Canadian COMPETITION & ANTITRUST LAW

TRADE ASSOCIATIONS

OUR COMPETITION LAW SERVICES FOR TRADE ASSOCIATIONS

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We regularly counsel trade associations and their executives and personnel on compliance with the Competition Act. Our Canadian competition law services for trade associations include:

- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.

 

RECENT TRADE ASSOCIATION CASES AND NEWS

Our New Competition Law Publications for Associations – The Competition Law Guide for Associations

We are delighted to announce the forthcoming new book that we are co-authoring on competition law and associations (trade and professional associations): The Competition Law Guide for Associations.  This new book, to be published by Carswell in 2011 and the first of its kind in Canada, will provide an overview of Canadian competition law relevant to trade and professional associations and discuss key areas of association activities that can, in some instances, raise competition/antitrust law risk (e.g., association membership criteria and discipline, association rules and codes of conduct, advertising regulation and restrictions, fee guidelines and tariffs, self-regulation and codes of conduct, meetings and information exchanges, surveys and studies and joint activities including joint purchasing, marketing, production, research and development, marketing and lobbying and advocacy).  This new book will also provide guidelines for association activities to reduce competition/antitrust law risk.

The Commissioner of Competition v. The Canadian Real Estate Association – Tribunal Date Set for Motions for Leave to Intervene

The federal Competition Tribunal has announced that a date has been set for the Tribunal to hear motions for leave to intervene in the Competition Bureau’s abuse of dominance application against The Canadian Real Estate Association.  Motions for leave to intervene will be heard in Ottawa on Wednesday, June 30, 2010.  For more see: Competition Bureau – Notice of Application, Canadian Real Estate Association – Response,Competition Bureau – Reply.  For the intervenors’ requests for leave to intervene see: Lawrence Mark Dale – Request for Leave to Intervene and National FSBO Network Inc. – Motion for Leave to Intervene.

Competition Bureau Announces Coming Into Force of Canada’s New Conspiracy Laws

New Canadian Laws for Agreements Between Competitors

Competition Bureau Continues Challenge of CREA MLS Rules

CREA MLS Abuse of Dominance Case

Competition Bureau Refuses to Vary Interac Consent Order

Interac Association Request to Vary Consent Order

Competition Bureau Issues Final Competitor Collaboration Guidelines

Competitor Collaboration Guidelines

 

OVERVIEW OF TRADE ASSOCIATIONS & THE COMPETITION ACT

“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues.  Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct.  A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition.  It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct.  Such programs may allow trade associations and its members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities.  They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.”  (Competition Bureau, Corporate Compliance Programs Information Bulletin)

Trade associations often serve many legitimate purposes, including promoting common interests to the public, lobbying, advocacy, research, education and promoting and improving product standards.  However, because trade association activities involve the interaction of direct competitors, associations can in some cases raise competition law issues under the federal Competition Act (the “Act”).  Recent public criminal and civil association investigations have involved the Saskatchewan Roofing Contractors Association and The Canadian Real Estate Association, among others.  There have also recently been historic amendments to the Act that have resulted in, among other things, significantly increased penalties for conspiracy (fines of up to $25 million and/or imprisonment for up to 14 years) and misleading advertising (with civil fines of up to $10 million for corporations).

In general, the types of association activities that can in some cases raise competition law issues under the Competition Act include those dealing with pricing, advertising, customers, territories, market shares, terms of sale and other key aspects of competition.  Some of the specific association activities that can potentially raise issues include: (i) board and membership meetings, (ii) information exchanges (exchanges of competitively sensitive information), (iii) association rules and bylaws (e.g., mandatory or suggested fee guidelines, advertising restrictions, membership restrictions, member discipline and other rules relating to competitive aspects of member activities), (iv) dealing with members and discipline and (v) advertising or marketing restrictions.

Sections Relevant to Trade Associations

There are no specific sections of the Act dealing exclusively with trade associations.  However, some of the general sections that are particularly relevant to trade association activities include the criminal conspiracy, abuse of dominance, price maintenance and misleading advertising sections of the Act (discussed below).

Criminal Conspiracy

Section 45 of the Act, which is in many cases the most important section for trade associations, contains three criminal conspiracy offences.  The investigation and prosecution of criminal conspiracies is also a top enforcement priority for the Bureau.

Under section 45, three types of “hard core” anti-competitive agreements will be illegal as of March 12, 2010:

Price fixing agreements.  Section 45 will make it a criminal offence for competitors (or potential competitors) to fix, maintain, increase or control the price for the supply of a product (e.g., agreements to set prices, discounts, minimum prices or establish fee tariffs).  “Price” is broadly defined to include discounts, rebates, allowances and price concessions.  Based on the potential liability for price fixing agreements, it is important that prices, discounts and other aspects of price are determined independently by association members and that members do not discuss price or other competitively sensitive topics.

