Third-Line Forcing Explained: Essential Australian Business Guide

Thinking about bundling your product with another supplier’s service, or requiring customers to buy from a particular third party to access your deal? That kind of arrangement can look efficient on paper - but it may be considered “third-line forcing” under Australian competition law.

In this guide, we break down what third-line forcing actually is, when it’s illegal in Australia, common examples, and practical steps to manage risk. Our goal is to help you set up commercial arrangements that support growth without crossing legal lines.

What Is Third-Line Forcing?

Third-line forcing is a type of “exclusive dealing” where you:

• Supply (or offer to supply) goods or services on the condition that the customer also acquires goods or services from a particular third party; or
• Refuse to supply because the customer won’t acquire goods or services from a particular third party.

Put simply, you make your deal conditional on your customer buying something from someone else (a separate, third party). This is different from a normal “tie-in” where the tied product is also supplied by you or your related entity. In third-line forcing, the extra requirement points to an unrelated third party.

Why does this matter? These arrangements can limit customer choice or foreclose competitors, which is why they sit under Australia’s competition rules in the Competition and Consumer Act 2010 (CCA).

Is Third-Line Forcing Legal In Australia?

Yes - but only if it doesn’t substantially lessen competition. Historically, third-line forcing was outright banned (“per se” illegal). Since law reforms in late 2017, it is only prohibited if the conduct has the purpose, effect or likely effect of substantially lessening competition in a market (often shortened to “SLC”).

What does “substantially lessen competition” mean in practice? Regulators and courts look at the real market impact: does the condition restrict meaningful choice, raise barriers to entry, or exclude rivals to a significant degree? Market definition and power, the percentage of customers affected, and the availability of alternatives are all relevant.

There are two important pathways to manage legal risk for third-line forcing arrangements:

• Notification to the ACCC: You can lodge a notification for exclusive dealing conduct (which includes third-line forcing). This can provide protection while the ACCC assesses the public benefits and detriments. The ACCC can revoke the immunity if it considers the conduct likely to substantially lessen competition.
• Authorisation: For more complex or higher-risk strategies, you can seek ACCC authorisation, which grants legal protection if the public benefits outweigh any likely competition harm.

Which route is best? That depends on your market position, the breadth of the condition, and whether there are clear consumer or efficiency benefits. If you’re contemplating conditions that limit choice at scale, it’s wise to get tailored legal guidance early.

Common Examples, Grey Areas And Practical Risks

Here are scenarios where third-line forcing questions commonly arise:

• Customer bundles: “We’ll sell you the equipment at a discount if you also sign up to this independent finance provider.” If the finance provider is a third party (not related to you), conditioning the discount on using them raises third-line forcing issues.
• Supplier mandates: “You can stock our brand only if you buy your after-sales servicing from this particular third-party network.” This funnels business to one provider and may restrict competing service networks.
• Technology ecosystems: “You may use our platform if you only integrate with this independent payment gateway.” Where a platform has market power, limiting access to one third-party gateway can be high risk.
• Franchise systems: A franchisor requires franchisees to buy core inputs exclusively from an independent, non‑related supplier. This can be third-line forcing (distinct from approved supplier programs run by the franchisor itself or related entities).
• “Don’t deal” conditions: “We won’t supply you if you keep using that competing third-party logistics provider.” Refusing to supply because a customer uses a particular third party is another third-line forcing limb.

Grey areas often turn on market context. For example, offering a small rebate for using a preferred third party may be low risk in a fragmented market with many alternatives. The same condition can be high risk if you’re a major supplier and most customers feel compelled to follow the condition to stay competitive.

Tip: Conditions that improve quality, safety or interoperability can have pro‑competitive benefits, especially where objective standards apply and customers retain genuine alternatives. The more your policy is justified by verifiable efficiency or consumer benefits - and the less it locks out rivals - the safer it tends to be.

Also keep your consumer protection obligations in mind. Any claims about savings, exclusivity, compatibility or supplier performance must be accurate under the Australian Consumer Law (ACL). It’s worth sense‑checking marketing statements against your obligations under section 18 of the ACL (misleading or deceptive conduct).

How To Manage Third-Line Forcing Risk (Step-By-Step)

1) Map The Conduct And The Market

Start by writing down exactly what condition you’re proposing, which third party is involved, who’s affected, the geographic scope, and how long it would run.

Then, consider the market: your share, the number of competitors, how easy it is for customers to switch, and whether the condition would foreclose meaningful alternatives. This helps you assess SLC risk in a structured way.

2) Clarify The Business Rationale

Document the genuine efficiencies: quality control, safety, integration, fraud prevention, customer experience or cost savings passed through to customers. If you can show objective benefits, your position is stronger.

If the objective is largely commercial leverage or rival exclusion, rethink the design. In many cases, an exclusivity arrangement that’s time‑limited, non‑mandatory, or subject to clear opt‑outs can achieve similar goals with less risk.

