible". At 190-191 Mason CJ and Wilson J said, concerning the reasons of the trial Judge: His Honour also uses the phrases "[competition] deserving of criticism" and "predatory or unfair", apparently as equivalents for "reprehensible". It is unclear precisely what the phrases are supposed to mean, but they suggest some notion of hostile intent. For our part we have difficulty in seeing why an additional, unexpressed and ill-defined standard should be implanted in the section. The phrase "take advantage" in s 46(1) does not require a hostile intent inquiry - nowhere is such standard specified. And it is significant that s 46(1) already contains an anti-competitive purpose element. It stipulates that an infringement may be found only where the market power is taken advantage of for a purpose proscribed in para (a), (b) or (c). It is these purpose provisions which define what uses of market power constitute misuses. It is perhaps not surprising that lawyers would be tempted to incorporate an element of intent into the statutory tort of a s 46 infringement given the importance of intent in tort law. But there is a fundamental difference between the usual tort and a s 46 violation. In the ordinary tort case, a tortfeasor's intent may well be relevant to his dangerousness - if he intends to hurt another he is more likely to cause injury than if he is not trying to hurt the other. If the purpose of s 46 were the economic well being of competitors, then a similar implication of intent might well be appropriate … But the object of s 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end. Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to "injure" each other in this way. This competition has never been a tort … and these injuries are the inevitable consequence of the competition s 46 is designed to foster. In fact, the purpose provisions in s 46(1) are cast in such a way as to prohibit conduct designed to threaten that competition - for example, s 46(1)(c) prohibits a firm with a substantial degree of market power from using that power to deter or prevent a rival from competing in a market. The question is simply whether a firm with a substantial degree of market power has used that power for a purpose proscribed in the section, thereby undermining competition, and the addition of a hostile intent inquiry would be superfluous and confusing. 321 For present purposes the important aspects of this extract are firstly, the focus upon protecting the interests of consumers rather than the interests of competitors, secondly, the recognition of the potential for ruthlessness in competition and thirdly, the notion of "competition". 322 I understand the primary Judge to have held that it is a proscribed purpose pursuant to s 46(1)(c) to bid, intending that one's bid will make competitors' bids uncompetitive by virtue of the fact that they will be assessed in light of one's own bid. Prima facie, that approach seems to look to the interests of competitors rather than to the interests of consumers in the market. That does not necessarily invalidate such approach. Loss by a competitor in a bidding process may not, itself, necessarily affect competition in the market. But if a competitor withdraws from the market because it believes that it cannot win future tenders, the position may be otherwise, depending on market conditions. It is not necessary, for the purposes of s 46, that the purpose involve damage to, or reduction in, competition. The purpose of damaging or deterring a competitor or potential competitor is sufficient. But if the intention of Parliament was to outlaw any use of market power to win a tender, one might have expected the section to say as much. It is difficult to believe that any tenderer will not try to tender in such a way as to exclude the possibility that a competitor's bid will be accepted. Mason CJ and Wilson J, in Queensland Wire, certainly did not contemplate any more altruistic approach. In my view their Honours were speaking of the exercise of market power when, at 191, they spoke of ruthlessness in the market place. It is difficult to be ruthless if one has no power. Indeed, in the final sentence of the extract from their Honours' reasons, they accept that there could be a ruthless use of market power which was competitive, but not contrary to s 46. 323 Had the primary Judge concluded that Baxter, in seeking to succeed in winning the tenders, had the purpose of discouraging competitors from continuing to engage in competitive conduct in the PD fluids market or stopping them from so doing, then the requirements of s 46(1)(c) would have been satisfied. His Honour was not satisfied that Baxter had that purpose. No doubt, in reaching that conclusion, his Honour had in mind the other parts of the market to which I have referred and the corporate strength of Fresenius, Gambro and other possible competitors. His Honour probably also appreciated that Baxter would have had those matters in mind when it tendered. It may have been absurd for Baxter to attempt to discourage, let alone stop, such competitors. However it is not necessary that I speculate about that possibility. 324 If Baxter had such a proscribed purpose, one would have expected to be able to identify, at least in a generic way, the conduct which it proposed to deter or prevent. His Honour's findings exclude the possibility that Baxter's purpose was to deter or prevent its competitors from continuing to tender as and when tenders were called. As far as I can see, no other relevant conduct could have been the subject of such a purpose. Further, it is incorrect to describe Fresenius and Gambro's bids as uncompetitive. Their bids may well have been competitive in that they influenced Baxter's prices for PD fluids. The evidence indicates that local manufacture of PD fluids did not give Baxter a substantial advantage as to pricing. On at least one occasion Baxter's bids for PD fluids were lower than a competitor's but generally, the case seems to have been conducted on the basis that such bids were more or less comparable. Had the competitors' bids been persistently and significantly lower than Baxter's, the matter would have been rather more complicated than it seems to have been. In that sense competitors' bids were "competitive" even if they did not succeed. Further, competitors would have been interested in the other sectors of the national PD fluids market to which I have referred. 325 The learned primary Judge's approach would mean that in any tendering process, a tenderer with market power would be obliged to ask, not only how it could give the most favourable price to a potential purchaser, consistent with its own desire to make a profit, but also whether or not such a bid might be seen as an intended discouragement to competitors. It is difficult to identify likely criteria for distinguishing between trying to win a tender and trying to make a competing bid uncompetitive. The primary Judge's approach would affect suppliers other than monopolists or near monopolists. A supplier may not know whether it has market power in the relevant sense, or whether it is taking advantage of it. It is one thing to expect that a supplier who has the intention of deterring or preventing competition should look to the Act. It is quite another to expect a supplier, who wishes to bid so as to defeat a competitor's tender, to ask whether it (the supplier) has market power and is exercising it in so bidding. It seems unlikely that Parliament had such an intention. 326 I should make some other short points. ACCC sought to advance a case based upon an ongoing course of conduct over many years. I do not see justification for attributing greater significance to any aspect of Baxter's conduct, when viewed as part of such a whole, than when examined separately, save as to questions concerning its perceptions and purposes. In my view his Honour's findings excluded the possibility that Baxter had a proscribed purpose in any of the impugned transactions. It was open to the primary Judge to infer from Baxter's conduct, including its repetition over time, that its purpose was to dissuade competitors from remaining in the market. As ACCC submitted, it is only a short step from finding that a commercial undertaking has acted repeatedly in a way which is capable of producing a particular result to finding that it has the purpose of producing that result. However his Honour did not reach that conclusion, largely because he accepted certain aspects of Mr Lee's evidence and that of other employees of Baxter, notwithstanding his quite critical approach to their evidence. In other words, his Honour's findings in this regard were based upon careful consideration of the credibility of the witnesses. Such findings are not easily upset on appeal. I see no basis for doing so in this case. Finally, I observe that my reasoning in connection with s 46(1)(c) applies in connection with all of the relevant agreements, including those entered into with Queensland, South Australia and the Australian Capital Territory. 327 The evidence did not establish a purpose within s 46(1)(c). Although for different reasons, I consider that his Honour was correct to dismiss the s 46 case.