Market allocation/division agreements.  Section 45 will also makes it a criminal offence for competitors (or potential competitors) to allocate sales, territories, customers or markets for the production or supply of a product (e.g., agreements between competitors to not compete in relation to certain customers, groups or types of customers, in certain regions or market segments or in relation to certain types of transactions or products).

Supply restriction agreements.  Finally, section 45 will make it a criminal offence for competitors (or potential competitors) to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product including services (e.g., agreements to limit the quantity or quality of products supplied, reduce the quantity of quality of products supplied to specific customers, limit increases in production or discontinue supply to specific customers or groups of customers).

In general, the risk for trade associations under the criminal conspiracy sections is twofold: (i) that an association itself may become a party (or be seen as aiding or abetting) to an anti-competitive agreement and (ii) that trade association members themselves may become parties to an anti-competitive agreement.

To establish these offences, it is not necessary to prove that there have been any negative effects on any particular market (i.e., the offences are “per se” offences, which means that merely establishing that there was an agreement and intent to enter the agreement is sufficient with no adverse market effects).

It is also not necessary to show that an agreement was ever carried out (i.e., the offence is in the agreement not in the implementation).  An agreement can also be established based merely on circumstantial evidence (i.e., while the existence of an agreement must be proven beyond a reasonable doubt, an actual written agreement does not need to be produced, which can be proven by other evidence – e.g., evidence of meetings among competitors followed by a stabilization of prices, etc.).

Finally, with respect to the criminal conspiracy offences, there will now be a new “ancillary restraints” defense, which will provide a defense where it can be shown that an agreement between competitors is: (i) ancillary to a broader agreement, (ii) is directly related to and reasonably necessary to give effect to the broader agreement and (iii) that the broader agreement does not itself constitute an offence under section 45.  While this new defense will likely apply to agreements that are either potentially pro-competitive (e.g., certain joint venture arrangements) or “on the line”, it will likely provide no defense to “hard core” anti-competitive agreements – i.e., bare price fixing, market division/allocation or output restriction agreements.

The penalties for violating the criminal conspiracy sections can be very severe and, as of March 12^th, will include fines of up to $25 million (per count), imprisonment for up to 14 years and/or “prohibition orders” to stop the conduct.  In addition, private parties that have suffered actual loss or damage as a result of criminal conduct under the Act (including s. 45 – criminal conspiracies), including competitors or customers, have the right to commence private civil damages actions.

Abuse of Dominance

Abuse of dominance is another section that potentially applies to trade associations and their activities.  Under sections 78 and 79 of the Act, abuse of dominance occurs where a dominant firm (or firms) in a market has engaged in or is engaging in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, with the result that competition has been, is being or is likely to be prevented or lessened substantially.

Evaluating whether conduct constitutes an abuse of dominance can be highly complex and require significant economic analysis.  Having said that, some of the types of trade association activities that can potentially raise abuse of dominance issues include efforts to restrict access to essential services or markets or setting educational, qualification or membership standards that result in impeding entry.

The penalties for abuse of dominance include “administrative monetary penalties” (essentially civil fines) of up to $10 million ($15 million for subsequent orders).

Price Maintenance

The new civil price maintenance sections of the Act can also, in some cases, be relevant to trade association activities.

The first type of price maintenance that is potentially relevant involves refusals to supply products (including services) or discriminate against other persons engaged in business based on their low pricing policy, where the conduct has an adverse effect on competition in a market.  The second type of price maintenance that is potentially relevant to association activities involves inducing a supplier, by agreement, threat, promise or any like means, as a condition of doing business with the supplier, to refuse to supply to another person based on the other person’s low pricing policy.

Where the elements for the new price maintenance sections are established, the Competition Tribunal (the “Tribunal”) may make an order prohibiting a person from engaging in the conduct.

Misleading Advertising

The false or misleading representation provisions of the Act (often referred to as “misleading advertising”) can be highly relevant to both trade associations and their members, depending on the level of advertising and marketing engaged in by an association and its members.

The Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations made to promote the supply or use of a product, including services, or any business interest.  Subsection 74.01(1) of the Act contains the general civil prohibition against false or misleading representations:

“A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, makes a representation to the public that is false or misleading in a material respect.”

For a representation to be false or misleading, it must be shown that a representation has been made, to the public, to promote a product or business interest, that is literally false or misleading (or with a false or misleading “general impression”) and that the representation is “material” – i.e., likely to influence a consumer into buying or using the product or changing their conduct.

