October 14, 2016
On October 14, 2016 the Canadian Competition Tribunal (“Tribunal”) released an important Competition Act (“Act”) private application leave case (see: CarGurus Inc v Trader Corporation, 2016 Comp. Trib. 15. This decision is a good summary of the tests for granting leave to commence private applications under sections 75 (refusal to deal), 76 (price maintenance) and 77 (exclusive dealing) of the Act.
The CarGurus decision is also something of a cautionary tale for counsel seeking remedies for refusals to deal for their clients if they do not have sufficient evidence of harm to their client’s business, harm to the relevant market or evidence establishing (albeit at a preliminary stage) the elements of the sections of the Act under which leave is sought.
In this case, CarGurus, Inc. applied for leave to the Tribunal to bring a private application against Trader Corporation (“Trader”) under sections 75, 76 and 77 of the Act.
The thrust of CarGuru’s private leave application was that its online vehicle listings business was substantially impacted by its inability to obtain vehicle listing data from Trader.
Trader, which operates autotrader.ca and audohebdo.net, advertises an inventory of new and used vehicles for sale in Canada, acting as an intermediary between vehicle buyers and sellers. Trader offered to enter into a syndication agreement with CarGurus for the potential future supply of Trader’s vehicle listing information, which CarGurus refused to enter into. At the time this decision was rendered the parties were also engaged in copyright infringement proceedings relating to CarGuru’s alleged illegal use of Trader’s car listing data.
The Tribunal denied CarGuru’s leave application. In doing so, the Tribunal emphasized the importance of sufficient evidence to both show the impact of a refusal to deal on the applicant’s business and establish the requisite elements of the sections of the Act under which an a leave application is brought.
In this regard, while the tests for leave to commence applications under sections 75 and 77 of the Act (refusal to deal and exclusive dealing) and section 76 (price maintenance) are slightly different, both require “sufficient credible evidence” to give rise to a bona fide belief that the applicant may have been directly (and substantially for sections 75 and 77) affected in its business and that the alleged practice could be the subject of a Tribunal order.
The Tribunal found a number of deficiencies with CarGuru’s evidence. Specifically, it found, among other things, that CarGurus had failed to submit sufficient evidence to show that the impact on its overall business was substantial because it did not establish the volume of its business accounted by Trader’s listings or show any actual or real reductions in revenues (in fact, the Tribunal found that CarGurus’ revenues continually increased following entry).
In relation to the alleged impact on CarGurus’ overall business, the Tribunal was very critical holding that “a baldly asserted decrease in the anticipated growth of revenues, compared to an earlier unsupported projection, does not rise to the level of providing the basis for a bona fide belief of an actual or likely substantial effect in the assessment of applications for leave under subsection 103.1(7) [of the Act]”.
The Tribunal also established new price maintenance law in Canada under the amended price maintenance section of the Act (section 76). In this respect, the Tribunal held that it was not persuaded that all of the elements set out in section 76 could be met if the application was heard on its merits.
Specifically, the Tribunal found that at least three elements of section 76 could likely not be established: (i) that CarGurus has a low pricing policy (an essential element for price maintenance applications based on alleged refusals to deal based on low pricing policy); (ii) that the refusal to deal in this case was based on CarGurus’ low pricing policy (i.e., a causal connection between Trader’s refusal to supply and CarGuru’s pricing); or (iii) that an adverse effect on competition in the downstream market could be established.
In its section 76 analysis, the Tribunal was again critical of the lack of evidence adduced by CarGurus to show that it had a low pricing policy or that Trader’s alleged refusal to deal with CarGurus was based on its pricing.
In terms of new law, the Tribunal considered for the first time the phrase “because of” the low pricing policy under the amended section 76(1)(a)(ii) of the Act (i.e., the required causal connection between a refusal to deal and a distributor’s / retailer’s low pricing policy).
After canvassing case law under the previous criminal price maintenance section of the Act, the Tribunal held that in order to be successful in an application under section 76(1)(a)(ii) of the Act, a private applicant must show that its low pricing policy is the “overriding” or “principal” reason for the refusal to supply (no direct evidence and little circumstantial evidence having been provided by the applicant in this case of this causal connection).
The Tribunal was also not persuaded that there could be an adverse effect on competition in a relevant market in this case under section 76. Section 76, like the other sections at issue in the case, includes a competitive effects test. In this respect, the Tribunal helpfully set out factors from prior case law relevant to evaluate whether a refusal to supply has had an adverse effect on competition.
Some of the negative market effects findings by the Tribunal included a failure by the applicant to adduce sufficient evidence to measure the size of the downstream market (in which the applicant claimed there was an adverse impact on competition) and evidence that the downstream market was, in fact, characterized by at least two large participants (Trader and Kijiji), as well as a number of smaller players. The Tribunal also concluded that in the context of the larger market, CarGurus was a fairly minor competitor.
The Tribunal also underscored the fact that the private application sections of the Act are “not there to arbitrate private contractual disputes relating to the supply of a product in circumstances where a refusal to supply does not have a market impact.”
Implications
This most recent private access application case has a number of implications for companies thinking about seeking a Tribunal remedy for refusals to deal. These include:
1. It is very important for applicants to adduce sufficient credible evidence for all of the elements of the sections of the Act for which leave is sought.
2. Particularly important in refusal to deal applications is to clearly show the substantial impact on the applicant’s overall business.
3. Mere speculation or projections may be insufficient to show the requisite impacts on a downstream business denied supply.
4. Defining the relevant downstream market in which adverse effects are alleged is critical for the market effects prongs of the private access related sections of the Act.
5. Also, if an applicant is alleging that a refusal to deal is based on its low pricing policy, it must have sufficient evidence (direct or indirect) to establish that a refusal to supply violates the price maintenance section of the Act and is not based on other rationales, such as the customer/distributor merely being an innovator.
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