Too harsh?

So, this guy comes into your shop, wants his widget repaired.

"Like to help", you say, "thing is, we're not taking on repairs any more, we're selling out to WidgeCorp, here's their number, they'll see you right".

An innocuous scene from everyday commercial life? Not if the deal with WidgeCorp falls through.  In the meantime you may have been party to an agreement to divvy up the market with WidgeCorp. You've been anti-competitively "jumping the gun", as the competition authorities call it.

Which is where Cryosite, an Aussie company which banks umbilical cord blood and its potentially useful stem cells, found itself last month (ACCC announcement here, the case here). Its sale to Cell Care fell through, but as part of the deal it had agreed to stop competing and to refer all new business to Cell Care. It got pinged A$1 million plus A$50K costs. It can easily happen in New Zealand too: here is the Commerce Commission response to the Waikato pathology services case in 2010 and the case itself.

Yes, it wasn't the right thing for Cryosite to do. As ACCC Commissioner Sarah Court said in the ACCC release, "This outcome should be a strong reminder to competing companies that they must conduct themselves at arm’s length until a deal has been completed".

And yet I looked at the level of penalties, and wondered. Cryosite is ASX-listed, and you might think it's a decent sized corporate who will (properly) feel the hit, but can carry on. Cryosite, though, is among the micro-est of microcaps (A$2.1 million market capitalisation), is making an operating loss, and the judge was obliged to put the penalty on the never-never ($200K upfront, the rest in 10 equal  annual instalments out to 2029).

The penalty looked on the tough side to me. And maybe that's the ACCC's intention. As chair Rod Sims said in a speech last year, "we need higher penalties for CCA [their Commerce Act] breaches to raise the cost of them ... Over the next year you can expect the ACCC to take even more enforcement action, and to take a firmer stance on sanctions and penalties with a view to making an even greater impact on compliance".

It may be, too, that the pair of them had got offside with the ACCC with their proposed merger: as the chair of the ACCC said about the merger at the time, "While parties are not obliged to approach the ACCC for clearance, it is concerning that an acquisition in a highly concentrated market such as this would not prompt the parties to contact the ACCC". And it didn't help that Cryosite banked a A$500K non-refundable deposit as part of the proposed merger. That was a standard "no timewasters please" investment banking mechanism which Cryosite would have got irrespective of whether the merger materialised and irrespective of any "gun jumping". To my mind it should not have been characterised as a gain from the conduct, but you can see how people might have reckoned it should have gone into the penalty balancing exercise. There may be other wheels within wheels, too, as yet not vouchsafed unto us.

On what we've seen, though, this looks like a rather harsh rap on the knuckles. I'm all for throwing the book at brazen anti-competitive conduct - like the Japanese shipping lines' cartel on cars into Australia - and I was pleased to see an unapologetic cartelist get its penalty quintupled after an ill-advised appeal. But I'm not sure that context is getting enough of a hearing in less shameless breaches of competition law, a local example being the real estate agents backed into a collusive corner by a large threatened rise in TradeMe listing fees.

I suspect we'll be hearing a lot more about the appropriateness of penalties. It has already made for a lively session at last year's CLPINZ workshop and is on the agenda for the Commerce Commission's 'Competition Matters' conference in July. I'm looking forward to what I think will be a robust exchange of views.