The criminal misleading advertising provision is substantially similar, but requires in addition to the above elements that a representation be made with intent (i.e., knowingly or recklessly).

The penalties for civil misleading advertising include “administrative monetary penalties” (essentially civil fines) of up to $750,000 (for individuals) or up to $10 million (for corporations), an order to cease the activity or an order to publish a corrective notice.  The penalties for criminal misleading advertising include fines up to $200,000 and/or imprisonment for up to one year (on summary conviction) or fines in the discretion of the court and/or imprisonment for up to 14 years (on indictment).

Based on the potential liability, it is prudent for trade associations and their members to ensure that they do not engage in false or misleading representations in their day-to-day business dealings and as well that associations ensure that their rules and bylaws do not encourage misleading advertising (or restrict legitimate pro-competitive advertising by members).

 

RECENT CANADIAN TRADE ASSOCIATION, CONSPIRACY & BID-RIGGING CASES

The following are some of the recent publicly reported Canadian trade association, conspiracy and bid-rigging cases that have involved Competition Bureau (the “Bureau”) investigations, penalties, court orders or settlements.

Canadian Real Estate Association Alleged Abuse of Dominance Case (2010)

Market:  Residential real estate services.

Overview:  Alleged abuse of dominance case. On February 8, 2010 the Bureau filed an abuse of dominance application with the federal Competition Tribunal (the “Tribunal”) alleging that MLS rules adopted by The Canadian Real Estate Association limit choice and prevent innovation in the market for residential real estate services nationally in Canada.  In particular, the Bureau is challenging MLS rules that it claims require that certain services be provided as a condition for real estate agents to list properties on local real estate boards’ MLS systems and that it claims limit consumer choice of residential real estate services.

The Bureau’s position is that CREA and its members have used their alleged control of the MLS system and related trademarks to impose exclusionary restrictions impacting the supply of residential real estate brokerage services and as a result have limited alternative real estate services business models in the market.

This case is interesting for a number of reasons, including that, if a decision is issued by the Tribunal, it would be the first Canadian “essential facilities” case to be decided on its merits (i.e., a case dealing with whether and under what terms access to an important asset, or “essential facility”, must be granted).

Result:  CREA filed its response on March 26, 2010.  The case is currently ongoing.

Quebec Street Lights Tender Bid-rigging Case (2010)

Market:  Contracting services.

Overview:  The defendants in this case were accused of bid-rigging in relation to a call for bids for a street light project.

Result:  The corporate defendant was fined $50,000 and two individual defendants were sentenced to a ten year prohibition order.

Quebec Retail Gasoline Price-Fixing Case (2008–2009)

Market:  Retail gasoline.

Overview:  Price-fixing conspiracy case.  In 2008 charges were laid against 13 individuals and 11 companies accused of fixing retail gasoline prices at the pump in Victoriaville, Thetford Mines, Magog and Sherbrooke, Quebec.

Result:  As of December, 2009, 10 individuals and six companies pleaded guilty in this case with total fines imposed of more than $2.7 million.  Les Pétroles Therrien Inc. and Distributions Pétrolières Therrien Inc. were fined $179,000, Ultramar Ltée was fined $1.85 million and Jacques Ouellet was fined $50,000.

Of the ten individuals that pleaded guilty, 6 were sentenced to terms of imprisonment.

This case is noteworthy in that it involves one of the high priority sectors for the Bureau (retail gasoline) as well as being a recent example of where the sentences involved imprisonment (served in the community).

Air Cargo Price-fixing Case (2009)

Market:  Air cargo services.

Overview:  International price-fixing case in relation to surcharges for air cargo exported on certain routes from Canada.

Result:  On October 30, 2009 the Bureau announced that British Airways Plc (“BA”) had pleaded guilty in the Federal Court and was fined $4.5 million for its participation in an air cargo cartel affecting Canada.  In particular, BA admitted to fixing surcharges relating to the sale and supply of international air cargo exported on particular routes from Canada between 2002 and 2006.  In this case, each of BA, Air France, KLM, Martinair and Quantas pleaded guilty to fixing surcharges on the sale and supply of international air cargo.  The total fines imposed in this case were more than $14.6 million (Air France: $4 million; KLM: $5 million; Martinair: $1 million; Qantas: $155,000; BA: $4.5 million).

This case is noteworthy for the significant penalties imposed as well as highlighting that the investigation of cartels remains a top enforcement priority for the Bureau.

Interac Association Abuse of Dominance Case (1996, 2010)

Market:  ATM services.

Overview:  Alleged abuse of dominance case (variation of Consent Order).

