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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - Restrictive trade practices - Supply by Stock Exchange operator of electronic information regarding Sydney and Melbourne stock exchange dealings - Supplier monopolist of that information on wholesale information market - Terms of contract for supply imposed by respondents on suppliees by threat to cut supply - Misuse of market power - Definition of relevant markets - Whether respondents have substantial degree of power in markets defined as stock exchanges market and information market - Purpose of respondents in imposing terms complained of - Imposition of terms substantially lessening competition - Whether terms have that purpose or effect - Price discrimination - Extra charge to suppliees desiring to store transmitted information - Whether discriminatory - Complaint that applicant is required by its contract to mislead its own customers in breach of s.52 of the Trade Practices Act - Whether subject matter of contracts is "goods" - Relief - Severance of contract - Power of Court to vary contract - Difficulty in determining appropriate price at which signal should be supplied.Trade Practices Act 1974, ss.4, 4E, 4F, 4G, 4L, 45, 46, 47, 49, 52, 87.
HEARING
SYDNEY Counsel for the Applicant: Mr D A Staff QC with
Mr N A CotmanSolicitors for the Applicant: Baker & McKenzie
Counsel for the Respondents: Mr J D Heydon QC with
Mr P M Jacobson and
Mr C P ComansSolicitors for the Respondents: Minter Ellison
ORDER
In the event that the respondents desire to adduce evidence as to the costs involved in supplying Signal "C" to the applicant and/or in relation to the amount of a reasonable profit on such costs, that evidence be adduced by affidavits to be filed within one month of this day.The matter stand over for further mention at 9.30 am on Friday 16 March 1990.
DECISION
The primary question in this case is whether the conduct of the respondents, Australian Stock Exchange Limited ("ASX") and its subsidiary ASX Operations Pty Limited ("ASXO"), in connection with the supply to data processors of information concerning dealings on the Sydney and Melbourne stock exchanges constitutes an infringement of Part IV of the Trade Practices Act 1974. Subsidiary questions include a difficult question as to the relief appropriate to be granted to the applicant, if any contravention of the Act is established, and the fate of a cross-claim made by ASXO against the applicant alleging breaches of the agreements the subject of the applicant's complaint.2. ASX is a company limited by guarantee. It is the parent of a group of companies, including ASXO and the operators of the Sydney and Melbourne exchanges: Australian Stock Exchange (Sydney) Limited and Australian Stock Exchange (Melbourne) Limited. ASXO carries on business inter alia as a supplier of electronically disseminated information concerning business transacted on the Sydney and Melbourne exchanges. For that purpose ASXO has established a section known as the Market Information Services Division ("MIS"). MIS controls both the JEC Data Service, the five signals to be mentioned in a moment, and a "retail" service known as JECNET. "JEC" stands for "Joint Exchange Computers". Since 1987, MIS has been managed by Mr Eytan Udovich.
3. The JEC Data Service ("JDS") is organised into five signals, known as
Signals "A" to "E" respectively. Each signal contains a
different mix of
data, the mix being designed to suit the needs of a particular type of
end-user. In an affidavit read in this case
Mr Udovich explained the contents
of each of the signals:
"Signal 'A' is a composite signal which4. This case concerns Signal "C". That signal reproduces parts of the stock market information which is contained in Signal "A", being material recording all transactions which occur on the Sydney and Melbourne trading floors and through the Stock Exchange Automatic Trading System ("SEATS"), but omitting confidential elements such as brokers' names. SEATS is a computer-based system for off-floor inter-broker trading. To the above information, which originates within ASX itself, is added other information, including general information about listed companies, and information supplied by AAP-Reuters about trading at the Perth, Adelaide, Brisbane and Hobart stock exchanges. Information on trading at the Sydney Futures Exchange is also included.
contains all of the information relating to
all ASX transactions. Much of this
information is commercially confidential
containing details of brokers' transactions,
identities and their business. Accordingly,
ASX does not disseminate this information
publicly. All other ASX signals derive from
ASX Signal 'A'.
Signal 'B' contains broker specific
information which is available for
transmission to each stockbroker in respect of
his transactions only for each day's trading.
This signal identifies for the broker all
transactions in which he has been involved
either as buyer or seller. It is used
principally for internal accounting purposes.
Signal 'C' is the general ASX trading and
information signal which is transmitted in
real time mode. It contains trades, quotes
and index information relating to all of the
subsidiary exchanges of ASX and the Stock
Exchange Automatic Trading System. It also
contains trading information from the Sydney
Futures Exchange.
Signal 'D' is a 'snapshot' signal of quotes
and index data, which is produced a number of
times during the day and provides an update
summary of the current state of the market.
As a 'snapshot' it is frozen in time at the
moment the signal content is generated and
remains frozen until again generated some
hours later.
Signal 'E' is called the public overnight
signal. It is a summary signal of all trading
transactions during the course of the trading
day which is prepared and disseminated on the
night of each ASX trading day. For those data
disseminators who wish to obtain summary
information for use in historical form, Signal
'E' is the most common signal used. The
signal can also contain details about
securities for example details of dividends,
rights issues, earnings per share etc."
5. Signal "C" has been available for several years. Over that period the number of subscribers has progressively increased. At the present time the signal is taken by some 38 organisations, one of which is the applicant, Pont Data Australia Pty Limited ("Pont Data"). Pont Data is one of a group of companies which are ultimately owned by Pont International Limited, a public company incorporated in New South Wales. Through its international network, the group carries on business as a supplier of electronic financial information in many countries. According to an affidavit sworn by Mr G P Moore, the Executive Chairman of both Pont International and Pont Data, the group presently supplies information services to over 2000 clients.
6. In his affidavit Mr Moore explained the origin of some of the material
which constitutes Signal "C":
"7. As regards business on the trading7. Besides the trading information described by Mr Moore, Signal "C" also includes non-broker specific information regarding SEATS sales and the other material mentioned by Mr Udovich. The whole of this material is transmitted to subscribers in computer code. That code identifies the particular type of information being transmitted, so enabling any subscriber, whose own computer has been appropriately programmed, to reject receipt of any undesired category of information. Pont Data in fact rejects some categories of information included in Signal "C". The information which is received is instantaneously mixed with information obtained by Pont Data from other sources and the whole of the data is then immediately transmitted to clients of Pont Data in formats it has devised. Pont Data offers to its clients a choice between several different services and the form and extent of the information taken by individual clients depends upon that choice. In some cases the information transmitted by Pont Data is automatically updated. For example, each time there is a recorded transaction in a particular stock at a price different from that last obtained the on-screen information regarding the price of that stock is automatically amended. This is known as a "dynamically updated system". In other cases, information is only available if the client specifically requests it by pushing the appropriate key on the terminal supplied to it. Upon such interrogation, the latest relevant information appears, but that information is not updated if a further relevant transaction happens to be recorded by the computer whilst the information is still on-screen. This is a "non-dynamic" system.
floors, operators of terminal keyboards
linked to the ASX computer system are
continuously inputting 'BID' and 'ASK'
quotes from the information recorded on
the trading boards. Whenever there is a
sale the selling broker makes out a
ticket in triplicate which is signed on
behalf of both buying and selling brokers
and one copy is placed in a box near one
of the keyboard operators. The operator
then enters into the computer system
details of the price, number of shares,
brokers' numbers, time of trade and
condition codes if applicable (eg,
special, crossing, etc).
8. As this trading information is entered,
it automatically updates the ASX
computerised inter-broker accounting
records. The ASX computer also sorts the
data, puts it into fields and sends it to
vendor subscribers as a ticker feed in
the form of Signal 'C'. Each message
transmitted by ASX has a form of code
that allows the receiving computer to
identify it. Apart from broker specific
information which is not provided, the
information vendors receive all the
abovementioned information via Signal
'C'."
8. Many subscribers to Signal "C" use the service only for their own purposes. For example, many firms of stockbrokers are subscribers. But others, like Pont Data, use the information in Signal "C" as part of the data to be passed on to others, although in a different format. Because Signal "C" is suitable for this purpose, it is often referred to as a "wholesale" service.
9. JECNET's operations are similar to those of Pont Data. It also takes Signal "C" and reprocesses and resells the information contained on it. Like Pont Data then, JECNET is known in the industry as a "retail" service because it is intended to serve the needs of end-users of the information (although Pont Data would also like to be free to wholesale the information derived from Signal "C" to other retailers). Pont Data and JECNET are in direct competition, as retailers of information derived, amongst other sources, from Signal "C".
10. Overall ASXO spends more on MIS than it earns, to the tune of about $5 million per year. JECNET has been a loss-maker since at least 1986. It may have operated at a loss even before that date, but no analysis has been done to establish the position one way or the other. In 1987-1988 JECNET lost $1.84 million, without paying any royalty for its use of Signal "C". The ASXO 1988-1989 budget projected a loss by JECNET of about $2.4 million.
11. In contrast to its experience with JECNET, ASXO has found JDS highly
profitable. In 1987-1988 the profit was $3.038 million.
The 1988-1989 budget
predicted a profit of $4.51 million from JDS's sales to subscribers of all
five signals. No dissection of
the costs of supplying the individual signals
has ever been made. There is an issue between the parties as to whether in
supplying
Signal "C" to Pont Data, ASX or ASXO incur any costs (other than
marketing costs) above and beyond what they would incur in carrying
out their
normal functions. Pont Data argues that the exchanges must, for their own
operations, capture the data in Signal "A",
from which Signal "C" derives. I
will return to this matter.
The background documents
12. Over a period of about two years, before September 1988, relevant officers of ASX and ASXO were engaged in considering the terms of the contracts under which MIS should, in the future, supply Signal "C". During that two-year period the signal was already being supplied to the current subscribers, including Pont Data, under arrangements which had been negotiated some years earlier and which were not, apparently, controversial. In practical terms the decision on the future terms was entrusted to a committee of four persons known as the Group Executive Committee; or, more commonly, "G4". At material times, G4 consisted of Mr R L Coppel, the Executive Director of ASX and a director of ASXO, Mr R B Lee, the Managing Director of Australian Stock Exchange (Melbourne) Limited, Mr P W Marshman, the Managing Director of Australian Stock Exchange (Sydney) Limited, and Mr G P Chapman, the Managing Director of Australian Stock Exchange (Brisbane) Limited. Mr Udovich reported to Mr Coppel, who passed on significant information to G4.
13. A major issue between the parties is the purpose which actuated the respondents when they imposed upon Pont Data and other subscribers to Signal "C" the terms contained in the relevant contracts. It is common ground, given the extensive authority which was delegated to G4, that that issue turns on the purposes of the members of G4. Pont Data contends that those purposes are discernible from certain documents produced on discovery by the respondents and ultimately admitted into evidence. In order to understand the case made by Pont Data it is necessary to refer to some of them.
14. The first document is one of a series of volumes setting out a strategic
plan for ASX. Volume 1 was called "Elements of a Business
Strategy". It was
dated September 1986 and was apparently written by a team of three named
consultants in consultation with the
members of G4. The evidence does not
disclose any formal adoption of the report by G4, but Mr Coppel said that the
strategic plan
"was constantly before G4 as a framework for considering the
activities of ASX". He said that the objectives stated in the plan
"were
discussed and determined by G4 over a long period of time". Mr Lee said that
he agreed with the strategic plan. In section 4 of volume 1, headed
"Strategies Affecting All Services", there was a sub-heading "Revenues and
Funding" under which the following
appeared:
"4.3.1. A.S.X. occupies a unique position inSection 5, "Strategies Specific to Essential Services", contained a sub-heading "Funding" under which the following appeared:
being the sole body responsible for the
trading of securities on Australian Stock
Exchanges. The information about these
markets is a valuable resource, capable
of being a substantial source of revenue.
4.3.2. It is essential that A.S.X. achieve a
monopoly on the wholesaling of its market
information in order to establish one
integrated Australian market and to
leverage profits from third parties who
provide value-added services with this
information (e.g. Mocom, Reuters)."
"5.3.1. The policy for funding of essential services15. Mr Udovich used the strategic plan when preparing a paper, dated March 1987, which he entitled "A Report on the Exchange's Market Information Systems". This report canvassed the various issues confronting G4 in relation to its data systems. In his "Executive Summary" at the commencement of the report, Mr Udovich noted the relationship between JDS (the wholesale data system) and MIS:
should be based on the following principles:-
(a) all recoverable services (e.g.
SEATS, CENSAS) should be based on a
'user pays' principle;
(b) sale of wholesale market information
to support service organisations
should cover costs and include a
profit component;
(c) these profits should be used to
reduce or eliminate Broker Levies;
(d) Broker Levies should only be used to
pay for 'non-recoverable' services
(e.g. regulatory services);
(e) Cross-Subsidisation of services is
to be eliminated."
"The management of the JDS and its relationship16. In the body of the report there was a section headed "JEC Data Service". In that section Mr Udovich expressed the view "that the JDS is operating in such a way as to ultimately encourage competition to JECNET". He referred to the high level of client dissatisfaction with JECNET -- a recurrent theme of many of the documents -- and proceeded to discuss the role of JDS. In that context Mr Udovich recommended that "if JECNET is to remain within the ASX orbit the management and control of JDS should remain with the same management of JECNET to ensure orderly marketing of both wholesale and retail data". Under a heading "The Situation is a Conundrum", Mr Udovich said:
with MIS is critical to the business plan
because the development of the JDS, as a data
wholesaler, significantly affects the
financial information market and the business
opportunities of JECNET. Currently JDS is
operating to the long term detriment of JECNET
by encouraging its competition. However,
while this may be to the financial
disadvantage of ASX, it helps satisfy the
corporate objectives of ASX, i.e. stimulating
stock market activity through information."
