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Partner
Writer
Direct Line
Our Reference
Malcolm McBratney
Emma Weedon
0732338911
EJW:MJM: 109800-00098
Registered Post
FILE No:
DOC:
MARSIPRISM.
McCULLOUGH ROBERTSON
26 June 2007
Adjudication Branch Australian Competition & Consumer Commission PO Box 1 199 DICKSON ACT 2602
l a w y e r s
Success. In business
Level I I Central Plaza Two 66 Eagle Street Brisbane Qld 4000
GPO Box 1855 Brisbane Qld 400 1 Australia
Telephone 07 3233 8888 Internat ional + 6 17 3233 8888
Fax 07 3229 9949
Ausdoc DX 158 Brisbane Ernai l [email protected]
www.rnccullough.corn.au
ABN 42 72 1 345 95 i
Dear SirIMadam
FORM G NOTIFICATION AND SUBMISSIONS LODGED BY WILSON HTM LIMITED
We act for Wilson HTM Limited.
We enclose our client's Form G Notification, submissions, annexures and our cheque for the $1,000 filing fee.
Please contact us if you have any queries or require any further information.
Malcolm McBratney Partner
enclosure 1434399vllS2
Partners Brett Heading Tim Whitney Peter McKnoulty Michael Wynter Guy Humble James Peterson Peter Kennedy Rodney Bell
Ian Hazzard Stephen Jones Peter Stewart Brad McCosker Tony Cotter Dam~en Clarke Ann Fitzpatrick Dominic McGann
Bill Morrissey Scott Wedgwood Stuart Macnaughton Brad Russell Sean Robertson Malcolm McBratney Mark West Matthew Burgess
Tony Stumm Helen Davis Timothy Longwill Diana Lohrisch Mark Foy Trudy Naylor Russell Thirgood Derek Pocock
Special Counsel Prof Jeff Mann Peter Gill Sophie Ward Kim Trajer Dav~d Marschke Tracey Moore Lisa Nardone
Consultants Kerry Prior AM Prof Paul von Nessen Prof Peter Little Prof Myles McGregor-Lowndes Donald Palmer Jay Deeb Julie Withey Dr Amanda McBrarney
Form G Commonwealth of Australia
Trade Practices Act 1974 - subsection 93 (I) NOTIFICATION OF EXCLUSIVE DEALING
To the Australian Competition and Consumer Commission:
Notice is hereby given, in accordance with subsection 93 (1) of the Trade Practices Act 1974, of particulars of conduct or of proposed conduct of a kind referred to subsections 47 (2), (3), (4), (5), (6) , (7), (8) or (9) of that Act in which the person giving notice engages or proposes to engage.
PLEASE FOLLOW DIRECTIONS ON BACK OF THIS FORM
1. Applicant
(a) IVame of person giving notice: (Refer to direction 2)
Wilson HTM L t d ACN 0 1 0 529 665 ..........................................................................................................................
(b) Short description of business carried on by that person: (Refer to direction 3)
Wilson HTM L td g r a n t s t o t h i r d p a r t i e s f r a n c h i s e s ................................. , ...................................................................................... t o oDen a Wllson HTM o f f i c e . m o s t l v t h r o u s h o u t .............. t ................................................................................... ....................... Queens l and and Nor the rn ~ e w ' Sou th i a i e s ..........................................................................................................................
(c) Address in Australia for service of documents on that person:
C / - Emma Weedon S o l i c i t o r McCullough Rober t son ............................................ f ............................ f . . ............................................ Lawyers, L e v e l 11, 66 E a g l e S t r e e t , B r i s b a n e , .......................................................................................................................... Q u e e n s l a n d , 4 0 0 0 ..........................................................................................................................
2. Notified arrangement
(a) Description of the goods or services in relation to the supply or acquisition of which this notice relates:
See a t t a c h e d ..........................................................................................................................
Page 1 of 5
(b) Description of the conduct or proposed conduct:
See attached ..........................................................................................................................
.......................................................................................................................... (Refer to direction 4)
Persons, or classes of persons, affected or likely to be affected by the notified conduct
(a) Class or classes of persons to which the conduct relates: (Refer to direction 5)
Wilson HTM Ltd's franchisees in Australia ..........................................................................................................................
(b) Number of those persons:
(i) At present time:
(ii) Estimated within the next year: (Refer to direction 6)
Nil ..........................................................................................................................
