December 20, 2012
Contested abuse of dominance (i.e., monopolization) cases used to be rather uncommon in Canada (with only a relative handful of contested cases having been commenced since the modern Competition Act was introduced in Canada in 1986). This paucity of cases appears to be changing, based on the Competition Bureau’s evident desire to increase the unilateral conduct jurisprudence in Canada.
Earlier today, and consistent with the Bureau’s recent increasing trend toward deterrence through enforcement, the Bureau announced that it had filed two new abuse of dominance applications against Ontario residential water heater suppliers Direct Energy Marketing Limited and Reliance Comfort Limited Partnership.
In making the announcement, relating to the first new abuse of dominance application since the Bureau commenced section 79 abuse proceedings against The Toronto Real Estate Board in 2011, the Bureau said:
“Following an extensive investigation, the Bureau determined that Direct Energy and Reliance each engaged in practices that intentionally suppress competition and restrict consumer choice. Specifically, each company implemented water heater return policies and procedures aimed at preventing consumers from switching to competitors. This anti-competitive conduct affects consumers, other rental water heater companies, and businesses that sell water heaters, such as home improvement centres.
Currently, when Direct Energy or Reliance customers wish to switch to another provider, they must contend with a number of practices and procedures intended to frustrate the return process for their rented water heaters, including: a requirement to call to obtain authorization to return a rented water heater; aggressive retention tactics during these calls; restrictions on when and where water heaters can be returned; and unwarranted fees and charges.”
The Bureau’s announcement comes several days after media reports that Reliance had commenced consumer protection and Competition Act proceedings against newcomer National Home Services for $60 million for allegedly deceptive marketing practices (see: $60 million lawsuit alleges unfair practices in water heater rentals).
The Bureau is seeking orders from the Competition Tribunal for Direct and Reliance to stop conduct and also pay administrative monetary penalties totaling $25 million, the first time the Bureau has sought AMPs under the abuse of dominance provisions since they became available in 2009 (and consistent with other ongoing advertising cases in which the Bureau is also seeking the maximum penalties possible). $15 million is being sought against Direct because, according to the Bureau, this is the second proceeding that has been commenced against it (Direct’s predecessor Enbridge Services Inc., which was subject to a 10-year consent order – see: here).
The maximum AMPs under the Competition Act for abuse of dominance are $10 million, which may be increased to $15 million for subsequent orders. Following recently updated Abuse of Dominance Guidelines (see: here), however, the factors for when the Bureau will seek AMPs for abuse of dominance (as well as the quantum) remains unclear. Factors that the Competition Tribunal may consider in determining AMPs include competitive effects of the conduct, revenues generated from the challenged practice, the financial position of the respondent and history of Competition Act compliance.
In the Bureau’s previous application against Enbridge (in 2002), the Bureau alleged that anti-competitive acts by Enbridge included certain “exit charges” and conditions for customers (preventing competitors from disconnecting and removing Enbridge water heaters, charging customers a fee for removal and charging an installation cost fee over a long 11 year period) and a “price match guarantee” (that the Bureau argued allowed the water heater supplier to selectively discount buy-out prices, preventing customers from switching to competing suppliers).
The Bureau argued at the time that these Enbridge practices had the effect of excluding competitors (through switching costs for Enbridge customers) and raising rivals’ costs through an ability to better competitors’ offers after they had invested time and resources to attract new customers.
In the Bureau’s new abuse of dominance application against Reliance, which has now been filed, the Bureau argues that Reliance is dominant in the natural gas and electric water heater and related services market in certain local Ontario markets, has preserved and enhanced its position through anti-competitive return policies (preventing customers from switching and raising rivals’ costs), which has prevented or lessened competition substantially in the relevant market.
In this fresh proceeding, the Bureau argues that anti-competitive acts engaged in by Reliance (which the Bureau asserts has a market share of at least 76%) include exclusionary return policies (including prohibiting competitors from removing its heaters, delayed service for returns and unwarranted fees and charges), exclusionary return depot policies (including arbitrary return restrictions), exit fees and charges (including multiple and unwarranted exit fees), damage fees for returned heaters and extra “rental” billing for returns (in some cases extending for several months).
In a news release responding to the Bureau’s announced abuse of dominance applications, Direct Energy denied the allegations, said that would vigorously defend its position before the Competition Tribunal and said that the practices that were being challenged by the Bureau were in fact “designed to inform and empower consumers”.
For a copy of the Bureau’s abuse of dominance applications see: Competition Tribunal.
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