May 24, 2013
The potential routes to deception are many. In misleading advertising cases, commonly challenged conduct includes false price, performance and other product claims (e.g., omitting key limitations or conditions on products or services). Some of the advertising practices that are regulated or prohibited in Canada include contests, performance claims, bait and switch selling, ordinary selling price claims, multi-level marketing, pyramid selling schemes, deceptive telemarketing, deceptive prize notices and testimonials and warranties.
In my daily media sweep today, I came across a most curious New Zealand case that serves as a bit of a reminder of the potentially wide application of misleading advertising rules, including in Canada. In this regard, the New Zealand Commerce Commission announced that an Auckland-based car company has been fined $165,000 under New Zealand consumer protection legislation (the Fair Trading Act) in relation to an online auction “shill bidding” scheme.
In making the announcement, the Commerce Commission said:
“An Auckland-based car company has been sentenced today in the Auckland District Court on 13 charges under the Fair Trading Act. The Auto Co (Millenium) Ltd has been fined $42,000 plus court costs of $1727.57 after pleading guilty to misleading consumers about the price of vehicles auctioned on Trade Me. The fine is on top of over $122,000 already paid in compensation to affected consumers and related costs.
The Commission’s investigation found evidence suggesting that The Auto Co may have misled customers in at least 530 online vehicle auctions between the charge period of June 2011 and July 2012. The investigation was triggered by a complaint made by Trade Me, who raised concerns about $1 reserve auctions conducted by The Auto Co. Trade Me was concerned that The Auto Co was engaging in shill bidding, which breaches the Fair Trading Act and is banned by Trade Me.
In online auctions, shill bidding is the practice of selling goods under one membership, but bidding on them with other memberships controlled by or related to the vendor. Shill bidding is illegal because it misleads the public about the price of goods by manipulating the bids placed by genuine auction bidders. In this case the shill bidding effectively increased the auctions’ reserves above the $1 reserves represented.”
According to the Commerce Commission, as many as 7,500 bids were placed by people associated with the auto company using as many as 20 different memberships.
While I can’t recall quite a similar case in Canada, the Competition Bureau has from time-to-time challenged allegedly misleading auction claims, which have included false “going-out-of-business” and “final sale” carpet auction claims (where there was no urgent need to sell carpets) and false claims regarding the origin of auctioned goods – in one case, false claims that goods were disposed federal or other government assets, when that was not the case.
New Publications: CD Howe Report on Canadian Regulated Markets: “How Canadian Governments Put Cartels Before Consumers”
May 24, 2013
The C.D. Howe Institute has published a new report on a topic that is near and dear to my heart – the regulated conduct doctrine and monopolies, er regulated markets, in Canada: Beer, Butter and Barristers: How Canadian Governments Put Cartels Before Consumers.
In many of my conversations about Canadian competition law I get asked why, if cartels are illegal, there seem to be so many in Canada (i.e., protected industries). An excellent question and a seemingly established Canadian practice that this new report directly challenges.
“In Canada, various sectors of the economy are subject to government regulations, many of which are designed to correct market failures. However, such regulations are generally inconsistent with federal competition law, which aims to promote economic efficiency by maintaining the integrity of competitive markets.
The courts have resolved this tension by developing the Regulated Conduct Defence (RCD) – an interpretive judicial doctrine that immunizes various regulatory regimes from the application of competition law. In this Commentary we challenge the wisdom of the RCD from an economic and legal standpoint. In particular, we criticize the view, established by the courts, that regulations conflicting with competition law should be deemed to operate in the public interest.
We argue that certain regulatory regimes advance private interests at an unreasonable cost to consumers. Our analysis includes three examples of regulatory regimes that interfere with competitive forces but nevertheless benefit from immunity to competition law: agricultural supply management, private alcohol retail, and legal services.
We propose: (i) clarifying the Competition Act’s application to regulated conduct; (ii) where practicable, limiting the scope of immunity for regulated sectors such that if regulation is deemed necessary, it is narrowly tailored to be minimally impairing to competition; and (iii) requiring the federal government to assess the competitive effects of all legislation prior to enactment.”
May 21, 2013
The OECD has published a new Policy Roundtable report entitled Leniency for Subsequent Applicants, which follows a debate by its Competition Committee last fall. This new report includes an executive summary of that debate and submissions including from Australia, the EU, France, Germany, the UK and United States.
“Competition authorities widely rely on leniency policies to detect, investigate and prosecute hard-core cartels. Jurisdictions that operate leniency programs recognize the benefits of rewarding not only the first-in applicant who denounces the cartel but also subsequent applicants who provide useful corroboration or new evidence. Subsequent applicants can often supply essential co-operation for the successful prosecution of the full extent of a cartel and offer a cost-efficient way for gathering evidence.
