Canadian COMPETITION LAW

April 16, 2013

Yesterday, the Competition Bureau announced that the Federal Competition Tribunal had dismissed its 2011 abuse of dominance application against The Toronto Real Estate Board (see: Competition Bureau to Review Competition Tribunal Ruling).  For an overview of the case see: here.

The Competition Tribunal has now issued its decision, which now sheds light on the reasoning for its dismissal of the Bureau’s abuse case against Canada’s largest real estate board (see: The Commissioner of Competition v. The Toronto Real Estate Board).

In a brief seven page decision, the Tribunal has dismissed the Bureau’s application with costs to TREB concluding, rather bluntly, that “subsection 79(1) [the abuse of dominance provision of the Competition Act] does not apply on the facts of this case.”  Having come to that conclusion, the remainder of the issues and arguments made by the Bureau were not considered by the Tribunal.

In a significant and long running abuse of dominance application, which has been ongoing now some two years, this must have come as a bit of a shock to the Bureau, to say the least.

One of the things that first occurred to me as well was whether the earlier abuse challenge against The Canadian Real Estate Association (CREA), which was settled in late 2010, might have met with the same favorable result if it had been pressed forward to the Tribunal (given that that case, like the current TREB challenge, involved abuse theories of harm related to allegedly restrictive CREA MLS rules).

As a general matter, this decision also shows that it is not always clear whether allegedly anti-competitive conduct, whether in the trade or professional association context or otherwise, should be challenged under sections 79 (abuse of dominance), 45 (conspiracy agreements), the new civil agreements provision (section 90.1) or other provisions of the Competition Act.  Indeed, the same conduct can (and sometimes is) challenged under multiple provisions of the Act. To illustrate this point, the current TREB challenge included both a civil abuse of dominance challenge by the Bureau (under section 79 of the Competition Act) and a private civil action grounded, among other things, on criminal conspiracy theories under section 45 of the Act.

Key Points

The following are some key points from the Tribunal’s decision:

TREB does not compete in the relevant market.  Without expressing an opinion on TREB’s potential market power, the Tribunal found that even if market power were established in this case it could not meet the first branch of the test for an abuse of dominance (market power in a relevant market) because TREB did not compete in the relevant market (the provision of residential real estate services in the Greater Toronto Area).  This was one of the central arguments made by TREB (i.e., as a real estate board it did not compete with its members), and accepted by the Tribunal in dismissing this application.

TREB’s rules cannot have a negative effect on a competitor.  With respect to a practice of anti-competitive acts (the second of three necessary elements to establish an abuse of dominance under section 79), the Tribunal found that the Bureau’s application did not follow the Federal Court’s decision in Canada’s leading abuse of dominance case – Canada Pipe.  The Federal Court in Canada Pipe, and earlier Tribunal decisions, have held that it is necessary to show “an intended negative effect on a competitor that is predatory, exclusionary or disciplinary”.  In this regard, as the Tribunal put it, “since TREB admits and the Commissioner and CREA agree that TREB does not compete with its members, TREB’s Restrictions cannot have the negative effect on a competitor required by [Canada Pipe].”

Interpreting the Competition Act’s examples of anti-competitive acts as consistent with the holding in Canada Pipe.  Also related to the second branch of the test (a practice of anti-competitive acts), the Tribunal also rejected arguments made by the Bureau that there can be anti-competitive acts that do not involve harm to a competitor.  For example, one of the anti-competitive acts listed in section 78 of the Act (paragraph 78(1)(f)) does not specify that a competitor must be harmed.  In rejecting the Bureau’s argument, the Tribunal held:

“It is our view, that section 78 of the Act is a powerful indicator that the Canada Pipe Rule is the correct approach. The section defines the term anti-competitive acts to include nine examples of conduct on the part of a dominant firm and in eight of the examples the harm is expressly described as experienced by a competitor. With regard to paragraph 78(1)(f), although the term ‘competitor’ is not used, it is possible to imagine a dominant firm buying product to prevent the erosion of existing price levels caused by a competitor’s lower or sale prices. In other words, paragraph 78(1)(f) is not necessarily inconsistent with the Canada Pipe Rule.”

This is interesting, among other things, because in the Bureau’s recently amended Abuse of Dominance Guidelines it has taken the position that “certain acts not specifically directed at competitors could still be considered to have an anti-competitive purpose”.  This caused a fair amount of debate when the new guidelines were finalized and was thought controversial given both the Canada Pipe decision and previous Competition Tribunal jurisprudence.  That Bureau position now seems, subject to an appeal of this Tribunal decision, unsupportable.

The Bureau attempted to exceed existing authority and its own guidelines.  The Tribunal was also critical of the Bureau not only for, in the Tribunal’s view, endeavoring to depart from established authority (the Canada Pipe case) but also from its own recently amended Abuse of Dominance Guidelines, which expressly refer to the requirement for competing firms and do not state that a dominant firm does not need to compete in a relevant market.

Section 90.1 of the Act (the civil agreements provision) may support a Bureau challenge.  Finally, after kicking the feathers slightly out of the Bureau, the Tribunal “observed” that while the abuse of dominance provisions of the Act did not apply, the civil agreements provision (section 90.1) “might give the Commissioner a means to apply to the Tribunal”.  Under section 90.1, the Tribunal has the power, on applications by the Commissioner, to make remedial orders where it is established that an agreement between competitors prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.  The Tribunal cautioned, however, that its “observation” was not meant to suggest that a second challenge grounded under section 90.1 would necessarily succeed.

Also, and perhaps as some solace to trade associations facing future challenges, section 90.1 of the Competition Act does not allow for the now significant administrative monetary penalties (up to $10 million) available to the Bureau under the abuse of dominance sections.

Implications

It seems to me that some of the implications of this decision, if it stands, are that it may make abuse challenges against trade associations more difficult (including efforts to recover administrative monetary penalties) where conduct cannot squarely be said to involve competitors in the relevant market and seems to also indicate that concerted challenges of trade associations may also more appropriately be based in the civil not the criminal provisions of the Act (e.g., potentially under the civil section 90.1 rather than the criminal conspiracy provisions under section 45).

One major defect, however, in the Tribunal’s decision that I see is that this decision may somewhat artificially and technically insulate large incumbents or some competitors merely because they elect to use a trade or professional association as a vehicle for exclusionary or other potentially anti-competitive conduct.  This was a point that the Bureau made throughout its submissions (and I think a valid one) – i.e., that while the association did not technically participate in the relevant market, some of the decision makers (i.e., broker and agent members of TREB) certainly did/do and, as such, an overly artificial approach to the relevant market should not be taken by the Tribunal.

In any event, it will be very interesting indeed to see whether the Bureau has an appetite to recast and re-file its application under section 90.1 or appeal the Tribunal’s important holding.

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