Canadian COMPETITION & ANTITRUST LAW

Bait and switch. The Competition Act contains “general” misleading advertising provisions, which generally prohibit false or misleading claims to the public to promote a product or any business interest (sections 52 and 74.01).  In addition to these general misleading advertising provisions, the Act also contains a number of other sections that prohibit or regulate specific forms of marketing and advertising practices, including “bait and switch selling” (section 74.04). Competition Bureau, Ensuring Truth in Advertising – Bait and Switch Selling: “The Competition Act prohibits ‘bait and switch’ selling which occurs when a product is advertised at a bargain price, but is not available for sale in reasonable quantities.  The provision does not apply if the advertiser can establish that the non-availability of the product was due to circumstances beyond its control, the quantity of the product obtained was reasonable, or the customer was offered a rain check when supplies were exhausted.”  Competition Bureau, Pamphlet, Bait and Switch Selling: “Under the Competition Act, retailers are prohibited from advertising products at bargain prices that they do not have available in reasonable quantities.  Liability will be avoided where the advertiser can establish that the non-availability of the product was due to circumstances beyond its control, the quantity of the product was obtained when reasonable, or the customer was offered a rain check when supplies were exhausted.  Retailers who contravene the law may be ordered by a court to stop the conduct, to publish a corrective notice, and/or to pay an administrative monetary penalty.”  See also, Better Business Bureau (BBB) Code of Advertising: “[A] ’Bait’ offer is an alluring but insincere offer to sell a product or service which the advertiser does not intend to sell. Its purpose is to switch consumers from buying the advertised merchandise or service, in order to sell something else, usually at a higher price or on a basis more advantageous to the advertiser.”  See also Competition Act, section 74.04.

Barriers to entry.  Barriers to entry are indirect indicators used to assess market power and potential competitive effects, for example whether a firm (or firms) possesses market power (i.e., is dominant) in an abuse of dominance analysis or whether a merged entity will likely be able to exercise market power post-completion in a merger.  Barriers to entry is commonly, together with a firm (or firms) market share, a key factor in considering whether market power is likely to be able to be exercised.  OECD, Competition Assessment Toolkit (2011): “Barriers-to-entry can broadly be defined as those factors that might hinder the entry of new firms into the relevant market.  Evaluating the magnitude of barriers-to-entry is important as it provides … a perspective of the extent of potential competition that the incumbent firm(s) might face.  For example, if barriers-to-entry are high, incumbents can engage in anti-competitive behavior, raise prices and enjoy elevated profits without fearing that new entry will erode their profits.  To put it differently, lower entry barriers give rise to greater potential competition and have a disciplining effect on incumbent firms in the market, restraining the exercise of market power.”  Competition Bureau, Updated Draft Enforcement Guidelines on the Abuse of Dominance Provisions (2009): “… high market share is not in itself sufficient to prove market power.  A firm’s attempt to exercise market power may be thwarted by entry or expansion of existing and/or potential competitors on a sufficient scale and scope, if entry/or expansion is expected to be profitable.  Factors that reduce the likelihood of this profitability are referred to as barriers to entry.  Barriers to entry can take many forms, from factors that deter entry by raising costs to factors that preclude entry absolutely.  These can include sunk costs, regulatory barriers, economies of scale and scope, market maturity, network effects, access to scarce or non-duplicable inputs, and long term contracts.”  Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001):  “The Bureau considers that elements of ‘substantially or completely control’ or ‘dominance’ as it is commonly referred to, to be synonymous with market power. … the Bureau collects evidence and assesses a number of qualitative and quantitative factors … However, the Bureau places the greatest emphasis on the key factors of market share and barriers to entry.”  Competition Bureau, Merger Enforcement Guidelines (2004): “Barriers to entry affect the timeliness, likelihood and sufficiency of entry.  They can take many forms, ranging from absolute restrictions that preclude entry and other factors that raise cost and risks associated with entry and thereby deter it.”  See also Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) (Comp. Trib.): “While this (the ability to set prices above the competitive level) is a valid conceptual approach, it is not one that can be readily applied; one must ordinarily look to the indicators of market power such as market share and barriers to entry.  The specific factors that need to be considered in evaluating control will vary from case to case.  Also, in NutraSweet, Laidlaw, Nielsen and Tele-Direct, the Tribunal held that market share, together with barriers to entry, will typically be sufficient to support a finding of market power (and conversely, in the absence of barriers to entry, firms with high market shares cannot exercise market power – Tele-Direct) (Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) (Comp. Trib.); Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289 (Comp. Trib.); Canada (Director of Investigation and Research) v. The D & B Companies of Canada Ltd. (1995), 64 C.P.R. (3d) 216 (Comp. Trib.) (Nielsen); Canada (Director of Investigation and Research) v. Tele-Direct (Publications) Inc. (1997), 73 C.P.R. (3d) 1 (Comp. Trib.)).  See also the definitions of Abuse of Dominance, Merger and Market Power.

