“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues. Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct. A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition. It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct. Such programs may allow trade associations and [their] members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities. They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.”
(Competition Bureau, Corporate Compliance Programs Information Bulletin)
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
“Why does this problem keep recurring? What is it about trade associations that lends itself to antitrust violations? For those of you who have practiced in this area for any length of time, the answer is obvious. A trade association is by definition a group of competitors who get together to share common interests and seek common solutions to common problems. The members of a trade association, singly and as a group, are sitting on an antitrust powder keg! And the job you have signed up for as their antitrust counsel is to help make sure they don’t play with matches.”
(Anne K. Bingaman, Assistant Attorney General, Antirust Division, U.S. Department of Justice)
COMPETITION LAW CASES
Recent Developments: New Competition Bureau anti-cartel compliance materials including: compliance video, Competitor Collaboration Pamphlet, updated Bid-Rigging Pamphlet and Trade Associations Pamphlet – see: here.
Below are summaries of some key Canadian competition law cases that have involved trade and professional associations.
This case is to be re-determined by the Canadian Competition Tribunal in 2014. The following is a short summary of the Federal Court of Appeal’s decision released in February, 2014: Canadian Federal Court of Appeal Issues Landmark Trade Association Abuse of Dominance Decision.
In Canada (Commissioner of Competition) v. Canadian Real Estate Assn., the Bureau targeted certain membership rules of The Canadian Real Estate Association. The Bureau alleged that certain rules imposed by CREA substantially prevented or lessened competition in the supply of residential real estate services in Canada. Specifically, the Bureau raised concerns with CREA membership rules that allegedly required brokers to meet certain “minimum service requirements” to access Multiple Listing Service (“MLS®”) systems administered by CREA’s member real estate boards. The Bureau argued that access to the MLS® systems was a “key element” for the supply of residential real estate services. The particular minimum service requirements at issue related to CREA rules prohibiting the “mere posting” of property information on a board’s MLS® system and that listing brokers perform certain mandatory services, such as presenting and advising on all offers. The Bureau argued that these restrictions forced brokers to follow the “traditional” service model, forego alternative models (e.g., “fee for service” models) and had foreclosed expansion by existing brokers and entry by new brokers. The CREA case was settled under a consent agreement, which provides that CREA cannot adopt, maintain or enforce rules that deny members the ability to provide “mere postings” for vendors or discriminate against members because they offer (or wish to offer) mere postings to vendors.
Saskatchewan Roofing Contractors (2009)
In this case, the Bureau commenced an inquiry focused on allegations that some of the members of the Saskatchewan Roofing Contractors Association had discussed not submitting bids in reply to a tender request for a roofing project in La Loche Saskatchewan. The Bureau obtained a five- year prohibition order prohibiting the association from taking action to commit an offence under the bid-rigging or conspiracy provisions of the Competition Act. The order also required the association to educate its members about the relevant provisions of the Competition Act, impose a membership condition for members to acknowledge compliance with the association’s corporate compliance program and advise the Bureau of any unauthorized communications or activity relating to members’ pricing of products.
Quebec Notaries Association of Rivière-du-Loup (2000)
In 2000, the Notaries Association of Rivière-du-Loup, Quebec pleaded guilty to conspiring to fix the prices of real estate services offered by notaries in several regions of Quebec. In this case, in which the Quebec government was no longer regulating the fees for notarial services, the notaries’ association fixed the prices for notarized real estate transactions, which were then charged by the notaries. The association was fined $25,000 and a prohibition order was imposed against the association and nineteen members.
R. v. Bayda & Associates Surveys Inc. (1997)
In R. v. Bayda & Associates Surveys Inc., Alberta land surveyors were accused of fixing the minimum price of real estate survey reports. In this case, real estate agents testified that survey firms were charging identical prices, customers were told that prices were fixed (and that no discounts were available) and surveyors had attended meetings where costs and price increases were discussed. The Alberta Court of Queen’s Bench, however, upheld a lower court’s decision finding that it had not been established that an agreement existed, relying in particular on evidence that one accused said that he would charge what he wanted during one of the meetings.
In Canada (Director of Investigation & Research) v. Bank of Montreal, a group of competing financial services providers founded an association, which developed the electronic banking network in Canada (ATM services). The association possessed a 100% share in the relevant market and engaged in alleged (the case was settled) anti-competitive acts that included: (i) restricting new membership; (ii) higher membership fees for competing financial service providers later joining the association; and (iii) certain service fees charged to entities that had no direct connection to the system but were obligated to go through another member. The essence of many of the allegations were that discriminatory membership fees were being charged to some members and membership terms that prevented some financial institutions from accessing the network and effectively competing. The consent order in this case required the respondents to amend the association’s bylaws to: (i) remove restrictions on membership by other financial institutions; (ii) allow indirect access by other commercial entities; (ii) modify the governance of the association with respect to the composition of its board; and (iv) modify its pricing practices and procedures for approving new network services.