Result:  The Interac Association requested that the Commissioner of Competition (the “Commissioner”) consent to vary a 1996 Consent Order to permit Interac to restructure from a not-for-profit association structure to a for-profit model.  The Consent Order in this case included, among other things, terms relating to membership requirements of the Interac Association and fees.  The Bureau refused to remove certain “safeguards” in the Consent Order and stated that it did “not agree that the removal of the restriction against for-profit activities by Interac would be pro-competitive, or is necessary to allow Interac to remain competitive.”

This case is interesting in that it involves issues relating to access and terms of use for an “essential facility” (in this case a shared electronic network services network established by the Interac Association).

Saskatchewan Roofing Contractors Association Alleged Bid-riggina and Conspiracy Case (2009)

Market:  Roofing contracting services.

Overview:  Alleged bid-rigging and conspiracy case.

Result:  On June 22, 2009 the Bureau announced that a court order had been issued prohibiting the Saskatchewan Roofing Contractors Association from taking any action directed towards the commission of an offence under the conspiracy or bid-rigging provisions of the Competition Act (the “Act”).  The order was a result of allegations that some members of the association had discussed not submitting bids in response to a request for tenders for a roofing project in Saskatchewan.  The order also requires the association to educate its members on the relevant provisions of the Act and terms of the order, and requires the association’s members, as a condition of membership, to acknowledge in writing that they will comply with the association’s corporate compliance program.

This case is noteworthy as a recent example of the Bureau’s continued interest in ensuring that Canadian trade and professional associations comply with the Act, as well as indicating that the criminal conspiracy and bid- rigging provisions of the Act remain top enforcement priorities for the Bureau.

Newfoundland School Bus Operators Alleged Price-fixing Case (2009)

Market:  School bus services.

Overview:  Alleged market division and price-fixing case involving school bus services in and around St. John’s Newfoundland and Labrador. This case involved allegations that the parties had entered into agreements to divide the market and fix prices for school bus services and allegations of bid-rigging activities between 2001 and 2003.

Result: In February, 2009 the Bureau announced that it had obtained two prohibition orders against 14 companies and 18 individuals operating school bus services.

Federal Government IT Contracts Alleged Bid-rigging Case (2009)

Market:  IT services.

Overview:  In February, 2009 the Bureau announced that criminal charges had been laid against 14 individuals and 7 companies accused of rigging bids to obtain Government of Canada contracts for information technology services.  The Bureau stated that it had discovered evidence indicating that several IT services companies in the National Capital Region had been secretly coordinating their bids to “defraud the government by winning and dividing contracts, while blocking out honest competitors.”

Result:  One individual pleaded guilty to one count of bid-rigging, another individual (the former owner of TRM Technologies Inc.) pleaded guilty and was fined $25,000 and a prohibition order was issued against TRM Technologies Inc.

International Hydrogen Peroxide Price-fixing Case (2008)

Market:  Hydrogen peroxide.

Overview:  International price-fixing case.

Result:  In November, 2008, the Bureau announced that Akzo Nobel Chemicals International BV had pleaded guilty and was ordered to pay a fine of $3.15 million in relation to fixing the price of hydrogen peroxide sold in Canada.  The Bureau stated that in its investigation it benefited from the cooperation of an immunity applicant under its formal Immunity Program.

International Rubber and Chemicals Price-fixing Conspiracy (2007)

Market:  Rubber and chemicals industry.

Overview:  Charges under section 45 of the Act relating to price-fixing conspiracies in the rubber and chemicals industry.

Result:  On October 30, 2007, Bayer Group pleaded guilty for its participation in three cross-border price-fixing conspiracies.  Bayer AG was fined $2.9 million for its participation in the rubber chemical conspiracy and $400,000 for its participation in the nitrite rubber conspiracy.  Bayer corporation was fined $345,000 for the aliphatic polyester polyols conspiracy.

International Graphite Electrodes Price-fixing Case (2007)

Market:  Graphite electrodes.

Overview:  International price-fixing case.

Result:  In November, 2007 the Bureau announced that SEC Carbon Ltd. (“SEC”) pleaded guilty to participating in a conspiracy in the graphite electrodes market and was fined $250,000.  SEC was the eighth party to be convicted in Canada in this case where total fines imposed were about $25 million.

Fort McMurray Auto Body Shops Alleged Price-fixing Case (2007)

Market:  Auto body services.

Overview:  Alleged price-fixing case involving auto body services.

Result:  In February, 2007, the Bureau announced that a settlement was reached with six auto body shops in Fort McMurray.

The parties agreed to a binding court order that prohibited the six companies from: (i) engaging in communications relating to pricing or services and (ii) entering into agreements relating to pricing of products or services to customers or insurance companies. The companies were also required to publish a corrective notice outlining key terms of the court order and were required to implement a competition law compliance program.

 

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.

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