[47]

SECTION 47 328 As Mansfield J has pointed out, it is common ground that Baxter's impugned conduct fell within s 47(2). The question is whether it fell within s 47(10). It would do so if Baxter had the purpose of lessening competition in a relevant market or if the conduct had the effect or likely effect of so doing. Pursuant to s 46, "lessening competition" includes preventing or hindering it. 329 Purpose, effect and likely effect are quite distinct concepts. To establish that Baxter had a proscribed purpose, it was necessary to show an actual, subjective intention. As always, purpose must be distinguished from motive, but subjective purpose must still be demonstrated. Purpose may be inferred from statements and actions in the light of common experience. In the present context, effect is to be distinguished from likely effect. The effect of conduct is its outcome as demonstrated by evidence concerning actual events. Likely effect involves a prediction as to whether particular events will flow from relevant conduct. Likely effect may vary, depending upon the time at which the prediction is made. It may be made before, at the time of, shortly after, or long after the relevant causal conduct. 330 The relevant markets, as prescribed in s 47(13)(b), were the national PD fluids market and the national market for sterile fluids or separate national markets for individual sterile fluids. Mansfield J has summarized the relevant evidence concerning Baxter's alleged purpose and ACCC's assertions as to effects or likely effects in the relevant markets. As Mansfield J has also demonstrated, the primary Judge identified two "levels" at which Baxter's conduct was to be considered. At [621] to [626] his Honour said: 621 The identification of the competitive process and thus competition which may be affected requires a temporal reference point. The relevant time period in which to judge or assess the competitive process will depend on all the circumstances of the case, including the structure of the industry and the asserted anti-competitive conduct. 622 Here, one can examine Baxter's conduct and purpose at a relatively high level of generality and long range time period: Was the purpose to affect the viability of entry of competitors into the Australian market? Was the effect to prevent same? Was Fresenius dissuaded from building a competitive factory in Australia? Were Fresenius and Gambro so affected by the loss of the tenders in 1998-2001 as not to be able to bid competitively in later years, for example because of the development of incumbency advantages in Baxter? 623 At another level, focussing more on the tender process as the chosen competitive process, different questions arise. They do not involve directly any examination of long term effects on entry, incumbency advantages and the like, though these matters may flow from the discussion. Rather, they involve an examination of the purpose and effect of the conduct on the operation of the tender process as the mechanism that had been chosen by the SPAs as buyers for them to buy goods in the market. 624 Each of the SPAs and the State governments which put in place a tender process intended that the operation of that process would produce real competition for the products the subject of the tender process. The purpose of Baxter was, as I have said, to structure the bids made by it in a way to prevent rival bidders for PD products from being able to put forward bids that were realistically competitive, by the existence of credible alternative high item-by-item pricing. The purpose was to ensure, as far as possible, that the competitive process of the tender process would not bring about realistically competitive bids for PD products by tying or bundling PD products to sterile fluids, and by providing a credible alternative which would make a choice of any likely rival PD product financially damaging to the State. 625 Is that a purpose of "lessening competition"? In my view it is. The competitive process here was the tender system used by the States. Suppliers in the relevant field were asked to bid on an hypothesis that each would be competing in a process that would be conducted in such a way as would enable each, subject to price and quality considerations, to have a realistic prospect of success. That is the nature of a tender process. Of course, if the quality of a rival's product is inferior, or its price too high, its prospects of success will be low. However, if there are rivals with equivalent products and there is no reason to think that they are any less efficient than each other, conduct, which enables one rival to ensure that the others' bids cannot be realistically competitive in the process, requires examination. If this effect on the prospects of success by rivals is a result of some competitive edge (a new process, a new invention, a radically reduced cost base) one can conclude that the other rivals' bids are not competitive by reason only of the success of the competitive process. Here, however, one may conclude that the rivals' bids are not competitive by reason of the realistic consequences that will occur to the buyer if the condition imposed by one rival on its offer to supply is not complied with. In those circumstances, it is the perceived consequences of not accepting the offer of bundled supply, that is, of not accepting the offer amounting to exclusive dealing within s 47(2), which hinders the effective operation of the tender process in relation to PD products. That plainly was the purpose of the bundled bids. That purpose, in my view, is one directed to hindering the competitive process of the tender bids and so hindering competition. 626 This approach to the conduct and the purpose of Baxter concentrates upon that part of the conduct which was an offer to supply on the stated conditions up to the entry into each contract. The entry into each agreement and the supply of products under each agreement cannot be said to have been for the purpose of hindering the competitive process in the form of the tender process since that process was complete. This conduct must be examined for Baxter's purpose and its effect at a higher level of generality and in a wider temporal framework. 331 The primary Judge concluded that at the "lower" level - that of the individual tender process - Baxter's purpose was to hinder the competitive process, namely the calling of tenders, by preventing competing bids from being "realistically competitive". His Honour also accepted that Baxter's conduct had that effect or likely effect. In this respect his Honour appears to have been addressing the PD fluids market, but he may have been also addressing the sterile fluids market or markets. As one would expect, the finding as to purpose was consistent with his Honour's finding as to Baxter's s 46 purpose. 332 At the "higher" level, the primary Judge found at [630]: If the appropriate framework and timeframe are broader than the operation of the tender process, my conclusions are different. Undoubtedly one of the main aims of Baxter was to deny their competitors market share in the PD market. That is only another way of saying that Baxter wanted to win all the business. Its purpose was to do that by making the bid process such that its competitors could not realistically succeed, and in that sense compete. I have dealt with that. It did not, it seems to me have a purpose beyond that, in some wider manner, to impede or hinder the competitive process. By and large Baxter had no control over how the competitive process would operate - whether by centrally run State-wide tenders, or by individual hospital purchasing. It could not prevent B. Braun, Gambro, Fresenius, or Abbott (all large multinationals) from taking any step in relation to the Australian market. 333 The primary Judge concluded that Baxter had no purpose of impeding or hindering competition at the "higher" level. His Honour also concluded that Baxter's conduct did not have the effect, or likely effect, of substantially lessening competition in any relevant market, observing at [632]-[633]: 632 With this wider framework and timeframe the question of effect and likely effect must be considered. 633 The word "likely" has been the subject of considerable discussion in the cases. As a single Judge it seems to me that the balance of authority favours construing "likely" to mean "real chance or possibility" … That does not encompass a mere possibility … . It is to be recalled what is important is the text of the statute not the linguistic synonyms employed to explicate meaning. I agree with Lockhart J … that the word indicates propensity or tendency; and in accordance with Deane J … that it theorises the sense of a real chance. 334 In this appeal, ACCC asserts that the primary Judge correctly found a proscribed purpose and effect, or likely effect, at the "lower" level but erred in fact in not so finding at the "higher" level. Baxter submits that his Honour's "lower" level approach mistook the meaning of s 47, and that his conclusion at the "higher" level was correct. Baxter's challenge to the "lower" level approach dictates an examination of the section.