"a) Because the retail service (JECNET)17. In the course of this report Mr Udovich summarised his perception of the competitive position of JECNET:
cannot manage its business, clients are
buying direct from the wholesaler (JDS)
to ensure continuity of supply. And, to
recover their warehousing costs
(programming) the clients are commencing
operations as retailers which will result
in a better level of service to the
securities industry as a whole, but a
worsening income situation for JECNET.
b) Because the inappropriate pricing
structure set for JDS has encouraged a
plethora of data networks which will
ultimately result in better service to
the industry. And, the proposed policy
of leveraging profits from third parties
may result in a contraction in the number
of data distribution terminals and therefore
a poorer level of service to investors.
What is good for ASX in the short term may not
be good for the industry, and ASX, in the
longer term." (Original emphasis)
"i) JEC owns the substance of several("Bridge" is the company now known as Pont Data, the present applicant.)
businesses - JECNET, JDS and the
Portfolio Service.
ii) However, the businesses have been
maladministered and as a result, are
operating without direction the
competitors are furthering their skills
and services while JEC's products remain
moribund; and sales are below their
potential worth due to a lack of marketing
prowess and investment in technology.
iii) All of the competitors in the JECNET and
Portfolio areas have invested heavily in
new product development for the 1990s while
JEC has invested next to nothing in new
product development over the past few years.
iv) JEC's services have survived in the
market place in recent years, buoyed by
an extremely active stockmarket.
v) However, the user perception of JECNET is
that of an inept and inefficient
organisation. Part of this perception is
due to the overall disillusionment with
JEC and its apparent inability to deliver
efficient and reliable service in the
areas of broker-client accounting,
portfolio, JECNET, etc.
vi) Specifically, JECNET's standing viz-a-viz
its competitors is poor. A survey of
users (sic) opinions undertaken by Logica
Pty. Ltd. in early 1986 highlighted the
fact that users were and are,
dissatisfied with the reliability and
response of JECNET compared with Reuters
and Bridge. Reliability and response
were also the two most important features
sought in a network."
18. The summary of user perception then set out by Mr Udovich showed JECNET below Bridge and Reuters (now AAP-Reuters) in respect of each of the criteria which were investigated. Mr Udovich went on to indicate his belief that the client perception was correct, to forecast further loss of market share by JECNET, unless remediable steps were taken, and to recommend steps to enhance the JECNET service.
19. In May 1987 Mr Udovich produced a revised version of the March report, entitled "Market Information Services: A Business Plan". This document retained much of what was set out in the March report but it also included an analysis of what Mr Udovich called "the information market" which, as he explained, is now dominated by electronic media. Participants in the market were named. They included -- in the category called "professional" -- JECNET, Bridge, Reuters and three others. There is no doubt that, when he wrote this document, Mr Udovich saw JECNET and Bridge as direct competitors, with Bridge offering a superior service, albeit at a higher cost.
20. By a memorandum dated 11 August 1987 Mr Marshman notified all ASX departmental managers of certain changes in management responsibiilities. One of these changes was that JDS and JECNET were both placed under the management of Mr Udovich.
21. The file of documents tendered by the applicant also contains letters from some of the then subscribers to Signal "C" commenting upon the terms then being proposed for the future sale of that signal. These letters were all critical of the proposed terms, on a number of grounds, including many of the grounds advanced in the present proceeding.
22. One of these matters was discussed in a paper prepared by Mr Norman O'Bryan, a solicitor who was advising ASXO regarding the proposed terms. Mr Udovich sent this paper to Mr Marshman on 18 December 1987. In it, Mr O'Bryan discussed the proposal that clients of subscribers to Signal "C" -- that is, the end-users to whom those subscribers "retailed" the signal -- should be required to sign the agreement between ASXO and its subscriber, so becoming a party thereto. Mr O'Bryan noted that: "G4 will be aware that Bridge, Information Express and CLIRS have all expressed concern about the potential for breaches of commercial confidentiality if ASX obtains client details of enterprises which are, effectively, its competitors". He went on to express the opinion that "it may be appropriate (and politic) to withdraw the three party proposal from the data vendors of Signal 'C', who are clearly unhappy about the level of information about their licensees which will flow to ASX, their competitor in the market. Provided the data vendors' contracts with their licensees contain sufficient protection for ASX concerning copyright, indemnity, and the like, I see no harm in this proposal". As will appear, that advice was not followed.
23. In February 1988 Mr Udovich wrote a report entitled "Development of a
Market Information System". The report concentrated upon
the retail market.
It set out the categories of information which ought to be included in a
retail data service. It is not necessary
to refer to those categories. But
Mr Udovich went on to discuss how such a business could be made profitable.
In the course of that
discussion Mr Udovich said:
"If the business is being developed for purely24. Mr Udovich then set out a table of projected retail subscriptions, concluding with the comment: "This dramatic lift in results is not unrealistic provided we retain solus supply over data. Once we wholesale our competitive advantage is lost".
commercial reasons then the objective should
be profit maximisation.
In this instance the implication of that
statement is that IF a retail network is to be
retained, and developed as a profit centre,
THEN some of these data products should NOT be
made available for wholesale distribution.
That is, those products with which we have a
strong natural advantage (announcements), or
have an almost solus data supply and
technological advantage (diary adjustments)
should be retained for the sole distribution
by our retail network and not offered to other
data vendors. This will disadvantage other
data retailers (and their clients), improve
the value of our own retail network and allow
for an expansion of market share.
The alternative of offering all our data
services to other data retailers, while it may
be in the interests of individual broking
firms in the industry, is not in the
commercial interests of ASX.
By keeping the data to our own retail network
we are ensured an increased market share, but
by offering the data on a wholesale basis we
have no product differentiation sufficient to
entice additional customers.
None of the other retailers would consider, on
commercial grounds, offering their prize
products to ASX for distribution - on
commercial grounds there is no reason for us
to consider offering access to our market advantage.
The costs of running a retail electronic data
distribution network are largely of a fixed
nature with only a small portion of costs
being variable. Although marginal costing
details are unavailable it would not be
unreasonable to assume that the variable
or marginal cost of adding an additional
retail terminal to the network is well under
$1,000 per terminal.
By retaining our valuable data products
exclusively for our retail network we will win
market share. Clients of Reuters, Pont etc.
will cease using those services and subscribe
to our product. The financial implication is
that we will lose $1,600 p.a. royalty from
wholesaling but will generate a substantial
income, $10,000 to $15,000, on the sale of a
new system at nominal marginal cost. It is
highly profitable to acquire additional retail
clients." (original emphasis)
25. The oral evidence establishes that the only subscriber with which ASXO
had any substantive discussion regarding the terms to
be included in its
Signal "C" agreements was AAP-Reuters. AAP-Reuters was in a special position.
In relation to the Brisbane, Adelaide,
Perth and Hobart exchanges it occupied
the same position as did ASXO in Sydney and Melbourne, collecting and
supplying to others
(including ASXO) market data. Secondly, AAP-Reuters was
the largest user of Signal "C", in terms of connected terminals. In his
oral
evidence Mr Udovich agreed that it was made known to him by the members of G4
"that it was important to reach a satisfactory
conclusion with AAP because
that would place significant pressure upon other data vendors to reach
agreement" with ASXO. This evidence
is consistent with the opening words of a
memorandum of Mr Udovich and Mr O'Bryan dated 17 June 1988 entitled "Summary
of Recent
Negotiations with AAP Information Services Pty Ltd and Current
Position":
"Negotiations have been conducted with AAP26. The memorandum referred to issues which had been raised by AAP-Reuters and then discussed what were called "ASX's highest priorities". Those priorities were stated to be: pricing, copyright protection, the tripartite structure of the agreement -- it being remarked that "all of the carriers have complained bitterly" about that structure -- the division of the market into dynamic and non-dynamic categories, territorality -- that is, the issue of separate agreements for supply within Australia and supply outside Australia -- and SEATS.
since 1986 in an attempt to establish a new
contract for the supply of ASX Signal 'C' not
only to AAP but on other Carriers. The
negotiations had progressed to the extent that
a number of drafts of the Signal C contract
were produced, commented upon and negotiated
to a position where in mid May it was our
belief that we were close to a resolution of
the major issues. It has been considered
important to reach a satisfactory conclusion
with AAP because it is the largest Carrier of
Signal 'C' and this would place significant
pressure upon other more recalcitrant data vendors
(such as Pont Data) to also reach agreement."
27. The memorandum then went on to consider various options for ASX "to
force its will upon the data vendors". Those options included:
denial of
supply of Signal "C", or, at least, a threat to deny supply; an application
for authorisation of the agreement by the
Trade Practices Commission; the
appointment of an independent arbitrator, and "the strategy of delay". The
memorandum ended with
a warning:
"ASX must remember that there is a wider AAP28. Notwithstanding the difficulties, in about August 1988, agreement was reached with AAP-Reuters. One or more agreements, relating to Signal "C", were signed by that company. A subscriber named Information Express also executed an agreement at about the same time as AAP-Reuters, in the same form. Thereafter, Mr Udovich was instructed to obtain from the remaining subscribers agreements in the same form as those executed by AAP-Reuters and Information Express. A decision was made not to open for negotiation the terms of the agreements. Mr Udovich explained in his evidence that "it was very important for us to ensure that there was a level playing field and everybody that was receiving Signal 'C' would sign the same agreement with the same terms and conditions". Although Mr Coppel claimed in his evidence that ASXO would have been prepared to discuss with Pont Data its concerns about the terms of the contracts if only Pont Data was willing to drop its request for a different basis of payment to that proposed by ASXO -- a request which was in fact denied by the terms of contract prepared by ASXO -- Mr Udovich made clear that this was never his understanding of the position. In the course of cross-examination, he gave this evidence:
agenda which Reuters International revealed in
its 1987 Annual Report. This is to dominate
the international collection of stock market
and other financial markets information in
order to establish an international financial
stock exchange on a screen based system at the
earliest possible opportunity. There is no
doubt that AAP plays a part in this process
(as the Australian agent for Reuters
International) and accordingly any attempt
which is made to infiltrate the SEAT system
must be defended in order to preserve ASX's
control of its own markets."
Q "In your view, from the time AAP signedMr Chapman agreed that this "take it or leave it" attitude had the authority of G4.
its agreement, it was useless discussing
any proposed amendment to the form of
agreement with any other data
disseminator was not it?"
A "Yes."
Q "And you responded to any suggestion or
submission made by any data vendor for
amendment of any of the provisions of the
form of agreement which AAP had signed
with a negative answer?"
A "Yes."
Q "And indeed your negotiating stance was:
this is the form of agreement, sign it or
we will cut off the signal, was it not?"
A "Yes, to keep everybody equal."
Q "And you accordingly were not prepared to
even consider any suggestion of
submission for alteration which any data
vendor might make?"
A "We felt it was very difficult, that is right."
Q "You felt it was - I see. In fact you
regarded it as impossible, did you not?"
A "Yes."
29. Mr Udovich's attempts to sign up subscribers encountered some resistance. By 2 September 1988 no more than one additional subscriber had signed. The evidence does not reveal the number of organisations taking Signal "C" at that time. There had been 21 subscribers in December 1987 and the number of subscribers has progressively increased. So the three subscribers which had signed the new contracts were only a small fraction of the whole.
30. Notwithstanding these facts, on 2 September 1988 Mr Udovich wrote letters
to most, if not all, of the unsigned subscribers, including
Pont Data, in
which he said:
"Your company is one of the few that have not31. The letters had the desired effect. By the deadline date, 9 September 1988, almost all of the current subscribers had signed up. Pont Data signed only on 9 September 1988, and then under protest. On that day Mr D H Byrnes, Database Manager of Pont Data wrote a letter to Mr Udovich which opened as follows:
signed an agreement to enable continued supply
of Signal 'C'. Under these circumstances and
having regard to the protracted nature of
these negotiations ASX will shortly have no
alternative but to terminate supply of Signal
'C' to your company unless agreement has been
reached in the terms referred to above by the
close of business on Friday 9th September,
1988. Please be advised that this deadline
will not be extended under any circumstances.
I look forward to receiving the executed
agreements from you before Friday 9th September."
"I will be delivering to your office this32. There is no doubt that Pont Data objected to the terms of the contracts, as presented by ASXO. These objections had been expressed on numerous occasions, both in letters and in oral communications over the previous twelve months. But, as I have indicated, the objections were never discussed. It is unnecessary to set out their substance here. Essentially, they are the matters which arise for examination in this case, and which I will discuss below. At this stage it is necessary merely to make the point that Pont Data signed contracts which it regarded as unacceptable and unfair only because the alternative was to lose access to Signal "C" and, therefore, its only source of real-time data concerning transactions on the Sydney and Melbourne stock exchanges and on SEATS.
afternoon two signed copies of each of the
Dynamically Updating and Non-Dynamic Systems
Signal 'C' Agreements as requested.
I wish to confirm, as explained to you at our
meeting yesterday, that we are only signing
these agreements because of the commercial
coercion that the Australian Stock Exchange
(ASX) is exerting upon us. ASX Operations
enjoys a monopolist position as the sole
supplier of ASX real-time market information
and, because Pont has as its main business the
dissemination to business of real-time Australian
market information, we have little alternative
if we wish to remain commercially viable.
We believe the Agreements we are being forced
to sign contain inaccurate and misleading
information and may be in breach of the Trade
Practices Act (1974) for those and other
reasons. We also believe that the prices
being imposed upon us and our clients under
these Agreements are excessive and reflect the
unrestricted market power that the ASX enjoys
in the supply of this information."