R. v. Alberta Ambulance Operators’ Association (1995)
In R. v. Alberta Ambulance Operators’ Association, rules and activities of the Alberta Ambulance Operators’ Association discouraged or prevented member ambulance operators from competing in territories already serviced by other association members. According to an Agreed Statement of Facts, the main elements of the agreement included the following: (i) no member was to seek to displace another association member by offering the same level of service for a lower fee, (ii) members were not to establish ambulance services in another member’s area unless agreed and (iii) the association’s policy was to not admit new members commencing services in an existing member’s area. The association was fined $25,000 and three members of its executive committee were each fined $5,000 after pleading guilty to a market sharing conspiracy for the supply of ambulance services. The association was also prohibited from, among other things, fixing prices to be charged by ambulance operators, preventing or discouraging ambulance operators from offering services to any customer (or in any geographic area) or refusing or terminating membership on the basis that ambulance operators might compete with another.
Samson v. Canada (1995)
In Samson v. Canada, a notaries association was accused of conspiring to fix minimum fee tariffs for residential real estate transactions. The association had established “coercive measures” and “rate setting” committees to set and enforce fee tariffs. The Federal Court of Appeal, however, held that there was insufficient evidence that the fee tariff prevented or lessened competition unduly (the market effects standard under the former section 45 of the Competition Act).
R. v. Nova Scotia Pharmaceutical Society (1992, 1993)
In R. v. Nova Scotia Pharmaceutical Society, the two defendant Nova Scotia pharmacy associations attempted to negotiate a maximum fee tariff on behalf of their member pharmacists and pharmacy operators with third party insurers. While the Supreme Court judgment, referred to as the “PANS” case, was considered to be one of the leading Canadian competition law cases under the former section 45, the case was decided on the merits by the Nova Scotia Supreme Court. The Nova Scotia Supreme Court found that while the Crown had successfully proven three of the elements formerly required for a criminal conspiracy under section 45 (an agreement, intent to enter into the agreement and an undue lessening of competition), the Crown had failed to establish the former objective mens rea element (i.e., that the associations were aware, or ought to have been aware, that their efforts to collectively establish a maximum fee tariff would unduly lessen competition). This case is also noteworthy for being one of the few Canadian conspiracy cases that did not involve “hard-core” price-fixing, market allocation or group boycott conduct (the case turned on an acquittal based on a lack of one of the two former intent requirements under section 45).
R. v. Independent Order of Foresters (1989)
In R. v. Independent Order of Foresters, a fraternal benefit society engaged in the sale of life insurance was charged with misleading advertising under section 52 of the former Combines Investigation Act in relation to earnings claims made to recruit salespersons. At trial, the accused were acquitted on the basis of, among other things, a finding that the claims were not materially false or misleading and based on the regulated conduct defence. On appeal, the Ontario Court of Appeal upheld the lower court on the basis that there was insufficient evidence the claims were false or misleading. The Court of Appeal concluded, however, that the regulated conduct defence did not apply, given that the governing legislation in this case (the Ontario Insurance Act) did not authorize or direct the association to engage in misleading advertising.
Mortimer v. Corporation of Land Surveyors of British Columbia (1989)
In Mortimer v. Corporation of Land Surveyors of British Columbia, a corporation of self-regulating British Columbia land surveyors passed a by-law adopting a minimum fee tariff. A member was then found guilty by the corporation’s board of management for offering fees below the tariff, who appealed the decision, raising the question of whether the corporation’s governing legislation gave it the authority to set mandatory minimum fees for members. In upholding the member’s appeal, the Court held that the legislation only intended to provide suggested fees (i.e., the language of the governing legislation was not clear, stating merely “tariff of fees” not, for example, “minimum tariff of fees”) and that legislation creating “professional monopolies” must be strictly applied (i.e., narrowly interpreted).
Waterloo Law Association v. Canada (Attorney General) (1988)
In Waterloo Law Association v. Canada, a voluntary association of lawyers promulgated suggested fee schedules that listed the fees that could be charged for the performance of certain legal services by association members. While the fee tariff in this case began as merely a suggested tariff, it was later formally ratified by a large percentage of the association’s members and an association executive committee monitored fees charged by members for compliance with the tariff. The association did not have any statutory authority to enforce a minimum fee schedule. The association was found guilty of contravening section 32 of the former Combines Investigation Act and a five year prohibition order was issued. This was the first time that a professional association in Canada was prohibited from fixing prices on the basis of published fee schedules.
