31 It is accepted in the joint submission that the withholding of the supply referred to above, for the reason referred to above, involved contravention of s 48 of the Act, by reason of the operation of s 96(3)(d)(ii) of the Act. The instances of Sundaze making it known to the persons referred to above that it would not supply Oakley sunglasses to those persons unless they agreed not to sell Oakley sunglasses at less than the recommended retail price specified by Sundaze, involved contraventions of s 48 of the Act by reason of the operation of s 96(3)(a) of the Act. The inducements or attempts to induce referred to in my reasons above involve contraventions of section 48 of the Act, by reason of the operation of section 96(3)(b).
32 The contraventions involved the senior management of Sundaze. The contraventions occurred over a period of at least 10 years. In particular, one contravention admitted by Sundaze occurred after the Commission filed the application in the present proceedings. The first respondent accepts that its conduct involved serious breaches of the Act.
33 In Trade Practices Commission v Annand and Thompson Pty Ltd (1987) ATPR ¶40-772, I referred to a number of factors as relevant to the assessment of penalty for contraventions of s 48 of the Trade Practices Act, namely:
(a) Whether or not the conduct was deliberate;
(b) Whether damage was caused by the conduct to the public or to the retailer;
(c) The size of the corporation's activity in the relevant market;
(d) The degree to which the conduct was initiated or condoned by senior management;
(e) What steps were taken by the employer to educate its employees prior to the contraventions;
(f) The existence or otherwise of a policy by the corporation against breaches of the provisions of the Act;
(g) Whether the conduct was the result of a mistake on the part of an employee;
(h) Whether there has been similar conduct in the past;
(i) Whether, since the occurrence, controls over employees, particularly sales personnel, have been increased or improved to prevent a repetition of the conduct; and
(j) Whether the corporation has made a full and frank disclosure and co-operated with the Commission.
34 In Trade Practices Commission v CSR Ltd (1991) ATPR ¶41-076 at 52,152-52,153, French J referred to a number of factors to which reference had been made in cases to which he referred. Those factors were:
" 1. The nature and extent of the contravening conduct.
2. The amount of loss or damage caused.
3. The circumstances in which the conduct took place.
4. The size of the contravening company.
5. The degree of power it has, as evidenced by its market share and ease of entry into the market.
6. The deliberateness of the contravention and period over which it extended.
7. Whether the contravention arose out of the conduct of senior management or at a lower level.
8. Whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
9. Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention."
35 It is clear that the object of the penalty under s 76 is deterrence. It is also clear that it is for the Court to determine whether the contraventions have occurred, and what pecuniary penalties or other relief should be ordered. It is not the case that the Court accepts a penalty that has been agreed between the Commission and a respondent. Any agreement between the ACCC and a respondent as to the appropriate penalty, or appropriate range of penalties, is highly relevant to what the Court ought to impose by way of penalty, but in no way is the Court dictated to by any such agreement between the parties; nor is the penalty imposed by anybody other than the Court.
36 The maximum penalty for each act or omission in contravention of Part IV of the Trade Practices Act is, in the case of a corporation, $10 million: (s 76(1A)(b)). These penalties apply to acts or omissions after 31 January 1993. For acts or omissions that occurred prior to that time, the maximum penalty for each contravention, in the case of a corporation, is $250,000.
37 Having regard to the factors that have been earlier set out, it is correct to note, as the parties have in their joint submission, that in relation to the question of whether the conduct was deliberate or not and the period over which it extended, I observed in Trade Practices Commission v Annand and Thompson (supra) at ¶40-773:
"…[the Act's]…object is to create conditions benefiting the public from traders competing with one another. In particular, the competition in the market is to be unfettered by price restraints imposed by suppliers on retailers of goods."
38 Oakley sunglasses are sold in the Retail Market in the range between $79.95 to $239.95. The sunglasses are promoted as "prestigious, exclusive…premium product[s] which [are] at the top end of the range of action related, sports-oriented sunglasses and which are worn by people who perceive themselves to be successful, highly active people…". The manufacturer and Sundaze have a policy of promoting Oakley sunglasses in Australia predominantly by means of product endorsement from high profile, successful athletes.
39 Mr Horton told shop proprietors that "Oakley doesn't like its products being discounted"; "what we are trying to do is make prices for Oakley uniform across the country…". Mr Thomson, in relation to a prospective customer of Sundaze for the supply of Oakley sunglasses felt that he was "…able to assure [them] that we only sell to quality optical outlets and surf shops which will not discount the product…".
