Canadian COMPETITION & ANTITRUST LAW

Margin squeeze. International Competition Network (ICN), Report on the Analysis of Refusal to Deal with a Rival Under Unilateral Conduct Laws (April, 2010): “… when a dominant firm charges a price for an input in an upstream market that, compared to the price it charges for the final good using the input in the downstream market, does not allow a rival in the downstream market to compete.” Pietro Crocioni and Centro Veljanovski, “Price Squeezes, Foreclosure and Competition Law: Principles and Guidelines”:  “A price or margin squeeze is an exclusionary practice used by a vertically integrated firm to leverage its market power in the upstream market to squeeze the margins of its downstream competitors.”  Competition Act, subparagraph 78(1)(a): “For the purposes of section 79 [abuse of dominant position] ‘anti-competitive act’, without restricting the generality of the term, includes any of the following acts: (a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of preventing the customer’s entry into, or expansion in, a market.”  OECD, Policy Roundtables, Margin Squeeze (2009): “A margin squeeze occurs when there is such a narrow margin between an integrated provider’s price for selling essential inputs to a rival and its downstream price that the rival cannot survive or effectively compete. A margin squeeze can arise only when (a) an upstream firm produces an input for which there are no good economic substitutes, (b) the upstream firm sells that input to one or more downstream firms and (c) the upstream firm also directly competes in that downstream market against those firms.  Many countries have investigated margin squeeze cases, particularly in newly liberalised sectors such as telecommunications.  In order for a margin squeeze case to arise, three elements must be present. First, an upstream firm must produce an essential or bottleneck input with no substitutes and no scope for other firms to provide the essential input themselves. Second, that firm must sell that essential input to one or more downstream firms which seek to use that input in the provision of some downstream product or service. Third, the upstream firm must itself use its own input to compete against those downstream firms in the market for that downstream product or service.”

Marker. A “marker” is one of several steps to potentially obtain immunity from prosecution and penalties under the Competition Bureau’s Immunity Program for violation of the Competition Act’s criminal offences.  It involves requesting a place in line for immunity applicants and “markers” are assigned on a “first in” basis (therefore timing and speed are typically critical).  Competition Bureau, Bulletin, Immunity Program under the Competition Act: “Anyone may initiate a request for immunity by communicating with the Senior Deputy Commissioner of Competition, Criminal Matters, or the Deputy Commissioner of Competition, Fair Business Practices, to discuss the possibility of receiving immunity from prosecution in connection with an offence under the [Competition Act].  An applicant can make the first contact on the basis of a limited hypothetical disclosure that identifies the nature of the criminal offence it has committed in respect of a specified product with sufficient detail to secure a “marker” as first in line to request immunity.  Typically the request to the Bureau for this marker is made by an applicant’s legal representative.” U.S. Department of Justice, Antitrust Division, “Frequently Asked Questions Regarding the Antitrust Division’s Leniency Program”: “The Division frequently gives a leniency applicant a “marker” for a finite period of time to hold its place at the front of the line for leniency while counsel gathers additional information through an internal investigation to perfect the client’s leniency application. While the marker is in effect, no other company can “leapfrog” over the applicant that has the marker.”

Market allocation agreement. Competition Bureau, Competitor Collaboration Guidelines: “Paragraph 45(1)(b) of the Act prohibits agreements between competitors in respect of a product ‘to allocate sales, territories, customers or markets for the production or supply of the product’. This provision prohibits all forms of market allocation agreements between competitors, including agreements between competitors to not compete with respect to specific customers, groups or types of customer, in certain regions or market segments, or in respect of certain types of transactions or products. The prohibition in paragraph 45(1)(b) applies to agreements to not compete with respect to direct sales to distributors, resellers or customers, as well as agreements entered into by suppliers to not compete in respect of indirect sales that are made through distributors or resellers. This provision prohibits market allocation agreements between actual and potential competitors.”  U.S. Department of Justice, Antitrust Division, An Antirust Primer for Federal Law Enforcement Personnel: “Market allocation schemes are agreements among competitors to divide the market among themselves.  For example, in customer allocation, competing firms may divide up specific customers or types of customers or types of customers so that only one competitor will be allowed under the conspiratorial agreement to sell, buy from, or bid on contracts let by those customers.  In return, the other competitor will not sell to, buy from, or bid on contracts let by customers allocated to its coconspirator.  Territorial market allocation is also illegal.  Its effects are comparable to customer allocation, but geographic areas are divided up instead of customers. … The conspirators thereby insulate themselves from outside competition and are collectively able to raise prices to all customers.”