Behavioural advertising. Tracking consumers online activities over time in order to deliver advertisements targeted to their inferred interests.  See e.g., Office of the Privacy Commissioner of Canada, Guidelines, Privacy and Online Behavioural Advertising (2011).

Behavioural remedy. Merger remedies are usually thought of as one of three types: (i) structural, (ii) behavioural or (iii) combination.  In contrast to structural remedies that typically involve the sale (divestiture) of assets, behavioural remedies involve altering the merged entity’s conduct to prevent a substantial lessening of competition from occurring in a market.  The Bureau gives several examples of potential behavioural remedies that may support a structural remedy in its Information Bulletin on Merger Remedies in Canada (2006):  “short-term supply arrangements for the buyer of the asset(s) to be divested … the provision of technical assistance to help a buyer or licensee train employees in complex technologies … a waiver by the merged entity of restrictive contract terms that lock-in customers for long periods of time. … codes of conduct, which can be readily monitored and expeditiously enforced by a third party …”  The Bureau’s position is that it will seldom accept standalone behavioural remedies.  Information Bulletin on Merger Remedies in Canada (2006): “Standalone behavioural remedies are seldom accepted by the Bureau. It is difficult to design a behavioural remedy that will adequately replicate the outcomes of a competitive market. Even if such a remedy can be designed in clear and workable terms, it is likely to be less effective and more difficult to enforce than a structural remedy. Moreover, any attempt to provide for a standalone behavioural remedy usually imposes an ongoing burden on the Bureau and market participants, including the merged entity, rather than providing a permanent solution to a competition problem.  Standalone behavioural remedies may be acceptable when they are sufficient to eliminate the substantial lessening or prevention of competition arising from a merger, and there is no appropriate structural remedy. Additionally, as stated previously, standalone behavioural remedies must require either no or minimal future monitoring by the Bureau, and be enforceable by either the Bureau or the Tribunal. Otherwise, the Bureau will neither agree to such remedies nor seek to impose them.”  See also definitions of “structural remedy” and “combination remedy”.

Benchmarking.  J. Thomas Rosch, Commissioner, Federal Trade Commission, “Antitrust Issues Related to Benchmarking and Other Information Exchanges”, Remarks before the ABA Section of Antitrust Law and ABA Center for Continuing Legal Education’s Teleseminar on Benchmarking and Other Information Exchanges Among Competitors” (May 3, 2011): “Benchmarking refers to the practice of a firm comparing its practices, methods, or performance against those of other companies. A benchmarking exercise can be a one-time event, such as a plant visit or seminar, or can be an on-going process, such as a hospital comparing its infection rate against peer hospitals on an annual basis. Benchmarking has obvious pro-competitive potential. It allows companies to learn about more efficient means of production and distribution, which can in turn lead to better and lower cost products for consumers. But benchmarking, like other forms of information exchange, can lead to tacit or even explicit collusion.”

Bid-rigging. Competition Act, subsection 47(1): “bid-rigging means (a) an agreement or arrangement between or among two or more persons whereby one or more of those persons agrees or undertakes not to submit a bid or tender in response to a call or request for bids or tenders, or agrees or undertakes to withdraw a bid or tender submitted in response to such a call or request, or (b) the submission in response to a call or request for bids or tenders, of bids or tenders that are arrived at by agreement or arrangement between or among two or more bidders or tenderers, where the agreement or arrangement is not made known to the person calling for or requesting the bids or tenders at or before the time when any bid or tender is submitted or withdrawn, as the case may be, by any person who is a party to the agreement or arrangement.”  Some common types of bid-rigging include: (i) “cover” or “courtesy” bidding (some bidders submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder), (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or agree to withdraw a previously made bid), (iii) bid rotation (all bidders submit bids but take turns being the low bidder according to a systematic or rotating formula), (iv) market division (suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (some bidders that agree not to submit a bid or submit a losing bid are awarded subcontracts or supply agreements from the successful agreed upon low bidder).  U.S. Department of Justice, Antitrust Division, Price Fixing, Bid Rigging, and Market Allocation Schemes: “Bid rigging is the way that conspiring competitors effectively raise prices where purchasers – often federal, state or local governments – acquire goods or services by soliciting competing bids.  Essentially, competitors agree in advance who will submit the winning bid on a contract being let through the competitive bidding process.  As with price fixing, it is not necessary that all bidders participate in the conspiracy.”