40 Sundaze's managing director and its national marketing manager themselves perpetrated instances of the conduct which is the subject of the application.
41 In August 1992 the Commission wrote to Sundaze in relation to two matters. First, Sundaze's refusal to supply Sunglass World for the reason that Sunglass World was likely to sell Oakley sunglasses at a price less than its recommended retail price; (that is, the allegation in paras 44-48 of the amended statement of claim filed 9 July 1998). Secondly, Sundaze's inducement of Visions Specialists not to sell the sunglasses at less than Sundaze's recommended retail prices, and Sundaze's making it known to Vision Specialists that it would not supply the sunglasses unless it agreed not to sell them at a price less than its recommended retail prices; (that is, the allegations referred to in paras 36-43 of the amended statement of claim). With its letter the Commission enclosed a copy of the resale price maintenance provisions of the Trade Practices Act. Sundaze, at that time, denied the conduct the subject of the Commission's investigation. The denial was made by Mr Perry himself, and included a denial of the conduct perpetrated by him personally in relation to Sunglass World. Notwithstanding that the Commission investigated the complaint and advised Sundaze that it had decided not to pursue it further, there can be no question that Sundaze was aware of the subject conduct at the time of the Commission's investigation in 1992.
42 The present application by the Commission is concerned with, amongst others, nine contraventions of s 48 of the Act, which occurred after the correspondence between the Commission and Sundaze in August 1992.
43 In March 1995 the Commission again wrote to Sundaze concerning allegations made against it in relation to contraventions of s 48 of the Act. Sundaze again denied the allegations, although it said that it was aware of the resale price maintenance provisions of the Act and that it "appreciates that it cannot specify to retailers a price below which they cannot sell Oakley products…" Notwithstanding this, the conduct the subject of the application continued even after the filing of the application.
44 In relation to the nature and extent of the contravening conduct, the evidence indicates that instances of the contravening conduct occurred in the period from 1987 to 1997 in Brisbane, on the Sunshine Coast in the State of Queensland, in south east Queensland, and in the States of Victoria and South Australia.
45 In relation to the damage caused by the conduct to the public and to retailers, and as to the quantum of such loss or damage, the evidence establishes that between 1986 and 1991, Sundaze had established accounts with approximately 750 stores whom it regarded as "authorised Oakley dealers". In 1991 Sundaze said that the average retail price in Australia for a style of Oakley sunglasses called "Razor Blades", with "iridium lenses", was $169.95. At the time that Sundaze moved the Court for an injunction to restrain Sunglass World from selling Oakley sunglasses which it had purchased from the Retail Market and from overseas sources, Sunglass World was selling the "Razor Blades" sunglasses in its retail shops for $114.95, $91.95, $136.00 and $91.96. At all times during which Sunglass World traded prior to the sale of its business in 1994, it was denied supply of Oakley sunglasses by Sundaze and, consequently, at all (except insofar as it purchased from the Retail Market and from overseas sources). Had it been able to obtain supply of Oakley sunglasses, it estimates that its eighty-one retail stores around Australia would have sold between 50,000 and 75,000 pairs of Oakley sunglasses per annum. Its marketing strategy was to generate a high volume of sales by offering low retail prices. Sunglass World was the largest retailer of sunglasses in Australia. At the material times, Sunglass World sold approximately 30% of the sunglasses sold by retail in Queensland. Consumers were deprived of the opportunity to purchase Oakley products at reduced prices through Sunglass World, and Sunglass World was denied the opportunity to profit from the sale of Oakley products. Whilst Sunglass World was a significant retailer of sunglasses, the affidavits filed by Sundaze show that, during the relevant period in Queensland, there was discounting taking place. This discounting involved some outlets of the Bright Eyes franchise.
46 The conduct had the effect of preventing the retail sale of Oakley sunglasses, at prices less than the recommended retail price specified from time to time by Sundaze, by the thirty-six shops in Victoria, New South Wales, South Australia and Queensland which traded as "Vision Specialists" between 9 October 1991 and 31 August 1992. The conduct also prevented, at material times, retail sales of Oakley sunglasses, at prices less than the recommended retail price specified from time to time by Sundaze, by any of the sixty retail stores trading around Australia as "Bright Eyes". This group of retail shops sold approximately 10 per cent of the sunglasses sold in Queensland at the material times.
