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Increased enforcement for restrictive
trade practices?
by Anthony Baldanza, Partner, Leslie Milton, Partner and Mark Magro, Associate,
Fasken Martineau DuMoulin LLP
Following several years of relative inactivity, the Canadian Commissioner of
Competition (the ‘Commissioner’) filed two applications with the
Competition Tribunal (‘Tribunal’) in 2010 for relief under restrictive trade
practices provisions of Canada’s Competition Act (the ‘Act’), and in 2009
secured a consent agreement in another matter without the need for full
proceedings. This represents a marked increase in enforcement action by the
Commissioner under these provisions and may signal a resurgence in the
Commissioner’s willingness to pursue complex cases that typically require
substantial resources and time to resolve.
By way of background, enforcement action under
the Act can generally take one of three forms:
(i) prosecution pursuant to a criminal provision of
the Act (e.g., conspiracy, bid-rigging); (ii) application
before the Tribunal for relief under a civil
“reviewable matters” provision of the Act; and (iii) a
private action for damages resulting from violation
of a criminal provision of the Act or non-compliance
with an order of the Tribunal or a court.
In addition to mergers, the civil “reviewable
matters” provisions of the Act address “restrictive
trade practices” including abuse of dominance;
exclusive dealing; tied selling; market restriction;
refusal to deal; price maintenance; and, agreements
or arrangements between competitors. The price
maintenance and competitor agreements provisions
were introduced as part of a package of major
amendments to the Act in 2009 that also revised
the criminal conspiracy provision to establish a
per se offence for agreements between competitors
to fix prices, allocate markets or restrict output;
eliminated the criminal prohibitions on price
maintenance, price discrimination and predatory
pricing; and introduced significant administrative
monetary penalties for abuse of dominance.
The Commissioner can apply to the Tribunal for
relief in respect of conduct that contravenes the
restrictive trade practices provisions (listed above).
Potential relief includes prohibiting the conduct,
imposing steps necessary to overcome the anticompetitive effects of the conduct and, in the case
of abuse of dominance, an administrative monetary
penalty (‘AMP’) of up to C$10m for an initial
finding of non-compliance (there has so far not
been a case of abuse of dominance where AMPs
were sought). In addition, private parties can bring
applications for relief under the refusal to deal,
exclusive dealing, tied selling and market restriction,
26
and price maintenance provisions, but only with
1
leave of the Tribunal.
While Canadian enforcement of criminal cartel
activities has largely tracked the heightened
enforcement activities in other jurisdictions such as
the US and the EU, the same cannot be said of
restrictive trade practices over the past decade.
Until last year, the Commissioner had not initiated
a contested proceeding under these provisions
since Canada (Commissioner of Competition) vs.
2
Canada Pipe Co. – an abuse of dominance case that
commenced in 2002 and ultimately settled in 2007.
Although a number of private parties have sought
leave to bring proceedings, principally under the
refusal to deal provision, most of these applications
have been denied and only two cases have
proceeded to a full hearing.
Notably, however, in 2009, the Commissioner did
secure a consent agreement with respect to alleged
anti-competitive conduct by jointly dominant firms
in the commercial waste collection business in
3
central Vancouver Island; the matter was resolved
without the need for a contested proceeding
before the Tribunal. Additionally, and particularly
demonstrative of a resurgence of enforcement
activity, the initiation of two proceedings in 2010 by
the Commissioner under two of the restrictive
trade practices provisions of the Act was a
significant development. We describe below the two
cases, The Commissioner of Competition vs. The
4
Canadian Real Estate Association; and The
Commissioner of Competition vs. Visa Canada
Corporation and MasterCard International
5
Incorporated, both of which raise complex factual
and legal issues. We then discuss practical
considerations for businesses in the management of
conduct that may raise issues under these
provisions.
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The Commissioner of Competition
vs. The Canadian Real Estate
Association
In February 2010, following a three-year
investigation, the Commissioner initiated a
proceeding against the Canadian Real Estate
Association (‘CREA’) under the abuse of
dominance provision. This is not the first time that
CREA has been the subject of enforcement action
by the Commissioner. In 1988, after a series of
inquiries into the activities of real estate boards
across Canada, CREA agreed to a 10-year
prohibition order which barred CREA from
engaging in a number of activities that the
Commissioner considered to contravene the
criminal and civil provisions of the Act.
In her recent application to the Tribunal, the
Commissioner alleged that by adopting and
enforcing certain rules restricting access to the
multiple listing service (‘MLS’) system and
trademarks, CREA had, through its members,
lessened or prevented competition substantially in
the market for residential real estate services in
Canada. The Commissioner took issue with the
minimum service requirements imposed on all
brokers as a condition of access to the MLS
system and trademarks, including the prohibition
against offering listing-only (‘Mere Posting’)
services. The proceeding was concluded by a
registered consent agreement filed with the
Tribunal on October 25, 2010. Under the Consent
Agreement, which has a term of 10 years, CREA
has agreed not to adopt, maintain or enforce any
rules that prevent members from providing or
offering to provide ‘Mere Posting’ services or that
discriminate against members that offer such
services. CREA has also agreed not to license MLS
trademarks to any real estate board member that
adopts or enforces rules that are inconsistent with
the requirements of the consent agreement.
