Canadian COMPETITION & ANTITRUST LAW

Dawn raid. International Competition Network, Anti-Cartel Enforcement Manual (May, 2009): “Search and raid terms are terms variously used by competition agencies to refer to the process of examining and removing records from a premises.  In Canada, the Competition Bureau has a wide range of enforcement powers available to investigate potential violations of the Competition Act, including the ability to obtain search warrants (under section 15 of the Act), document production orders, orders compelling testimony under oath (under section 11 of the Act) and wiretaps (under the Criminal Code).  The execution of search warrants by the Bureau, which can be used in both civil and criminal cases, is sometimes referred to as a “dawn raid”, given that such inspections commonly begin in the morning and are unannounced.

Deceptive prize notice.  Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet: “Subsection 53(1) of the [Competition Act] makes it an offence to send deceptive notices of prizes. A notice is deceptive where, among other things, there has not been adequate and fair disclosure of certain information, including facts which materially affect the chances of winning. The offence applies to sending the prize notification or causing it to be sent, whether ‘by electronic or regular mail or by any other means’. Further information on the Bureau’s policy with respect to section 53, can be found in the publication entitled Deceptive Notices of Winning a Prize – Section 53 of the Competition Act available on the Competition Bureau Web site.”

Deceptive telemarketing. The federal Competition Act makes it criminal offences to engage in deceptive telemarketing or to engage in telemarketing unless certain required disclosure under the Act is made.  Under section 52.1, “telemarketing” is defined as “the practice of using interactive telephone communications for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest”.  In its telemarketing enforcement guidelines (Telemarketing – Section 52.1 of the Competition Act), the Competition Bureau has taken the position that “interactive telephone communications” does not include fax, Internet or automated pre-recorded messages but are limited to live voice communications between two persons.  Under the Competition Act’s deceptive telemarketing provisions, it is a criminal offence to: (i) make materially false or misleading representations; (ii) operate a contest where the delivery of a prize is conditional on prior payment or certain disclosure is not made (regarding the number and value of prizes, area or areas to which they relate and odds of winning); (iii) offer free or below cost products, as consideration for supplying another product, unless disclosure is made of the fair market value of the first product (and any restrictions, terms or conditions relating to its supply); or (iv) offer products for sale grossly in excess of their fair market value where their delivery is conditional on prior payment by buyers.  The Competition Act also requires that certain disclosure be made by telemarketers both at the beginning of a call and sometime during a call.  For example, the Act requires that the following information be disclosed by telemarketers at the beginning of a call: (i) the person on whose behalf the call is being made; (ii) the nature of the product or business interest; and (iii) the purpose of the call.  Like the general misleading advertising provisions of the Competition Act (sections 52 and 74.01), the general impression is relevant to determining whether a claim made by a telemarketer is materially false or misleading.  Unlike misleading advertising generally, however, if misleading claims are made in the context of telemarketing, the Competition Bureau does not have the discretion to proceed civilly, given that the only deceptive marketing provisions are criminal offences under section 52.1.  Deceptive telemarketing is punishable, on indictment, by unlimited fines (i.e., in the discretion of the court), imprisonment for up to 14 years, or both (and on summary conviction, to fines of up to $200,000, imprisonment for up to one year, or both).  There is also no “mens rea” (i.e., intent) required for deceptive telemarketing, in that the offences under section 52.1 are strict liability offences.  As such, proof of the act, regardless of any guilty mind (or lack of), is sufficient to make out an offence.  There is, however, a due diligence defence available under section 52.1.  The enforcement of the telemarketing provisions of the Competition Act has been an enforcement priority for the Competition Bureau in recent years, although for the most part aimed at companies and individuals engaged in true “scams” not legitimate marketers who may have committed technical violations of the Act.  Having said that, a number of individuals have been charged, convicted and imprisoned in connection with the marketing of a broad range of products, including business directories, office supplies and credit cards.  The Competition Bureau has also issued enforcement guidelines on deceptive telemarketing: Telemarketing – Section 52.1 of the Competition Act (2009).  The Competition Act is not, however, the only relevant legislation applicable to telemarketing.  In this regard, provincial consumer protection legislation can also be relevant as well as the National Do Not Call List under the federal Telecommunications Act.

Delivered pricing.  Competition Act, section 80: “’Delivered pricing’ means the practice of refusing a customer, or a person seeking to become a customer, delivery of an article at any place in which the supplier engages in a practice of making delivery of the article to any other of the supplier’s customers on the same trade terms that would be available to the first-mentioned customer if his place of business were located in that place.”  Under section 81 of the Competition Act, the Competition Tribunal may make an order prohibiting a supplier from engaging in delivered pricing where it is engaged in by a major supplier (or is widespread in a market) and a customer (or potential customer) is denied an advantage that would otherwise be available to him in the relevant market.

