Canadian COMPETITION LAW

On September 20, 2012, the Competition Bureau issued new final Abuse of Dominance Guidelines (see: Competition Bureau Issues Abuse of Dominance Guidelines).

The Bureau’s new Guidelines replace its former 2001 Guidelines and are the result of some fairly significant public consultations, including comments from the Canadian and U.S. competition/antitrust law bars and criticism for, among other things, providing significantly less guidance than in the past (see: here).

The Bureau’s new Abuse of Dominance Guidelines also replace a number of final and draft sector and conduct specific guidelines and bulletins (the Draft Enforcement Guidelines on Abuse of Dominance in the Airline Industry, The Abuse of Dominance Provisions as Applied to the Grocery Sector, Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry and Predatory Pricing Enforcement Guidelines).

Some of the aspects of the Bureau’s new Guidelines that caught my eye include:

Length.  The most striking feature of the new Guidelines is their length – they are substantially shorter and provide significantly less analysis and examples compared to the former Guidelines.  Gone as well is the prior appendix summarizing Canadian abuse of dominance cases to date, which had included summaries of the relevant facts, markets, anti-competitive acts and remedies ordered (or negotiated) in abuse of dominance cases since Canada’s modern abuse of dominance provisions were introduced in 1986.

Absence of bright-line safe harbours.  The new Guidelines provide little comfort around market share thresholds for single or joint dominance.  In this regard, the Bureau takes the position, with respect to single firm dominance, that a market share of less than 35% will generally not prompt further examination; a market share between 35% and 50% will generally only prompt further examination if it appears that a firm is likely to increase its market share through the alleged anti-competitive conduct within a reasonable time; and a market share of more than 50% will generally prompt further examination.  With respect to joint dominance, the Bureau takes the position in the new Guidelines that a combined market share of 65% or more will generally prompt further examination.  While the Bureau has raised the threshold over which it will generally more closely examine conduct (from 35% to 50%), the new final Guidelines do not adopt recommendations made during the comment period to adopt bright-line safe harbours below which it would not commence enforcement.  In this regard, the Bureau has essentially preserved its position from its previous 2001 Guidelines that it could conclude that market power exists below 35% (though it is difficult to see the circumstances where this would be so).

Potential for investigation in the absence of dominance.  Despite criticism from some during the comment period, the Bureau has retained language in the final Guidelines that it may investigate abuse of dominance allegations even where a firm does not “presently appear to have market power.”  The Bureau also states: “While the Bureau will not commence an application under section 79 of the Act where a firm does not presently appear to have market power, the Bureau will generally investigate allegations of abuse of dominance if it appears a firm is likely to obtain market power through an alleged practice of anti-competitive acts within a reasonable period of time.”  As has been pointed out by some commentators, it is not clear where the authority for this approach originates given that the first element under section 79 requires that one or more firms substantially or completely control a market (or markets) – i.e., the requirement is current, not prospective, market power.  It would also seem that at least one possible obvious result could be smaller firms (with shares under 35%) facing a Bureau investigation where the Bureau’s view was that alleged anti-competitive acts could lead to market power within a “reasonable period of time”.  This aspect of the final Guidelines would both seem to markedly expand the circumstances in which the Bureau may take enforcement action and also provide significantly less comfort to smaller firms that, while they may not yet possess anywhere near the market presence to be reasonably considered dominant, may be engaged in vigorous competitive behavior that generates complaints or Bureau attention.

Joint dominance.  Some of the comments on the draft Guidelines included calls for increased guidance on the degree of coordination that the Bureau considers necessary for joint dominance under section 79.  In this regard, the Bureau has provided the following guidance: first, like single firm dominance, it will generally assess whether firms alleged to have joint dominance collectively possess market power; second, the Bureau will consider constraints from existing and potential competition and, where it views such constraints insufficient to restrain joint firms’ market power, the nature of competition among the allegedly dominant firms.  With respect to competition between target firms, the Bureau takes the position that firms that are competing vigorously (a number of illustrative examples are provided in the final Guidelines) will not be able to jointly exercise market power.  The Bureau also states that “similar or parallel conduct” by firms alone would be insufficient to conclude that firms are jointly dominant given that, for example, parallel conduct may equally be evidence of competitive markets.

Anti-competitive acts may include conduct that is not exclusionary.  The final Guidelines preserve some reasoning that was criticized during the comment period, namely that some conduct could be anti-competitive for the purposes of subparagraph 79(1)(b) (the second branch of the test for abuse of dominance) that is not exclusionary (i.e., not directed at competitors).  In this regard, while the Competition Tribunal has held that an anti-competitive act is one whose purpose is predatory, exclusionary or disciplinary toward a competitor (or competitors), the Bureau points to the one paragraph under section 78 that is not directed at exclusionary conduct to take the position that “certain acts not specifically directed at competitors could still be considered to have an anti-competitive purpose.”

Valid business justification.  In the leading Canadian abuse of dominance case under Canadian competition law, Canada, Pipe, the Federal Court of Appeal held that proof of a valid business justification for challenged conduct can, in some instances, provide an alternative explanation for allegedly anti-competitive conduct.  The Court defined “valid business justification” as a “credible efficiency or pro-competitive rationale for the conduct in question … which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts.”  During the comment period leading up to the final Guidelines, there had been calls for the Bureau to amplify its view on what may constitute a valid business justification for the second branch of the test under section 79.  The final Guidelines provide the following guidance as to what may constitute a valid business justification (and the Bureau’s approach to considering potential business justifications):

“Depending on the circumstances, this could include, for example, reducing the firm’s costs of production or operation, or improvements in technology or production processes that result in innovative new products or improvements in product quality or service. When assessing the overriding purpose of an alleged anti-competitive practice, the Bureau will examine the credibility of any efficiency or pro-competitive claims raised by the allegedly dominant firm(s), their link to the alleged anti-competitive practice, and the likelihood of these claims being achieved.”

Substantial lessening of competition and the “but for test”.  With respect to the third branch of the test for abuse of dominance under section 79, there had been calls during the public comment period for increased guidance on how the Bureau viewed the test to assess a substantial lessening of competition (the “but for” test, which was set out by the Federal Court in Canada Pipe with little guidance however for its application).  In discussing the “but for” test, the Bureau indicates that it may consider factors including the likelihood of new entry or expansion in the absence of the conduct, as well as likely differences in prices, product quality, innovation, choice or switching.

Overall, the Bureau’s new Abuse of Dominance Guidelines are indeed, as the Bureau describes them in its accompanying news release, “concise”.  They provide, however, significantly less guidance than the previous 2001 Guidelines, less comfort for firms regarding several key concepts (notably the possibility of challenge in the absence of market power or in relation to conduct that is not exclusionary) and introduce some controversial (and untested) new aspects.

Whether the new Guidelines are a further sign of the Bureau’s continued increased enforcement or a desire to let the Tribunal expand Canadian abuse of dominance law (or both) still remains to be seen.

For a copy of the Bureau’s new Guidelines see: Enforcement Guidelines on the Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act).

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