33. Three contracts were signed by Pont Data. They have been referred to in the course of this litigation as the "dynamic", the "non-dynamic" and the "international" agreements. I will set out as briefly as possible the terms of the contracts insofar as they are presently relevant.
34. The dynamic agreement contemplates its execution by three parties: ASXO,
a party called in the document "the Carrier" -- in
this case Pont Data -- and
another party called "the Licensee". There are two recitals:
"A. ASXO has made arrangements forThere follows a definition clause.
Information (as defined herein) to be
captured and made available for
dissemination by electronic means on a
real time basis.
B. ASXO has agreed to make available to the
Carrier and the Licensee the ASX Signal
by means of which the Information may be
transmitted through the Carrier to the
Licensee in a dynamic mode upon request
being made by the Licensee from time to
time upon the terms and conditions
hereinafter contained."
35. By cl.1, the agreement is to commence on the date of execution and to
continue indefinitely, subject to the right of the Carrier
or the Licensee to
terminate on one month's notice and the right of ASXO to terminate on any 30
June after giving three months' notice.
The obligation of ASXO is spelled out
by cl.2(1):
"Subject to this Agreement, on each business36. It is relevant to note that the definition clause defines "ASX Signal" as "the electronic means used by ASXO to disseminate the Information on a real time basis". "Information" is defined as "the information relating to the trading operations of the stock markets conducted by ASX or its subsidiaries and other sources, described as 'Signal C' in the 'ASX Data Service Manual' and provided by the ASX Signal". Finally, "dynamic mode" is defined as meaning that "the Information or any part thereof is capable of being automatically updated in the Licensee's Interrogation Device without the need for reinterrogation of the Information source".
day ASXO shall supply the ASX Signal on a real
time basis to the Carrier for transmission of
the Information to the Licensee during the
course of that day in dynamic mode until the
termination of this Agreement. ..."
37. Clause 3, dealing with use of the Information, is of some importance to
the case made by the applicant. Relevantly it reads:
"3(1) Subject to this Agreement the Carrier and38. Clause 4 deals with fee payments. It needs to be read in conjunction with the Schedule to the agreement. So read, the clause requires payment by Pont Data of a monthly licence fee equal to $150 for the first terminal of every Licensee, together with a further $75 for each subsequent terminal of a Licensee. In addition, Pont Data is required to pay to ASXO annually either a licence fee of $15,000 or an unrestricted licence fee of $60,000. The difference between the two, in practical terms, is that an unrestricted licence permits a subscriber to store data indefinitely -- see cl.3(4) above -- whereas this is forbidden to the holder of an ordinary licence. In addition to the above, there are fees prescribed for some ancillary services. These are not presently relevant.
the Licensee each has a non-exclusive
licence, in the case of the Carrier to
transmit in Australia the Information to
the Licensee, and in the case of the
Licensee to obtain through an
Interrogation Device or Interrogation
Devices in Australia the Information, but
for no other purposes.
3(2) (a) The Carrier shall not, whether alone
or in conjunction with any other person
(i) publish, show or make available
the Information to any other
person, or
(ii) reprocess, retransmit, store or
deal with the Information in any
way whatsoever other than for the
purposes of Clause 3(1).
(b) The Licensee shall not whether alone
or in conjunction with any other person
(i) publish, show or make available
the Information to any other
person except by way of fair
dealing for the purpose of
research, private study, criticism
or review;
(ii) reprocess or store the Information
except for the purpose of (i)
above; or
(iii) transmit or deal with the Information
in any other way whatsoever.
3(3) Notwithstanding clause 3(2) the Carrier
may store the Information provided that
any Information stored is deleted from
the storage medium immediately upon
receipt by the Carrier of Information
updating the stored Information and
provided further that Information may be
stored during the whole of the day on which
it was first transmitted to the Carrier.
3(4) Notwithstanding clause 3(2) upon payment
of the Unrestricted Licence Fee the
Carrier may store, reprocess and
retransmit the Information in Australia
in any form at any time after the day on
which the Information is first
transmitted to the Carrier.
3(5) Neither the Carrier nor the Licensee
shall directly or indirectly use the
Information or any part thereof to
establish, maintain or provide, or assist
in establishing, maintaining or providing
a stock market (other than a stock market
of a stock exchange or of a securities
exchange or an exempt stock market) for
trading in securities.
3(6) The Carrier shall not supply the
Information or any part thereof to any
other person on terms that would allow
that person to do any act or thing that
either the Carrier or the Licensee has
hereby agreed not to do.
3(7) Nothing in this Agreement shall be
understood as an abandonment, revocation,
assignment or denial by ASXO of any
copyright or confidentiality in the ASX
Signal and the Information. The Carrier
and the Licensee each has a non-exclusive
licence of any such copyright in the ASX
Signal and the Information only to the
extent limited by and in accordance with
this Agreement.
3(8) ..."
39. Clause 5 of the dynamic agreement contains certain releases and indemnities in favour of ASXO. Clause 6 deals with audit, requiring -- amongst other things -- that Pont Data supply a certificate from a registered company auditor as to its compliance with its obligations.
40. It is not necessary to refer to cll.7 to 17 of the agreement, but reference should be made to cl.18 whereby ASXO agrees "to use its best endeavours to ensure that it does not discriminate in any material way against the Carrier vis-a-vis other carriers (including any subsidiary or division of ASX) supplying the ASX Signal in dynamic mode to licensees in Australia ...".
41. The non-dynamic agreement shares many of the features of the dynamic agreement. But it is not structured so as to make the ultimate user a party. The only parties are ASXO and Pont Data. Notwithstanding that circumstance, Pont Data is again called "the Carrier". The obligation undertaken by ASXO under cl.2(1) of the agreement is to "supply on each business day the ASX Signal on a real time basis for transmission of the Information to Licensees". Clauses 2, 3 and 4 closely follow those of the dynamic agreement except that the fees are treated in a different way. There is no monthly fee. Leaving aside the ancillary services, the obligation of the "Carrier" is to pay an annual fee of $15,000 and access charges calculated at five cents per interrogation. If the "Carrier" desires the right to store information, an annual storage fee of $45,000 is payable.
42. The international agreement authorises the dissemination by the "Carrier"
to licensees outside Australia of information supplied
by ASXO. It is not
necessary to refer to the terms of this agreement otherwise than to note that
it does not envisage execution
by the licensee and that the charges payable
thereunder are similar to those under the dynamic and non-dynamic agreements.
(The international
agreement also provides for increases in the various
charges as from 1 July 1989. There is no such provision in the dynamic and
non-dynamic agreements, although I gather from the oral evidence that higher
fees have in fact been demanded under those agreements
since that date.
Nothing turns on this fact.)
The applicant's objections to the agreements
43. The applicant's case is that the conduct of the respondents, in insisting upon the execution by it of these three agreements as the price for its continuing to receive Signal "C", contravened each of ss.45, 46 and 49 of the Trade Practices Act. It is further said that the terms of the agreements, if complied with by Pont Data, would force it into breaches of ss.47 and 52 of the Act, so that those provisions are void. I will deal separately with the case made by the applicant under each of these sections. But there is some overlap in the elements specified by these sections, so it is useful to first summarise the applicant's objections to the forms of the agreements. They are seven in number.
44. Reference has already been made to the tripartite nature of the dynamic
agreement, which results in Pont Data having to inform
ASXO of the names and
addresses of those of its customers who wish to take any "dynamic" information
which is derived from Signal
"C", and to state the number of terminals which
they wish to operate. Pont Data takes the view that this is commercially
sensitive
information. In particular, it objects to being required to supply
such information to persons who manage a competitor, JECNET.
The
reasonableness of Pont Data's attitude was conceded by witnesses called on
behalf of the respondents. Mr Chapman agreed that
the information which would
be revealed by the tripartite agreement "would be very, very useful to those
concerned in seeking to
market JECNET". He agreed that "the value of that
sort of knowledge to a retail operator competing with other retail
disseminators"
had been made clear to the members of G4 in documents which
they had considered. Mr Marshman also agreed that "it would be of great
value
to JECNET or those running it to know who were the retail clients interested
in the acquisition of electronically disseminated
market information". He
said that it would be "useful information" "in devising market strategies".
The evidence of Mr Coppel included
the following:
Q "The data retailers were objecting to45. Three reasons were advanced, during the course of the evidence, for insistence upon the tripartite form of agreement. The first was the "protection of the revenue stream"; that is, to ensure that ASX would receive royalties in respect of each terminal of each licensee. But it was conceded by Mr Marshman that this reason was not cogent, as appears from the following answers:
handing over the names, addresses and the
number of terminals that their clientele
represented, were they not?"
A "Some of them were, yes."
Q "And they were objecting because that was
information that they perceived as being
useful to JECNET in relation to its
marketing, were they not?"
A "I think that was their view, yes."
...
Q "Let us take the domestic agreements for
the time being, Mr Coppel. So far as the
domestic market was concerned it might be
a matter of some substantial interest to
JECNET to know what the total size of the
market was?"
A "Yes."
Q "Who were the biggest players in the
market so far as the customers were?"
A "I think AAP and JECNET."
Q "So far as the customers of the data
retailers were concerned it might be
useful for JECNET to know who those
persons were?"
A "Conceivably, yes."
Q "And to know how it, JECNET, was standing
in relation to the other data retailers?"
A "Yes."
Q "To be able to estimate, for example, what
the total revenue of the data retailers was?"
A "Well, if they knew what the data - all
the data retailers charged everybody and
they multiply that by the number of
customers, they would know what the
revenue was."
Q "Thank you. It is from the information
that was required to be disclosed to the
exchange under the dynamic agreement,
JECNET or those responsible for its
management could work out a substantial
part of the intimate details of the
financial operations of one of their
competitors, could they not?"
A "They could, yes."
Q "And that was a perfectly sensible
objection for a data retailer to make,
was it not?"
A "Yes."
Q "Thank you. There is just one other46. The second reason was that mentioned by Mr Marshman in the above evidence: the desire to ensure that a purchaser of the information did not use it to establish an alternative stock exchange. There are statutory constraints on the establishment of any new stock exchange in Australia: see ss.37 and 38 of the Securities Industry Act 1980 and the corresponding provisions in the various State Codes. Of course, those provisions do not guarantee that nobody will attempt to set up a new stock exchange within Australia, with approval or otherwise. And the statutes might not prevent an off-shore exchange dealing in Australian securities. The applicant does not challenge the evidence of Mr Marshman that the insistence of G4 on a tripartite agreement was influenced by a desire to prevent an alternative stock exchange. Rather, it seeks to turn this evidence to its advantage by arguing that the respondents thereby contravened s.46 of the Trade Practices Act. I will return to that matter.
matter you might help me on. In giving
the reasons for the tripartite agreement,
you gave two reasons, one of which was to
safeguard the revenue, which is I
understood to make sure that there were
not people who were in fact using the
signal of whom you are unaware, you were
not getting any payment for?"
A "Yes, that is right."
Q "If you assume a distributor, or
disseminator or carrier, call him what
you will, who is prepared to be not frank
with ASXO, what difference would it make
whether there was a tripartite agreement?
Would that disseminator be able to simply
make a deal with somebody else and not
tell you that he had made the deal and
receive the revenue and you would not
even know that person was using it?"
A "Yes. I think that is so, but it is the
second reason that I had in mind then that
I mentioned would become operative I suppose."
Q "Oh, yes, you wanted direct contractual
relationship so as to prevent
establishment of another Stock Exchange?"
A "Yes."
Q "I understand that. But, I am just
dealing with that first - so far as that
first reason is concerned, that equally
applies whether there is a tripartite
agreement or not?"
A "Yes, that is right."
47. A third justification for the tripartite form of agreement was suggested
in evidence by Mr Coppel: the desire of ASXO "to prevent
any other person
supplying persons who wish to become disseminators of that data". It is
instructive to put that statement of Mr
Coppel in its context:
Q "Was a part of the strategic plan that was48. Mr Chapman also gave some evidence in which he linked ASXO's insistence on the tripartite agreement to its desire to limit the wholesaling of Signal "C" data by others.
not adopted the desire to achieve a
monopoly in the wholesale of market
information by the Stock Exchange?"
A "The Stock Exchange is the sole supplier
of its market information. That is an
established fact."
Q "And maintaining that position is important
to the Stock Exchange, is it not?"
A "Yes."
Q "Maintaining the position as the only
wholesaler of information about trading
on the Australian Stock Exchange is
important to the Stock Exchange, is it not?"
A "Yes."
Q "Because unless that is maintained it is
more difficult to earn profits from your
dealings with the parties?"
A "That may or may not be. It has not
happened yet so I have no experience."
Q "But if it did happen, if you had
competition from another wholesaler of
information, that might diminish your
profit opportunities from the sale of
that information?"
A "It is conceivable."
Q "And I suggest to you that one of the
goals identified in the strategic plan -
that is to say, it was to achieve a
monopoly in the wholesaling of market
information by ASX - is a goal that has
been consistently pursued by G4?"
A "Well, it does not require any effort from
G4. ASX is the only party that has the
information and it therefore is the sole
supplier of it. It is not as if we sort
of set some complicated process to get to
that position. It happens automatically."
Q "And of course, once you sell Signal C,
for example, to another person, that
person might supply many other people
with the information within Signal C,
might they not?"
A "Well, they do."
Q "They might sell that information to other
information sellers, might they not?"
A "Yes."
Q "They might become, in effect, a
wholesaler of the information within
Signal C, might they not?"
A "Yes."
Q "So that there would then be two sources
of information within Signal C for
persons wishing to disseminate that
information to other people?"
A "Yes."
Q "And that of course, is something that you
have prohibited occurring within the
tripartite agreements, have you not?"