In order to obtain a leniency reward, subsequent applicants must fulfill a number of requirements, which generally mirror those for immunity applicants. These include qualification, co-operation and timing requirements, which vary in substance across jurisdictions. However, in the majority of jurisdictions, subsequent applicants are required to provide full and continuous co-operation throughout the procedure while ending their participation in the cartel and maintaining the fact of their co-operation confidential.”
Guest post by Jeremy Richler
May 18, 2013
It seems almost everyone has a cell phone, simply unable to live without one. We rely on our mobile phones not just to communicate with others but to email, surf the net, text, download movies and music, and catch the headlines.
But virtually all Canadians, hooked as they are to these irresistible devices, complain that they are being gouged, with unreasonable prices, interminable three-year contracts, and poor service. Desperate to seek a more reasonable alternative, Canadians come to the inescapable conclusion that the prospect of an immediate bargain with a rival competitor is slim to none.
The sad truth is, this initial hunch is the right one. Canadian cell phone rates are among the highest in the developed world. An OECD comparative study back in 2009 found that Canadians were paying the third highest rates for “medium usage” cell phone packages in the developed world, with only Americans and Spaniards spending more than us (see: here).
And if Canadians were hoping for some good news they are, at least for the very moment, desperately out of luck.
The lack of competition in our cell phone market is a major contributor to our prohibitive rates and disappointing customer service. Our “big three” cell phone companies, Bell, Rogers and Telus control “nearly 94% of cell phone services,” and as a result, “Canadians pay some of the highest prices for mobile phone service in the industrialized world” (see: here).
And if you thought the news was bad, it only gets worse from here. Telus has recently announced its intention to purchase the smaller carrier Mobilicity for $380 million. William Aziz, chief restructuring officer of Mobilicity favours the acquisition, insisting that “Mobilicity has been losing a significant amount of money every month” and that the financial strength of Telus is a win-win, an acquisition being “the best alternative for Mobilicity” (see: here).
May 16, 2013
There used to be a saying that nothing in life is free. In Australia, it seems, there are no free TVs, or at least not that many. In a curious case posted by the Australian ACCC earlier today (or was that yesterday?), it announced that it had settled an allegedly false free TV promotional offer with Australian cable company FOXTEL.
According to the ACCC, FOXTEL ran a promotion on, naturally TV, claiming that customers who subscribed to a 12 month plan would receive a free 22 inch neoniQ TV within ten days of cable service installation. As it turns out, 8,400 people subscribed but the offer was limited to 1,500 free TVs, with a large number of subscribers never receiving the promised TVs.
It seemed to me in reading this case that it also illustrated a few points relevant in Canada, including ensuring that advertising claims are both true and not misleading (e.g., through banner or headline claims that cannot stand on their own or may be contradicted by disclaimers), the importance of including any important conditions or limitations in clear language and in close proximity to primary claims (e.g., limitations on promotional giveaways or other offers), and following through on promotional claims (e.g., that advertised claims are generally fulfilled, as well as ensuring that the award of promotional contest prizes are not unduly delayed and that reasonable quantities of products are available where “bargain price” type claims are made, as required by the Competition Act).
The Competition Bureau has on occasion challenged marketers for making allegedly false “free” claims, including Moores where the Bureau alleged that the retailer’s “buy one get one free” suit claims failed to adequately disclosing the fact that the offer applied to select designer suits only, Premier Fitness Clubs for allegedly making “free trial offer” claims where there were additional fees or contract requirements to qualify, and more frequently sweepstakes promoters for making false or deceptive “free” prize claims.
May 14, 2013
In an interesting though not totally unexpected development, the Competition Bureau announced earlier today that it was appealing the Competition Tribunal’s decision in the TREB abuse of dominance case to the Federal Court of Appeal (Commissioner of Competition v. The Toronto Real Estate Board, file no. A-174-13).
In dismissing the Bureau’s case, the Tribunal essentially concluded that the Bureau’s application had been wrongly made under the abuse of dominance provisions of the Competition Act (section 79) while suggesting that the more appropriate provision was the new civil agreement section of the Competition Act, section 90.1 (based, in part, on finding that TREB did not compete in the relevant market, residential real estate services in the GTA and, as such, any anti-competitive acts could not therefore be directed toward a competitor).
In announcing the appeal, Interim Commissioner of Competition John Pecman said:
“Allowing the Tribunal’s finding to stand could leave a significant loophole in the application of the Competition Act … While most trade associations comply with the Competition Act, we are concerned that, if the Tribunal’s decision is left to stand, trade associations may be tempted to develop rules aimed at preventing or eliminating potential new forms of competition.”