[48]

Competition in a market 335 Pursuant to ss 47(10), 47(13) and 4G, the proscribed purpose, effect or likely effect is lessening (including preventing or hindering) competition in an identified market. Terms such as "competition" and "market" are sometimes used imprecisely. It is appropriate that I refer to some of the authorities in order to clarify their meanings. 336 In Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169, the Trade Practices Tribunal (Woodward J presiding) considered the fundamental concepts of competition and market. The relevant passages appear at pp 187-190. The whole passage rewards careful examination, but a number of points are important for present purposes. At 187-188 the Tribunal observed: Competition may be valued for many reasons as serving economic, social and political goals. But in identifying the existence of competition in particular industries or markets, we must focus upon its economic role as a device for controlling the disposition of society's resources. Thus we think of competition as a mechanism for discovery of market information and for enforcement of business decisions in the light of this information. It is a mechanism, first, for firms discovering the kinds of goods and services the community wants and the manner in which these may be supplied in the cheapest possible way. Prices and profits are the signals which register the play of these forces of demand and supply. At the same time, competition is a mechanism of enforcement: firms disregard these signals at their peril, being fully aware that there are other firms, either currently in existence or as yet unborn, which would be only too willing to encroach upon their market share and ultimately supplant them. 337 At 189 the Tribunal continued: Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate. The elements of market structure which we would stress as needing to be scanned in any case are these: (1) the number and size distribution of independent sellers, especially the degree of market concentration; (2) the height of barriers to entry, that is the ease with which new firms may enter and secure a viable market; (3) the extent to which the products of the industry are characterized by extreme product differentiation and sales promotion; (4) the character of "vertical relationships" with customers and with suppliers and the extent of vertical integration; and (5) the nature of any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities. 338 The Tribunal went on to say that of those elements, ease of entry was the most important. It further observed that: While the equation of anti-competitive effect with enhanced concentration is tempting in its mechanical simplicity, there is much more to the idea of competition than this. No doubt, other things being equal, significantly lower market concentration is preferable to a high level. But other things are rarely likely to be equal … . Moreover, the very significance of the change in the concentration ratio will depend upon other competitive characteristics of the industry. 339 At 190, the Tribunal observed: Before giving our reasons we should explain our understanding of the market concept … . We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. 340 Dandy Power (supra) involved an alleged breach of subss 47(1) and (3) by a refusal to supply goods. The reason for such refusal was that the potential recipient had acquired, and had not agreed not to acquire, goods from a competitor of the supplier and had re-supplied, and not agreed not to re-supply, such goods. The goods were outboard motors and associated products. At 259-260, Smithers J said, concerning the operation of subss 47(10) and (13): To my mind competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned … . To apply the concept of substantially lessening competition in the market, it is necessary to assess the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the way the market operates and the nature and extent of the contemplated lessening. To my mind one must look at the relevant significant portion of the market, ask oneself how and to what extent there would have been competition therein but for the conduct, assess what is left and determine whether what has been lost in relation to what would have been, is seen to be a substantial lessening of competition. I prefer not to substitute other adverbs for "substantially". "Substantially" is a word the meaning of which in the circumstances in which it is applied must, to some extent, be of uncertain incidence and a matter of judgment. There is no precise scale by which to measure what is substantial. I think in the context, particularly the penalty and other remedies for contravention of the Act, and the nature of trade which is the subject of the Act, the word is used in a sense importing a greater rather than a less degree of lessening. Accordingly in my opinion competition in the market is substantially lessened if the extent of competition in the market which has been lost, is seen by those competent to judge to be a substantial lessening of competition. Has competitive trading in the market been substantially interfered with? It is then that the public as such will suffer … . Although the words "substantially lessened in a market" refer generally to a market, it is the degree to which competition has been lessened which is critical, not the proportion of that lessening to the whole of the competition which exists in the total market. Thus a lessening in a significant section of the market, if a substantial lessening of otherwise active competition may, according to circumstances, be a substantial lessening of competition in a market. 341 Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd (1982) 44 ALR 667 also concerned an alleged breach of s 47 in the distribution of outboard motors and associated products. A dealership arrangement had been terminated on the ground that the dealer had refused to cease acting as distributor for a rival manufacturer. At first instance, the primary Judge held that such termination would deprive customers of the opportunity to view two competing engines side by side and that this constituted lessening of competition. At 669-71, the majority (Bowen CJ and Fisher J) observed: What is the meaning of "competition in the market" as the words appear in s 47(10)? … Dr Norman, a Senior Lecturer in Economics, asserted that there was a difference between the meaning of competition in the economic sense and its use in business and commerce. In economics, he stated, "competition" referred to the capacity of the market "to adopt new techniques of production and distribution, to respond to variations in the needs and requirements of the buyers thereof, to avoid excessive profits or selling costs and to distribute goods and services efficiently". Mr Nettleship, the managing director of a market research organization, referred to competition as the "supplying of alternatives to satisfy a market". It is this latter definition which the primary judge seems to have preferred. He interpreted the Act as being directed to business situations and concluded that "competition" should be given its ordinary meaning in those situations. Counsel … argued on the appeal that his Honour had given insufficient weight to the evidence of Dr Norman. The comments of Dr Norman and Mr Nettleship are, in a sense, reconcilable, in that they both refer to aspects of competition in the market and do not attempt an exclusive definition. The economic meaning must be applied in a practical way to accommodate the concern of the Act with business and commerce. More assistance can be gleaned from the description of the Trade Practices Tribunal, with Woodward J presiding, in Re Queensland Co-Operative Milling Association Ltd; Re Defiance Holdings Ltd … . There an economic concept of competition was adopted. Five elements of market structure were noted by the Tribunal as being relevant to the determination of the state of competition in a market. Of those, the most important factor was said to be the height of barriers to entry, that is, the ease with which new firms might enter and secure a viable market. The Tribunal's decision has been approved by the Federal Court … . Smithers J recently considered this question and concluded that "competition in a market" could be expressed as "the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned": Dandy Power Equipment Pty Ltd and Dandy Power Pty Ltd v Mercury Marine Pty Ltd … . It would seem that "competition" for the purposes of s 47(10) must be read as referring to a process or state of affairs in the market. In considering the state of competition a detailed evaluation of the market structure seems to be required. In the Dandy case Smithers J regarded as necessary an assessment of the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the operation of the market and the extent of the contemplated lessening. Two other decisions of the Trade Practices Tribunal are relevant here … . In both cases, the Tribunal undertook a detailed analysis of the market, the state of competition therein and the likely effect of the conduct upon competition in the market. In our opinion, the same type of approach should have been adopted in the present case. No doubt the learned primary judge was endeavouring to deal with the case on the evidence which was before him. So far as competition in the market was concerned the evidence was fairly limited. … Counsel for Hecar at first instance, and on appeal, based its case on the assertion that OMA's conduct was likely to lessen competition in the sense that prospective purchasers would be deprived of the ability to compare more than one outboard engine on the same floor. It was argued that because Powercraft supplied a substantial number of motors in the geographic area, any interference with Powercraft was an interference with the competitiveness of the market. The primary judge accepted Hecar's submission. He cited [two cases] as supporting that proposition. … We do not derive support for Hecar's submission from those cases. Both relate to a general practice or course of conduct of exclusive dealing and not to conduct in relation to a particular dealer. In each, as noted above, a detailed analysis was made of market structure and factors affecting competition. The weight of the authorities seems to suggest that the particular facts and circumstances of each case must be carefully considered. Moreover there is some force in the submission by counsel for OMA that a distinction should be drawn between case which involve evaluation of the anti-competitive effect