A "Yes. Because, if we do not, we will not
be able to test the revenue that we
should be getting because we will not
know about it."
Q "It might erode your revenue base?"
A "Yes."
Q "So you must remain the only wholesaler of
the Signal C information?"
A "I am not quite sure what the word 'must'
means but we are - the facts are that we
are the prime supplier, the first level
supplier of that information."
Q "And by your agreements, your tripartite
agreement, your dynamic agreement, you
seek to prevent any other person
supplying persons who wish to become
disseminators of that data?"
A "Yes."
49. The second matter complained of by Pont Data is ASXO's insistence on
describing it in the agreement as a "carrier". The objection
was stated by Mr
Moore, in his affidavit, in this way:
"(Pont Data) is described throughout the50. Mr Lee gave evidence that AAP-Reuters had also objected to the word "carrier". He said that "they withdrew it in the end". But he acknowledged that the withdrawal took place only after a threat to terminate the supply of Signal "C". As with other matters, thereafter the word was not negotiable. Mr Chapman agreed that most of the organisations who took Signal "C" added value of their own and that he did not regard those disseminators as "mere carriers" of the signal. He said that the word "was regarded as a descriptive word within the draft agreement which subsequently became the final agreement". He agreed that there were "plenty of other descriptive words which might have been used as substitutes" and that he was aware of at least one objection to the use of "carrier". The evidence proceeded:
agreement as 'the Carrier'. A 'Carrier' is an
organisation which simply moves goods from one
point to another without necessarily
understanding the meaning or contents of those
goods. In a telecommunications sense, a
carrier is an organisation which moves
electronic signals from one point to another
without any understanding of the meaning or
content of those signals ... It is not a term
that is apt to describe the functions
performed by (Pont Data). It is calculated to
create the impression that, for example, (Pont
Data) adds nothing to the information supplied
by ASX. No client would subscribe to (Pont
Data's) services if all (Pont Data) did was to
pass on the unprocessed contents of Signal C.
In fact, (Pont Data's) computer systems use
the ASX data along with other data to produce
its own unique signals which permit data to be
displayed legibly, allow comparisons with
other data, charting and other functions
according to pre-set and user determined
criteria. It is not accurate in any sense of
the word to describe (Pont Data's) function as
that of a 'carrier'. The use of the term
reflects badly on (Pont Data's) products and
gives the impression that the same services
could be obtained directly from the ASX. As
(Pont Data's) clients are required to enter
into the agreement, (Pont Data) objects
strongly to being forced into a position where
it has to present to its clients an agreement
for supplying its services which contains
terminology that is misleading as to the role
performed by (Pont Data) and the services it supplies."
Q "Was there any reason in your mind for its51. Mr Marshman was also aware of objections to the word "carrier". He said that "at one stage we thought of using the word 'vendor' but decided that 'carrier' was more descriptive". ASXO was, he said, "consciously seeking to adopt the word which to the disseminator's client would cover an idea of the role of the disseminator". He agreed that AAP-Reuters withdrew its objection to the word only "in the teeth of an assertion that otherwise they would not get Signal 'C'".
retention rather than the substitution of
some other word to describe the
contracting party?"
A "Yes, simply because the matter was not
pursued by AAP-Reuters."
Q "I see; so that was the reason in your
mind for the retention of the word 'carrier'?"
A "Yes."
52. Mr Coppel conceded that he knew that Pont Data had complained about the
use of the word "carrier", as being an inappropriate
description of its
function:
Q "And they were concerned about an inappropriate53. The third objection by Pont Data to the form of the agreements prepared by ASXO is the distinction between "dynamic" and "non-dynamic" supply. Once again Mr Moore articulated the objection in his affidavit:
description of their function appearing
in a document that you were requiring
them to have third parties sign?"
A "They were, yes."
Q "Because it gave the impression to those
third parties that the principal source
of that which they were obtaining on
their system emanated from the ASX?"
A "I think they asserted that, yes."
Q "And that you as a man of commerce can
understand that as an objection, cannot you?"
A "Well, I thought that was another issue
that we might accommodate them if they
negotiated seriously with us but I was
not prepared to offer that to them at
that time. I wanted to get something
from them in return for it."
"35. This distinction is not one that is made54. Mr Moore's objection was not directly dealt with in the evidence adduced on behalf of the respondent. Perhaps it received some support from one answer given by Mr Udovich:
generally in the industry and is not made
by any other Exchange with which (Pont
Data) or the Pont group deals. It is
inappropriate and inflexible mainly
because of complications that arise
through the different fee bases. For
example the Pont Classic service can be
sold, and is sold, without the 'dynamic'
feature whereby information is updated on
the screen. In these instances (Pont
Data) should, strictly speaking,
calculate its fees to ASX on a per access
basis under the Non-Dynamic agreement. I
believe that, based on (Pont Data's)
customers' pattern of usage, the costs to
users would then exceed the monthly per
terminal fees payable for Dynamic systems
particularly for additional terminals at a site.
36. Similarly, Non Dynamic services such as
Pont's Market Advantage could be enhanced
by the addition of a dynamic updating
feature, but this would change completely
the fee basis and make the service
uneconomic because it is designed for
clients who need to use the service
relatively infrequently. These clients
would be obliged to pay the ASX's Dynamic
system charges of $160 per month when
because of the frequency of their use,
monthly billings from Pont would be
considerably less.
37. (Pont Data) submits that if vendors are
to compete fully and effectively they
should be free to design services with or
without dynamic features unfettered by
the substantial inhibitions created by
the ASX's distinction between Dynamic and
Non Dynamic Information."
Q "At any rate the development of the55. The fourth complaint is the prohibition on reselling, already noted in passing. The effect of cl.3(2)(b) of the dynamic agreement, set out above, is to prevent Pont Data selling information containing Signal "C" data to any person who wishes to resell it to someone else. Similar provisions occur in the other two agreements. As early as September 1986, in the strategic plan, Mr Udovich had emphasised the importance to ASX of monopolising the wholesaling of its market information. It was clearly an objective of ASXO to prevent wholesaling by others. All of the members of G4 said so. Mr Lee said he agreed with what had been said in the strategic plan. He saw ASX as the "sole source for Australian stock exchange information", the need being to "establish one integrated market ... in the dissemination of that information". Mr Chapman agreed that there was a link between the prohibition on resupply and the tripartite nature of the dynamic agreement:
technology opens the way for the
emergence of services to be provided by
data disseminators different from those
which have in the past been provided,
does not it?"
A "It certainly could. Technology is
developing and enhancing products and
services on a daily basis, world-wide."
Q "The question I asked you, Mr Chapman, was56. Mr Chapman understood that this issue was linked to the financial health of JECNET:
would you not agree that the prohibition
of re-supply by a disseminator to another
wholesale disseminator would prevent the
first disseminator from contracting for a
payment or charge to supply the
information or part of it which it had
obtained from you or your company?"
A "Yes."
Q "And that would limit or prevent to that
extent the carrying on of such a business
by the disseminator contracting with your
company?"
A "Yes."
Q "That, of course, is a prohibition which
the form of agreement proferred for
execution by the disseminators contains?"
A "Yes."
Q "So that to that extent at least would you
not agree it was your purpose in
authorising the making of agreements in
that form to limit the disseminators, the
contracting disseminators' area of business?"
A "Yes."
Q "And indeed, would you not agree that the
achievement of that objective was in
reality the reason for the agreement to
be structured as a tripartite form of agreement?"
A "Yes."
Q "And, indeed, it had been made clear in57. The evidence of Mr Marshman included the following passage:
the material which persons employed by
the stock exchange and/or ASX Operations
Pty Limited had prepared for
consideration by the members of G4 during
the course of the construction of the
form of agreement for the dissemination
of electronic information, had made clear
the fact that what I might call a
wholesale dissemination of the
information by Signal C had and was
continuing to make - I am sorry - had
assisted largely in developing
competition by others with JECNET?"
A "Yes."
Q "And it had been made clear to you and
other members of G4 that the view which
had been arrived at by those who had been
considering, what I might call, options
for the conduct of the Signal C
dissemination business and of JECNET,
that the development of the dissemination
as a data wholesaler of Signal C
significantly affects the financial
information market and the business
opportunities of JECNET?"
A "Yes."
Q "In fact, the form of agreement which youI have already set out the relevant passage from the evidence of Mr Coppel.
authorised to be presented to
disseminators was so cast as to prevent
the resupply of information obtained from
Signal C to any wholesaler other than the
disseminator who was contracted to you?"
A "That is so, for a reason, yes."
Q "That of course you recognised as a
prohibition which was capable of having a
considerable impact on the business of
the contracted disseminator, did you not?"
A "No, I do not totally accept that."
Q "Clearly it must inhibit the area of his
business must not it?"
A "No, the contracted wholesale disseminator
was in the business, I understood, of
onselling the data for retail purposes.
We were not trying to - we did not want -
we thought it appropriate he not onsell
it to yet another wholesaler."
Q "And you wanted to prevent him selling it
to yet another wholesaler?"
A "That is right."
Q "You set about achieving that objective by
writing the relevant prohibition into the
agreement?"
A "Yes, that is right."
Q "If a contracted disseminator had
previously, that is previously to the
execution of the agreement, been
supplying another wholesaler with, in
part, Signal C information, you would
recognise that the prohibition in the
agreement would have an impact upon the
contracted disseminator's business to
that extent?"
A "Yes."
Q "And that was one of your purposes for
which the agreement was framed?"
A "The purpose being to constrain his ..."
Q "To constrain his ability to sell ... ?"
A "To another wholesaler."
Q "... to another wholesaler?"
A "Yes, it was."
58. That Mr Udovich so understood the purpose of the prohibition on resupply
is evident from the following passage in his cross-examination:
Q "The purpose of the prohibition of59. The fifth major objection by Pont Data to the agreements relates to fees. The first aspect of that objection is the storage fee. It is common ground between the parties that the storage by subscribers of information derived from Signal "C" imposes no additional cost burden upon ASXO. When that information is stored, it is stored in the subscriber's equipment in a format devised by the subscriber and upon the instructions of the subscriber's software. In his affidavit Mr Moore stated his objection to the making of a storage charge. Put simply, his objection is that a storage charge is discriminatory. It penalises subscribers (like Pont Data) who offer their clients historical information and analyses -- and who, therefore, must store Signal "C" data -- as compared with subscribers who offer only real-time information.
resupply by a data disseminator was to
retain in the hands of ASX Operations Pty
Limited the total wholesale market for
the supply of electronically disseminated
stock exchange information, was it not?"
A "Yes."
60. Some questions were asked about the selection of $45,000 as the
appropriate fee. At one stage, Mr Udovich had suggested $9,000,
but G4
over-rode him. Mr Coppel said in cross-examination that the figure of $45,000
"was based on a rational calculation". Asked
in re-examination to explain the
calculation, he replied:
A "Well, I took the view that because they61. The computation made by Mr Coppel no doubt indicates the maximum amount which, in a commercial sense, could be demanded for storage rights. It does not show that this (or any) storage fee is justified. The only justification which was offered by Mr Coppel was that "we were trying to achieve a return on what we were advised by our lawyers was our intellectual property rights". The legal advice was not tendered in evidence. If there was any such advice, its basis is tenuous. Mr Coppel conceded that "Signal 'C' is being received and being converted into something quite different by the Pont computers, the contribution of Signal 'C' being that it is part of the data bases which are produced by the Pont software". Later, he agreed that the format adopted by the subscribers was their own copyright. Mr Coppel agreed that he had been advised that ASXO had no copyright in the numbers conveyed by Signal "C", but only in the format adopted for that signal. The evidence went on:
could have sat before a screen with a
keyboard typing all the numbers into that
keyboard, that would probably require two
or three people to do it. They would
probably get salaries something in excess
of $20,000 which would be $60,000 a year.
So if we give it to them for $45,000, then
they are getting it conveniently and cheaply."
Q "And as you understood it Pont simply was62. It follows, of course, that if Pont Data stored its own signal there would be no infringement of the intellectual property rights of ASXO, notwithstanding that the Pont Data signal included numbers derived from Signal "C". The justification asserted by Mr Coppel had no foundation.
not a carrier of Signal C to its
customers, was it?"
A "It was not only a carrier."
Q "And in relation to that which it was
taking to its customers, that was the
numbers which you had been told you did
not have any intellectual property rights
in, that is right, is not it?"
A "I think it follows, yes."
Q "So what Pont was delivering was numbers
you had no rights in relation to in a
context that had been generated by Pont's
own work and effort and software and computers?"
A "Yes."
63. Pont Data's complaint about fees is not limited to the imposition of a
storage fee. It says that the fee structure is too high,
generally. Mr Moore
developed the point in his affidavit. The figures set out in the following
passages were unchallenged:
"55. The Signal 'C' feed is substantially64. The witnesses called on behalf of the respondents, including Mr Coppel and Mr Udovich, conceded that the respondents had no information as to the cost of creating and transmitting Signal "C" and that the charges required under the agreements were unrelated to that cost. Indeed, there was a question whether Signal "C" involved any additional cost at all. Mr Moore, who has been associated with the stockbroking industry since 1966, thought that Signal "C" was really a by-product of the other activities of the exchange. Mr Lee said that the recording of all the information on Signal "C" was essential to the performance of the functions which the stock exchange undertook.
produced as a by-product of the ASX's
broker accounting system and the SEAT
system. Accordingly, it has little or no
direct costs of production. The broking
accounting system is a necessary adjunct
of the day to day operations of the
members of ASX. The ASX has an
obligation to ensure the widest possible
distribution of market information to
ensure an informed and orderly market.
The brokers and exchanges benefit from
the dissemination of that information by
reason of enhanced market participation.