Demand-side substitutability. [Abuse of dominance]: International Competition Network, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “The ability of customers to switch to rival products is generally the most direct and most effective competitive constraint and therefore the most relevant factor in defining a relevant product market.”

Dictionary attack. Government of Canada, Canada’s Anti-Spam Legislation (www.fightspam.gc.ca), FAQs: “… a computer program guesses live email addresses by methodically trying multiple name variations within a particular group of common email domains, such as Hotmail or Gmail.”

Direct-to-consumer marketing.  OECD, Competition Assessment Toolkit (2011): “Increasingly, countries are imposing bans or introducing significant regulations on direct-to-consumer marketing of products via email, fax and telephone. In general, both large and small companies and self-employed individuals rely on this channel to advertise their products and services. One factor that has been driving this type of advertising is the relatively lower cost – in comparison to say advertising on television and specialty magazines. This type of direct advertising may also be preferred by many companies as they are better able to reach their target audience. One of the significant downsides of this type of marketing relates to intrusion of privacy.”

Direct and indirect purchasers. Terms used in competition/antitrust class actions and in particular in reference to the level of harm (or “overcharge”) suffered by various levels of consumers in a supply chain from price-fixing conduct.  See e.g., Davies Ward Phillips & Vineberg, note, “Developments in Price-fixing Class Actions”: “’Direct purchasers’ are those who purchased the product in question directly from those involved in the alleged anti-competitive conduct.  ‘Indirect purchasers’ are those who purchased the product from intermediaries in transactions subsequent to the direct purchase …”

Dominance. The abuse of dominance provisions of the Competition Act (sections 78 and 79, the Canadian equivalent to monopolization under Section 2 of the U.S. Sherman Act) apply to a firm (or firms) that abuses its dominance in one or more relevant markets.  The operative provision of the Act (section 79) refers to “substantial or complete control” (i.e., dominance) of a “class or species of business” (i.e., a market), which has been held to mean that a firm possesses market power.  See e.g., Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001), citing Canada (Director of Investigation and Research) v. NutraSweet Co. [1990], 32 C.P.R. (3d) 1 (Comp. Trib.): “Once the universe of existing competitors is delineated, it is necessary to assess the extent to which these rivals constrain any market power that the dominant firm(s) might otherwise possess.  The Bureau considers control to be synonymous with market power, where the market power is the ability to profitably set prices above competitive levels for a considerable period of time.  Market power may also be defined with respect to a material, non-transitory reduction in other factors of competition such as service, quality, variety, advertising and innovation. … The Bureau recognizes that it is difficult to measure market power directly; consequently, a number of indicators – both qualitative and quantitative – of market power are normally relied upon.  These indicators include, but are not necessarily limited to, the following: market share, including share stability and distribution; barriers to entry, including the conduct allegedly engaged in by the dominant firm(s); and other market characteristics, including extent of technological change, extent of excess capacity, and customer or supplier countervailing power.”

Double ticketing. Competition Bureau, Ensuring Truth in Advertising: “Section 54 of the Competition Act is a criminal provision.  It prohibits the supply of a product at a price that exceeds the lowest of two or more prices clearly expressed in respect of the product.  Any person who contravenes section 54, is guilty of an offence and liable to a fine of up to $10,000 and/or imprisonment up to one year on summary conviction.”

Due diligence defence. The Competition Act contains pure criminal offences (i.e., requiring subjective intent, such as the criminal misleading advertising provision, section 52) and strict liability offences (i.e., where proof of carrying out the mere actus reus, or act elements, is sufficient to constitute an offence subject to a due diligence defense).  In this regard, due dligence defenses are available under the deceptive telemarketing (section 52.1), deceptive prize notice (section 53(1)) and multi-level marketing (section 55(1)) provisions of the Competition Act.  See also Competition Bureau, Bulletin, Corporate Compliance Programs (2010): “For certain false or misleading representations and deceptive marketing practices provisions under the Competition Act and certain provisions of the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act, a company may argue that it had exercised due diligence to prevent the conduct.  Although the pre-existence of a program is not, in and of itself, a defence to allegations of wrongdoing under any of the Acts, a credible and effective program may enable a business to demonstrate that it took reasonable steps to avoid contravening the law. In this regard, such a program may support a claim of due diligence. Documented evidence of corporate compliance will assist a company in advancing a defence of due diligence, where available.” … “The existence of a program does not immunize businesses or individuals from enforcement action by the Commissioner or from prosecution by the DPP.20 However, in determining the most appropriate means to resolve cases involving offences where the exercise of due diligence is a defence, the Commissioner may give weight to the pre-existence of a credible and effective program in making sentencing recommendations to the DPP. A program will be considered credible and effective where it can be demonstrated that it was reasonably designed, implemented and enforced in the circumstances.”