Commission Declines Clearance For Anytime NZ Limited’s Collaborative Activity Clearance Application

The Commerce Commission has declined to give clearance to Anytime NZ Limited (Anytime NZ) to enter into proposed agreements with its franchisees that would have contained or may have contained cartel provisions. The proposed agreements would have allowed Anytime NZ to impose lower and upper limits on Anytime Fitness franchisees’ membership pricing.

Anytime NZ is the New Zealand master franchisee for the global gym network known as Anytime Fitness. Anytime NZ is also the owner and operator of four New Zealand Anytime Fitness clubs.

The Commission can give collaborative activity clearance to a proposed agreement containing a cartel provision if it is satisfied that:

• the applicant and any other party to the proposed contract, arrangement, or understanding are or will be involved in a collaborative activity; and
• every cartel provision in the contract, arrangement, or understanding is reasonably necessary for the purpose of the collaborative activity; and
• entering into the contract or arrangement, or arriving at the understanding, or giving effect to any provision of the contract, arrangement, or understanding, will not have, or be likely to have, the effect of substantially lessening competition in a market.

Anytime NZ submitted that the cartel provisions contained in the proposed agreements were reasonably necessary to:

• allow the Anytime Fitness franchise to provide a strong network of gym facilities in good locations to its members;
• ensure the focus of the franchisees is on the provision of excellent facilities and services so that the chain can best compete with other gym providers; and
• significantly improve the equitable allocation of membership fees as between franchisees, some of whom are currently required to provide services to a high number of gym members, while receiving few membership fees themselves.

Chair Anna Rawlings says that, applying the statutory test to the evidence before it, the Commission is not satisfied that every cartel provision contained in the proposed agreements is reasonably necessary for the purpose of the collaborative activity.

”The Commission took into account a range of factors in reaching its decision. The evidence does not support Anytime NZ’s argument that in the circumstances of this particular case price coordination between franchisees is reasonably necessary for it to provide a strong network of gyms in good locations. It also does not suggest that controlling pricing is reasonably necessary in order to maintain the quality of the network in order to compete with other gym chains,” says Ms Rawlings.

“Anytime Fitness has also not provided sufficient evidence to satisfy us that entering into the proposed agreements would actually lead to the desired quality improvements to Anytime Fitness gyms and Anytime Fitness gyms meeting the desired quality standards. In any event, we consider that it has other, less restrictive, means of ensuring that its gyms meet its quality requirements.

“The lack of such pricing controls up to this point in time also does not appear to have impacted Anytime Fitness’s ability to compete with rival gym chains,” Ms Rawlings said.

In relation to the allocation of membership fees, the issues Anytime NZ identified were not found to be widespread across the franchise network. Rather, the evidence suggests that they are confined to particular areas of Auckland and Christchurch.

“The Commission is therefore not satisfied that every cartel provision contained in the proposed agreements is reasonably necessary for the purpose of the collaborative activity, and must decline to grant clearance,” says Ms Rawlings.

“This decision turns on the particular factual circumstances of the Anytime Fitness gym network and its application for clearance. It does not mean that in other situations, including for other franchise networks, a cartel provision(s) that limits pricing freedoms may not be reasonably necessary for the purpose of the collaborative activity. Each application is assessed on its own facts and circumstances.”

A public version of the written reasons for the decision will be available shortly on the Commission’s

case register

.

Background

The Anytime Fitness franchisees operate under a policy whereby a member of any Anytime Fitness gym can use their key-card to access the facilities and services of any other Anytime Fitness gym (at no extra cost).

Under this reciprocity policy, a member’s membership can automatically transfer from their home gym to a new gym if they access that new gym above a percentage usage threshold over a 60-day period.

A cartel is where two or more businesses agree not to compete with each other. This conduct can take many forms, including price fixing, sharing markets, rigging bids or restricting output of goods and services.

A person that is involved in a collaborative activity can apply for clearance to enter into an agreement that contains one or more cartel provisions. This is a voluntary regime; there is no statutory requirement to seek clearance. Where we clear an agreement, parties to the agreement will not contravene the cartel prohibition or the prohibition on agreements that substantially lessen competition. In essence, a clearance provides certainty that the agreement is lawful under the Commerce Act.

To be engaged in a collaborative activity, two or more parties must:

• be carrying on an enterprise, venture, or other activity, in trade in cooperation; and
• not be doing so for the dominant purpose of lessening competition between them (or any two of them).

Further information explaining how the Commission assesses a collaborative activity clearance application is available on our website.

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