The case highlights the risks of communications between competitors even where those communications do not directly involve core business, and even when they relate to disputed legal rights. It also illustrates that the prohibition of cartel conduct in the Act is wider than the stereotypical case of agreements about the prices for which competitors will sell their goods or services – the prohibition can extend to the acquisition of services.
Background
The case involved an online advertising platform, called Google Ads, which allows businesses to place advertisements in Google search results. The advertisements are triggered when someone uses particular keywords in their Google searches. Businesses use Google Ads to direct traffic to their websites when potential customers search for relevant topics, including searches for the names of competing businesses.
A consumer finance company, Moola, sent a series of letters through its lawyers to other lenders who had placed advertisements that would be triggered by keywords or phrases relevant to Moola, including “Moola” itself. The letters alleged that these bids infringed Moola’s intellectual property and breached the Fair Trading Act 1986. Moola sought confirmation that the other lenders would stop placing such bids, and that they would also use Moola as a “negative keyword” (so their advertisements would not show when a person searched for Moola).
Several lenders complied with Moola’s requests – in one case, after Moola filed a claim in the High Court against them. Moola itself refrained from using keywords and phrases relevant to some of the other lenders, and negatively matched relevant keywords, so that Moola’s advertisements would not show when those keywords were used in searches.
Commission investigation and High Court decision
In July 2021, following an investigation, the Commerce Commission filed proceedings against Moola alleging that it had breached the prohibition against cartel conduct in the Commerce Act 1986 by sending the letters and giving effect to the arrangements Moola proposed in them.
Among other things, the Commerce Act prohibits contracts, arrangements, and understandings that have the purpose, effect, or likely effect of fixing prices or restricting the acquisition of services by businesses that are in competition with one another.
In this case, Moola admitted that it had breached the Act by restricting the acquisition or likely acquisition of Google Ad services by itself and the other lenders, and by having the effect or likely effect of controlling or maintaining the price of Google Ad services. In December 2021, the Court made declarations to that effect.
The Court explained that Google Ad pricing is determined through an auction process. Businesses place maximum bids on specific keywords or phrases that are relevant to them and which might be used in Google searches. When a person uses Google to search for that keyword or phrase, an advertisement for the business will be displayed if that business was the highest bidder, and if the Google algorithm determines their advertisement is relevant. However, the business is only charged for the advertisement if a person clicks on it. The price is then calculated as the minimum amount necessary to beat the next highest bidder (up to their maximum bid).
Key takeaways
The case highlights the potential competition law risks inherent in communications with competitors, even where those communications do not directly relate to core business, and even where a business may consider its actions are justified by its legal rights (here, asserted intellectual property rights). The breaches of the Act in this case had nothing to do with any financial services provided by any of the lenders – they related to the acquisition of advertising for those services – and arose out of arrangements entered into to resolve a dispute about intellectual property and other rights said to have been infringed.
The case also illustrates that the prohibition on cartel conduct is not limited to the stereotypical cartel in which competitors get together and agree on the prices that they will charge for the goods or services they are selling. Moola was found to have breached the Act in relation to services that it was acquiring from Google, not services that it was selling.
Finally, it is interesting to note that the Commission sought only a declaration that Moola had breached the Act (which the Court made); Moola was not ordered to pay a financial penalty or even the Commission’s legal costs. The Court noted that there were several relevant mitigating factors. Moola did not deliberately seek to breach the Act, was legally advised when sending the letters, co-operated with the Commission, and admitted liability at “the earliest possible stage”.
By contrast, more serious cases involving intentional cartel conduct can result in criminal liability for companies and individuals; people can be imprisoned for up to seven years, or pay a fine of up to NZ$500,000. Companies can be liable to pay a fine not exceeding the greater of NZ$10 million, three times the value of any commercial gain, or 10% of the group’s annual turnover in New Zealand.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed, or your usual Bell Gully adviser.