It is a feature of most securities and
commodities markets that they encourage
the widest possible dissemination of
information concerning their market as a
way of encouraging participation in the
market. (Pont Data) and other
information vendors provide a real and
substantial benefit to the ASX by
assisting and maintaining an informed
market. For these reasons, the charge
for Signal 'C' should be set at the
marginal cost of producing it.
56. The fees charged by ASXO are high in
comparison to those charged by other
exchanges. Annexure 'D' hereto is a list
of the fees charged by other exchanges,
many of which have a far greater market
capitilisation (sic) than the ASX.
Annexure 'E' hereto is a list which ranks
by price the monthly terminal fees
charged by other exchanges. Annexure 'F'
hereto is a list which ranks by size the
annual flat fees charged by other
exchanges. It should be noted that,
whilst the first and subsequent terminal
fees for all real-time data dynamically
for all stocks listed on the New York and
American Stock Exchanges totals $188 and
$67 respectively, compared to the $160
and $80 for ASX data, the volume of
trading on those exchanges is
approximately twenty times greater than
that on the ASX. The annual flat fees
for taking this information from the U.S.
totals $34,400 (and there is no Storage
Fee) considerably less than the $61,000
payable by Pont to the ASX. A
non-professional user of the huge volume
of dynamically up-dated U.S. real-time
data pays just $9 per month in exchange
fees. Under the ASX pricing regime, a
similar non-professional would pay $160
per month. If a non-professional user
accesses ASX data via a non-dynamic
system then, for $9 per month, he would
get one-time accesses to just nine ASX
stocks per business day compared to his
U.S. colleague's unlimited access to U.S.
stock information for the same $9 per
month. No other exchange in the world
charges a Storage Fee. The price for
large installations is excessive in both
absolute terms and in comparison to other
exchanges in the world.
...
59. The fee of 5c per access for non dynamic
services represents an increase of some
400% over the fees previously charged to
Pont by ASX. A service such as Market
Advantage is most price sensitive because
the clients include many small investors
... The size of the user base of (Pont
Data's) services is important to its long
term viability and its short term pricing
capability. The smaller the user base,
the higher charges must be, thereby
risking the user base. The fees are, in
my opinion, simply too high having regard
to the real costs of production."
65. It was common ground amongst all the witnesses who dealt with the matter that, regardless of Signal "C", ASX would need to obtain and store information about the transactions consummated on the floors of the two exchanges and through SEATS. But there was a question whether ASX would, in any event, need information as to bids and quotes. Mr Coppel thought that it would not. He made the point that bids and quotes did not, of themselves, give rise to any financial liability. He disputed the proposition that ASX needed to have records of bids and quotes in order to fulfil its market surveillance responsibilities. His reason was that it was not possible to accurately time bids and quotes: "The quotes and bids were taken off the chalk boards by computer operators, but when the market is very very busy there is an enormous amount of shouting, a lot of the quotes do not go on, a lot of them get rubbed off before they are put in. It is not a very useful tool for market surveillance." Mr Coppel, however, added that "research" would perhaps use bids and quotes.
66. The question whether, in any event, ASX would need to record bids and quotes is peripheral to the present case. Although there is no direct evidence upon the point, I would not expect that the recording of bids and quotes would add much to the cost of recording actual transactions. But, to the extent that it is necessary to form a view about the matter, I must say that I have some difficulty in accepting Mr Coppel's opinion that there would otherwise be no need to record bids and quotes. One can readily accept that information as to bids and quotes will sometimes be incomplete; perhaps, in moments of feverish activity, seriously incomplete. Yet that information may be revealing as to market conduct, including in relation to some types of conduct proscribed by law. Indeed, the making of false or misleading bids or quotes may be the critical act in an offence such as market rigging (see s.124 of the Securities Code) or the making of false or misleading statements (see ss.125 and 126). Such information may be relevant to stockbroker conduct: see ss.131 and 132.
67. It seems to me significant that ASX has been recording bids and quotes since long before this case arose. Perhaps those who decided to take that course had surveillance functions in mind. Perhaps they were also influenced by the utility of this information to brokers who are called upon to advise their clients as to the likely cost of a purchase, or the likely return on a sale, of particular shares. In the case of heavily traded stock, sales information may suffice for this purpose. But where a stock is lightly traded, the most recent sale may be misleading as to the current state of the market.
68. Pont Data also claims that, in setting its fee levels, ASXO sought to
have subscribers to Signal "C" subsidise JECNET. Reference
has already been
made to the magnitude of the losses suffered by JECNET. Unless offset by
profits earned on some other trading activity,
those losses would have to be
borne by levies made on ASX members. It was an objective of the strategic
plan to reduce broker levies.
There are numerous passages in the documents
which preceded the formulation of the Signal "C" agreements which suggest an
appreciation
by Mr Udovich of the relationship between the charges for Signal
"C" (and other signals) and the welfare of JECNET. The members
of G4 took Mr
Udovich's point, as is apparent from this passage in Mr Coppel's evidence:
Q "And I suggest to you that G4 recognised69. When asked where one might find in documentary form "the distillation of the policies of G4 in relation to the contracts", Mr Coppel replied: "Ultimately in the contracts themselves". Mr Coppel agreed that "profitable elements of the exchange are being used to defray the losses on, for example, JECNET and broker/client accounting". He said that this was "over a short term" but he agreed that this situation still continued as at the time of his evidence and would continue into 1990. Mr Coppel also agreed that, if JECNET prices were increased substantially, JECNET would probably lose market share.
that the sale of information by way of
wholesale to the electronic disseminators
first of all put impact on JECNET's
position in the market?"
A "JECNET was in competition with other
retail electronic information vendors, yes."
Q "And therefore the cost structure of those
information retailers would determine
their ability, in part, their ability to
compete with JECNET?"
A "Yes."
70. The requirement of a storage fee is not the only restriction imposed upon the use of data devised from Signal "C" about which Pont Data complains. Clause 3(2)(b)(i) forbids the licensee, that is the customer of Pont Data, to "publish, show or make available the information to any other person except by way of fair dealing for the purpose of research, private study, criticism or review". Clause 3(2)(b)(ii) prohibits reprocessing or storing of the Information except for a purpose stated in sub-para.(i).
71. The sixth complaint of Pont Data is that -- apart altogether from the prohibition on wholesaling -- these provisions seriously restrict the use of data by licensees. When the matter was put to Mr Udovich, during the course of cross-examination, he argued that the provisions did not restrict the use of the information by the licensee "in his day to day business". As a general statement, this is incorrect. The effect of cl.3(2)(b)(i) is to limit the use or storage of the information to a use which is, firstly, "by way of fair dealing" and, secondly, "for the purpose of research, private study, criticism or review". Some licensees may wish to use the data only for research purposes, although this seems to me to be unlikely. The alternatives are even less likely. I doubt whether even stock market connoisseurs would spend much time on "private study", "criticism" or "review" of the data provided by Signal "C".
72. Finally, Pont Data contends that the terms of the agreement require it to
engage in misleading conduct in relation to its own
customers, in
contravention of s.52 of the Trade Practices Act. It argues that it is
required by ASXO to present to persons to whom it proposes to supply material
derived in dynamic mode from
Signal "C" an agreement which contains false
statements. The provisions of the agreement relevant to this complaint are
particularised
in para.42 of the Amended Statement of Claim as follows:
"42. The Agreements contain provisions, inter73. Some of the matters particularised have already been discussed. Others are self-explanatory. At this stage, I need comment only on para.(e). The point here being made is that Pont Data may wish to supply information to a client partly in dynamic mode and partly in non-dynamic mode. Apparently, this is technically feasible. If it so wished, Pont Data would have to use the ASX "dynamic mode" agreement; yet cl.2(1) of that agreement refers only to the "transmission of the Information to the Licensee during the course of that day in dynamic mode", thus falsely suggesting to the licensee that the whole of the information supplied by Pont Data to the licensee is in dynamic mode.
alia, to the following effect:
...
(d) stating, representing or implying
that the Applicant is a 'carrier' of
the ASX Signal 'C';
(e) stating, representing or implying
that any service of the Applicant in
which information is transmitted to
clients of the Applicant partly in
dynamic and partly in non-dynamic
mode will be supplied to such
clients entirely in dynamic mode;
(f) stating, representing or implying
that any client of the Applicant
requires a licence from the First
Respondent to use information
supplied by the Applicant;
(g) stating, representing or implying
that either the Applicant or a
client of the Applicant would
infringe copyright of the First
Respondent or a company related to
the First Respondent by
disseminating data or information
originally received from, or based
upon information received from, the
First Respondent by the ASX Signal 'C';
(h) stating, representing or implying
that republication by a client of
the Applicant of information
provided by the Applicant would
infringe some right, title or
interest of the First or Second
Respondent in that information;
(j) stating, representing or implying
that any such information or data
received by the ASX Signal 'C' is
confidential to the First Respondent
or a company related to the First
Respondent."
74. Section 46 of the Trade Practices Act relevantly provides:
"46. (1) A corporation that has a substantial75. Section 4E of the Act provides that, for the purposes of the Act, "'market' means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or service".
degree of power in a market shall not take
advantage of that power for the purpose of--
(a) eliminating or substantially damaging a
competitor of the corporation or of a
body corporate that is related to the
corporation in that or any other market;
(b) preventing the entry of a person into
that or any other market; or
(c) deterring or preventing a person from
engaging in competitive conduct in that
or any other market.
(2) If--
(a) a body corporate that is related to a
corporation has, or 2 or more bodies
corporate each of which is related to the
one corporation together have, a
substantial degree of power in a market; or
(b) a corporation and a body corporate that
is, or a corporation and 2 or more bodies
corporate each of which is, related to
that corporation, together have a
substantial degree of power in a market,
the corporation shall be taken for the purposes of
this section to have a substantial degree of power
in that market.
(3) In determining for the purposes of this
section the degree of power that a body corporate
or bodies corporate has or have in a market, the
Court shall have regard to the extent to which the
conduct of the body corporate or of any of those
bodies corporate in that market is constrained by
the conduct of--
(a) competitors, or potential competitors, of
the body corporate or of any of those
bodies corporate in that market; or
(b) persons to whom or from whom the body
corporate or any of those bodies
corporate supplies or acquires goods or
services in that market.
(4) In this section--
(a) a reference to power is a reference to
market power;
(b) a reference to a market is a reference to
a market for goods or services; and
(c) a reference to power in relation to, or
to conduct in, a market is a reference to
power, or to conduct, in that market
either as a supplier or as an acquirer of
goods or services in that market.
(5) ...
(6) ...
(7) Without in any way limiting the manner in
which the purpose of a person may be established
for the purposes of any other provision of this
Act, a corporation may be taken to have taken
advantage of its power for a purpose referred to in
sub-section (1) notwithstanding that after all the
evidence has been considered the existence of that
purpose is ascertainable only by inference from the
conduct of the corporation or of any other person
or from other relevant circumstances."
76. Pont Data contends that the conduct of the respondents, in forcing the above described terms on subscribers to the Signal "C" service, constitutes a contravention of each of paras.(b) and (c) of s.46(1).
77. In the application of s.46 to the facts of any particular case the first
question which arises is the definition of the relevant market or markets.
But, as
Mason CJ and Wilson J pointed out in Queensland Wire Industries Pty
Limited v Broken Hill Proprietary Company Limited [1989] HCA 6; (1989) 167 CLR 177 at p 187,
definition of the market and evaluation of the degree of power in that market
are "part of the same process and it is for
the sake of simplicity of analysis
that the two are separated". They went on:
"Accordingly, if the defendant is verticallySee also per Deane J, with whom Dawson J agreed generally, at p 195 and Toohey J at pp 208-209.
integrated, the relevant market for
determining degree of market power will be at
the product level which is the source of that
power: ... After identifying the appropriate
product level, it is necessary to describe
accurately the parameters of the market in
which the defendant's product competes: too
narrow a description of the market will create
the appearance of more market power than in
fact exists; too broad a description will
create the appearance of less market power
than there is."
78. Counsel for the applicant contend that the evidence in the present case
shows that there exist in Australia two relevant markets,
which may be
described as follows:
(a) a market for the provision of facilities79. Counsel for the respondents make the point that the latter market, as defined, is not limited to the supply of information by electronic means, but includes the supply of historical and analytical information regarding stock exchange activity in hard copy form. But counsel do not challenge the applicant's description of the two markets and it seems to me that those descriptions accurately reflect the evidence. I am satisfied that, at all material times, there existed, and that there still exist, two such markets.
for public trading of stocks and
securities (a "stock exchanges market"); and
(b) a market for the supply of information
about activities on stock exchanges (an
"information market").
80. In the Queensland Wire case, it was not necessary for either the High Court or the Full Federal Court to discuss the meaning of the word "substantial" in the collocation "substantial degree of power in a market". In Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581 at pp 591-592 I referred to the meaning of "substantial" in other contexts within the Trade Practices Act. I adopted the test whether the relevant degree of power was more than trivial or minimal, was real and of substance. I adhere to that test.
81. In applying that test it must be observed that ASX does not have a monopoly in the stock exchanges market. Pursuant to s.37(1A) of the Securities Industry Code the Ministerial Council has declared a number of stock markets to be exempt stock markets, thereby allowing them to operate lawfully in competition with the respondents' stock exchanges. But none of these stock markets provides a full range of facilities to the general public. Such facilities are provided only by the six exchanges, located in each of the six State capitals, operated by companies related to ASX. The competition provided by the exempt stock markets would appear to be minimal. To put the matter at its lowest the ASX companies have an influence in the stock exchanges market which is more than trivial or minimal. This influence is real and of substance. It amounts, indeed, to dominance. In that situation s.46(2) requires that each of the respondents be taken for the purposes of the section to have a substantial degree of power in that market.
