“[t]he successful competitor, having been urged to compete, must not be turned on when he wins.”
(Judge Learned Hand)
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OVERVIEW
Under section 79 of the federal Competition Act (the “Act”), abuse of dominance occurs when a dominant firm (or firms) engages in a practice of anti-competitive acts that results in a prevention or substantial lessening of competition.
In Canada, like other major jurisdictions such as the United States, it is not dominance per se that is prohibited, but rather the abuse of a dominant position.
Moreover, while the relevant test to establish abuse of dominance considers anti-competitive conduct directed at particular competitors, the requisite market impact is that competition overall in a relevant market must be prevented altogether or substantially lessened. In other words, like other provisions of the Act generally, the focus of an abuse of dominance inquiry is the impact on competition generally not on individual competitors, though this distinction can be difficult to draw in practice in particular cases.
Since the modern Act was introduced in 1986, there have been less than 15 abuse of dominance cases brought in Canada (a number of which have been settled under consent orders or agreements).
ELEMENTS
To establish abuse of dominance under the Act, which is one of the Act’s civil “reviewable matters”, the Commissioner of Competition (the “Commissioner”) must establish the following elements on application to the federal Competition Tribunal (the “Tribunal”):
1. A firm (or firms) is dominant in a relevant market;
2. The firm has engaged in a practice of anti-competitive acts; and
3. The firm’s conduct has resulted in (or is or is likely to result in) a prevention or substantial lessening of competition.
Dominance
(“One or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business”)
Generally speaking, this element of abuse of dominance considers a firm’s market position in a market, which requires that the relevant product and geographic markets be defined.
There is no bright line market share threshold for dominance under section 79. Having said that, the Tribunal held in the Laidlaw case that a market share of less than 50% would not give rise to a prima facie finding of dominance (though this does not mean that market power could never be found below 50%). As a practical matter, however, all of the contested abuse of dominance cases in Canada to date have involved companies with market shares significantly exceeding 50%.
This first branch of the test for abuse of dominance also contemplates both single firm and joint dominance. While several joint dominance cases have been brought by the Bureau, however, including the Interac and Waste Services cases, there have to date been no decided joint dominance cases in Canada.
Practice of Anti-competitive Acts
(“The person or persons have engaged in or are engaging in a practice of anti-competitive acts”)
With respect to a “practice of anti-competitive acts”, the Tribunal has held that conduct must be engaged with an “exclusionary, predatory or disciplinary” purpose toward a competitor. This may include, for example, conduct that raises rivals costs or forecloses a competitor’s access to key suppliers, customers or inputs/assets.
Section 78 of the Act sets out a non-exhaustive list of anti-competitive acts for the purposes of section 79, with other types of conduct having been held to be anti-competitive acts by the Tribunal.
The Tribunal has reviewed a wide variety of alleged anti-competitive acts in the abuse cases in Canada to date. Such conduct has included non-compete clauses, the extension of patent and trade-mark rights, exclusivity provisions, allegedly anti-competitive contract provisions (e.g., terms of contracts, first rights of refusal, penalty/liquidated damages provisions), strategic litigation, tied selling, foreclosing access to “essential facilities”, discriminatory conduct towards customers, most favoured nation provisions, meet-or-release clauses, acquiring competitors and predatory pricing.
Some of these types of conduct may also be challenged under other provisions of the Act (notably exclusive dealing and tied selling under section 77 of the Act).
In addition, some types of conduct that could have been subject to challenge under standalone provisions prior to amendments to the Act in 2009 (e.g., predatory pricing and price discrimination, both of which could previously have been challenged as criminal offences) may now only be reviewed civilly under the abuse of dominance provisions.
In considering whether conduct is anti-competitive, subjective intent is not required and the Tribunal may consider both subjective intent as well as the foreseeable effects of particular conduct.
Unlike some other jurisdictions, high pricing (sometimes referred to colloquially as price “gouging”) alone has not been held to be an anti-competitive act under section 79 (with the Bureau having noted that its role is not to function as a price regulator).
Substantial Lessening of Competition
(“The practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market”)
In general, this element of abuse of dominance considers a company’s ability to preserve, entrench or enhance its market power. This may be achieved, for example, by a dominant firm creating or strengthening barriers to entry, thereby making it more difficult for its competitors to compete effectively.
In the leading Canadian case, Canada Pipe, it was held that the relevant question is whether the market(s) would have been substantially more competitive “but for” the dominant firm’s conduct (i.e., the state of competition in the relevant market must be analyzed both in the presence and absence of the allegedly dominant firm’s anti-competitive conduct).
EXCEPTIONS
There are several exceptions under section 79. Under subsection 79(4) of the Act, the Tribunal must evaluate whether any impact on competition is based on “superior competitive performance”.
In addition, subsection 79(5) provides that any act engaged in pursuant only to the exercise of a right under certain intellectual property legislation, including the Copyright Act, Patent Act or Trade-marks Act, is not an anti-competitive act for the purposes of section 79.
The intersection of IP rights and competition law, and the application of the Act generally to the exercise of IP rights, is a complex and largely untested area in Canada. The Bureau’s 2000 Intellectual Property Enforcement Guidelines are currently its leading statement on its enforcement policies regarding the exercise of IP rights and competition.
In addition, while not an exception per se, as a result of the Canada Pipe decision, a legitimate business purpose can be relevant in determining whether conduct has been engaged in for an anti-competitive purpose. In this regard, the Federal Court of Canada has held that a “business justification must be a credible efficiency or pro-competitive rationale for the conduct in question, which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts.” It largely remains to be seen, however, what the Tribunal will find to be a legitimate business justification for the purposes of section 79.
ENFORCEMENT AND PENALTIES
The Commissioner has exclusive jurisdiction to make applications to the Tribunal for remedial orders (i.e., no civil actions or “private access” proceedings may be commenced by private parties, though private parties may intervene before the Tribunal with leave from the Tribunal).
Where abuse of dominance is established, the Tribunal has the power to make “remedial orders” prohibiting the continuation of anti-competitive conduct.
The Tribunal may also, where it finds that an order prohibiting conduct is unlikely to restore competition in the relevant market, order a person to “take such actions … as are reasonable and as are necessary to overcome the effects of the practice” including ordering the divestiture of assets or shares.
In addition, as a result of the 2009 amendments to the Act, the Tribunal may now also order the payment of “administrative monetary penalties” (“AMPs”, essentially civil fines) of up to Cdn. $10 million (Cdn. $15 million for subsequent orders).
ABUSE OF DOMINANCE LINKS AND RESOURCES
Legislation
Competition Tribunal
Competition Bureau
Preventing Abuse of Market Power
Bulletins
Pamphlets
Enforcement Guidelines
Updated Enforcement Guidelines on the Abuse of Dominance Provisions
Enforcement Guidelines on the Abuse of Dominance Provisions
Reports
Round Table on Monopsony and Buyer Power
Predatory Pricing and State Below-cost Sales Statutes in the United States: An Analysis
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