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It has been 40 years since the last significant changes were made to competition laws in Australia. However the result of recent changes has some positive implications for franchisors.

The Harper Review, being the outcome of the Competition Policy Review in 2015 made recommendations for changes to the Competition and Consumer Act 2010 (Cth) (Act).

Amongst the changes, one addresses a particular issue franchisors have had. Third line forcing will no longer be prohibited outright.

Third line forcing is a form of exclusive dealing where a party requires a purchaser to buy goods or services from a particular third party, or refuses to supply the goods or services because the purchaser will not agree to that condition. This practice has to date been prohibited, irrespective of any effect on competition.

In the franchise context, it was unlawful for a franchisor (as the provider of goods and/or services) to require franchisees to buy particular goods or take certain services from a third party supplier.  Eg.  To promote buying power or obtain consistency, requiring all franchises to utilise one insurance provider or buy all hamburger buns from one wholesale baker.

Third line forcing going forward

The removal of this absolute prohibition will allow third line forcing to take place, provided its effect does not result in a substantial lessening of competition test.  This is a common and well known test and includes considerations of whether the conduct has a ‘real’ or ‘weighty’ impact on competition in a particular market.  If not, then third line forcing is allowed.

Impact on franchisors

Up until the introduction of these changes, franchisors have not been able to place any tight restrictions on who their franchisees purchase goods or services from, unless prior notification has been given to the ACCC and accepted.

This change to the Act is a positive outcome for franchisors who are setting up a franchise portfolio or wishing to quickly expand their franchise portfolio and ensure that their franchisees provide consumers with the same experience, irrespective of which store they enter.

When will this change take effect?

The changes will take effect in approximately mid November (although there is a 6 month automatic start, if not proclaimed earlier).

For more information on anti competitive conduct generally or how third line forcing is currently dealt with in your franchise arrangements, please contact Paul Kirton.

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Third line forcing no longer prohibited

02 November 2017

It has been 40 years since the last significant changes were made to competition laws in Australia. However the result of recent changes has some positive implications for franchisors.

The Harper Review, being the outcome of the Competition Policy Review in 2015 made recommendations for changes to the Competition and Consumer Act 2010 (Cth) (Act).

Amongst the changes, one addresses a particular issue franchisors have had. Third line forcing will no longer be prohibited outright.

Third line forcing is a form of exclusive dealing where a party requires a purchaser to buy goods or services from a particular third party, or refuses to supply the goods or services because the purchaser will not agree to that condition. This practice has to date been prohibited, irrespective of any effect on competition.

In the franchise context, it was unlawful for a franchisor (as the provider of goods and/or services) to require franchisees to buy particular goods or take certain services from a third party supplier.  Eg.  To promote buying power or obtain consistency, requiring all franchises to utilise one insurance provider or buy all hamburger buns from one wholesale baker.

Third line forcing going forward

The removal of this absolute prohibition will allow third line forcing to take place, provided its effect does not result in a substantial lessening of competition test.  This is a common and well known test and includes considerations of whether the conduct has a ‘real’ or ‘weighty’ impact on competition in a particular market.  If not, then third line forcing is allowed.

Impact on franchisors

Up until the introduction of these changes, franchisors have not been able to place any tight restrictions on who their franchisees purchase goods or services from, unless prior notification has been given to the ACCC and accepted.

This change to the Act is a positive outcome for franchisors who are setting up a franchise portfolio or wishing to quickly expand their franchise portfolio and ensure that their franchisees provide consumers with the same experience, irrespective of which store they enter.

When will this change take effect?

The changes will take effect in approximately mid November (although there is a 6 month automatic start, if not proclaimed earlier).

For more information on anti competitive conduct generally or how third line forcing is currently dealt with in your franchise arrangements, please contact Paul Kirton.