82. The control by the ASX group of companies of the six capital city stock exchanges carries with it the opportunity to determine who will collect information regarding the sales made on those exchanges. The collection of that information depends upon access, not only to the boards on the exchange floors, but also to the brokers' sales slips. In the case of the Sydney and Melbourne exchanges, ASX has granted the right to collect that information to its own subsidiary, ASXO. The result is that ASXO is able to control the dissemination of that information. As the evidence in this case demonstrates, information as to stock exchange transactions is a valuable commodity, especially the "real-time" information which is demanded by market professionals. In effect, in relation to Sydney and Melbourne, the respondents are vertically integrated, so that, adopting the approach of Mason CJ and Wilson J in Queensland Wire, it may be enough to say that the respondents' power in the stock exchanges market demonstrates their power in the information market.
83. However, counsel for the applicant do not put their case in that way. They take a longer route. They concede that the relevant "product" extends beyond transactions effected at the Sydney and Melbourne exchanges or through SEATS, and includes transactions effected in the other four capital city exchanges. Although the respondents, or their related companies, have control over the collection of information about those transactions, they do not themselves collect that information. Therefore they do not control its dissemination. But counsel for the applicant contend that the respondents' control over the dissemination of information about transactions in Sydney and Melbourne, and through SEATS, is itself enough to confer upon them a substantial degree of power in the information market.
84. I think that this contention is correct. The evidence does not disclose the proportion of total Australian stock exchange transactions which is effected at the Sydney or Melbourne exchanges, or by SEATS, but it was agreed by counsel that the number of transactions in Sydney and Melbourne greatly exceeds the number effected at the other Australian exchanges. It was common ground between the parties that data relating to Australian share transactions would be seriously incomplete if they omitted transactions effected in either Sydney or Melbourne. It is clear that, as Mr Udovich pointed out in numerous documents submitted to G4, their control of "real-time" information as to transactions on these two exchanges gives to the respondents a substantial degree of power in the information market.
85. As counsel for the applicant submit, it may be possible to subdivide the information market by reference to the distinction between the wholesale and the retail supply of information. But, even if this course is taken, it makes no difference to the result. If there is a separate wholesale information market, or sub-market, the respondents clearly have a substantial degree of power in that market or sub-market. It is irrelevant that there is vigorous competition at the retail level.
86. A similar position applies if, again as submitted by counsel, the description of the relevant market is expanded to include other financial information; concerning, for example, futures, commodity prices, money markets or overseas stock exchanges. Whatever else might be included, an Australian financial data service which omitted information about transactions on the Sydney and Melbourne stock exchanges would be seriously inadequate. The unchallenged estimate of the National Sales Manager of Pont Data, Mr C J Bagnall, is that 95% of the subscribers to the Pont Classic Pacific System, Pont Data's main product, subscribe to that service "solely for the purpose of obtaining information relating to securities traded on Australian stock exchanges".
87. My conclusion that the respondents have a substantial degree of power in the relevant markets makes it necessary to consider their purpose in imposing the terms which are embodied in the three agreements signed by the applicant. This is the major issue in the case, so far as it relates to s.46.
88. In considering the matter of purpose, it is necessary to bear in mind the
terms of s.4F(b) of the Act:
"4F. For the purposes of this Act--89. Mr Lee, Mr Chapman and Mr Marshman each swore an affidavit containing the following paragraph:
(a) ...
(b) a person shall be deemed to have engaged
or to engage in conduct for a particular
purpose or a particular reason if--
(i) the person engaged or engages in the
conduct for purposes that included
or include that purpose or for
reasons that included or include
that reason, as the case may be;
and
(ii) that purpose or reason was or is a
substantial purpose or reason."
"My purpose in authorising the negotiation and90. The affidavit of Mr Coppel was in slightly different terms. Mr Coppel stated that his purpose "was to provide for ASX Signal 'C' to be supplied to Pont, and any other data disseminators, on reasonable and consistent terms and conditions acceptable to ASX". Mr Coppel said that, so far as he knew, the purposes of Mr Udovich and the other members of G4 were the same as his own.
implementation of the agreements with Pont
Data was to provide for the transmission of
Signal 'C' to Pont Data on reasonable
commercial terms and conditions. It was no
part of my purpose in authorising the
negotiation and implementation of the
agreements to eliminate or substantially
damage Pont Data or any company related to
Pont Data or any other competitor in any
market, or to prevent the entry of any person
into any market or to deter or prevent any
person from engaging in competitive conduct in
any market."
91. These statements of purpose must be read against the documentary evidence which I have already summarised. It is evident that Mr Udovich regarded ASXO's control of information relating to transactions on the Sydney and Melbourne exchanges and through SEATS as an advantage having considerable economic value. As was said in the strategic plan, "information about these markets is a valuable resource, capable of being a substantial source of revenue". The strategic plan spoke of achieving a monopoly upon the wholesaling of its market information "in order to establish one integrated Australian market and to leverage profits from third parties". The strategic plan favoured using those profits to reduce or eliminate broker levies. This theme was developed by Mr Udovich in later documents, for example in the February 1988 document in which he advised G4 to exclude the wholesaling by others of data collected by ASXO.
92. I think that it is clear that the philosophy expressed in the strategic plan was adopted by G4. Although that committee never formally adopted the plan, it referred to it constantly in the course of its work. Subsequent reports of Mr Udovich which addressed JDS issues in more detail, adopted the strategic plan's approach. It is unlikely that Mr Udovich would have taken that course unless he believed that the members of G4 accepted that approach. The evidence reveals that such a belief would have been correct. Mr Coppel agreed that it was important to ASX to retain its position as the sole wholesaler of the information, otherwise revenue would decline. Mr Chapman and Mr Marshman gave similar evidence.
93. As Mr Coppel suggested, the best evidence of the purposes actuating the members of G4 is to look at what they actually did; bearing in mind that each of these members was an experienced business-man with considerable knowledge of the operation of stock exchanges, and access to expert technical and legal advice. To my mind, the contracts clearly reflect the strategic plan's approach. The fees which the contracts require to be paid do not pretend to reflect the cost incurred by ASXO in providing Signal "C". The fees can only be explained as a reflection of G4's perception of what the market would bear. Nowhere is this more evident than in connection with the $45,000 storage charge, which Mr Coppel justified by reference to what it would cost an individual subscriber to transcribe that information for itself.
94. The meaning of the word "reasonable", as used by the members of G4 in their description of the terms and conditions, was not explored in cross-examination. Counsel for the applicant submit that, to the extent that this description conflicts with my own assessment of the terms and conditions, I should disbelieve the four members. Counsel argue that the terms and conditions were carefully drafted, after repeated consideration by G4, and that it is impossible to accept that intelligent people such as these four witnesses could have thought to be reasonable terms and conditions which, considered objectively, are so obviously unreasonable.
95. I see the force of this submission, but I do not think that I should find that the four members of G4 were deliberately untruthful in their affidavits. Reasonableness is a very flexible concept. So much depends on one's point of view. If one starts with the premise that the monopoly of information regarding Sydney, Melbourne and SEATS transactions is a valuable resource which ASX is entitled to exploit to the extent that subscribers can afford to pay, the fees demanded by ASXO may be considered reasonable. But if one sees the resource as an incident of operating a statutory monopoly, being information to which members of the public have a legitimate right of access, reasonableness presents a different aspect.
96. Section 46(1) makes no reference to reasonableness. So, I need say no more than that I think that the matter of purpose should be determined by reference to the background documents and the contracts themselves.
97. In the same vein, although each of the members of G4 disclaimed any purpose of eliminating or damaging any competitor, they conceded that a prohibition on wholesaling would inevitably be detrimental to the business of any person who wished to wholesale in competition with JDS. I read their affidavits as saying no more than that damage to a competitor was not a separate or primary purpose.
98. Other major themes of the background documents were the parlous position of JECNET and the recognition that JECNET was adversely affected by competitors such as Pont Data. Those concerns obviously affected the form of the Signal "C" agreements. In the face of bitter complaints from its subscribers ASXO insisted upon the retention of the description "carrier"; a word which inadequately described the role of many, at least, of those subscribers. In the absence of any other explanation for this insistence, the only possible inference is that this course was undertaken with the intention of denigrating the subscribers' role and in the hope that the subscribers' customers would reconsider dealing with a subscriber rather than with ASXO direct, through JDS or JECNET.
99. I think that the insistence of G4 upon a tripartite dynamic agreement was related to the position of JECNET. In commercial terms, the dynamic agreement is the most important of the three. Some of the subscribers to that service were companies in direct competition with JECNET. As was conceded by the witnesses for the respondents, information as to the names and addresses of, and number of terminals required by, the persons using the dynamic system was information of considerable value to JECNET. The members of G4 appreciated that fact. Yet, over their protests, competitors of JECNET were required to supply that information to MIS, the very unit which managed JECNET. If the members of G4 had not been concerned to assist JECNET, they could at least have established a "Chinese wall", whereby the information supplied by the subscribers was kept away from JECNET's management.
100. It is true that, after the contracts were signed, Mr Udovich wrote a letter to Mr David Byrnes of the United Kingdom Pont Data company in which he offered an undertaking that ASXO "will not use any information which comes to it through the Signal 'C' arrangements in any manner which could reasonably be considered to be contrary to Pont's legitimate commercial interests". At the time, Mr Moore was not made aware of this offer but, when it emerged in evidence, the offer understandably did not affect Pont Data's attitude. Even if reliance might be placed upon Mr Udovich's word, a doubtful matter in the light of the misrepresentations which he made to the Signal "C" subscribers in his letters of 2 September 1988 and the insistence of his March 1987 report upon MIS control of both JDS and JECNET "to ensure orderly marketing", it is not surprising that Pont Data should be unwilling to leave to his judgment the question of what might "reasonably" be considered to conflict with its "legitimate commercial interests".
101. It is difficult to say to what extent the members of G4 had JECNET in mind when they set the level of fees payable under the Signal "C" agreements. Both Mr Coppel and Mr Marshman denied any intention of using JDS to subsidise JECNET. Bearing in mind that JDS was in fact subsidising JECNET, in the sense that the profits of JDS offset the losses of JECNET, year after year, it is difficult to accept those denials. But perhaps the two witnesses merely meant that there was no direct subsidy, whereby the JDS profit was specifically earmarked for the elimination of JECNET's losses. Whatever the position, the members of G4 were well aware, firstly, that JDS was profitable whereas JECNET was not, and, secondly, as Mr Coppel conceded in a passage quoted above, that the imposition of high charges on retailers of Signal "C" must assist JECNET to meet the competition of those retailers. This would have been so even if JECNET had also been asked to pay the charges. In its loss-making situation such a requirement would have led merely to a book entry in the ASXO accounts.
102. I have already referred to the reasons advanced in the evidence to justify the tripartite form of agreement. As was conceded, the "protection of the revenue" argument does not survive scrutiny. If a subscriber was minded to supply Signal "C" data to a particular person without paying ASXO a fee in connection with that supply, its obvious course would be to keep its agreement with that person secret from ASXO. The key to ASXO recovering a fee is knowledge of the dissemination, not whether the dissemination is made pursuant to a tripartite agreement. The drafters of the contracts appreciated this fact. They inserted provisions in the contracts enabling ASXO to have access to the financial records of its subscribers.
103. But for one matter, the view might be open that, however illogical their reasoning, the members of G4 genuinely believed that the tripartite form of agreement was necessary for the protection of ASXO's income, so that this, rather than the protection of JECNET, was their true purpose. The difficulty with that view, however, is the solicitor's advice. Mr O'Bryan indicated clearly that the tripartite form of agreement was not necessary for the protection of ASXO's interests. He recommended its abandonment. That advice was not followed, for reasons never explained.
104. The other reasons given by the members of G4 for their insistence on a tripartite form of agreement were both related to the prevention of competition: first, in connection with the establishment of another stock exchange and, second, in relation to the wholesaling of stock exchange information. It is not necessary to consider whether insistence upon a tripartite agreement would prevent any such competition; the relevant question is the purpose or purposes actuating the members of G4. Both of these purposes fall within s.46(1).
105. The evidence clearly shows that it was a purpose of the respondents to prevent anyone else entering the stock exchanges market. As the background documents show, this is a matter which exercised both Mr Udovich and G4 from time to time. The desire to prevent such an entry was conceded to be a reason for insisting upon a tripartite agreement. It is the only logical explanation for the drastic limitations on data use set out in cl.3(2)(b)(i) and the prohibitions contained in cl.3(5). Having regard to the fact that ASX was able to impose those terms only because of its market power, a breach of s.46(1)(b) is established.
106. Similarly, it was at all times a purpose of ASXO to prevent the material supplied by it being wholesaled by others. As I have already pointed out, this purpose was expressed by Mr Udovich and the members of G4. It is the explanation, in whole or in part, for several of the contractual terms. It is no doubt true, as their counsel submit, that the respondents were motivated by self-interest rather than by malice towards their competitors. But that does not matter. If one of the purposes of the relevant conduct was to deter or to prevent competitive conduct, s.46(1)(c) is offended. It follows that, once it appears that a purpose of the imposition of particular contractual terms was to prevent competition by others with JDS in the wholesale information market, or to deter competition with JECNET in the retail market, this aspect of the case is established.