of a general course of conduct, and cases which assert that conduct directed at one party only produced a substantial lessening of competition. The "side by side on the same floor" theory of Hecar seems to assume that there is a significant connection between the convenience of prospective customers and competition in the market. A similar argument was put to Smithers J in the Dandy Power case, supra. Although that case was decided on different grounds it is relevant to note the reservations expressed by his Honour as to whether the inability of purchasers to look at competing engines side by side was a factor of lessening of competition in a market. In none of the authorities cited above has the convenience of consumers been an important feature of the market structure for the purposes of determining the state of competition in a particular market. The standard of proof is a civil one, but it is necessary to bear in mind that the sanctions which may be imposed for breach of s 47(1) may be severe (see Briginshaw v Briginshaw …). We are not persuaded that the primary judge could properly be satisfied that Hecar established that a likely effect of OMA's refusal to supply was a substantial lessening in competition in the market. The market in question is geographically wide. There seems to be no evidence that OMA's refusal to supply Hecar had, or would be likely to have, the result of altering the market structure so as to produce an anti-competitive effect: for example, there is no evidence that the barriers to entry have been raised, nor that price competition has been reduced. Although the competitive position of Hecar as an individual retailer may be affected in the future, it is unlikely that this would have such a dramatic effect as to lessen substantially competition in the retail market which extends from Forster to Umina. 342 Fitzgerald J said at 675-676: In a proceeding founded upon an alleged contravention of s 47, the market by reference to which alleged anti-competitive conduct falls to be measured is of central importance. One element of a market concerns the subject-matter of the relevant trade and relates to products or ranges of products which are substitutable, or otherwise competitive, inter se. No doubt there will often be scope for disputation, but in the present case, it was finally accepted that the market related to outboard motors generally; it was not, in the end, suggested that the market related only to one or more particular brands, types, or sizes of outboard motor, or on the other hand that it related to a wider product category of which outboard motors form but a part. Another usual element in the definition of a market is its functional aspect, and more particularly whether it relates to wholesale or retail trade or both. … Further, it is commonly necessary to delineate, in addition to the product traded in the market and the nature of that trade, the geographical area or region in which the trade occurs or is likely to occur. … Since the market by reference to which OMA's alleged anti-competitive conduct was to be measured was only the market in which at the relevant time Powercraft Marine made retail sales of outboard motors, and that Hecar's claim concerned only OMA's refusal to supply it and not its general policy and conduct in relation to the supply of its product, it is, I think, apparent that there was no occasion to investigate the purpose or effect of OMA's conduct more generally in connection with competition in a wider or different market, or to apply any wider or different notion of competition which could apply in, or could be applied to, a broader market concept. 343 At 677, his Honour observed: Hecar neither established nor sought to establish that OMA's refusal to supply it was or was likely to have:- • any effect on the capacity of consumers in the market to influence the market; • any capacity on the dealers or products in the market to continue, or on fresh entry into the market; • any effect on a capacity or willingness of dealers in the market to meet the present or future requirements of consumers in the market or to respond to variations in those requirements; • any effect on the cost or profit structures in the market or its efficiency otherwise; • any effect upon the product range, including brands, sizes, finishes, colours, etc available in the market; • any effect upon prices, terms, standards, service, etc in the market; • any effect on the number or identify of the retailers in the market, or the number, location, or convenience and accessibility of retail outlets, or on any other aspect of the efficient retail sale and distribution of outboard motors in the market, save to the specific limited extent which I will indicate. There was no direct evidence that competition has been lessened to date and, indeed, Hecar's case is, by force of circumstances, largely prospective in so far as it relates to the effect of OMA's conduct. 344 At 678 Fitzgerald J continued: The thesis underlying the position finally adopted by Hecar was that competition is stimulated by an opportunity for comparison of rival products at a single sales location. It may, I think, be accepted that such comparison is an element of competition. None the less, the comparison for which Hecar contends is only between two brands, albeit major brands, and even then permits comparison only of their inherent advantages relative to each other as products and not of other material considerations in a market, such as price, terms etc elsewhere available. 345 In ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 at 478, the Full Court (Lockhart, Gummow and von Doussa JJ) said, concerning similar language in s 45: In asking whether provisions of the agreements have or would be likely to have the effect (putting to one side matters of purpose) of substantially lessening "competition", within the sense explained in s 45(3), one looks not so much at the position of particular competitors as to the state or condition constituting the market or markets in question, actually and potentially … . It is also to be borne in mind that whilst actual competition must exist and be assessed in the context of a market, a market can exist if there be a potential for close competition even though none in fact exists or dealings in it are temporarily dormant or suspended … . This is of some significance in assessing the impact of the restrictions complained of, in relation to the potential wholesaling activities by Pont. 346 In Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752French J said, at 40731-2: It is critical to the applicants' case under s 47 and s 45 that they show the conduct complained of on the part of the BPA and/or its successful tenderer has the purpose, or has or is likely to have the effect, of substantially lessening competition in the relevant market. In determining whether the proposed conduct has that purpose, effect or likely effect, the Court is not required to consider the present state of competition in the market against its projected state in the event the conduct occurs. It is rather a matter of considering a future state of competition in the market with and without the impugned conduct … . This does not prevent reference to the present state of competition to illuminate the future state of the market where there may be a range of possibilities absent the impugned conduct. 347 In Universal Music Australia Pty Ltd v ACCC (2003) 131 FCR 529, the Full Court (Wilcox, French and Gyles JJ) said at [53]: The concept of a "market" is a metaphor used to describe a range of competitive activities by reference to function, product and geography. The application of the metaphor may be informed by economic analysis, provided it is rooted in commercial realities. 348 At [242] the Court said: Competition is a process and the effect upon competition is not to be equated with the effect upon competitors, although the latter may be relevant to the former. Competition is a means to the end of protecting the interests of consumers rather than competitors in the market (Queensland Wire per Mason CJ and Wilson J at 191). Competition is defined to include competition from imported goods (s 4). The Court has to make a qualitative judgment about the impact of the impugned conduct on the competitive process. For example, a short term effect readily corrected by market processes is unlikely to be substantial. The lessening of competition must be adjudged to be of such seriousness as to adversely affect competition in the market place, particularly with consumers in mind. It must be "meaningful or relevant to the competitive process" … . 349 At [266] their Honours continued: Whether the purpose of lessening competition with a particular market participant amounts also to the purpose of substantially lessening competition in the market must depend upon the facts of the particular case; a matter of major importance being that participant's market share. A question of degree arises, about which a judgment must be made. Even elimination of competition with a minor market participant might have no more than a trivial effect on competition in the market, whereas only reduction of competition with a major participant might dramatically lessen competition. 350 In this context I refer also to the extract from the decision of Mason CJ and Wilson J in Queensland Wire at 191 to which I have previously referred. 351 A number of propositions emerge from these authorities: · a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong competition; · competition in a market is the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned; · competition in a market may be "deliberate and ruthless", one competitor injuring another by attracting sales; · application of the concept of substantially lessening competition in a market requires an assessment of the nature and extent of the market, the probable nature and extent of competition but for the conduct in question, and the nature and extent of the contemplated lessening; · the effect of conduct upon competition is not to be equated with its effect upon competitors, however the latter effect may be relevant to the former; · the convenience of customers has never been treated as an important feature of market structure for the purposes of determining the state of competition in a particular market; · whether changes in market concentration have the effect of lessening competition must be determined by reference to competitive characteristics in the market; and · the effect of the elimination of a competitor must also be addressed by reference to such characteristics.