R. v. B.C. Fruit Growers Association (1985)
In R. v. B.C. Fruit Growers Association, the British Columbia Fruit Growers Association and a number of fruit growers were accused of contravening section 32 of the former Combines Investigation Act in agreeing with fruit packing companies to limit access to fruit packing houses to members. The agreement in this case, which involved a legislatively authorized marketing board, fruit growers association, shippers’ association and fruit packing houses, provided that shippers would refuse to contract with non-members and refuse to renew contracts with recently expelled members. The impact of the agreement was that non-member fruit growers were excluded from access to fruit packing houses. While the defence admitted the agreement limited non-member access to packing houses, the issue was whether the agreement prevented or lessened access unduly. In this regard, the Court found that it did not. In coming to this conclusion, the Court pointed to the fact that independents chose to be non-members, the significant amount of cold storage available as well as several packing houses that were for sale or lease.
Canada (Attorney General) v. Law Society (British Columbia) [Jabour] (1982)
In Jabour, the Law Society of British Columbia, governing body for lawyers in British Columbia, initiated steps to discipline a member that had advertised his law practice contrary to the Law Society’s rules for “conduct unbecoming a member”. The member sought a declaration that the Law Society’s rules were void for contravening the conspiracy provisions of the former Combines Investigation Act. The Law Society commenced proceedings for an order that the legislation did not apply to it given that the Legal Professions Act authorized disciplinary action for “conduct unbecoming a member of the society”, broadly defining that to be “any matter, conduct or thing that is deemed in the judgment of the Benchers to be contrary to the best interests of the public or of the legal profession.” The Supreme Court of Canada, in what some have referred to as the “high water mark” of regulated conduct defence case law in Canada, held that section 32 of the former Combines Investigation Act did not apply to the Law Society, who were given broad legislative authority to define “conduct unbecoming”. In arriving at its decision, the Supreme Court indicated that it was based, at least in part, on the special circumstances of the case (i.e., the importance of legislative oversight of the marketing of legal services, which the Court suggested could be difficult for the general public to evaluate without assistance). This case has led to doubt since it was decided as to the level of legislative authorization required in order to invoke the regulated conduct defence (i.e., whether conduct must be expressly mandated, or whether, to to what extent, a mere authorization for conduct that would otherwise violate the Competition Act will be sufficient).
R. v. Albany Felt Co. of Canada (1980)
In R. v. Albany Felt Co. of Canada, members of a felt-makers trade association were accused of conspiring to lessen competition for wet felt used in the manufacturer of paper. The accused, who met regularly through an association called the Canadian Felt Association, adopted identical prices, discounts and payment terms. The accused also divided markets with British and European felt manufacturers. The Court found the association members guilty, relying in large part on circumstantial evidence, which included evidence of frequent meetings and identical pricing and sale terms among the accused.
R. v. Aetna Insurance Co. (1977)
In R. v. Aetna Insurance Co., seventy-three insurance companies were accused of conspiracy under section 32 of the former Combines Investigation Act to fix the rates for fire insurance through the Nova Scotia Board of Insurance Underwriters. The Board in this case had established a schedule of mandatory rates for members to follow. Members also agreed not to accept reinsurance from companies that were not Board members. The accused were acquitted at trial, a decision that was upheld by the Supreme Court of Canada based on insufficient evidence that the price-fixing activities prevented or lessened competition “unduly” (the former competitive effects requirement under section 45).
R. v. Armco Canada Ltd. (1976)
In R. v. Armco Canada Ltd., members of a corrugated metal pipe association were accused of conspiring under section 32 of the former Combines Investigation Act to fix the prices of corrugated metal pipe. During the 1960s the industry was faced with significant new entry that resulted in over-capacity and price wars. In an attempt to confront these problems, the accused attempted to implement an “open price policy” whereby one firm would publish its price list to be followed by others. Though initially unsuccessful, prices were later stabilized, which raised the question of whether the price stability arose as a result of the concentrated market (therefore mere conscious parallelism) or was the result of an agreement. The accused were convicted at trial, which was affirmed in large part by the Ontario Court of Appeal. Armco is noteworthy in that an agreement between the accused was based on relatively little, but unfortunately for the accused, particularly prejudicial, circumstantial evidence, which included one company’s memorandum stating that another “surely [was] not playing ball.”