Bid rotation. There are a number of types of bid-rigging that can contravene the criminal bid-rigging provisions of the Competition Act under section 47.  These include “bid rotation”, where all parties submit bids, but take turns being the low bidder according to a systematic or rotating basis.

Bid suppression. There are a number of types of bid-rigging that can contravene the criminal bid-rigging provisions of the Competition Act under section 47.  These include “bid suppression”, where one or more bidders that would otherwise bid agree to refrain from bidding or withdraw a previously made bid.

Botnets. Industry Canada, The Digital Economy in Canada: “The term ‘botnet’ refers to a collection of software robots, or ‘bots’, that operate undetected on a network of infected computers (commonly referred to as ‘zombies’). Computers can become infected in a number of ways, including: viruses sent as an attachment to a spam message; clicking on pop-up windows; or visiting an infected website. In the absence of security features such as firewalls or anti-virus programs, a computer can easily become compromised and users typically have no knowledge that their computer is operating as a zombie. Once established, botnets are controlled remotely by the originator and used for distributing all types of malware.”

Boycott. A boycott, sometimes referred to as a “concerted refusal to deal”, is one of the most elusive terms in competition/antitrust law and has been treated under both per se and rule of reason standards of review by U.S. courts under the Sherman Act.  In Canada, boycotts were generally treated as concerted refusals to deal under subparagraph 45(1)(c) of the Competition Act (prior to the 2009 amendments) and may fall under subparagraph 45(1)(c) of the amended Act (agreements between actual or potential competitors to restrict supply).  Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985): “’Group boycotts’ are often listed among the classes of economic activity that merit per se invalidation under § 1.  Exactly what types of activity fall within the forbidden category is, however, far from certain. … Cases to which this Court has applied the per se approach have generally involved joint efforts by a firm or firms to disadvantage competitors by ‘either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.’  In these cases, the boycott often cut off access to a supply, facility, or market necessary to enable the boycotted firm to compete, and frequently the boycotting firm possessed a dominant position in the relevant market.  In addition, the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive.  Under such circumstances the likelihood of anticompetitive effects is clear and the possibility of countervailing precompetitive effects is remote.  Although a concerted refusal to deal need not necessarily possess all of these traits to merit per se treatment, not every cooperative activity involving a restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences.”  R. v. Nova Scotia Pharmaceutical Society (No. 3) (1993), 120 N.S.R. (2d) 304 (S.C.) (“PANS”): “Here, the Crown relies heavily on what it has termed ‘boycotts’, whereby the vast majority of participating pharmacies in the Province, on the direction and advice of the Society/Association and its committees, acted collectively in either terminating or providing notice of termination of their participation in a particular insurers’ direct-pay plan in order to bring that particular insurer (or insurers) in line with contractual terms or maximum allowable tariffs acceptable to the Society/Association and a vast majority of members.”

Brand competition. OECD, Glossary of Industrial Organisation Economics and Competition Law: “Firms marketing differentiated products frequently develop and compete on the basis of brands or labels. Coca Cola vs. Pepsi-Cola, Levi vs. GWG jeans, Kellogg’s Corn Flakes vs. Nabisco’s Bran Flakes are a few examples of inter-brand competition. Each of these brands may be preferred by different buyers willing to pay a higher price or make more frequent purchases of one branded product over another.  Intra-brand competition is competition among retailers or distributors of the same brand. Intra-brand competition may be on price or non-price terms. As an example, a pair of Levi jeans may be sold at a lower price in a discount or specialty store as compared to a department store but without the amenities in services that a department store provides. The amenities in services constitute intra-brand non- price competition. Some manufacturers seek to maintain uniform retail prices for their products and prevent intra-brand price competition through business practices such as resale price maintenance (RPM), in order to stimulate intra-brand non- price competition if it will increase sales of their product.”

Brand spoofing.  Consumer Protection BC: “Brand spoofing (aka phishing) happens when scammers create false website or send consumers e-mails or text messages from what appear to be well-known and trusted businesses.  When a consumer provides information to these fake sources, scammers gain access to private information such as SIN numbers or bank PIN numbers.”

Business-to-business (B2B) marketing. Canadian Marketing Association, Code of Ethics and Standards of Practice: “Marketing products or services to other companies, government bodies, institutions and other organizations.”