3) Explore Lower-Risk Alternatives

• Preferred supplier programs (not mandatory): Offer incentives to use preferred third parties without making it a condition of supply.
• Standards and approvals: Allow multiple third parties if they meet objective performance or safety standards you publish in advance.
• Trial periods and narrow scope: Limit any condition to a small segment, geographical area, or short timeframe while you assess competitive impact.

4) Check Your Contracts And Sales Materials

If you proceed, the condition must be carefully drafted and consistently reflected across your customer agreements, sales scripts and website. A well-structured set of Terms of Trade helps keep obligations clear and mitigates disputes.

Before rollout, a targeted contract review is a smart investment to make sure the legal language matches the commercial intent and doesn’t overreach.

5) Consider ACCC Notification Or Authorisation

Where risk is non‑trivial, consider lodging a notification to the ACCC for exclusive dealing or exploring authorisation. This is particularly relevant if you have a strong pro‑consumer story (for example, verified safety or quality improvements) and you want legal protection before launch.

Need a sense-check on the best pathway? Our team can provide a scoped legal advice package tailored to your market and risk profile.

6) Train Your Team And Monitor Outcomes

Make sure sales, procurement and franchise support teams understand what is and isn’t permitted. Track adoption and market feedback, and be ready to adjust if you see unintended foreclosure effects or complaints that suggest competitive harm.

If the facts on the ground change (for example, your market share grows materially), revisit your risk assessment. You may need to vary your contracts to de‑risk conditions as you scale.

Franchising And Supply Chain Programs: Special Considerations

Franchise networks and large supply chains often centralise purchasing to maintain uniformity, pricing and brand standards. That’s understandable - but be careful where the required supplier is an independent third party and not your own or a related entity.

Key points for franchisors and brand owners:

• Approved suppliers vs mandated third parties: It’s generally safer to create an “approved suppliers” list that uses objective standards and allows multiple options, rather than mandating an exclusive independent third party.
• Transparency on rebates and benefits: Be clear about any supplier rebates or volume benefits and how they’re used. Lack of transparency can trigger both ACL and competition concerns.
• Regular reviews: Periodically re‑test your supplier program against actual market conditions. What was low‑risk at launch can shift as market shares change.

When onboarding or renewing franchisees, build third‑party supply settings into your legal review process. A focused Franchise Agreement Review can flag third-line forcing hotspots and suggest lower‑risk alternatives without compromising brand standards.

Acquiring a business or master franchise? Include competition law checks in your due diligence. Our Legal Due Diligence Package can examine supplier arrangements, franchise documentation and sales terms for third-line forcing risk before you commit.

What Legal Documents Should I Have In Place?

Your documents won’t “fix” a competition law problem, but good drafting helps you implement lower‑risk designs and prove your intent to do the right thing. Consider:

• Terms of Trade or Customer Contracts: Clearly explain any optional incentives, approved supplier standards and genuine opt‑outs, rather than imposing blanket mandatory conditions. A well‑crafted set of Terms of Trade sets the foundation.
• Supplier Agreements: Use objective performance criteria and audit rights; avoid provisions that pressure you into mandating a third party downstream.
• Franchise Agreements and Operations Manuals: Where possible, frame supplier programs around quality standards and multiple approved suppliers. Keep documentation aligned with the Franchising Code obligations.
• Marketing and Sales Collateral: Ensure claims about “exclusivity”, discounts and compatibility are accurate and consistent with the ACL.
• Variation Instruments: If you need to change an existing regime, use a clear mechanism (for example, a Deed of Variation) and give reasonable transition periods to reduce disruption.

If you’re setting up from scratch or refreshing templates, our team can scope drafting or a practical contract review to align your commercial strategy with competition law requirements.

Penalties And Enforcement: What’s At Stake?

Breaching the CCA can lead to ACCC investigations, court orders, enforceable undertakings and significant civil penalties. For corporations, maximum penalties can reach very high figures (based on the greater of a statutory amount, a multiple of the benefit obtained, or a percentage of turnover over the breach period). Individuals can also face substantial penalties.

Beyond fines, the bigger risk for many businesses is disruption: forced changes to supply models, lost deals, and reputational damage. It’s far better to design a compliant strategy up front than to remediate under regulatory pressure later.

Key Takeaways

• Third-line forcing happens when supply is conditional on a customer buying (or not buying) from a particular third party; since 2017, it’s only illegal if it substantially lessens competition.
• Risk turns on market context: your market power, the breadth of the condition, available alternatives, and whether the conduct forecloses competitors in a meaningful way.
• Design lower‑risk solutions first - preferred supplier programs, objective standards, limited trials - and support them with clear, consistent contracts and sales materials.
• If risk is non‑trivial, consider ACCC notification or authorisation and keep robust evidence of consumer and efficiency benefits.
• Franchise and supply chain programs deserve special care: prefer standards‑based approved supplier lists over mandating a single independent supplier.
• Well‑drafted Terms of Trade, franchise documents and variation mechanisms help you implement compliant designs and adapt if market conditions change.

If you’d like a consultation on third-line forcing risks and how to structure your contracts and supply programs, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.