107. I should refer to some other submissions on s.46 made on behalf of the respondents.
108. First, counsel say that a mere restriction on a mode of competition is different from a substantial restriction on competition itself. In support, they cite Outboard Marine Australia Pty Ltd v Hecar Investments No 6 Pty Ltd [1982] FCA 265; (1982) 66 FLR 120. That was a s.47 case, the Full Court holdilng that a refusal by the appellant to supply a particular dealer, the respondent, did not have the likely effect of substantially lessening competition in the market. But the reason for that conclusion was that the relevant market, the retail outboard engine market, was in any event highly competitive. The respondent even had indirect access to the appellant's products. I do not think that the case lays down any presently relevant principle. It must always be a question of fact whether the type of restriction on competition which is imposed by a particular party has the effect of substantially lessening competition. Similarly, it must always be a question of fact whether, in imposing that restriction, the party had the purpose of preventing or deterring competition.
109. Secondly, and by way of development of the previous submission, counsel say that s.46 is contravened only if a party has the purpose of eliminating a competitor, but ASXO welcomes new data vendors because they add to its revenue base. Counsel assert that ASXO is content to have competition with JECNET.
110. Several comments may be made on this submission. In the first place, it reads s.46(1)(c) too narrowly; that paragraph speaks of deterring or preventing a person engaging in competitive conduct, not eliminating a competitor. Secondly, ASXO's attitude to new retailers says nothing about its attitude to wholesale competition. Thirdly, although ASXO accepts the reality of competition with JECNET, it does so only after forcing on those competitors contractual terms, and a price structure, which inhibit that competition.
111. Counsel then say that all Signal "C" purchasers are treated equally and the fact that their number is increasing is an indication that the contracts do not have the effect alleged. In fact all Signal "C" purchasers are not treated equally. JECNET does not pay the fees required of other purchasers. It is not required to deliver to a competitor information about its clients. As to the increase in numbers, it is possible that, under a different contractual regime, the increase would be even greater. Anyway, this is not relevant to purpose.
112. The next submission of counsel is that s.46 allows a corporation having a substantial degree of market power to consult its own commercial interests. In particular, it may cross-subsidise its products. Section 46 does not seek to eliminate the chance of monopolisation causing damage to others. Counsel say that ASXO could simply refuse to supply Signal "C" to anyone else, leaving JECNET with a monopoly of that data.
113. I agree with all of this submission, other than the last point. As to the earlier matters, it is true that the section does not eliminate the evils of monopolisation and it does not require corporations to deny their own self-interests. But it does forbid particular conduct by corporations having a substantial degree of market power. Any claim under s.46 must be addressed to the terms of the section and the debate is best directed to such terms, rather than the general matters raised by this submission.
114. As to the last part of the submission, it seems to me that it is incorrect: see Queensland Wire and the discussion below.
115. In reference to the argument that a purpose of the respondents was to prevent the establishment of a new stock exchange, counsel submit that it must be assumed that any subscriber to Signal "C" would obey the law, so that it would not be possible to establish such an exchange.
116. As to that submission, it must be said that this was not a view adopted by the members of G4. The material set out above clearly demonstrates their concern about this possibility, and as the issue is one of purpose it is that concern, rather than the feasibility of establishment, which matters. But, in any event, the submission ignores the possibility of an approval under s.37 or s.38 of the Securities Code or an off-shore exchange.
117. Finally, counsel say that, if the agreements did prevent wholesaling, this was not a purpose. They say that their clients are prepared to amend the agreements so as to allow wholesaling provided that each new vendor pays the appropriate fee to ASXO. It is unfortunate that this offer was not made earlier than counsel's final address, but it cannot affect my finding on the s.46 claim. That finding must depend upon the terms of the agreements as signed. However, the offer may facilitate negotiations between the parties for variations to the agreements in the light of these reasons.
118. In my judgment, the evidence establishes breaches by the respondents of
both paras.(b) and (c) of s.46(1).
The section 45 claim
119. Section 45(2) of the Trade Practices Act provides as follows:
"(2) A corporation shall not--120. Section 4G requires references in the Act to the lessening of competition to be read as including references to preventing or hindering competition.
(a) make a contract or arrangement, or arrive
at an understanding, if--
(i) the proposed contract, arrangement
or understanding contains an
exclusionary provision; or
(ii) a provision of the proposed
contract, arrangement or
understanding has the purpose, or
would have or be likely to have the
effect, of substantially lessening
competition; or
(b) give effect to a provision of a contract,
arrangement or understanding, whether the
contract or arrangement was made, or the
understanding was arrived at, before or
after the commencement of this section,
if that provision--
(i) is an exclusionary provision; or
(ii) has the purpose, or has or is likely
to have the effect, of substantially
lessening competition."
121. Pont Data puts the argument that the contracts contained an
"exclusionary provision" -- as to the meaning of which see s.4D of the Act. I
do not find it necessary to deal with this argument because, as it seems to
me, Pont Data is entitled to succeed on
its alternative case. That case is
that some of the provisions of the contracts had the purpose, or would be
likely to have the
effect, of substantially lessening competition: see
subs.(2)(a)(ii) and (b)(ii). Sub-section (3) indicates what is meant by the
word "competition". It relevantly reads:
"(3) For the purposes of this section ...122. The submission of the applicant is that, if it succeeds under s.46, it must succeed under s.45. In finding that the respondents had the purpose of preventing the entry of somebody into a market or deterring or preventing a person engaging in competition in a market, the Court would necessarily have found that ASXO had the purpose of substantially lessening competition. I think that this submission is correct. Indeed, it follows from the application of s.4G to the case. But also, whatever the purpose which actuated the members of G4, there is no doubt that the contractual provisions had the effect of substantially lessening competition in both the stock exchanges market, in which ASX and the six related companies which operate the six State capital markets supply services, and in the information market, in which ASXO supplies goods or services.
'competition', in relation to a provision of a
contract, ... means competition in any market in
which a corporation that is a party to the
contract, ... or any body corporate related to such
a corporation, supplies or acquires, or is likely
to supply or acquire, goods or services or would,
but for the provision, supply or acquire, or be
likely to supply or acquire, goods or services."
123. In discussion about s.45 a question arose whether what is supplied by ASXO to its Signal "C" subscribers is "goods" or "services". For the purposes of s.45, the answer to this question does not matter: s.45(3) defines "competition" in such a manner as to refer to a market for the supply or acquisition of either goods or services. Of course, if it was neither, s.45(3) would have the effect that neither paras.(a)(ii) or (b)(ii) could apply to the case. But, as counsel concede, the Act seems to contemplate that everything is one or the other. However, the distinction is critical in the application of s.49. Section 49 relates only to price discrimination "between purchasers of goods of like grade and quality", without reference to "services". The proper description of what is supplied is material also to an argument relating to s.45 which is founded upon s.47, to which I will come.
124. Section 4 of the Act contains definitions of both "goods" and
"services". Relevantly, they are as follow:
"'goods' includes--125. As the supply of goods is excluded from the definition of "services", it is first necessary to consider what is meant by "goods". If that definition applies, it is irrelevant whether the subject of the supply would, but for the concluding words of the definition, also fall within the definition of "services".
(a) ships, aircraft and other vehicles;
(b) animals, including fish;
(c) minerals, trees and crops, whether on,
under or attached to land or not; and
(d) gas and electricity;"
"'services' includes any rights ..., benefits,
privileges or facilities that are, or are to be,
provided, granted or conferred in trade or
commerce, and without limiting the generality of
the foregoing, includes the rights, benefits,
privileges or facilities that are, or are to be,
provided, granted or conferred under--
(a) a contract for or in relation to--
(i) the performance of work (including
work of a professional nature),
whether with or without the supply
of goods;
(ii) the provision of, or of the use or
enjoyment of facilities for,
amusement, entertainment, recreation
or instruction; or
(iii) the conferring of rights, benefits
or privileges for which remuneration
is payable in the form of a royalty,
tribute, levy or similar exaction;
(b) ...
(c) ...
(d) ...
but does not include rights or benefits being the
supply of goods or the performance of work under a
contract of service;"
126. Pursuant to the subject contracts, ASXO supplies to its subscribers a series of encoded electrical impulses which are capable of reception and interpretation by the subscribers' computers. It is doubtful whether anyone hearing the word "goods", in normal parlance, would readily think of electrical impulses. The word generally refers to tangible and visible objects; although it is notable that both the Oxford English Dictionary and the Macquarie Dictionary define "goods" or "goods and chattels" as referring merely to "movable property", without further limitation. But whatever the ordinary meaning of the word, there is here a statutory definition which defines the word -- in an inclusive, rather than exclusive, manner -- so as to include electricity. It cannot, I think, be doubted that, as Parliament intended the word "goods" to be understood as including electricity, it also intended it to include encoded electrical impulses. It follows that s.45(3) defines "competition" in such a way as to cover the facts of this case.
127. The substantial argument put on behalf of the respondents to the s.45 claim is based on s.45(6). That sub-section provides, amongst other things, that the making of a contract does not constitute a contravention of the section by reason that it contains a provision, the giving effect to of which would contravene s.47, and that the giving effect to such a provision does not contravene s.45. Counsel point to s.47(1), which prohibits the practice of exclusive dealing, and to s.47(2), which provides that a corporation engages in the practice of exclusive dealing, amongst other things, if it supplies goods or services on the condition that the suppliee will not resupply the goods to a particular person or persons or class of persons. The prohibition on wholesaling in these contracts, they say, falls within s.47(2).
128. This argument does not meet the applicant's case in relation to the establishment of a new stock exchange. Nor would it provide more than temporary respite to the respondents. If the argument is correct, the applicant would be entitled to relief under s.47. But I do not think that it is correct. The point turns upon the question whether it is accurate to say that, if it could wholesale, Pont Data would resupply to its customers the goods supplied to it by ASXO. It is not necessary that what is resupplied be identical to the subject of the original supply. Section 4C(e) of the Act provides that a reference in the Act to a resupply of goods acquired from a person includes a reference to a supply of the goods to another person in an altered form or condition or of goods in which the first-mentioned goods have been incorporated. It is true that what Pont Data would supply to its customers would include data taken from Signal "C"; although in a different format. It can be said that it would supply data in an altered form or condition, and that these data are data in which the Signal "C" data are incorporated. But data are not "goods". As I have indicated, I analyse the position by saying that the relevant "goods" are the electrical impulses which flow between the ASXO and Pont Data computers. Upon receipt of those impulses they cease to exist. They are not, and would not be, altered and resupplied or incorporated in Pont Data's signal. The electrical impulses do their work by conveying particular information to the Pont Data computer system. When Pont Data transmits to its customers it generates a new set of electrical impulses appropriate to that task. That same position would apply to any wholesale supply by Pont Data. In my view there would be no resupply of goods; consequently s.45(6) is inapplicable.
129. The case under s.45 is made out.
The section 49 claim
130. Section 49 relevantly provides:
"49. (1) A corporation shall not, in trade or131. Pont Data contends that, by the terms of the agreements it forced upon its subscribers, ASXO discriminates between purchasers of "goods of like grade and quality" in relation to price. Pont Data contends that Signal "C" constitutes "goods" and, as the signal received by all subscribers is identical, what is purchased by each subscriber is "of like grade and quality". Taking the view, as I have just indicated, that the signal constitutes "goods", I find this step in the argument to be sound. Nor, I think, is there any doubt that ASXO does discriminate, as between its subscribers, in relation to the prices charged for Signal "C". As between particular subscribers, the monthly fees vary according to the number of end-user terminals which will take the information included in the signal. Even as between two subscribers who supply the same number of terminals, there may be a difference in the price they pay to ASXO, depending upon how many customers the subscribers have. Price differences arise by virtue of the different charges made for dynamic supply and non-dynamic supply to end-users, although the signal received from ASXO is identical in each case. More significantly, there is a massive difference between the price paid by those ASXO subscribers who store the information and that paid by those who do not.
commerce, discriminate between purchasers of goods
of like grade and quality in relation to--
(a) the prices charged for the goods;
(b) any discounts, allowances, rebates or
credits given or allowed in relation to
the supply of the goods;
(c) the provision of services in respect of
the goods; or
(d) the making of payments for services
provided in respect of the goods,
if the discrimination is of such magnitude or is of
such a recurring or systematic character that it
has or is likely to have the effect of
substantially lessening competition in a market for
goods, being a market in which the corporation
supplies, or those persons supply, goods.
(2) Sub-section (1) does not apply in relation
to a discrimination if--
(a) the discrimination makes only reasonable
allowance for differences in the cost or
likely cost of manufacture, distribution,
sale or delivery resulting from the
differing places to which, methods by
which or quantities in which the goods
are supplied to the purchasers; or
(b) the discrimination is constituted by the
doing of an act in good faith to meet a
price or benefit offered by a competitor
of the supplier.
(3) In any proceeding for a contravention of
sub-section (1), the onus of establishing that that
sub-section does not apply in relation to a
discrimination by reason of sub-section (2) is on
the party asserting that sub-section (1) does not
so apply.
(4) ...
(5) ..."
132. The differences to which I have referred have nothing to do with the
nature of what ASXO supplies, but rather with the use to
which subscribers
will put the signal. Sub-section (2) has no application to this case. I have
already held that the discrimination
in charges -- especially in relation to
the storage charges -- is likely to have the effect of substantially lessening
competition
in the information market. I think that the s.49 claim is also
established.
Other matters
133. Pont Data complains that the terms of the agreements fixed by the respondents compel it to engage in conduct which contravenes the Trade Practices Act; and that, accordingly, those terms are themselves invalid. I have already quoted the matters in connection with which Pont Data says that it is forced to contravene s.52 of the Act by making misleading statements. The respondents do not dispute that the contracts require the making of those representations. Nor do they dispute that such representations, if made, would be false. This aspect of the applicant's claim is also established.
134. Pont Data also argues that the requirement of the dynamic agreement for
it to obtain execution by its own customer of that agreement
is a condition
requiring it to engage in exclusive dealing in breach of s.47 of the Act.