[49]

Substantially lessening competition in the tender process 352 The primary Judge found that Baxter had the purpose of lessening, preventing or hindering competition in a relevant market, and that such conduct had that effect or likely effect. These findings were in no sense dependent upon a detailed examination of competition in any market as contemplated in the above authorities. They were based upon purpose and effect or likely effect in connection with competitors' tenders in individual tender processes. His Honour found that Baxter's purpose was to attract as much business as possible, not to lessen competition. However he also found that the states had selected the tender process as their method of awarding contracts. Bundling, with the purpose of defeating a competitor's tender was, in his Honour's view, for the purpose of ensuring "that the competitive process of the tender process would not bring about realistically competitive bids for PD products". His Honour concluded that such a purpose was proscribed by s 46(1)(c). His Honour also found that if bundling had the effect, or likely effect, of making a competitor's tender uncompetitive, then it had the effect or likely effect of lessening competition in the relevant market. Baxter challenges this approach. 353 His Honour's approach equates conduct with regard to one transaction in the relevant market (the tender process) with competition in that market. Yet, according to the decision in Dandy Power (at 259), competition in a market is "the sum of activity engaged in by persons in promoting the sale to potential buyers of the goods with which that market is concerned". The cases demonstrate that lessening of competition is to be determined by looking at the state of competition in the market before, and after, the relevant conduct or, in the case of proposed conduct, with and without it. In any event it is difficult to accept that hindering one transaction in a market necessarily involves hindering competition as a whole in that market. Baxter's conduct may have produced the effect or likely effect that it won the tender and its competitors lost. However that did not necessarily lead to a finding that competition in the market was prevented or impeded. 354 At [625] the primary Judge observed that potential suppliers tendered upon the hypothesis that the tender process would be conducted "in such a way as would enable each, subject to price and quality conditions, to have a realistic prospect of success". Whilst fairness may be expected in public tenders, the real purpose, as I understand it, is to obtain, with probity, goods upon the best available terms from the purchaser's point of view. As I have previously observed tenderers generally aim to maximize market share by defeating all competitors. Section 47 is not designed to ensure fairness to competitors but to protect competition in the market. 355 His Honour held that bundling with the purpose of defeating a competitor's bid was, itself, sufficient to satisfy the purpose requirement of subs 47(10). I doubt whether s 47 was designed to produce that effect. It is difficult to believe that a supplier would engage in bundling for any purpose other than to maximize market share at the expense of competitors. If the intention underlying s 47 had been to outlaw bundling with that purpose, there would have been no need to construct the complex inter-relationship between subss 47(1), (2), (10) and (13). It would have been necessary only to outlaw bundling for the purpose of gaining a trading advantage. The authorities to which I have referred do not support his Honour's view of the section. Further, the primary Judge's approach overlooks the difference in focus as between s 46 and s 47. Section 46 focuses on purpose in connection with competitors or potential competitors, although with the ultimate purpose of protecting competition. Section 47 focuses on purpose, effect or likely effect in connection with competition in a relevant market. His Honour's approach is more appropriate to the focus of s 46 than to that of s 47. I see no warrant for treating these different focusses as being the same. 356 On the primary Judge's approach at the "lower" level, identification of effect or likely effect becomes a very easy exercise. It requires no examination of the state of competition in the market. It is necessary only to identify an aspect of such competition which has been hindered, or is likely to be hindered, by the relevant conduct. In the present case, the primary Judge seems to have assumed that Baxter's tender strategy probably hindered or prevented competition simply because it was likely to succeed. 357 In my view the primary Judge's approach, based upon purpose, effect or likely effect with regard to each individual tender process was incorrect. The proper approach was to assess those matters with regard to the identified markets, primarily the PD fluids market. As much appears from the cases to which I have referred. In Dandy Power, the relevant conduct was refusal of supply to a retailer. Smithers J looked to effect on competition in the market as a whole, not to the mere fact that a competitor had been excluded. In Outboard Marine, the conduct was, again, refusal of supply to a retailer. The alleged lessening of competition was that the conduct would deprive potential purchasers of the opportunity to compare rival products side-by-side. The paragraph on 670, commencing with the words "The weight of the authorities …", is particularly relevant for present purposes. That paragraph is set out above. It suggests that effect upon an individual competitor is not sufficient to engage s 47. It is necessary to look to effect in the market as a whole. Similarly, consumer convenience is not an important feature. Each SPA's choice of a particular method of acquiring supply falls into the category of consumer convenience. 358 ACCC did not abandon the primary Judge's "lower level" approach but came very close to doing so at para 48 of its submissions in reply to the notice of contention. Although it was a little unclear, ACCC seemed to submit that his Honour had, at [625], considered Baxter's purpose as it related to a relevant market. I do not accept that submission. His Honour was there discussing the efficacy of the tender process. 359 ACCC submitted that the decisions in O'Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1983) 48 ALR 625 at 632-633 and in Re Queensland Co-operative Milling (supra) supported his Honour's observations at [625]. Relevant extracts from the latter decision are set out above. It offers no real support for the proposition which underlies [625], namely that the purpose of defeating competitors in a tender process may, without more, amount to the purpose of lessening, preventing or hindering competition in a market. 360 O'Brien is a rather difficult case. Franki J, in dissent at pp 642-643, seemed to imply that the majority decision was inconsistent with that in Hecar. Although Fox J (with whose reasons Sheppard J concurred) referred to Hecar at 631, such reference related only to the meaning of the word "substantially". There are some passages in the reasons of Fox J (at 632-633) which, if taken in isolation, might suggest that exclusive dealing for the purpose of maximizing market share is, at least prima facie, for the purpose of lessening competition. I do not consider that his Honour intended so to hold. The Court was addressing the availability, on the evidence, of the primary Judge's finding of a proscribed purpose. The last two paragraphs at p 631 so indicate. There was no express evidence as to purpose, and so the question of "effect" became "involved". Clearly, there had been substantial evidence concerning the market. Although Fox J made only passing reference to it, his Honour concluded that such evidence supported the primary Judge's finding as to purpose. At the top of p 633, his Honour referred to the tendency of relevant conduct to reduce choice, to weaken the trading positions of competitors and to inhibit the entry of other competitors. In the next paragraph, Fox J made it clear that such conduct must be assessed in light of the "circumstances". I take this to have been a reference to circumstances in the market. 361 I should refer to two other matters. Firstly, I have previously mentioned that the primary Judge found it necessary to distinguish between Baxter's conduct in each tender process, including negotiations after tender, and its subsequent conduct in entering into a contract. It seems that his Honour made no adverse finding concerning Baxter's agreement with the ACT because there was no tender process leading to it. ACCC submitted that his Honour erred in that respect. I need not consider that submission. Secondly, s 47(10)(b) of the Act permits consideration of the cumulative effect or likely effect of conduct upon competition. I see no reason to conclude that the combined effect or likely effect of Baxter's conduct upon the tender process would necessarily have led to lessening of competition in a relevant market. His Honour's findings concerning such markets are to contrary effect. 362 In the present case the primary Judge's finding that Baxter's conduct had a proscribed purpose, effect or likely effect was based upon a misinterpretation of ss 47(10) and (13) and 46. That finding must be set aside.