The case confirms the Commissioner’s
willingness to challenge rules restricting access to
proprietary networks where such restrictive rules
substantially lessen or prevent competition in a
market, whether or not such networks are
protected by intellectual property rights.
The Commissioner of Competition vs.
Visa Canada Corporation and
MasterCard International Incorporated
In December 2010, the Commissioner filed an
application under the new civil price maintenance
provision seeking to strike down Visa and
MasterCard rules that impede or limit the ability of
merchants to:
• discriminate against or discourage the use of
particular credit cards in favour of any other
credit card, or any other method of payment;
• impose a surcharge on the use of particular
credit cards or set prices for customers based
on the particular credit card used; and
• refuse to accept particular credit cards.
The Commissioner alleges that these rules result
in higher prices for consumers, as merchants are
forced to pass on higher Visa and MasterCard fees
than would otherwise prevail.
It is noteworthy that merchant rules imposed by
Visa, MasterCard and American Express are also the
subject of a civil antitrust suit filed by the US
Department of Justice and several US States in a
US District Court in October 2010. In that case,
the plaintiffs allege that merchant restraints imposed
by the defendants constitute agreements that
unreasonably restrain competition in markets for
general purpose network card services
provided to merchants, contrary to section 1 of the
Sherman Act. Visa and MasterCard have agreed to
settlement terms, but American Express continues
to contest the suit. Generally, the proposed
settlement enjoins Visa and MasterCard from
imposing certain rules that restrict merchants
from: offering incentives for, or promoting the use
of, other credit cards or forms of payment;
expressing a preference for a particular credit card
or form of payment; and communicating the costs
incurred by the merchant when a particular credit
6
card is used.
The Commissioner’s application follows an
investigation launched in April 2009 in response to
complaints filed by merchants and their associations.
Interestingly, although the investigation was originally
pursued under section 79 (abuse of dominance), the
application is based solely on price maintenance. The
Commissioner’s reasons for not pursing the matter
as abuse of dominance have not been made public.
A possible explanation is that abuse of dominance
requires proof of a greater negative effect on
competition than does price maintenance – a
substantial lessening or prevention of competition,
as opposed to an adverse effect on competition.
Relief under the abuse provision also requires proof
of single or joint dominance – something that is not
required under the price maintenance provision.
However, reliance by the Commissioner on the
price maintenance provision is not without its
challenges. Both Visa and MasterCard have
responded to the Commissioner’s application
arguing, among other things, that the price
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maintenance provision is inapplicable to their
conduct as they do not supply a product or service
for resale and that the merchant restraints
challenged by the Commissioner do not have an
adverse effect on competition.
A decision by the Tribunal in this proceeding will
provide important guidance on the scope of the
new civil price maintenance provision. As the case
involves a “network industry”, a decision may also
provide important insight into treatment of network
effects under Canadian competition law.
Practical considerations for
businesses
The limited private enforcement of the restrictive
trade practices provisions of the Act can largely be
attributed to the following:
(i) the Act does not provide a private right of action
for damages suffered as a result of conduct
contrary to the reviewable practices provisions
of the Act, unless the Tribunal (or a court) has
issued an order in respect of that practice and
the party subject to the order has not complied
7
with the order;
(ii) only the Commissioner can bring a challenge in
respect of certain restrictive trade practices,
including abuse of dominance, and even where
private access is permitted, leave to proceed
with an application is first required; and
(iii) proceedings before the Tribunal are typically
highly complex, involve substantial time and
resources, and the remedies available are, as a
practical matter, often limited to prohibition
orders.
For the Commissioner, having regard to her
finite resources, and the substantial time and
resources required to investigate and present a case
before the Tribunal in respect of most restrictive
trade practices (particularly with respect to the
requirement to prove the requisite economic harm),
the Commissioner will be selective in deciding what
cases to take on. Commissioners have, historically,
oftentimes relied on remedies obtained in other
jurisdictions to address the anti-competitive effects
8
of restrictive trade practices in Canada. We would
expect the current Commissioner, Melanie Aitken,
to follow the same approach where circumstances
warrant.
Generally, it appears that the existence of the
following three factors will markedly increase the
risk that the Commissioner will (if necessary)
pursue a matter involving a restrictive trade practice
to the point of fully contested proceedings: (1) the
party engaging in the impugned practice or conduct
has substantial market power, or conditions exist
28
for joint dominance (e.g., a highly concentrated
9
market); (2) the impugned practice or conduct has
a substantial economic impact; and (3) there is a
clear and material impact, whether direct or
indirect, on consumers.