Section 47(1) provides that, subject to the section, "a corporation shall not,
in trade or commerce, engage in the practice of exclusive dealing".
Subsections (2) to (9) inclusive explain what is meant by "exclusive dealing",
although these descriptions must be read subject to
subss.(10) to (12)
inclusive. In the present case, Pont Data argues that the conduct which it is
required to take vis-a-vis its
subscribers is "exclusive dealing" because of
the terms of subss.(6) and (7). Those subsections read:
"(6) A corporation also engages in the135. The applicant's argument is that it is obliged by the dynamic agreement to supply or offer to supply its goods or services to its own customers on the condition that the customer executes an agreement with ASXO under which ASXO purports to licence the customer to use the Signal "C" information. The grant by ASXO of a licence is "services", so it is said, within the definition in s.4 of the Act; so that the supply or offer to supply by Pont Data is made conditional upon the acquisition by its customer of "services" from another person, ASXO.
practice of exclusive dealing if the corporation--
(a) supplies, or offers to supply, goods or
services;
(b) supplies, or offers to supply, goods or
services at a particular price; or
(c) gives or allows, or offers to give or
allow, a discount, allowance, rebate or
credit in relation to the supply or
proposed supply of goods or services by
the corporation,
on the condition that the person to whom the
corporation supplies or offers or proposes to
supply the goods or services or, if that person is
a body corporate, a body corporate related to that
body corporate will acquire goods or services of a
particular kind or description directly or
indirectly from another person.
(7) A corporation also engages in the practice
of exclusive dealing if the corporation refuses--
(a) to supply goods or services to a person;
(b) to supply goods or services at a
particular price to a person; or
(c) to give or allow a discount, allowance,
rebate or credit in relation to the
supply of goods or services to a person,
for the reason that the person or, if the person is
a body corporate, a body corporate related to that
body corporate has not acquired, or has not agreed
to acquire, goods or services of a particular kind
or description directly or indirectly from another
person."
136. I do not doubt that the grant of a licence may constitute "services",
within the meaning of s.4 of the Act. But I doubt whether it is correct to
interpret the dynamic agreement in this way. It is true that the ultimate
user
is called "the Licensee" under the agreement. However, what ASXO does
under the agreement is to acquiesce in Pont Data supplying,
and the "Licensee"
receiving, that which Pont Data has already agreed to supply, subject to
conditions including conditions limiting
the "Licensee's" use of the
information. I think that s.47(6) and (7) are directed to a situation in which
a corporation is willing to supply goods or services to a person only if that
person
agrees to take some other goods or services from someone else. Except
in the most artificial sense, that is not this case.
Relief
137. In the result, I am of the opinion that the applicant has established breaches of ss.46, 45 and 49 of the Trade Practices Act and that the terms of the agreements require the applicant to contravene s.52 of that Act.
138. Counsel for the applicant submit that, if I reach the conclusion that there has been any contravention of the Act, I ought to grant injunctions. But the draft orders suggested by counsel would simply restrain the respondents from breaches of the particular provisions of the Act, leaving unresolved what the respondents must do by way of compliance. I do not think that this is a sufficient course to take. The better approach would be to make declarations -- as against ASXO, the contracting party -- identifying, and declaring void, the particular contractual terms which offend the statute; for example, as a misuse of market power, a provision substantially lessening competition or creating price discrimination. Injunctions should then be made restraining ASXO from enforcing or giving effect to those terms. It may also be appropriate to make more general orders against both respondents, restraining any future breach of the relevant statutory provisions. This is a matter upon which I wish to hear counsel.
139. The declarations and injunctions which I contemplate will require careful drafting, in the light of what appears in these reasons. There may be scope for argument as to their content. I wish counsel to be involved in the formulation of those orders. Accordingly, I propose not to make any orders today. I will stand the matter over until a later date, when counsel can bring in short minutes of the orders they propose.
140. The difficulty about relief, to which I alluded at the beginning of these reasons, arises at the next stage of the orders. What will be the position in relation to the balance of the contractual terms? Understandably, counsel for the applicant do not seek a declaration avoiding the contracts in toto. To take that course would be to leave their client without any legal entitlement to receive the signal. Instead they seek an order, pursuant to s.87 of the Act, declaring the subject contracts "void ab initio except in so far as they provide for the supply to the applicant of the ASX signal as defined in the said agreements". They then seek a further order requiring ASXO to refund to the applicant all monies paid pursuant to the agreements other than $10. The proposition put by counsel is that, as the respondents have failed to establish that the provision of Signal "C" to subscribers occasions any cost which they would not otherwise incur, they ought to be compelled to provide that signal at a nominal price.
141. The problem about the course suggested by counsel is that it would leave ASXO bound to contracts which would be mere shells of those which the parties originally signed. A similar position would occur if specific terms were declared void, and restraining orders made, without more. The relevant terms are both numerous and fundamental.
142. The Trade Practices Act deals with the present situation. Section 4L
provides:
"4L. If the making of a contract after the143. The law governing the circumstances under which a term made illegal by statute may be severed from the remainder of the contract, and the remainder enforced, was considered by the Judicial Committee of the Privy Council in Carney v Herbert (1985) AC 301. At p 311 their Lordships approved a statement made by Jordan CJ in McFarlane v Daniell (1938) 38 SR (NSW) 337 at p 345 in the following terms:
commencement of this section contravenes this Act
by reason of the inclusion of a particular
provision in the contract, then, subject to any
order made under section 87 or 87A, nothing in this
Act affects the validity or enforceability of the
contract otherwise than in relation to that
provision in so far as that provision is
severable."
"When valid promises supported by legalAs the Judicial Committee noted, this test was approved by the High Court of Australia in Thomas Brown & Sons Ltd v Fazal Deen [1962] HCA 59; (1962) 108 CLR 391.
consideration are associated with, but
separate in form from, invalid promises, the
test of whether they are severable is whether
they are in substance so connected with the
others as to form an indivisible whole which
cannot be taken to pieces without altering its
nature ... If the elimination of the invalid
promises changes the extent only but not the
kind of the contract, the valid promises are
severable ... If the substantial promises
were all illegal or void, merely ancillary
promises would be inseverable."
144. Applying the test enunciated by Jordan CJ to the present case, it cannot be said that the severance from the subject contracts of the offending terms will only change the extent of the contract. Those terms are so connected with other terms that their deletion would change the nature of the contract. In particular, to strike down the term regarding fees, leaving ASXO subject to an obligation to supply the signal but without any entitlement to payment, would be to make a fundamental change to the nature of the arrangement. The obligation of ASXO to supply the signal cannot be saved by the application of the doctrine of severance.
145. The Court does, however, have power to make orders varying contracts,
under certain circumstances. The circumstances are set
out in s.87(1), which
relevantly reads:
"87. (1) Without limiting the generality ofSection 87(2) sets out a list of the orders referred to un subs.(1). The list includes, by para.(b):
section 80, where, in a proceeding instituted
under, or for an offence against, this Part, the
Court finds that a person who is a party to the
proceeding has suffered, or is likely to suffer,
loss or damage by conduct of another person that
was engaged in ... contravention of a provision of
Part IV or V, the Court may ... make such order or
orders as it thinks appropriate against the person
who engaged in the conduct or a person who was
involved in the contravention (including all or any
of the orders mentioned in sub-section (2) of this
section) if the Court considers that the order or
orders concerned will compensate the
first-mentioned person in whole or in part for the
loss or damage or will prevent or reduce the loss
or damage."
"(b) an order varying such a contract or146. In the present case the condition contained in the concluding words of s.87(1) is satisfied. The making of an order varying the contracts so as to eliminate terms which contravene the Act will obviate any future loss by the applicant as a result of those contraventions. If the variation is made retrospective to 9 September 1988, and provision is made for the repayment by ASXO of any payments which exceed the amounts required by the contract as varied, past losses will be reversed and the total loss suffered by the applicant as a result of the contraventions will be reduced to nothing.
arrangement in such manner as is
specified in the order and, if the Court
thinks fit, declaring the contract or
arrangement to have had effect as so
varied on and after such date before the
date on which the order is made as is so
specified;"
147. The power conferred by s.87(2)(b) is extremely wide. In terms, the discretion is unlimited. But the Court would not be justified in varying a contract beyond the extent necessary to provide a result which conformed with the Act and was reasonable between the parties.
148. In Queensland Wire, at first instance, Pincus J discussed the question whether, under s.46 of the Act, "a vendor of property may be forced to accept a new customer except where there was a history of trading enabling one to conclude that the would-be customer was being discriminated against": see (1987) 16 FCR 50 at p 66. Implicit in the High Court decision in that case is that this question must be answered affirmatively, a conclusion which is consistent with Dawson J's deprecation of the course of considering whether particular conduct constitutes the exercise of a contractual or other legal right. His Honour commented at p 202: "The fact that action is taken pursuant to the terms of a contract has no necessary bearing upon whether it is the exercise of market power in contravention of s.46".
149. The applicant in the present case is not a new customer of ASXO. On the contrary, it has taken Signal "C" for several years, including under the previous form of contract. It is not suggested that, apart from the issues discussed in these reasons, there would be any difficulty about the supply of Signal "C" to the applicant. Accordingly, any decision by the respondents, made in the light of this case, to refuse that supply could be seen only as arising out of those issues; and, consequently, as a misuse of market power. It follows, in my opinion, that it would be appropriate to exercise the power conferred by s.87(2)(b) and to make orders varying the contract, so as to keep them on foot on reasonable terms but without the provisions which transgress the Act.
150. As with the other orders, it would be helpful to hear from counsel as to the form of an order under s.87(2). It may be that, for the most part, formulation of that order will present little difficulty. But one matter which must be resolved is the nature and amounts of the fees payable under the varied contracts. As I have indicated, the applicant contends that ASXO should be compelled to provide the signal at a nominal price. The respondents argue that this is an unreasonable proposition: that the Signal "C" information is a valuable resource which it is entitled to exploit commercially. Counsel submit that the Court ought not to compel it to give away its asset.
151. I see the force of the respondents' submission. The Court ought not to use its power under s.87(2)(b) in such a manner as to force upon a party a commercially unreasonable result. The difficulty in the present case is in determining what is commercially reasonable. If ASXO operated in a competitive market, in the supply of Signal "C", guidance would be available as to a fair price for the signal. One could look at the price charged by ASXO's competitors. But there are no competitors and, as I have held, the fees charged by ASXO are a function of its monopolistic position and its misuse of market power. They provide no assistance as to the level of fees which might be obtained by a vendor not infringing the statute.
152. After its remission by the High Court, Queensland Wire was settled. Pincus J was therefore relieved of the duty of determining what was a fair price at which to compel BHP to supply Y-bar to Queensland Wire. Had his Honour been required to undertake this task he would, no doubt, have considered evidence as to the cost of producing Y-bar and as to the profit margin normally obtained by manufacturers of steel products. In the absence of sales in a competitive market, that evidence may have been the only way to construct a fair price.
153. Although the nature of the product is very different, I think that the same comment applies in the present case. Once it is accepted that ASXO is not entitled to misuse its monopoly position, it ought not to be regarded as unfair to compel ASXO to supply Signal "C" at a price which reflects the cost of supplying that signal together with a margin of profit similar to that charged by competitive suppliers in the data industry. I accept that such a price is likely to be low, compared with the fees charged in the subject contracts. But that is because the cost of supply is low. In a competitive situation that low cost would be reflected in a low price.
154. The applicant puts the view that the respondents have had the opportunity to prove to the Court the cost of supplying Signal "C" and that they have failed to prove any costs above those incurred in carrying out their own operations, let alone the extent of such costs. Accordingly, they say, I should find that there is no cost and fix a nominal price. This submission has great force, but I think that it may produce an unduly harsh result. It is true that the cost of Signal "C" was an issue in the case and that evidence might have been led on the matter. But it was not a central issue. It is a matter relevant only to the form of relief. Erring, perhaps, on the side of indulgence, I think that I should give to the respondents a further opportunity to demonstrate, if they are able, that there is some cost attached to the supply of Signal "C" which they would not otherwise incur; and, if so, its extent. I note that Mr Marshman gave evidence that, since the contracts were signed, some further work has been done to isolate the costs associated with each of the signals, the cost of Signal "C" now being "ascertainable within certain broad parameters", whatever that means. So the opportunity may not be nugatory.
155. If the respondents wish to take advantage of this opportunity, the
further material must to be submitted to the Court by way
of affidavits, to be
filed within one month of the delivery of these reasons. The matter will be
listed for further mention shortly
after the expiration of that period, when
directions will be given as to the further course of the proceeding.
The cross-claim
156. By its cross-claim ASXO complains of breaches by Pont Data of certain terms of each of the subject agreements. It is not necessary to set out these complaints in detail. Broadly, ASXO says that Pont Data has failed to provide it with some of the information, particularly in relation to the extent of end-use, for which the agreements provided. ASXO also alleges that, until the commencement of this proceeding and then only pursuant to interlocutory orders and undertakings given to the Court, Pont failed to pay the unrestricted licence fee required by the dynamic and non-dynamic agreements. The factual basis of these allegations is not disputed. It is the subject of a statement of agreed facts (ex.19). Pont Data says that the breaches all arise out of terms which offend the Trade Practices Act and which are unenforceable. The respondents concede that, if their defence to the principal proceeding is unsuccessful, ASXO must fail in its cross-claim. This seems to me to be correct. Having regard to my findings in the principal proceeding, I propose, when orders are made, to dismiss the cross-claim.
157. I further propose, in due course, to order that the respondents pay the applicant's costs, incurred to date.
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