[50]

Substantially lessening competition in a market 363 ACCC sought to uphold the finding of breach of s 47 by demonstrating a purpose, effect or likely effect of lessening competition in either the PD products market or the sterile fluids market, at the "higher" level identified by the primary Judge. As I have observed his Honour found no such purpose, effect or likely effect. On appeal ACCC's submissions tended to treat those three aspects collectively rather than discretely. 364 The primary Judge found that there was a national PD products market. That finding was not challenged on appeal. His Honour also found that there was a national sterile fluids market but did not decide whether it included the market for PN fluids, or whether it was made up of separate LVP fluids, IS and PN fluids markets. It is difficult to see how one can address purpose, effect or likely effect in the sterile fluids market or markets unless one first takes that step. I do not understand the parties to have asked us to do so. In reality, the parties have primarily focussed on the PD fluids market. 365 At the "higher" level ACCC's case concerning purpose was effectively that Baxter had sought to damage its competitors by maximizing its market share, and that such purpose was to lessen, prevent or hinder competition in the market. The pleaded effect or likely effect was essentially that competitors could not acquire greater market shares. It was also alleged that Baxter had failed to keep up with technological changes. The primary Judge was not satisfied as to that matter. Although ACCC made some faint challenge to that finding, no cogent basis was advanced for setting it aside. I need not consider it further. 366 To the extent that ACCC submits that the primary Judge should have found that Baxter had the purpose of lessening competition in a market by damaging competition, it faces the difficulties to which I have already referred. His Honour found to the contrary, and that decision was substantially based upon a careful consideration of the credibility of Baxter's witnesses, especially Mr Lee. His Honour expressed the proposition in various ways but, in the end, he found that Baxter's purpose was to maximize its market share by winning tenders. That is not a proscribed purpose. Of course the finding does not preclude another purpose which is proscribed, but the primary Judge declined to make any such finding. No basis has been demonstrated for upsetting these findings. 367 In its initial written submissions, ACCC identified the following propositions in the primary Judge's reasons as being of particular relevance: · Gambro was unlikely to invest in production facilities whilst it was prevented from supplying PD products in excess of the stipulated percentages of 10%, in the case of SPAs other than Queensland, and 7.5% in the case of Queensland; · Baxter's conduct had not made it more difficult for Fresenius Kabi to establish a plant for IV and PN fluids or its ability to supply PN fluids; · the existence of bundled contracts had not raised entry barriers in the PD products market; · the correct analysis of competition in the market might be that competition is "for the market" rather than in it; · it was vital to Baxter to ensure maximum throughput of product at its plant; and · the evidence did not justify the inference that the market would operate in the same way in the absence of the impugned conduct so as to enable Baxter to win the PD business. 368 ACCC disputed the finding that the existence of bundled contracts had not raised entry barriers. In this regard it referred to its submissions in connection with the s 46 case at para 40 of its initial submissions. There, ACCC pointed out that Mr Bragg (an employee of Baxter) had said that the size of the PD products market meant that it would not be viable for a competitor to establish a plant in Australia to produce PD products alone. Although this was inconsistent with other evidence, ACCC submitted that it indicated Baxter's attitude to the likelihood of competition. It then asserted that Baxter was able further to raise barriers to entry by making it impossible for a competitor to supply PD products alone. Such a competitor would have to offer the other sterile fluids in order to compete. As to competition "for the market", ACCC submitted that the question did not arise, given the absence of any finding that there was a minimum efficient scale dictating that only one manufacturer should supply the Australian market with PD or sterile fluids. Finally, ACCC asserted that having regard to these various findings, "It is difficult to see how the trial judge reached the conclusion that he did." This is an unsatisfactory basis for upsetting findings of fact. 369 At paras 37-52, in its submissions in answer to the notice of contention, ACCC took the matter somewhat further. As I have previously observed, it did not completely abandon his Honour's focus on the tender process, asserting that properly understood, it involved an assessment of competition in an identified market. I have already rejected that argument. However ACCC alternatively submitted that his Honour erred by focussing on the lack of impact on competitors. I have some difficulty with this argument. His Honour treated as critical the effect of Baxter's conduct upon the tender process, including the effect upon competitors' market shares. Indeed, that is one of my concerns about his reasons. At para 48, ACCC seems to have accepted that the primary Judge erred in seeking to distinguish between the tender process and the "broader framework" of the market, and that the "correct emphasis should have been on the competitive process as a whole". I accept that proposition. 370 At para 49, ACCC submitted that the primary Judge had departed from the "future with and without" test by looking to a market in which purchasers did not use the open tender process. However I understand his Honour to have been saying nothing more than that as things were in the market, competitors could not match Baxter's bundled bids. At paras 49 and 50 ACCC submitted that references to "competition for the market" suggested error in the primary Judge's reasons. However I understand his Honour to have been observing that the Australian market was small, and that Baxter had an advantage, particularly in the sterile fluids market, given its existing capacity to manufacture locally. ACCC submitted that if competition was "for the market", this was as a result of the impugned conduct. That submission implies that without such conduct the position would have been otherwise. No evidence accepted by the primary Judge has been identified as supporting that proposition. 371 ACCC submitted that "While his Honour accepted … that Baxter had an incentive to maintain a minimum throughput at its factory, there was no finding that a smaller scale or more efficient factory for PD or sterile fluids would not be viable …". This seems to assume a burden upon Baxter to justify its conduct. It does little to identify error in his Honour's conclusion that there was no lessening of competition in a relevant market. 