Canadian COMPETITION LAW

January 26, 2013

Steve Szentesi
Kevin Wright (Davis LLP)
(with contributions by Jonathan Gilhen – Davis LLP)

Extract from a chapter to be published in CLEBC’s
Annual Review of Law & Practice – 2013

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2012 was a busy year for Canadian competition and foreign investment law, with significant developments in all major areas including misleading advertising, mergers, abuse of dominance, criminal matters (including cartels, bid-rigging and deceptive marketing) and private actions.  The following is an overview of some of the key abuse of dominance, private action and other competition developments in 2012.

Abuse of Dominance

Commissioner of Competition v. The Toronto Real Estate Board

In Commissioner of Competition v. The Toronto Real Estate Board, the Competition Bureau (the “Bureau”) commenced an abuse of dominance application against The Toronto Real Estate Board (“TREB”), Canada’s largest real estate board.  The Bureau is alleging that TREB is dominant in the residential real estate services market in the Greater Toronto Area (“GTA”), certain TREB membership rules governing the use of its multiple listing service or “MLS®” data are anti-competitive and that competition has been substantially lessened in the relevant market (residential real estate services in the GTA).

In particular, the Bureau’s challenge involves TREB membership rules governing the use of its MLS® data that the Bureau argues restrict or prevent members from offering various innovative new services over the Internet, such as “virtual office websites” or “VOWs” that would allow potential clients to conduct their own property searches on brokers’ password protected websites without the assistance or involvement of brokers.  The Bureau is arguing that TREB’s restrictions on using its MLS® data for VOWs has prevented the development of more efficient and cost effective business models by forcing existing members to use traditional broker models and prevented members from joining TREB to launch new Internet based services.

TREB in turn has argued that the rules for the use of its MLS® system are a legitimate exercise of intellectual property rights, its policies do not substantially prevent or lessen competition, that some proposed uses of its data raise privacy concerns and that it cannot be dominant in a market in which it does not participate (as a trade association it does not itself provide any real estate services).

Like the Bureau’s 2009 abuse of dominance challenge against The Canadian Real Estate Association, this case also focuses on membership rules and access to the MLS® system, and more specifically TREB’s ability to exclude and discipline non-compliant members by foreclosing access to its MLS® data.  This case was ongoing at the time of writing.

New Abuse of Dominance Enforcement Guidelines

In September 2012, the Bureau issued new Abuse of Dominance Guidelines (“Abuse Guidelines”) that set out its enforcement policy for the civil abuse of dominance provisions of the Competition Act (the “Act”) (sections 78 and 79).  The Bureau’s new Abuse Guidelines replace its former 2001 guidelines and several sector- and conduct-specific guidelines and bulletins relating to the airline, grocery and telecommunications industries and predatory pricing.

The new Abuse Guidelines are substantially shorter with significantly less analysis and fewer examples than the Bureau’s previous guidelines.  In general, they also provide less comfort for firms regarding several key concepts, notably potential investigation risk in the absence of market power or conduct that is not exclusionary.  They also introduce some new and somewhat controversial positions by the Bureau.  Some key aspects of the new Abuse Guidelines include:

Preserving market share thresholds with no bright line safe harbors.  As before, the new Abuse Guidelines contain no bright-line market share safe harbours below which the Bureau may not commence enforcement (for single firm dominance, a market share of less than 35% will generally not prompt further examination; between 35% and 50% will prompt further examination if a firm appears likely to increase its share through anti-competitive acts; and more than 50% will generally prompt further examination).

Expanding when the Bureau may investigate allegations of abuse.  The new Abuse Guidelines state that the Bureau may investigate allegations of abuse of dominance in some instances even where a firm does not currently possess market power.

Joint dominance.  The Abuse Guidelines provide new guidance on the degree of coordination the Bureau considers necessary for joint dominance, adopting a new approach to assess joint dominance (considering the ability of existing and potential competition to restrain firms’ market power and competition between firms) and stating that similar or parallel conduct alone is insufficient to conclude that firms are jointly dominant.

Enforcement in the absence of exclusionary conduct.  The Abuse Guidelines also indicate that the Bureau may take enforcement action in some cases where conduct is not exclusionary (i.e., not only where a dominant firm engages in conduct that is predatory, exclusionary or disciplinary toward a competitor, the test for an anti-competitive act established by the Tribunal and the Federal Court).

Valid business justification.   The Abuse Guidelines discuss what may constitute a valid business justification for the second branch of the test for abuse of dominance under section 79 with some examples, including reducing costs or improvements in technology.  While the Federal Court of Appeal held in the leading Canadian abuse of dominance case, Canada Pipe, that proof of a valid business justification for allegedly anti-competitive conduct can offset and provide an alternative explanation for conduct, Canadian courts and the Bureau have to date provided little guidance as to what may in fact constitute a valid business justification.

Substantial prevention or lessening of competition test.  Finally, the Bureau has provided new guidance of how it may apply the “but for” test, which is one test set out by the Federal Court in Canada Pipe to assess anti-competitive effects for section 79.  This may include the likelihood of new entry or expansion and likely differences in prices, product quality, innovation, choice or switching.