47 The conduct also resulted in a chain of optometrists shops owned by OPSM, and trading in the State of Victoria as "Coles & Garrard", having a policy in 1991 and 1992 which precluded it from selling Oakley sunglasses at less than the recommended retail price specified by Sundaze.
48 Even where the conduct failed to eradicate price competition in relation to Oakley sunglasses in the Retail Market, it resulted in the suppression of the advertising of it, which has the consequence of diminishing that competition in any event. From March 1994, as a result of the conduct, Precision Eyewear, which trades in thirty retail shops in south east Queensland and sells approximately 10 per cent of all sunglasses sold in Queensland, directed all of its stores to remove signage offering discount prices on Oakley sunglasses.
49 Oakley sunglasses were, at material times, extremely popular with consumers in the fifteen to twenty year-old age bracket, and accounted for up to 60 per cent of the premium sunglass market for that age group.
50 Sundaze exists solely because of the distribution agreement which it has with Oakley Inc, which allows it to distribute Oakley sunglasses and accessories throughout Australia.
51 Sundaze's restrictions on price competition by retailers were not limited to large concerns, but extended to certain small businesses, affecting their ability to compete in the Retail Market. Oakley sunglasses were, at all material times, a significant product in the Retail Market and, as stated above, are very popular among teenagers and young adult consumers. By reason of Sundaze's status as the sole Australian distributor of Oakley sunglasses, it was able to effectively dictate to the enterprises affected by the conduct, the price at which they would sell Oakley sunglasses in the Retail market.
52 The fact of a supplier's exclusive position over the supply of particular goods that it was selling was taken into account in assessing penalty in Trade Practices Commission v Bamix Australia Pty Ltd (1985) ATPR ¶40-534.
53 Notwithstanding the conduct admitted by Sundaze, it is clear from the Retailer affidavits that some outlets considered themselves free to, and in fact did, discount the price of Oakley products. In some cases these discounts ranged from 10 per cent up to as much as 50 per cent. The outlets which engaged in this practice included several outlets from the Bright Eyes franchise chain. Thus, the overall effect of Sundaze's conduct on the market place is arguably mitigated by the preparedness of these retailers to discount the price of Oakley products. As in Trade Practices Commission v Bamix Australia Pty Ltd, it is not possible to quantify the loss or damage suffered as a result of the conduct of Sundaze.
54 One matter which has troubled me concerning the suggested pecuniary penalties, is the size of Sundaze's activity in the relevant market and its size as a company. Sundaze is not a large company. As at 31 January 1999 its net assets were worth $6.5 million, and as at 30 June 1998 its net assets were worth $5.7 million. As at 30 June 1998, Sundaze had cash reserves of $2.5 million and an overdraft balance of $1 million. Sundaze's sales revenues as at 31 January 1999 were $19.3 million and its gross profit was $5 million. As at 30 June 1998, Sundaze sales revenues were $20.1 million and its gross profit was $4.7 million. The only activity of Sundaze over the period 1994 through to 1998 was the distribution of Oakley sunglasses.
55 This aspect of the matter makes it plain that a total of pecuniary penalties of $500,000 is a very significant penalty and, but for the agreement between the parties, I would have to say that the total of the pecuniary penalties which the parties have agreed as appropriate would be at the higher end of the total of penalties I would have imposed, uninformed of the view of the parties.
56 Oakley Inc terminated its agreement with Sundaze (which conferred exclusive distribution rights) in September 1998. Sundaze faces an uncertain future, to the extent that it does not have a binding agreement with Oakley Inc. Sundaze envisages that it will face pressure on gross margins from Oakley Inc.
57 It is clear that pecuniary penalties totalling $500,000 would have a major impact on Sundaze's profitability, and it cannot be doubted that penalties totalling that amount will operate as a very significant deterrent to Sundaze in engaging in a repetition of the conduct admitted in these proceedings.
58 It is also the case that the contravention arose out of conduct at senior management level. Since Sundaze's incorporation, Mr Perry has been Sundaze's managing director. When approached by the managing director of Sunglass World in relation to the supply of Oakley sunglasses by Sundaze to Sunglass World, and when told that Sunglass World was a "discounter", Mr Perry told him that "based on what you told me today, we don't need a company like yours in our business. There is no point in discussing it further". Both Mr Perry and Ms Kempsey, the national marketing manager, have told retailers who were negotiating with Sundaze for the supply of Oakley sunglasses that "your account will be closed if there is any discounting". The conduct was engaged in by the managing director of Sundaze and one of its most senior employees.
