Nestle smells the coffee in parallel trade ruling

By Emma Barraclough, Managing Intellectual Property Magazine, London, UK, 14th August 2006


Australia's competition watchdog has thwarted Nestle's attempts to cut supplies of its products to a discount supermarket chain in Australia after the chain imported and sold cheaper versions of the Swiss company's instant coffee.

The Australian Competition and Consumer Commission (ACCC) described Nestle's refusal to supply Aldi as being designed to "discourage and eliminate a new source of competition for the local (Australian) Nescafe instant coffee brands".

The dispute started when Aldi began to sell jars of Nestle's Blend 43 coffee that it had imported from Indonesia rather than purchased through Nestle's Australian distribution channels. Although the packaging was almost identical, Nestle said the imported coffee had been manufactured with a weaker taste to suit overseas markets and demanded that Aldi display clear signs to inform consumers about the difference.

"It was never Nestle's intention to prevent Aldi from importing coffee products," said Peter Kelly, corporate relations director at Nestle, in a statement. "The issue is that consumers were and are being misled. We received and continue to receive negative formal and informal complaints and feedback about the taste of the imported Nestle coffee being sold by Aldi."

The supermarket chain responded to Nestle's demands by putting stickers on its shelves and jars, a move that Nestle described as inadequate. It refused to supply the stores with any more products, including coffee and Milo, until Aldi improved in-store information about the parallel imported coffee.

The Swiss company then lodged a notice with the ACCC in December 2005, outlining the reasons for its actions. Although the country's Trade Practices Act generally bans so-called exclusive dealing policies – in which a company refuses to supply a product unless the buyer meets certain conditions – a business that does so can obtain immunity from lawsuits if it files a notification with the ACCC.

The watchdog then reviews the purpose of the exclusive dealing and considers what impact it will have on competition. If it thinks the conduct will be bad for consumers and the economy, it can revoke the notification. The ACCC revoked Nestle's notification on August 9.

"The ACCC believes that part of Nestle Australia's anti-competitive purpose was to remove the stimulus to other Australian grocery retailers, who might have responded to Aldi's sale of the imported Nescafe instant coffee by discounting Nescafe Blend 43 or importing similar products," ACCC officials said in a statement. And it said the company's decision to refuse to supply Aldi went "much further than is needed to inform consumers".

Nestle said it was "surprised" by the ACCC's decision and that it plans to lodge an application to have it reviewed by the Australian Competition Tribunal.