(c) Where number of persons stated in item 3 (b) (i) is less than 50, their names and addresses:
MMW Holdings Pty Ltd ACN 100 505 235 .......................................................................................................................... Address: Level 16, 2 Corporate Court, ..........................................................................................................................
Bundall QLD ................................................... !. ..................................................................... (currently operates 5 Wilson HTM franchises) ..........................................................................................................................
Page 2 of 5
4. Public benefit claims
(a) Arguments in support of notification: (Refer to direction 7)
See attached ..........................................................................................................................
(b) Facts and evidence relied upon in support of these claims:
See attached ..........................................................................................................................
Market definition
Provide a description of the market(s) in which the goods or services described at 2 (a) are supplied or acquired and other affected markets including: significant suppliers and acquirers; substitutes available for the relevant goods or services; any restriction on the supply or acquisition of the relevant goods or services (for example geographic or legal restrictions): (Refer to direction 8)
See attached ..........................................................................................................................
Public detriments
(a) Detriments to the public resulting or likely to result from the notification, in particular the likely effect of the notified conduct on the prices of the goods or services described at 2 (a) above and the prices of goods or services in other affected markets: (Refer to direction 9)
See attached ..........................................................................................................................
(b) Facts and evidence relevant to these detriments:
See attached ..........................................................................................................................
Page 3 of 5
7. Further information
(a) Name, postal address and contact telephone details of the person authorised to provide additional information in relation to this notification:
Please re fe r t o paragraph 1 (c) ..........................................................................................................................
Dated.. ............................................ a6 June 2007 .................
(Position in Organisation)
Page 4 of 5
DIRECTIONS
1. In lodging this form, applicants must include all information, including supporting evidence that they wish the Commission to take into account in assessing their notification.
Where there is insufficient space on this form to furnish the required information, the information is to be shown on separate sheets, numbered consecutively and signed by or on behalf of the applicant.
2. If the notice is given by or on behalf of a corporation, the name of the corporation is to be inserted in item 1 (a), not the name of the person signing the notice, and the notice is to be signed by a person authorised by the corporation to do so.
3. Describe that part of the business of the person giving the notice in the course of the which the conduct is engaged in.
4. If particulars of a condition or of a reason of the type referred to in section 47 of the Trade Practices Act 1974 have been reduced in whole or in part to writing, a copy of the writing is to be provided with the notice.
5. Describe the business or consumers likely to be affected by the conduct.
6. State an estimate of the highest number of persons with whom the entity giving the notice is likely to deal in the course of engaging in the conduct at any time during the next year.
7. Provide details of those public benefits claimed to result or to be likely to result from the proposed conduct including quantification of those benefits where possible.
8. Provide details of the market(s) likely to be affected by the notified conduct, in particular having regard to goods or services that may be substitutes for the good or service that is the subject matter of the notification.
9. Provide details of the detriments to the public which may result from the proposed conduct including quantification of those detriments where possible.
Page 5 of 5
WILSON HTM LTD FRANCHISING ARRANGEMENTS Submissions for Exclusive Dealing Notification
McCULLOUGH ROBERTSON l a w y e r s
1. NOTIFICATION
1.1 These submissions are annexed to and form part of the Wilson HTM Ltd ACN 010 529 665 ('Wilson HTM') Form G Notification to the Australian Competition and Consumer Commission ('ACCC').
1.2 Wilson HTM can provide additional information in relation to this notice if required by the ACCC. Please refer to the contact details provided in paragraph 7 of the Form G Notification.
2. CONFIDENTIALITY
2.1 The relevant conduct consists of franchising arrangements between Wilson HTM and its franchisees as detailed below. A copy of the Wilson HTM standard Franchise Agreement, Wilson HTM standard Deed of Amendment to the Franchise Agreement (only used for existing franchisees - all new franchisees will be provided with a franchise agreement that incorporates the items set out in the Deed of Amendment) and the Wilson HTM Approved Product and Services List (as defined in the Franchise Agreement) are annexed.
2.2 The Franchise Agreement and the Deed of Amendment thereto are highly commercially sensitive documents. They address in detail the nature of the relationship between Wilson HTM and its franchisees, their obligations in relation to the business, ternls of training, property arrangements, all fees payable by franchisees and other confidential material. The Approved Product and Services List is strictly confidential in that it discloses the parties and products that Wilson HTM approves or implicitly recommends for use by its franchisees. All franchisees are required to maintain this information in the strictest confidence and public access to such material would be extremely damaging both to Wilson HTM's business operations and to its franchisees.