59 The joint submission suggests that there have been attempts made to educate employees of Sundaze prior to the contraventions. According to Mr Perry, as at 10 October 1996, staff of Sundaze had been provided with a manual relating to the Act. This manual was prepared by Sundaze's solicitors. In addition, in 1996 a Trade Practices lecture was conducted for employees and representatives of Sundaze. It is to be noted, however, that there were no previous educational programs regarding compliance with the Act. For example, from 1987 to 1991, the person responsible for servicing retailers who held Oakley accounts with Sundaze, and for attempting to establish new accounts with retailers, in the area of Ballina in the State of New South Wales to Port Douglas in the State of Queensland, had not at any time been advised of the provisions of the Act by anyone from Sundaze.
60 Sundaze has indicated that it has introduced a compliance program. Sundaze has, as a result of the present application, agreed with the Commission that it will maintain and upgrade the program and keep its employees informed of obligations under the Act and amendments to it.
61 It is clear that the instances of the conduct which occurred from 1987 to 1997 in various parts of Queensland, Victoria, and South Australia, were not the result of a mistake on the part of a single employee. It is also clear that the conduct did not simply occur on an isolated occasion.
62 Sundaze has never been the subject of a previous application for a pecuniary penalty under the Act, and it is accepted in the joint submission that it has introduced a compliance program in relation to its obligations under the Act, and has agreed to maintain and upgrade the program to keep its employees informed of these obligations. However, it is relevant to note that in August 1992 and March 1995 the Commission drew to Sundaze's attention allegations of the conduct which is now before the Court. Sundaze then denied it had engaged in conduct in contravention of the Act. All the contraventions before the Court, except those referred to at paragraphs 36 to 48 of the statement of claim, occurred after the Commission requested Sundaze's response to those allegations.
63 Mr Perry, as well as Ms Kempsey, who was the national sales manager of Sundaze at all material times, and Mr Horton, who was in 1994 and 1995 an agent for Sundaze for the distribution of Oakley products for Queensland and northern New South Wales, were examined pursuant to s 155(1)(c) of the Act. When the allegations comprising the contraventions now before the Court were put to them, they gave evidence that they either did not recall the incidents, or their basis for denying them previously.
64 After a series of extensive negotiations both before the filing of this application and since, the position now is that Sundaze has admitted it engaged in the resale price maintenance conduct and, by its amended defence filed 11 November 1999, has admitted the allegations in the amended statement of claim. This co-operation has resolved the proceedings and saved the expense of what would have been a very lengthy trial.
65 In the light of the facts and circumstances detailed above, the Court is minded to impose the penalties which the parties suggest would be appropriate.
66 I find the contraventions alleged in the amended statement of claim filed 9 July 1998 proved. In respect of the withholding of supply of Oakley sunglasses to Sunglass World Pty Ltd as alleged in par 45 of the amended statement of claim, I impose a pecuniary penalty of $120,000. In respect of the contravention of the Act alleged in par 60 of the amended statement of claim relating to attempts to induce the proprietor of a store in South Australia not to sell Oakley sunglasses at a price less than that specified by Sundaze, being the Sundaze's recommended retail sale price, I impose a pecuniary penalty of $65,000.
67 In respect of each of the other nine contraventions of the Act, in each case I impose a pecuniary penalty of $35,000. The total of the pecuniary penalties is $500,000. I make it plain that the orders that I make are not accurately to be described as consent orders. The parties have submitted that the Court should note, and I do, that it is said that Sundaze will improve its compliance program which is designed to promote its and its directors', officers', and other employees' and agents' compliance with the provisions of the Trade Practices Act.
68 I order that Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from making it known to any person that Sundaze Australia Pty Ltd will not supply sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", to that person unless that person agrees not to sell such goods at a price less than a price specified by Sundaze Australia Pty Ltd.
69 I further order that Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from inducing, or attempting to induce, any person not to sell, at a price less than a price specified by Sundaze Australia Pty Ltd, sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", supplied to that person by Sundaze Australia Pty Ltd or by a third person who, directly or indirectly, has obtained such goods from Sundaze Australia Pty Ltd.