R. v. Burrows (1966)
In R. v. Burrows, mandarin orange importers were accused of conspiracy under section 32 of the former Combines Investigation Act in relation to the importation and sale of mandarin oranges. This case involved an agreement with Japanese exporters to limit sales to three Canadian importers, pressure on Japanese exporters by the Canadian Fruit Wholesalers Association to refuse to supply to some importers and an agreement between Canadian importers to fix orange prices. The British Columbia Supreme Court found all accused guilty of a conspiracy under section 32 to restrict the number of Canadian importers of Japanese oranges, control the quantity of oranges imported into Canada, control the allocation of oranges in Canada and fix the wholesale and retail prices of oranges. In coming to its decision, and finding an agreement between the accused, the Court relied on evidence including efforts by the accused to pressure Japanese exporters from selling to certain importers, discussions of prices at association meetings and identical retail and wholesale prices.
R. v. Electrical Contractors Association of Ontario and Dent (1961)
In R. v. Electrical Contractors Association of Ontario and Dent, a number of Toronto electrical contractors formed a trade association, which was charged with conspiracy under a former provision of the Criminal Code. The association had formed agreements with electrical equipment suppliers and manufacturers whereby the suppliers/manufacturers would only sell wholesale equipment to the association’s contractor members. The association also negotiated a collective agreement on behalf of its members with local 353 of the International Brotherhood of Electrical Workers, which provided that no member of the union would be permitted to install material or equipment unless supplied by an electrical contractor recognized by the association. There had been instances where the agreements had forced general contractors who were not “recognized” by the accused association to either refrain from bidding on a contract or sublet electrical work to a “recognized” electrical contractor, based on an inability to access union labour or construction equipment. According to the Court, “all sales of electrical equipment were to be channeled exclusively through members of the association, which arbitrarily defined the electrical trades that could qualify for membership and which was further designed to prevent the installation of any such equipment which was supplied to any person or persons contrary to its policy and will.” The Court also noted that the arrangements were such that “no member of the union was permitted to install material or equipment unless supplied by an electrical contractor recognized as such by the association. It put a consumer of such material or equipment who was not an electrical contractor recognized as such by the association in a position of great trade disadvantage.” The lower court convicted the association, which decision was upheld on appeal by the Ontario Court of Appeal.
R. v. Abitibi Power & Paper Co. (1960)
In R. v. Abitibi Power & Paper Co., member companies of a pulp and paper association were accused of conspiring to fix maximum prices for the purchase of pulpwood. In finding the accused guilty, the Quebec Court of Queen’s Bench relied on extensive circumstantial evidence pointing to the existence of an agreement, which included informal meetings of the accused, concerted buying activities following meetings, evidence of enforcement of an agreement, efforts to keep activities secret and numerous references to prices and inferences of price-fixing activities in internal and circulated documents (e.g., “really control the price”, “normalize prices”, “high time to bring prices in line” and “prices to be frozen at this level”).
R. v. Howard Smith Paper Mills Ltd. (1957)
In R. v. Howard Smith Paper Mills Ltd., seven paper mills, twenty fine paper companies and the secretary of a trade association were charged with conspiracy under the Criminal Code. All of the accused were found guilty at trial, which was upheld by the Court of Appeal and Supreme Court of Canada based, among other things, on regular association meetings during which the accused agreed upon price schedules, conditions of sale, classification of customers, freight zones and loyalty discounts. The paper mills also agreed to rotate government tenders.
R. v. Container Materials (1942)
In R. v. Container Materials Ltd., corrugated box manufacturers agreed to place the control of their marketing under a newly incorporated company that they controlled, which grew out of a former industry association, and which involved a series of fictitious agreements for the sale of their entire output to the company and the marketing by the manufacturers as selling agents.
The Court of Appeal and Supreme Court of Canada had little difficulty seeing through the artificial association of box manufacturers, and in particular the price-fixing activities, with the Supreme Court concluding that “the aim of the parties to this agreement was to secure effective control of the market in Canada”.
In commenting on the use of the newly formed company as a cover for the illegal activities, the Court of Appeal colourfully remarked: “no bevy of little girls ever played a game of ‘Let’s Pretend’ with more realism than these business men displayed in all that related to the marketing of their products in carrying on among themselves the pretence that Container Materials Ltd. was the sole purchaser from them of their products, and they were merely its agents in selling them to their customers.”
Container Materials is noteworthy in that it is one of relatively few Canadian joint marketing cases to provide a reasonably detailed discussion of the potential risks associated with joint marketing activities among competitors. The case is also a bit of a cautionary tale of the potential hazards of using association activities (or an arrangement that is an association in substance) as a cover for price-fixing, output restriction or other conduct that may raise criminal conspiracy issues.