2.3 Wilson HTM therefore requests that the ACCC consider the Franchise Agreement, the Deed of Amendment and the Approved Product and Services List as confidential documents and that those documents be excluded from the public register on the grounds of confidentiality.
3. BACKGROUND TO WILSON HTM FRANCHISES
3.1 Wilson HTM, grown from established stockbroking houses with origins dating from 1895, is now an integrated investment house following a transformation strategy which commenced in 1996.
3.2 Wilson HTM commenced its franchise operations approximately 7 years ago and currently operates 5 franchises in Queensland and NSW. The franchises offer the Wilson HTM products and services to regional cities and are an important product distribution and sales network for Wilson HTM.
3.3 The Wilson HTM System comprises a distinctive business fornlat and method in connection with the operation of the business utilising Wilson HTM's registered and unregistered trade marks and other intellectual property, including office presentation, signage styles, colour schemes, trade secrets, know-how, certain standard operational manuals and procedures for operating Wilson HTM franchises including directions, specifications, methods, systems including computer software and systems, advertising, sales techniques, promotional materials, personnel management and control systems, bookkeeping and accounting methods ('Wilson HTM System').
3.4 Wilson HTM is currently the franchisor of 5 franchised operations trading in Australia under the name 'Wilson HTM' .
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Person authorrsed bv Person Glvrng Notlce
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4. GOODS AND CONDUCT
Form G paragraph 2(a): Goods
4.1 Paragraph 2(a) of the Form G Notification requires a description of the goods or services in relation to the supply or acquisition to which this notice relates, which are as follows:
(a) Franchises to operate Wilson HTM offices including licences of trade marks and disclosure of information in relation to the Wilson HTM System;
(b) Software required for operating a Wilson HTM franchise office and maintenance services for that software (clause 10.2 (as amended)); and
(c) Financial products and services to be offered to the clients of the Wilson HTM franchise office (clause 14.2 (as amended)).
Form G paragraph 2(b): Conduct
4.2 Paragraph 2(b) of the Form G Notification requires a description of the conduct or proposed conduct to be notified:
Wilson HTM grants Wilson HTM franchises on condition that the franchisees acquire the relevant software, stationery and products from suppliers that are either prescribed, suggested or pre- approved by Wilson HTM or proposed by franchisees and subsequently approved by Wilson HTM. There may be one or a number of approved suppliers for any particular good or service.
It may be arguable that this conduct may constitute exclusive dealing within the meaning of section 47(6) of the Trade Practices Act 1974 (Cth) ('Act') and therefore may be prohibited under section 47(1) of the Act.
4.3 Wilson HTM does not admit that its present or proposed future conduct under the Franchise Agreement is exclusive dealing withn the meaning of section 47(6) of the Act, or in the alternative, Wilson HTM does not admit that section 51 (3) of the Act does not exempt its conduct. Nevertheless out of prudence and to demonstrate good faith Wilson HTM is filing this Notification.
5. BUSINESS CASE FOR CONSISTENCY AND EFFICIENCY
5.1 In establishing a franchising operation, a franchisor risks its substantial investment in its name and reputation on the franchisee's performance. Therefore it is a commercial imperative that the franchisor is able to place certain obligations on franchisees. Where all franchisees comply with these obligations, the franchising operation as a whole maintains consistency and operates more efficiently. Consistency and efficiency are the cornerstones of successful franchising: franchising relies on economical, uniform practices and a consistent appearance, consistent product and service range and quality, and consistent service and business methods.
5.2 Wilson HTM designed the Wilson HTM System as a comprehensive business format and method with which all franchisees must comply. It provides an efficient means of conducting business and ensures a consistent Wilson HTM franchise office appearance, product and service range, quality standard and service experience whch maintains Wilson HTM's substantial investment in generating consumer goodwill.
5.3 It is important to note that, under the Wilson HTM System, a Wilson HTM franchisee is not restricted to acquisition from suppliers pre-approved by Wilson HTM, but can apply to Wilson HTM for approval of alternative suppliers. Wilson HTM would make the necessary inquiries of the relevant supplier, and may engage trials, in order to ascertain whether that supplier meets Wilson HTM's necessary specifications and standards, and can consistently and reliably supply the relevant goods or services.
5.4 The approval mechanism in the Wilson HTM System strikes a reasonable and appropriate balance. It preserves Wilson HTM's commercial imperatives by maintaining the consistency and efficiency of its franchised operations, and at the same time allows the franchsee an opportunity to use alternative suppliers.
