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September 12, 2013

On September 9, 2013, the Canadian Competition Tribunal issued the public version of its reasons dismissing the Competition Bureau’s price maintenance challenge against Visa and MasterCard.

In the Bureau’s first application under Canada’s amended civil price maintenance provisions of the Act (section 76) the Bureau argued that rules imposed on merchants by Visa and MasterCard (requiring, among other things, that all Visa/MasterCard cards be accepted and prohibiting merchants from charging retail customers surcharges) influenced upward or discouraged the reduction of card related fees paid by merchants.

The Tribunal dismissed the Bureau’s application mainly based on a failure by the Bureau to show the resale of any product supplied by Visa and MasterCard, which the Tribunal held was required under section 76 (and fatal to the application under section 76 which the Tribunal held is now only a resale price maintenance provision).

According to the Tribunal, section 76 was intended to address adverse effects in the price of products for resale and not the control of adverse effects of market prices per se.  In this regard, Canada’s new resale price maintenance provision is now narrower than its criminal predecessor, which had been used on occasion by the Competition Bureau to enforce alleged horizontal price restraints (i.e., not only vertical reseller restraints imposed by suppliers).

In addition, though not necessary, the Tribunal also found that other elements of section 76 were met regarding Visa and MasterCard’s practices (that their challenged rules influenced upward credit card network services sold by financial institutions to merchants and was having an adverse effect on competition in the bank/merchant market).

Interestingly, the Tribunal also held that it would not have exercised its discretion to make an order under section 76 in any event finding that the challenged Visa/MasterCard conduct was more appropriate for regulation than Bureau enforcement.

In this respect, while the Tribunal praised the Bureau’s willingness to bring difficult cases in unsettled areas of   Canadian competition law, it indicated that regulation in this case was more appropriate than enforcement.  In this respect, the Tribunal said:

“However, this is an exceptional case and we are convinced that it makes more sense to begin with a regulatory approach rather than to back into it.  A section 76 Order would be a blunt instrument and there will be technical hitches, unforeseen consequences, a need for ongoing adjustment and stakeholder consultation.  The experience in other jurisdictions such as Australia and the United Kingdom shows that concerns will be raised by consumers regarding surcharging and possible gouging, and rather sooner than later, intervention will have to take place by way of regulation.”

Overall, this decision is important for setting out the Tribunal’s approach to the new price maintenance sections of the Act and also importantly confirming that section 76 is not intended to catch all conduct that may have an adverse effect on prices, but only certain specified vertical practices where the resale of a product is involved.  In other words, Canada’s new price maintenance provisions are resale price maintenance provisions and cannot be used to regulate prices generally (or be used as a substitute generally for challenges that are more appropriately based under the abuse of dominance provisions).

This decision is as well, like the Tribunal’s recent decision dismissing the Bureau’s abuse of dominance challenge against The Toronto Real Estate Board, a reminder that while the Competition Act can be (and has been) used as a flexible framework for challenges of a variety of anti-competitive practices, the elements in each section must nevertheless be met.

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