372 Finally, ACCC submitted that his Honour's findings at [608] and [629]-[630] were sufficient to satisfy the requirements of "anti-competitive purpose because the impact of Baxter's conduct on the tender process, being the system chosen by the States in the relevant period impeded or hindered the normal operation of the market sufficiently to amount to a substantial lessening of competition in the market …". One difficulty with that approach is that "normal operation of the market" is a term which has no clear meaning in this case. The notion of "normal operation" is further undermined by the reference in para 52 to competition being already weakened by the departure of Abbott. ACCC has not pointed to any respect in which competition in the market was lessened, or to any evidence which might establish such lessening. I have previously questioned the relevance of the SPAs' choice of procurement methods. Again, there is the over-arching problem that the tender process is not the market. 373 ACCC submitted that Baxter's conduct limited competition in the PD products market by preventing competitors obtaining greater shares of it. It has pointed to no evidence to that effect. In any event, that in the absence of Baxter's conduct, competitors may have acquired larger market shares does not lead to the conclusion that competition would probably have been enhanced. Each competitor was a large corporation with no demonstrated intention of leaving the PD products market. That one or other of them may have increased its market share to more than 10% may not have affected competition at all. 374 As to proscribed effect or likely effect, at para 52 of its submissions in reply to the notice of contention, ACCC asserted that the evidence from Fresenius and Gambro demonstrated that Baxter's conduct had been effective "to limit the competitive scope, even for major companies such as those, for so long as the conduct continued to be permitted." In support of this proposition, ACCC referred to paras 38 and 39 of its earlier submissions. The evidence in question, from Mr Mechtersheimer, a senior officer of Fresenius, was that it had decided not to build a PD products plant in Darwin because of Baxter's agreements with the SPAs. At [328] and [635] the primary Judge rejected that evidence. ACCC submitted that such rejection related only to the question of actual effect of Baxter's conduct and not to Baxter's purpose. That may be so, but the evidence did not, in any event, go to Baxter's purpose. The relevant evidence from Gambro was that to have 5% of the PD products market was of no benefit, and that it continued in the market only in order to maintain its presence for long term, strategic reasons. It may be that Gambro's remaining in the market made it harder for ACCC to prove lessening of competition. I can see no other significance in this evidence. 375 None of these matters is of any assistance to ACCC in seeking to demonstrate error in the primary Judge's findings that Baxter had no purpose of lessening competition in any market, and that its conduct did not have that effect or likely effect. In so far as concerns purpose, his Honour's conclusion is too closely based on credibility to be upset on this appeal. As to effect or likely effect upon a relevant market, his Honour considered that question in connection with both the PD products and sterile fluids markets and rejected ACCC's case. That conclusion was based on a detailed examination of a large volume of evidence and also, to some extent, involved findings as to credibility. ACCC has not demonstrated a viable basis for upsetting such findings.

[57]

Section 46 378 I agree that the contention of the Australian Competition and Consumer Commission (the ACCC) that all of the impugned conduct was in breach of s 46(1)(c) of the Trade Practices Act 1974 (Cth) (the Act) should be upheld. The finding of the primary judge that Baxter Healthcare Pty Ltd (Baxter) had a substantial degree of power in the sterile fluids market is not open to any doubt. A substantial degree of power in a market is not the equivalent of monopoly power. Indeed, the Act was deliberately amended in 1986 to lower the threshold. Some of the cases and commentaries need to be read with caution with that in mind. The markets found are narrow in product scope. The finding that the impugned conduct was for the prohibited purpose is open to argument but, for the reasons given by Mansfield J, should not be disturbed. 379 In my respectful opinion, once those findings were made, the facts compel the conclusion that Baxter's conduct was taking advantage of its substantial degree of power in the market for sterile fluids to endeavour to achieve the prohibited purpose in the PD market. As Mansfield J points out, the gist of the case was not that bundling per se was a breach of s 46, but that bundling in conjunction with the alternative offer strategy was. That alternative offer strategy could only succeed because of the substantial market power Baxter held in the sterile fluids market. The existence of any real competition in that market would have constrained Baxter from making the high offers for sterile fluids. 380 The fact that the purchasing authorities, whether by tender arrangements or otherwise, accepted or facilitated the anti-competitive arrangements is beside the point. Each was confronted with the situation in which Baxter had a substantial degree of market power in relation to sterile fluids and had to deal with that situation as best they could. None of the purchasing authorities had anything to do with the prices offered by Baxter as part of its alternative bid strategy. Those prices were kernel of the breach of s 46(1)(c). 381 Baxter contends that its aim was solely to win as much business as it could across the board and that its conduct was directed to achieving that result rather than harming competitors. In my view, that confuses purpose with motive. Baxter's method of winning business in the PD market was to prevent its potential competitors from competing in a meaningful way in that market because of its leverage from the substantial degree of market power it held in the sterile fluids market. The objective of maximising profit can only be achieved if there is compliance with the Act. Since Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177, it has been recognised that the conduct of a party with substantial power in a market may be subject to restraints to which others without power are not (see NT Power Generation Pty Ltd v Power and Water Authority (2004) 219 CLR 90 per McHugh ACJ, Gummow, Callinan and Heydon JJ at [72], [76], [85], [125] and [126]). Even if Baxter did have the purpose of winning as much business as possible, it also had the purpose of deterring or preventing others from engaging in competitive conduct in the PD market. The latter purpose was substantial (s 4F(1)(b)). 382 With respect to the primary judge, I cannot see any distinction in substance between the purpose of Baxter's conduct in relation to South Australia and the purpose of the remainder of the impugned conduct. The objective was the same and remained constant, only the medium was different. 383 I would not disturb the primary judge's finding that there was no breach of s 46(1)(a) for the reasons outlined by Mansfield J.