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Person atrthorised by Person Giving Notice
6. EFFECT ON COMPETITION
Form of conduct and competitive effect
6.1 As submitted above in section 4.2, Wilson HTM's conduct involves supplying or offering to supply its franchise services on the condition that the franchisee acquires various different goods and services. Where the franchisee uses Wilson HTM's pre-approved suppliers, they may have recourse to the Franchise Agreement, the suggested stationery suppliers list or the Approved Products and Services List, whichever the case requires. The Agreement or the lists may contain a number of alternatives from which franchisees may choose, although in some instances the Agreement or the lists contain a single pre-approved supplier for a good or service. However, under the amended Franchise Agreement the franchisee may propose an alternative supplier for approval by Wilson HTM. As such the franchisee is never restricted to dealing with only those parties named in the Franchise Agreement or on the Approved Products and Services List.
6.2 The Wilson HTM approval mechanism for its suppliers has no or little competitive impact and at the same time provides significant public benefits, as submitted in section 7 below. Nevertheless for completeness Wilson HTM provides submissions on the issues of demand and supply below in sections 6.3 to 6.9.
Demand
6.3 The ACCC's draft Guide for exclusive dealing notijications states that, where purchasers are required to purchase a good or service, this may have an anti-competitive effect where the party imposing the requirement 'uses its position in the market to distort the demand for, and supply o f that good or service. There is little appreciable distortion where the party imposing the requirement does not have substantial market power.' Thus the Guide states that any potential distortion in demand for product B (here goods and services to be acquired by Wilson HTM franchisees) is limited where purchasers have alternative sources of supply for product A (here a Wilson HTM franchise) or substitutes for product A. commentators2 similarly agree that provided a vertical restraint does not leverage market power in order to create new power, the restraint is not anti- competitive.
6.4 Here, anyone considering a franchise arrangement with Wilson HTM has a wealth of alternative franchising opportunities in the financial services market, and can always substitute for a franchising arrangement by simply choosing to set up their own business. Wilson HTM does not have substantial market power; it cannot act or make its business decisions without regard for the competitive conditions of the market.
6.5 It is not the case that Wilson HTM's arrangements generate revenue from the sale of the required goods and services that could not be realised if unconnected to the franchising operation.
6.6 The Guide states that the extent to which distortion occurs in the supply of products (here the goods and services to be supplied to franchisees) depends on whether there is a single nominated supplier, a number of nominated suppliers, or any supplier. The stipulation of only one nominated supplier can potentially distort supply, the stipulation of a number of suppliers is considered less anti-competitive, and the stipulation that a good or service be purchased from any supplier does not distort supply at all.
6.7 The approval mechanism in the Wilson HTM Franchise Agreement (as amended) does not neatly fit into any of these categories but is closest to the 'any supplier' stipulation, with the only rider being approval by Wilson HTM, ie. successful completion of the approval mechanism which is necessary to preserve Wilson HTM's reasonable commercial interests, as submitted above. The mechanism is not so narrow as to stipulate one single nominated supplier or number of suppliers with which the franchisee must deal. Thus the mechanism does not foreclose the opportunity for unapproved suppliers to obtain the business of Wilson HTM franchisees.
' Clough D, Law and Economics of Vertical Restraints in Australia, [2001] MULR 20 at A(l)(d). Id at A(l)(a).
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Person authorised by Person Giving Notice
6.8 In any event, at no time are Wilson HTM franchisees forced to acquire goods or services at an inflated price, or of an inferior quality, from a pre-approved supplier. To the contrary, it is not in Wilson HTM's commercial interests to require its franchisees to purchase goods or services at an inflated price, given that a franchise is a long-term business proposition. Wilson HTM's successful operation of its franchise business and its capacity to attract further franchisees is, to a large extent, dependent on its good relationships with its franchisees and enabling them to efficiently set up their businesses and effectively compete in the financial services market.
6.9 Similarly, it is not in Wilson HTM's commercial interests to require its franchisees to purchase goods or services of an inferior quality from pre-approved suppliers. Again, a large measure of Wilson HTM's success in its franchising operations depends on its ability to ensure that each of the stores operating under the Wilson HTM System and Wilson HTM trade marks displays a high quality appearance and sells high quality products.