Weinraub v. The King (1932)
In Weinraub v. The King, plumbing and heating goods manufacturers and wholesalers formed an association with master plumbers to fix the prices of plumbing materials and labor. Under the arrangement, member manufacturers and wholesalers were only to supply to the member master plumbers. The individual defendants in this case were convicted for their participation in forming and carrying out the conspiracy, which was upheld by the Supreme Court of Canada.
R. v. Alexander Ltd. (1932)
In R. v. Alexander Ltd., an unincorporated electrical contractors association and its members were accused of violating section 32 of the former Combines Investigation Act and section 498 of the Criminal Code in relation to a bid-rigging arrangement for Toronto electrical projects. Under the arrangement, association members would submit proposed bids to the association, which would choose average-priced bids for submission with other members submitting higher or lower bids. The winning bidder for each project would then pay a percentage of the contract price to the association. The members of the association were found guilty of contravening the Criminal Code and Combines Investigation Act and fined.
R. v. Stinson-Reeb Builders Supply Co. (1929)
In R. v. Stinson-Reeb Builders Supply Co., a plasterers association was formed. The association was composed of two branches: manufacturers and dealers. The manufacturers fixed their sale prices to the dealers (and resale prices). The manufacturers also agreed to sell to the dealers exclusively, who agreed to only buy from the manufacturers. The Court held that this arrangement contravened the previous conspiracy offence under section 498 of the Criminal Code.
The King v. Beckett (1910)
In The King v. Beckett, the Dominion Wholesale Grocers’ Guild and a number of individual wholesale grocers were accused of conspiracy under section 498 of the Criminal Code. This case involved agreements between manufacturers and wholesale grocers to only make retail sales at list prices and attempts to ensure that all retail sales were made through the wholesale grocers. The terms of this arrangement were reflected in the by-laws of the wholesale grocers association, with deviations from the list prices subject to penalties including manufacturer refusals to supply and reduced discounts. The accused were found not guilty on the basis that they had not intended to contravene the law or harm any persons or firms. The Court also found that the accused were “actuated by a bona fide desire to protect their own interests and those of the wholesale grocery trade in general.”
The King v. Clarke (1907)
In The King v. Clarke, the president of the Alberta Retail Lumber Dealers’ Association was accused of conspiracy under section 498 of the Criminal Code. This case involved an agreement among the members of the association to fix the price of lumber in various parts of Alberta, including penalties for non-compliance and pressure on lumber manufacturers to refuse to supply to non-members. The association’s by-laws expressly provided for association price lists, the regulation of price in different geographic regions and penalties for non-compliance by members. The accused was convicted at trial, which decision was affirmed on appeal.
R. v. McMichael (1907)
In R. v. McMichael, the manager of the Dominion Radiator Company was accused of conspiracy under section 520 of the Criminal Code. This case involved agreements between the Master Plumbers Association and the Central Supply Association, including the Dominion Radiator Company, whereby plumber members would buy all of their goods from suppliers that agreed to only supply to the general public and non-member plumbers at higher prices. The accused was found guilty and ordered to pay a fine and serve three months in prison.
R. v. Master Plumbers and Steam Fitters Co-operative (1907)
In R. v. Master Plumbers and Steam Fitters Co-operative, two plumbing trade associations were accused of conspiracy under section 520 of the Criminal Code. This case involved agreements between the Master Plumbers Association and the Central Supply Association whereby plumber members would buy all of their goods from suppliers that agreed to only supply to the general public and non-member plumbers at higher prices. Both associations were found guilty at trial while an appeal by the suppliers association was denied.
Wampole & Co. v. F.E. Karn Co. Ltd. (1906)
In Wampole & Co. v. F.E. Karn Co. Ltd., plaintiff manufacturing chemists sought damages and an injunction restraining defendant druggists from alleged breaches of a contract, which fixed the wholesale and retail prices of drugs. The defendants argued that the agreements constituted an unlawful conspiracy. The Court agreed, finding that the agreements, which were in the form adopted by two associations (the Association of Retail Merchants and Association of Wholesale Merchants) “entirely destroyed” competition contravening the Criminal Code.
The King v. Elliott (1905)
In The King v. Elliott, the president of an Ontario coal association was accused of conspiracy under section 520 of the Criminal Code. This case involved association rules that sought to restrict the sale of coal from operators and shippers directly to consumers or non-members. Members of the association were also given rights to certain areas, with the association dictating coal prices and issuing a “look out list” for suppliers of non-members that were not entitled to buy coal directly from suppliers. The Ontario Court of Appeal, in the first successful combines prosecution in Canada, confirmed the lower court’s judgment convicting the accused.
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