In the Bureau’s notice of appeal, in which it is seeking that the Tribunal’s order be set aside and the case returned to the Tribunal for re-determination, it argues among other things that the Tribunal erred by:
1. Finding that section 79 does not apply to industry associations that do not compete in the market in which effects are alleged to be occurring, but engage in anti-competitive conduct in their members’ market (which appears to be the argument that under section 79 it is only necessary to control “a” market). On the face of section 79 it is also possible to make challenges where a firm possesses market power in one market and through anti-competitive acts competition is prevented or lessened in another.
May 12, 2013
In one of the most curious Canadian competition related stories that caught my eye last week, many Canadian lobster fishermen in the Maritimes have collectively stopped fishing in an apparent protest over what they say are unfairly low lobster prices.
According to media reports (see e.g.: here, here and here), lobster fishermen in P.E.I., New Brunswick and Nova Scotia have tied up boats in a collective effort to raise wholesale lobster prices that have ranged between $2.75 and $4.00 (for canner and market-sized lobsters). Evidently, attempts by the P.E.I. Fishermen’s Association to negotiate higher prices with processors have been unsuccessful.
While RCMP are reportedly on protest scenes to “keep the peace” so to speak, relatively little is being said about the potential competition law implications of this lobster blocade. While some fishermen have been reported as saying that the current prices are “unreasonable”, “unfair” and the like, the Competition Act prohibits agreements between competitors to fix prices, divide markets or prevent or lessen supply (i.e., the criminal conspiracy offences of the Competition Act that were amended in 2009 are potentially broad enough to make collective boycotts a criminal offence, in the absence of a valid exemption or defense).
The Competition Act does, however, include some qualified exemptions for collective bargaining activities, which include combinations between workmen or employees for their “own reasonable protection”, agreements involving employer associations relating to collective bargaining with their employees and a specific exemption for certain collective activities involving fishermen. The fisherperson carve-out exempts: “contracts, agreements or arrangements between or among fishermen or associations of fishermen and persons or associations of persons engaged in the buying or processing of fish relating to the prices, remuneration or other like conditions under which fish will be caught and supplied to those persons by fishermen”.
While the more general collective bargaining exemptions are qualified to, among other things, combinations limited to the “reasonable protection” of workmen/employees and, in the case of the employer association exemption, collective bargaining with an employer association’s employees, the fisherperson exemption of the Act (subsection 4(1)(b)) is somewhat more broadly worded and, as such, might potentially provide more of a “safe harbour” for lobster fishermen collectively refusing to fish and sell their catches in this case.
New C.D. Howe Cartel Detection Report: “Coming in From the Cold: Improving Cartel Detection and Reporting”
May 8, 2013
The C.D. Howe Institute has published a new report on cartel detection entitled Coming in From the Cold: Improving Cartel Detection and Reporting. The report argues in general that the Competition Bureau and federal government should ensure that sufficient resources and policy emphasis are placed on the investigation, detection and prosecution of domestic cartels (i.e., Canadian price-fixing and other conspiracies).
Currently, the Bureau’s tools for detecting price-fixing, bid-rigging and other criminal competition/antitrust cartels include the ability to obtain wiretaps, its Immunity and Leniency Programs and Competition Act whistleblower protections. Under the Bureau’s current Immunity Program, which the Bureau has described as its “single most powerful means of detecting criminal activity”, a party or company implicated in criminal conduct under the Competition Act may offer to cooperate with the Bureau in an investigation and, if all of the requirements of the program are met, receive full immunity from prosecution. Under the Bureau’s Leniency program, applicants that are not entitled to full immunity – for example, because they are not first in – may still be eligible for 50% or 30% reductions in fines.
The C.D. Howe report suggests that, given the disparity between the Bureau’s participation in many international cartel investigations, such as the auto parts and Libor cases, and relative rarity of domestic prosecutions, that the Bureau’s current policies may be insufficient to motivate cartel members to self-report.
In this regard, the report recommends that: the Bureau’s cartel detection policies should aim to increase the likelihood of a successful and thorough prosecution even where there may only be one cartel defector; the awareness of the potential criminality of cartel behavior and existence of Immunity and Leniency Programs should be increased; and ensure that there are clear differences in how Immunity Program participants are treated (compared to subsequent Leniency Program members) to create a stronger incentive to report.
Some of the points made by the new C.D. Howe report that I found interesting include raising the questions of whether foreign and domestic immunity applicants may face different incentives to report, whether more domestic cartel enforcement would lead to more case law (there is presently a significant dearth in Canadian s. 45 conspiracy cases that the C.D. Howe group says is, based in part, on the fact that most foreign defendants do not contest Canadian fines) and a skepticism that more economic data or statistical approaches would yield much in terms of increased cartel detection.