This month the Australian Federal Court imposed a fine of $3.4 million, plus legal costs, against four Jurlique companies. It also imposed a fine of $200,000 personally on Dr Jurgen Klein, the Managing Director until 2003 of Jurlique International.
Judge Spender found four Jurlique companies guilty of contraventions over many years of section 48 of the Trade Practices Act 1974 (Cth) in relation to resale price maintenance of skin care, cosmetic and herbal medicine products. He also found a contravention of section 45 in relation to price fixing of skin and body treatment services. The case is Australian Competition and Consumer Commission v Jurlique International Pty Ltd  FCA 79.
1. What is retail price maintenance?
The Act regulates price information for products and services. Under the Act resale price maintenance is illegal so as to ensure that competition in the market is unfettered by price restraints imposed by suppliers or re-suppliers.
Suppliers (including manufacturers and wholesalers) may not specify to resellers a minimum price below which goods or services are not to be resold or advertised for resale.
2. How can you reduce the legal risk to your business?
We provide legal advice on pricing policies, marketing communications and what can and can’t be done. For efficiency and legal risk minimisation organisations must:
- Understand and comply with the law: For an overview of the Act’s regulation of prices, see our December 2004 article Price Information and Trade Practices Compliance.
- Implement a trade practices compliance program: Practical advice is provided at the end of that article for minimising the risks of legal breach and fines. The advice is to implement a compliance program, as overviewed here: Trade Practices Compliance.
- Integrate legal compliance programs: This makes compliance easier.
3. What were Jurlique and Dr Klein doing wrong?
Relevant to this question is Judge Sender’s citation of the following retail price maintenance conduct:
“15.1 terms in the Jurlique Companies’ Franchise Agreements and international supply agreements required Jurlique Franchisees and Retailer Outlets to price at a retail price determined by the Jurlique Companies. This meant that discounting from the Jurlique Companies’ price lists was not permitted. The agreements were offered to potential Jurlique Franchisees and executed by existing Jurlique Franchisees.
15.2 ad hoc agreements with Jurlique Franchisees or Retailer Outlets about offering Jurlique Products for sale at the retail prices specified by Jurlique Companies in their price lists;
15.3 inducements and attempted inducements to Retailer Outlets and Franchise Outlets not to discount or advertise Jurlique Products at prices less than the retail prices determined by the Jurlique Companies in their price lists;
15.4 withholding supply from Retailer Outlets for the reason that the stores had sold Jurlique Products at prices less than the retail prices specified by the Jurlique Companies in their price lists; and
15.5 using price lists that were likely to be understood by Retailer Outlets and Jurlique Franchisees as stating the price below which Jurlique Products were not to be sold or advertised for sale.”
4. Why were the fines so high against Jurlique and Dr Klein?
In its press release on the decision, the plaintiff (the ACCC) made reference to paragraphs 102 and 103 of the judgement noting that:
“In assessing the penalty Judge Spender took into account that the conduct:
- was deliberate,
- was the result of a long-standing company policy,
- over a long period of time,
- was set by senior management and
- affected retailers in Australia and internationally, and that
- the consolidated position of the group disclosed substantial assets and significant profits.”
Judges look for implementation of compliance programs before deciding the level of trade practices fines. This is what Judge Spender said at paragraph 105 before imposting fines on the Jurlique companies and Dr Klein:
“In April 2004, the Jurlique Companies arranged for their lawyers to provide its senior executives and sales managers with a training session specifically targeting resale price maintenance and price fixing. Trade practices training was also provided to Jurlique Companies’ sales staff who were located in Adelaide, Melbourne and Sydney in July 2005. No compliance training was delivered to staff until a year after the Commission raised its concerns about the Jurlique Companies’ conduct. Dr Klein himself had received no trade practices training.”