[58]

Section 47 384 I would dismiss Baxter's arguments against the finding of breach of s 47(1). I agree with the arguments of the ACCC concerning the breach of s 47(1) in relation to the Australian Capital Territory conduct and in relation to entering into and carrying out the supply contracts. 385 The impugned conduct was accepted to be exclusive dealing. That conduct included the alternative offer strategy. The offer at particular prices was central to that strategy (cf s 47(2)(b)). The purpose of that conduct, as found in relation to s 46, was, in effect, to ensure that no alternative supplier could succeed in winning a contract for the supply of PD fluids from a State or Territory purchasing authority - the dominant part of the market. Although the PD market was Australia-wide, the substantial acquirers of the goods were small in number and acquired on a periodic basis. The purchasing authorities of the States and Territories constituted the lion's share of the market on the demand side. The opportunity to obtain a contract to supply PD fluids on a significant scale only occurred infrequently. 386 The purpose of excluding all competitors from effecting supply of goods in a market cannot be distinguished from a purpose of substantially lessening competition in the market for those goods. This is a case where the purpose found has the consequence that the same conduct is a breach of both s 46(1)(c) and s 47(1). Each negotiation - whether by tender or otherwise - was structured by Baxter in the same way - with reliance upon the market power in the sterile fluids market being used to bring about an exclusive or near exclusive arrangement in relation to PD fluids. 387 Furthermore, there was a realistic chance of succeeding in excluding competitors from the PD market contract by contract, so the conduct was likely to have the effect of substantially lessening competition in that market. The primary judge was right to so find (see Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2005] FCA 581, (2005) ATPR 42-066 at [629]). Indeed, the fact is that competitors were unable to make any substantial inroads in the PD market during the period in question. 388 Baxter submitted that the primary judge looked at each tender separately from all others. It followed, it was contended, that the result was wrong as no one tender would, or would be likely to, substantially affect competition in the Australia-wide PD market and that conduct connected with an individual tender would not have had that purpose. 389 I do not agree that the primary judgment should be understood so narrowly. Each tender was considered. However, the context relevant to each was the structure of the market, with the dominant purchasers letting contracts periodically, usually by tender and usually covering various categories of fluids. Each of the contracts on offer was significant in terms of volume and period. Business on that scale only came along every so often. It was important for the PD market that each such opportunity was subject to serious competition. In this case, the working of the competitive process in that market was distorted by the exclusive dealing across markets that was made possible by the substantial market power held by Baxter in the sterile fluids market. As his Honour said (ACCC v Baxter [2005] FCA 581, (2005) ATPR 42-066 at [625]): "The competitive process here was the tender system used by the States." 390 If I have read the primary judgment wrongly, and the reasoning was solely based upon considering each tender as a self-contained process without regard to the structure of the market or markets and how it or they operated, then I respectfully disagree with that reasoning. However, I would dismiss Baxter's appeal as the same result would follow from a correct assessment of the conclusions to be drawn from the primary facts. 391 Substantially lessening competition is not the same as monopolising a market and is not to be judged only on a quantitative basis. Conduct which hindered (s 4G) competitors from making realistic offers to significant customers in the PD market was likely to substantially lessen competition in that market. In each negotiation, Baxter used its market power in the sterile fluids market to achieve exclusive dealing by means of bundling to endeavour to snuff out competition as it threatened in the PD fluids market. Viewed in context, interference in competition for each relevant contract by freezing out realistic competitive offers could be seen as being likely to substantially lessen competition in the PD market. That conclusion is assisted in relation to effect and likely effect by the application of s 47(10)(b). See the analysis in Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at [122]-[133], and on appeal, Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [36]-[46]. For relevant purposes, there is no distinction between s 45 and s 47 for the element of substantially lessening of competition. See also Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at [256]-[274]. 392 None of the foregoing should be confused with what the primary judge called the case at a high level of generality concentrating on long term structural effects on the market, apart from the operation of what the primary judge called the tender process. The rejection of that aspect of the case has no consequences in relation to the case based upon conduct in relation to the successive procurements during the relevant period. 393 Whilst what the primary judge said about tenders and the tender process was correct as far as it went, it did not fully reflect the case pleaded by the ACCC which was not limited to tenders as such. The use of a variation of the alternative offer strategy in the context of a negotiated agreement is no different in principle from that strategy being used in the tender process, provided that exclusive dealing is involved. There is no difficulty in the judge having taken a narrower view of the contravening conduct than was pleaded, but to do so was not to give full force and effect to the case of the ACCC. If the primary judge had used the term "procurement process" rather than "tender process", the scope of the ACCC's case would have been picked up. In my opinion, the ACCC is correct in submitting that the essential features which cause the conduct in relation to the tenders to be in breach of s 47(1) were also present in the negotiations leading to, and the finalisation of, the Australian Capital Territory contract on the facts that were found by the primary judge as to that issue. Baxter insisted on a condition that it be sole supplier of all categories within the contract (exclusive dealing), and threatened to and purported to raise the prices for sterile fluids to achieve that result (s 47(2)(d)). The existence of a contractual dispute about the matter does not detract from that conclusion. That business was substantial in itself and was to be seen together with the other impugned conduct. The purpose, likely effect and effect of that conduct cannot be distinguished from that in relation to the impugned conduct as to procurement by the other State or Territory purchasing authorities. 394 Baxter again submitted in this context that its aim or purpose was solely to win as much business as it could across the board, that it structured its offers accordingly and that, in any event, it was responding to the structure proposed by the acquirers. Those arguments were rejected in relation to breach of s 46(1)(c) and should be rejected in this context. In the usual case, they might be an answer to a s 47 claim. There would normally be no problem in a purchaser - even a substantial purchaser - letting an exclusive requirements contract for a lengthy period, provided that the process is competitive. The problem here is that the process was not competitive for PD products - Baxter had a lock on the PD business because of the way the requirements contracts were negotiated and structured as far as price was concerned, achieved by reason of its power in the sterile fluids market. Further, these arguments go to the issue of purpose and are no answer to the finding by the primary judge that the conduct of Baxter was likely to have the effect of substantially lessening competition. 395 It was submitted for Baxter that it was not established that any exclusive dealing by Baxter caused any lessening of competition in the PD fluids market. That conduct did not prevent or constrain any other party from making any offer for the supply of PD fluids that it chose. That argument overlooks the constraining effect of the particular form of exclusive dealing (involving the sterile fluids market as well as the PD market and the particular prices offered) upon the purchasing authorities. It would, in any event, not be an answer to the case based upon purpose, and would only be tangentially relevant to the case based upon likely effect. 396 Baxter objects to the use made by the primary judge of the evidence of Professor Nalebuff in considering s 47 as it was either inadmissible or of no probative value. The relevant passage in the primary judgment is as follows (ACCC v Baxter [2005] FCA 581, (2005) ATPR 42-066 at [629]): "Assisted by the exclusionary bundling test of Professor Nalebuff, the price squeeze test of Mr Ergas, the examples of contemporaneous analysis by the SPAs and by common sense, the likely effect at the time of the offering to supply (see Universal Music at [247]) was to hinder substantially the tender process of PD products in the way that I have identified in dealing with purpose." It is clear enough that the same conclusion would have been reached without the evidence of Professor Nalebuff. 397 In my opinion, the ACCC is correct in submitting that, consistently with the reasoning of the primary judge, making and giving effect to the impugned contracts was a breach of s 47 and, perhaps, the primary breach. It is likely that his Honour would have so found were it not for the Bradken complication. The reasons of Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ in the High Court in this case (Australian Competition and Consumer Commission (ACCC) v Baxter Healthcare Pty Ltd (2007) 237 ALR 512, (2007) 81 ALJR 1622 at [44]-[48] and [76]) effectively remove that complication and indicate that the fact that the other party to a contract is a State or Territory would not relieve Baxter from breach of the Act, although the question of relief would require consideration. 398 I agree that the parties should be heard as to the form of relief.

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