It has also agreed to pay the Commerce Commission of New Zealand NZ$100,000 (US$66,464) in costs.
Milfos and DAL provided technology solutions for dairy farmers and competed in the supply, installation, and maintenance of both milk sensors and herd management systems used in the milking process. Milfos did not manufacture its own milk sensor technology, but bought milk sensors from DAL to supply farmers.
According to the Commerce Commission, Milfos and DAL discussed the possibility of Milfos becoming the exclusive retailer of DAL’s milk sensor products. This arrangement was never entered into. However, in the course of those discussions, Milfos and DAL agreed to use a shared pricing spreadsheet for customer quotes. This, the commission said, fixed prices for the milk sensor products.
“Grossly careless”
In his judgment, Justice Edwin Wylie noted that the fact the conduct was in anticipation of a legitimate exclusive supply arrangement was not a defense. Milfos and DAL were competing in a market that was important to the New Zealand dairy industry, and one which had limited providers for farmers to choose from. Further, he noted the conduct was undertaken by senior employees and the damage caused was difficult to quantify.
“In my view, Milfos’ conduct was certainly careless – even grossly careless,” Justice Wylie said.
“While Milfos and [DAL] did not set out to enter into an illegal arrangement or understanding, they nevertheless engaged in conduct that gave them an improper advantage over their customers and competitors.”
Commission Chair Anna Rawlings said the case served as a strong reminder to businesses that they must be mindful of agreeing prices with a distributor that competes with them in the retail market.
“The Court imposes significant penalties on unlawful agreements between competitors because they have the potential to cause serious harm. Companies should seek legal advice before discussing retail prices with a distributor that competes with them to sell the same products direct to consumers, to ensure they don’t put themselves at risk of breaching the Commerce Act,” Rawlings said.
Milfos cooperated with the Commission’s investigation and acknowledged its conduct breached the Commerce Act.
GEA ‘pleased matter resolved’
GEA told DairyReporter the litigation concerns supply arrangements between such subsidiary and a supplier that began before the subsidiary became part of the GEA Group. GEA ended the arrangements in 2014.
GEA said the settlement resolved the litigation on terms that are acceptable to both parties.
“As part of the settlement, Milfos has admitted to two contraventions of the Commerce Act 1986 arising from its arrangements with DAL and agreed to pay a penalty under the Act. The Court has accepted that the contraventions arose from initially legitimate discussions and that the conduct was much less serious than in other comparable cases,” the GEA spokesperson said.
“The Court recognized that Milfos has not previously contravened the Act or been warned by the Commission in respect of conduct likely to breach the Act. GEA follows strict compliance guidelines that are binding around the world for the entire Group.
“GEA is pleased that this historical matter has been resolved satisfactorily for all concerned and that a settlement could be reached that avoided incurring further legal costs.”
LIC comment
DAL was a manufacturer, wholesaler and retailer of milk sensors (including milk sensors equipment and ancillary parts), and herd management systems. In February 2014 Livestock Improvement Corporation Limited (LIC) purchased DAL's assets, and from that time until August 2015, LIC continued to sell DAL's products at a wholesale and a retail level.
Chief executive of LIC, Wayne McNee, told DairyReporter, “This conduct also involved certain people within Dairy Automation Limited (DAL), a business LIC purchased in 2014.
“As soon as we became aware of this conduct we put a stop to it and reported the issue to the Commission.
“Since then, we have fully co-operated with the Commission and were granted immunity from prosecution under its leniency programme. The Commission is not taking enforcement action against LIC, its employees or subsidiaries.
“Our co-op exists to serve the best interests of our farmer shareholders, who own the company. That’s why we acted swiftly to put a stop to this conduct and report it to the Commission.”
Milfos was acquired by GEA Farm Technologies (GEA) in November 2012. The ultimate holding company of GEA is GEA Group Aktiengesesllschaft (GEA Group), a German holding company with substantial business interests in a number of processing industries.