After seven-year battle, regulator bundles out Baxter Healthcare * Ari Sharp
* August 16, 2008
THE Australian Competition and Consumer Commission has had success in its seven-year legal stoush with Baxter Healthcare over claims the company was abusing market power by bundling products it sold to state governments.
The ruling in the full Federal Court caps off a pair of victories for the competition regulator, with the latest finding on product bundling following an earlier High Court ruling that the involvement of state governments did not offer Crown immunity.
The contracts related to bundling the supply of sterile fluids with peritoneal dialysis products used by people with kidney failure.
The court found that Baxter, the sole supplier of sterile fluids, had taken advantage of its market power to structure the terms on which it offered contracts to supply governments in NSW, Queensland, South Australia and Western Australia.
Baxter required the authorities also to buy peritoneal dialysis products — a market in which Baxter faced competition — if they wanted lower prices.
The court found that Baxter's purpose in leveraging its market power in sterile fluids was to deter or prevent competitors from being competitive in the supply of peritoneal dialysis products, breaching section 46 of the Trade Practices Act.
In his judgement, Justice Roger Gyles said: "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 (peritoneal dialysis) fluids market."
Baxter argued it was merely responding to the tender conditions as requested by state governments, but ACCC chairman Graeme Samuel challenged the attempt to shift blame from the company.
"Let me be clear, it was Baxter's purpose and its alone to deter or prevent competitors from being competitive by its bundling strategy and to lessen competition," Mr Samuel said.
In May 2005, Federal Court justice James Allsop found Baxter's actions would have breached sections 46 and 47 (governing exclusive dealing) of the Trade Practices Act, but found the act did not apply to Baxter in its dealings with governments because of the principles of Crown immunity, or derivative Crown immunity.
But despite Baxter having the governments of NSW, WA and SA in its corner, two years later the High Court upheld an ACCC appeal. The court found that Baxter was subject to the act and it referred the matter to the full Federal Court.
Baxter Asia Pacific regional president Gerald Lema said the ruling could drive up government procurement costs.
"Organisations will have to change the way they respond to government tenders, which may or may not lead to price increases for vital supplies," he said.
A Federal Court judge will now consider penalties and other relief.
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