As previously noted, the two cases filed last year,
as well as the 2009 amendments to the Act, may
signal a more active enforcement approach by the
Commissioner going forward. While businesses
obviously should continue to be vigilant in ensuring
compliance with the criminal prohibitions in the Act,
increased attention to the reviewable practices
provisions may be in order, especially where the
aforementioned conditions exist. Responding to
civil investigations and, where applicable, contested
proceedings before the Tribunal can involve
substantial costs and management time. If the
investigation becomes public or proceedings are
launched there is also the risk of negative publicity.
To mitigate these risks, businesses need to have
in place a competition compliance policy that
includes effective monitoring and training
programmes in relation to the restrictive trade
practices provisions.
Notes:
1
2
3
4
5
6
For refusal to deal, exclusive dealing, tied selling and
market restriction, leave may be granted where the
Tribunal has reason to believe that the applicant is
“directly and substantially affected” in its business
by the challenged practice. For price maintenance,
the test is similar, with the standard being that the
Tribunal must have reason to believe that the
applicant is “directly affected” by the challenged
conduct. Leave will not be granted if the matter in
respect of which leave is sought is the subject of an
ongoing inquiry by the Commissioner, was the
subject of an inquiry by the Commissioner that
was discontinued because a settlement was
reached, or is the subject of an application that has
already been filed by the Commissioner.
CT 2002-06, 2006 FCA 233, 2006 FCA 236; leave
to appeal to S.C.C. refused, 31637 (May 10, 2007).
See Competition Bureau, Announcement,
‘Competition Bureau Cracks Down on Joint
Abuse of Dominance by Waste Companies’
(June 16, 2009), online: Competition Bureau,
http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/03081.html.
CT-2010-002.
CT-2010-010.
United States of America, et al. vs. American Express
Company, et al., ‘[Proposed] Final Judgment as to
Defendants MasterCard International
Incorporated and Visa, Inc.’, Civil Action No. CV-
p26-30 ANTI - Fasken 23/03/2011 13:22 Page 29
7
8
10-4496 in the US District Court for the Eastern
District of New York (filed October 4, 2010),
online: US Department of Justice, Antitrust
Division, http://www.justice.gov/atr/cases/
f262800/262875.htm, at Part IV, Section A.
In a recent decision, Novus Entertainment Inc. vs.
Shaw Cablesystems Ltd., 2010 BCSC 1030, the
Supreme Court of British Columbia followed
previous jurisprudence holding that, for the
purposes of establishing unlawful conduct for the
tort of unlawful interference with business and
economic interests, an order of the Tribunal is
necessary before the court will consider finding
that an unlawful act has occurred by way of a
breach of the abuse of dominance provision. The
plaintiff had argued that the introduction of AMPs
for abuse of dominance in 2009 distinguished its
case from previous jurisprudence. The court
rejected this argument.
See ‘Canadian Perspectives on the Role of
Comity in Competition Law Enforcement in a
Globalized World; To Defer or Not Defer? Is that
the question?’ (Speech to the American Bar
Association’s Section of Antitrust Law, 2006
Spring Meeting, Washington, DC, March 29,
2006), online: Competition Bureau,
http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/02049.html, wherein immediate past
Commissioner, Sheridan Scott, noted that
reliance on remedies obtained by foreign
antitrust authorities will be appropriate where
there is a sufficient nexus with the other
jurisdiction (e.g., similar competition laws and
investigative authorities) and there would be
duplication of efforts, resources and remedies if
proceedings were undertaken in Canada. As an
example, she made reference to an abuse of
dominance case in the US involving Microsoft.
This approach is consistent with the
Commissioner’s policy in the case of mergers of
relying on remedies in other jurisdictions where
they are sufficient to address a lessening or
prevention of competition in Canada:
Competition Bureau, ‘Information Bulletin on
Merger Remedies in Canada’ (September 22,
2006), online Competition Bureau:
http://www.competitionbureau.gc. ca/eic/site/cbbc.nsf/eng/02170.html at para. 78.
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9
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Furthermore, the Commissioner’s draft updated
enforcement guidelines for abuse of dominance,
released for comment in 2009, propose that joint
dominance could be established simply by
aggregating the market shares of multiple
firms engaging in similar conduct: Competition
Bureau, ‘Updated Enforcement Guidelines on
the Abuse of Dominance Provisions’
(Draft for Public Consultation – January 2009),
online: Competition Bureau, http://www.competit
ionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02942.html.
Indeed, this approach appears to have informed the
negotiation of the consent agreement in the
matter involving allegedly jointly dominant firms in
the commercial waste collection business in central
Vancouver Island (discussed above).
Authors:
Anthony Baldanza, Partner
Email: [email protected]
Leslie Milton, Partner
Email: [email protected]
Mark Magro, Associate
Email: [email protected]
Fasken Martineau DuMoulin LLP
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