Private Actions

Indirect Purchaser Appeals to Supreme Court of Canada

On October 17, 2012, the Supreme Court of Canada heard and reserved its decision on three appeals from British Columbia and Quebec concerning certification of class actions brought under the Act:  Sun-Rype (2011 BCCA 187), Microsoft (2011 BCCA 186), and Infineon (2011 QCCA 2116).

With growing regularity in recent years, plaintiffs’ counsel have brought putative class proceedings on behalf of purchasers of products where the suppliers were implicated in international (or domestic) price-fixing or market allocation investigations under the competition and antitrust laws of jurisdictions like the United States, Europe or Canada.  Typically, plaintiffs seek damages for overcharges in prices of products resulting from the alleged conspiracy or disgorgement of profits by the defendant conspirators.  The classes are often composed not only of the purchasers who bought directly from one of the defendants, but also the so-called indirect purchasers who bought from a direct purchaser or in a distribution chain from another indirect purchaser.

In Sun-Rype and Microsoft, majorities of the BC Court of Appeal concluded that indirect (as opposed to direct) purchasers do not have standing to sue on the basis that defendants could not defend against direct purchasers on the grounds that they had passed on the overcharges to indirect purchasers, and that to then to permit indirect purchasers to sue as well would countenance double recovery.  In November 2011, the Quebec Court of Appeal rejected that approach in allowing an appeal for authorization of a class proceeding involving an alleged conspiracy for DRAM memory chips.

The Supreme Court’s eventual decision is anticipated to address not only whether indirect purchasers may sue but, assuming they can, how conflicts between direct and indirect purchaser classes should be managed and the appropriate evidentiary thresholds on certification applications in this burgeoning practice area.

Garford Pty Ltd. v. Dywidag Systems
(Section 36 Limitation Period Case)

In Garford Pty Ltd v. Dywidag Systems International, 2012 FCA 48, the Federal Court of Appeal affirmed a 2010 Federal Court ruling dismissing a private action made under subsection 36(1) of the Act on the basis that it was out of time.  The plaintiff Garford alleged that the defendant had breached the former criminal conspiracy provision of the Act by acquiring the assets of certain companies, and sued to recover loss or damage.  Subsection 36(4) of the Act provides a two-year limitation period in respect of an alleged breach of such provision.  The defendant had made all of the acquisitions more than two years before the action was commenced.

The key issue for the courts was whether Garford could rely on the common law “discoverability principle” and, in particular, whether any ongoing effects of the alleged conspiracy after the impugned purchase agreements had been concluded could postpone the running of the limitation period.  The Court of Appeal held that the alleged offence was complete upon entry of the agreement and that ongoing effects do not extend the time period under subsection 36(4).

The practical impact of this decision may be limited given its somewhat unusual circumstances; the plaintiff relied on section 45 of the Act to challenge acquisitions of businesses, which normally would be reviewed under the civil merger provisions for which there is no right of private action.  In a more conventional type of price-fixing case, the allegation is that the conspiracy commenced at a certain time and continued in effect for a period during which harm was imposed on the plaintiff through increased prices.  The argument in such a situation would be that the illegal agreement itself was ongoing, as opposed to merely the effects of a concluded agreement.

321665 Alberta Ltd. v. ExxonMobil Canada Ltd.
(Alberta Competition Act Costs Decision)

Private actions under Section 36 of the Act for breach of the conspiracy provisions (section 45) have rarely proceeded to trial.  For that reason there is a relative dearth of judicial consideration of the operation of section 36.  Subsection 36(1) allows a successful plaintiff to sue not only to recover loss or damage suffered, but “an additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under [Section 36]”.

In 321665 Alberta Ltd. v. ExxonMobil Canada Ltd. 2012 ABQB 76, the Alberta Court of Queen’s Bench articulated a framework for the application of section 36.  In 2011, the Court had awarded the plaintiff significant compensatory and punitive damages in respect of a conspiracy by the defendants (2011 ABQB 292).  The plaintiff sought to recover expenses that its principal incurred investigating the claim before the action was commenced.  The Court concluded that “investigation” costs are something different than court costs.  The Court held that such costs could be recovered whether or not a complaint had been made to the Bureau, included reasonable disbursements, must be supported by evidence and must relate to the actual investigation as opposed to merely participated in the litigation which is not compensable.  The Court awarded a lump sum compensation of $75,000 against the plaintiff’s claim for $963,000.

Other Developments

In 2012 the Bureau issued revised Abuse of Dominance Guidelines and Merger Review Process Guidelines and a Merger Review Performance Report, all of which are available on the Bureau’s website at: www.competitionbureau.gc.ca.

The Interim Commissioner of Competition John Pecman, also delivered several speeches in 2012, which included comments relating to the following:

– Signaling a continued focus by the Bureau on enforcement.

– Indicating that the Bureau would be issuing new guidelines, including relating to price maintenance and abuse of dominance FAQs.

– Commenting on the Maxzone price-fixing sentencing case, taking the view that the case was consistent with Parliament’s intent to toughen cartel penalties in Canada and would assist the Bureau’s enforcement efforts.

– Suggesting that misleading advertising and deceptive marketing remained enforcement priorities, particularly with respect to mobile devices and new media (emphasizing in particular the importance of effective disclosure of key terms).

– Highlighting the importance for trade association compliance with the Act.

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