7. PUBLIC BENEFITS
Fostering business efficiency
7.1 By making the list of software in the Franchise Agreement, the list of suggested stationery suppliers and the Approved Products and Services List available, Wilson HTM reduces the transaction costs for its franchisees who would otherwise be forced to do their own investigations for each requirement and to engage new suppliers on a trial-and-error basis, ie. without knowing whether the supplier would meet its commitments. The list of software in the Franchise Agreement and the Approved Products and Services List thus enhance technical or business efficiencies and thereby benefits the public.
7.2 In particular:
(a) in relation to approved suppliers of software per clause 10.2 of the Franchise Agreement (as amended):
(i) the suggested software and software suppliers provide software that is compatible with Wilson HTM systems creating efficacy and consistency across Wilson HTM offices;
(ii) there are a limited number of software suppliers providing software suitable for the business. The suggested software and software suppliers are an industry standard and long standing supplier;
(iii) the suggested software is highly specialised and tailored for use by stockbroking businesses. It is also recognised and interacts with the Australian Securities Exchange trading and settlement systems, a key operational requirement of the business; and
(iv) the suggested software is pivotal to the business. Wilson HTM uses the suggested software across its business and it would be uneconomical to use multiple suppliers; and
(b) in relation to approved suppliers of financial services products per clause 14.2 of the Franchise Agreement (as amended):
(i) the approved products and services are from a reliable and cost-effective supply source;
(ii) the approved products and services can conform with Wilson HTM information technology systems and requirements;
(iii) the approved products and services can conform with the requirements of the Corporutions Act 2001 (Cth) and other relevant legislation;
(iv) it is imperative that Wilson HTM have control over the products available for use to enable it to comply with its Australian Financial Services Licence (number 238375) issued by the Australian Securities and Investments Commission;
(v) the approved products and services are of a consistently high quality so as not to prejudice the Wilson HTM trade marks and other intellectual property by being sold under those marks; and
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Person authorised b.v Person c K g Notice
(vi) the approved products and services reduces transaction costs and allows a reduction of input costs.
7.3 Of course, the approval mechanism sitting alongside the list of software in the Franchise Agreement and the Approved Products and Services List allows franchisees, if they wish, to seek out further business efficiencies perhaps offered by alternative suppliers and to propose them to Wilson HTM for its consideration and approval.
Improving product quality
7.4 As submitted above in sections 5.1, 5.2 and 6.9, success of the Wilson HTM franchising operation depends in large part on consistently providing high quality products and services and offering those products and services through each Wilson HTM franchise office. The mechanism by which franchisees are required to obtain goods and services from suppliers either pre-approved by Wilson HTM or as proposed by franchisees and later approved by Wilson HTM enables these consistency and quality objectives to be attained.
Promoting competition in relevant markets
7.5 While Wilson HTM maintains the list of software in the Franchise Agreement and the Approved Products and Services List, Wilson HTM does not grant exclusive rights to suppliers in relation to Wilson HTM requirements. Wilson HTM does not guarantee suppliers any volume of purchases or annual expenditure. As previously submitted, if a potential supplier wishes to supply to a Wilson HTM franchisee, they need only be proposed by a franchisee and satisfy Wilson HTM as to its reasonable requirements regarding quality, consistency, reliability and cost, and that supplier can be approved by Wilson HTM. Suppliers are therefore not foreclosed from supplying franchisees' requirements.
7.6 The approval mechanism under the Franchise Agreement (as amended) also allows Wilson HTM, and its franchisees, to compete more effectively in their respective markets.
7.7 As submitted above in section 5.2, the approval mechanism allows Wilson HTM to ensure the consistency and efficiency of its franchise operations and also the cogency of its brand. This maximises Wilson HTM's ability to attract further franchisees and to effectively engage in inter- brand competition in the franchising market. In turn, a strong brand maximises a Wilson HTM franchisee's ability to attract consumers and to generate repeat business, which allows it to compete strongly in the financial services market.
8. CONCLUSION
8.1 For the reasons set out in this submission, Wilson HTM maintains that its franchisees and the public benefit significantly from its franchisee arrangements under the Franchise Agreement, including the Approved Products and Services List and approval mechanism for unapproved suppliers. Wilson HTM submits that no or little competitive impact, and no public detriment, arises from these arrangements. If any detriment did occur, Wilson HTM submits it would be heavily outweighed by the public benefits of the arrangements.
Dated
Malcolm McBratney Partner
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Person atrthorised by Person Gi~ing Notice
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ATTACHED ANNEXURES
EXCLUDED FROM PUBLIC REGISTER
