John, Paul, George and Bingo are musicians in a band called the Beagles. The Beagles was the biggest band in the world.
To promote the Salt and Peppers album, the Beagles started a world tour called, Lucy in the Sky with Diamonds (LSD Tour). The Beagles wanted to ensure that the sales of Salt and Peppers were high throughout the LSD Tour and that the records were distributed carefully around the world. From their previous record promotions around the world, the Beagles had already established a selective distribution system by which the retail market was divided into segments, each segment being exclusively served by a selected wholesale distributor. In the past, the distribution system served the Beagles well, and allowed them to sell many records in Australia and all around the world. Given their exclusive record licensing, and large international and local market share in the record industry, the Beagles often drove a hard bargain with their distributers in Australia.
For various reasons, the Beagles terminated distribution agreements with the following local distributors: (i) Ronald Trump (Trump); (iii) Bill Spector (Spector); (iii) Chuck Norris (Norris).
The Beagles terminated the distribution agreement with Trump because Trump refused to comply with the following term in the distribution agreement:
“As a distributor to key areas in Australia, the Beagles will supply you with Beagles albums on the condition that you bundle the last two Beagles albums for sale to retail stores (the Bundle). Under no condition are you permitted to sell to retail stores Salt and Peppers individually, nor are you allowed to sell the Bundle for less than our recommended retail price of $100. Each store must be stocked with a minimum of 100 bundled albums, and you must only stock Beagles albums and no other albums from other bands.”
When giving Trump the news about terminating his distribution agreement, the Beagles told him “Your fired”.
The Beagles terminated the distribution agreement with Spector because the Beagles entered into another distribution agreement with George Martin (Martin), which gave Martin exclusive rights to sell Salt and Peppers in the areas that Spector distributed Beagle’s albums in the past. Upon learning that his distribution agreement was terminated, Spector immediately placed two orders for 100,000 and 10,000 copies of Salt and Peppers. The Beagles refused to supply Spector for both orders. Spector was furious as he was a main distributor in Australia, who supplied around 45% of Beagles records in Australia. Spector was even more furious to learn that the reason why his agreement was terminated was because his silent partner Martin had done a secret deal with the Beagles.
The Beagles terminated the distribution agreement with Norris. The reason for the termination was that Norris would not agree with another competitor Brian Wilson Records Pty Ltd (Wilsun Records) to maintain the price of a rebate on Beagles albums. Wilsun Records was a wholly-owned subsidiary of the Beagles and basically did everything the Beagles told it to do.
Norris did not want to provide a rebate on Salt and Pepper, as he thought that retailers will buy large quantities of the album as it was a smash hit. After all, the album contained the classic song “Lucy in the Sky with Diamonds”, which was bound to sell. In the past, the Beagles often wrote letters to all distributors stating:
While many other competitors did communicate with each other (and with the Beagles) and maintained the two per cent rebate, Norris never took the letters seriously. Norris hoped and expected that other distributors thought the same, and they thought the same about him. In fact, in the past, Norris only offered a two per cent rebates to around two-thirds of retailers he supplied Beagles albums to. On other occasions, he simply ignored the letters from the Beagles. Despite this, the Beagles often sent out additional pricing information to their distributors from time to time about what price their albums should be sold as. Most local distributors cooperated by complied with the pricing information, but Norris did not. Norris did not want to coordinate with the other distributors, but often read the information in any event. The additional information provided by the Beagles proved to be very useful in maintaining the prices in the industry.
Given the fact that the Salt and Peppers album was so unique, customers would not substitute it for any other record. Sales of the Salt and Peppers album went through the ‘roof’. The Beagles ultimately had a very large market share in Australia, and ‘raked’ in millions of dollars.
John knew everything about that happened and participated in all of the conduct outlined above. He even made several attempts to make Norris try and agree to maintain the price of a rebate on Beagles albums. On a number of occasions, he even used coded messages for some reason. Paul suspected what had happened, and intentionally refused to ask questions as he had a feeling that something was wrong, and he may learn the truth if he asked too many questions. George, however, knew what was happening, but did not participate in any conduct, and Bingo did not know what was happening, but participated in all of the conduct, as he trusted his friends.
Questions
1. Has Beagles engaged in contravening conduct under the Competition and Consumer Act 2010 (Cth) in relation to its dealings with Trump?
2. Has Beagles engaged in contravening conduct under the Competition and Consumer Act 2010 (Cth) in relation to its dealings with Spector?
3. Has Beagles engaged in contravening conduct under the Competition and Consumer Act 2010 (Cth) in relation to its dealings with Norris?
4. Is there anything the Beagles could do in order to avoid liability under the Competition and Consumer Act 2010 (Cth)?
5. Could John, Paul, George and Bingo be personally liability under the Competition and Consumer Act 2010 (Cth)?