Market contact. “Market contacts” refer to the Competition Bureau contacting market participants in relation to Competition Act related investigations or inquiries.  Generally speaking, the Bureau has the power to gather information under the Competition Act in three ways: (i) voluntarily from individuals or companies, (ii) compulsory requests pursuant to court orders under section 11 of the Act (“section 11 orders”) or (iii) pursuant to search warrants obtained under section 15 of the Act.  In the context of mergers, for example, the Bureau routinely makes market contacts in its review of notifiable transactions, based on customer and supplier contact information provided by merging parties under section 16 of the Notifiable Transactions Regulations.  See e.g., Competition Bureau, Competition Bureau Fees and Service Standards Handbook for Mergers and Merger-Related Matters (2010): “It is standard practice in merger reviews for the Bureau to communicate with market participants, including customers, suppliers, and competitors of the merging parties. Even for a non-complex merger with no or minimal overlap, unless it is very clear that there is no need to go to the market, the Bureau will make at least some market contacts. The Bureau must be in a position to obtain information from market participants to properly assess a proposed transaction, including verification of the information supplied by the parties. … In all events, on receipt of a notification that complies with statutory requirements and thereby triggers the statutory waiting period, the Bureau will continue its practice of making market contacts if and when the Bureau considers it necessary. Notice will not be given to parties that the Bureau intends to commence market contacts, as confirmation from the Bureau that a notification complies with statutory requirements, and that the statutory waiting period has commenced, constitutes notice to the merging parties that market contacts will be made, if and as necessary. Parties that intend to submit a notification, but would like to have market contacts deferred, may consider submitting a draft notification that does not meet the statutory requirements. Subject to the Commissioner’s obligations under the Act, the Bureau will normally agree to defer making market contacts as long as there would be sufficient time before closing to make necessary contacts and parties have not triggered a statutory waiting period with the submission of a complete notification. In this situation, parties must appreciate that the statutory waiting period and the applicable service standard will not commence until the statutory requirements and the requirements in this Handbook, respectively, are satisfied. Where the Bureau decides not to defer making market contacts, it will first notify the parties.”

Market definition. [Mergers]  U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010): “Market definition focuses solely on demand substitution factors, i.e., on customers’ ability and willingness to substitute away from one product to another in response to a price increase or a corresponding non-price change such as a reduction in product quality or service.  The responsive actions of suppliers are also important in competitive analysis.”  International Competition Network, ICN Recommended Practices for Merger Analysis: “The purpose of market definition in merger analysis is to identify an appropriate frame of reference for assessing whether a merger may create or enhance market power. Market definition is not an end in itself, but is rather an exercise designed to inform the analysis of competitive effects of a merger by identifying which goods or services … in which geographic locations significantly constrain the competitive behavior of the merging firms. Where available, rigorous empirical proof of effects on competition may not only directly inform the analysis of competitive effects, but may also be useful in determining the relevant market. … The term ‘market’ in merger analysis has a distinct, precise meaning that may differ from the use of the term ‘markets’ in other contexts. An economically meaningful market is one that could be subject to an exercise of market power that likely would result in significant harm to competition, rather than anticompetitive effects that are insignificant or transient in nature. While reference to ‘markets’ in business documents and other contexts may provide important insights that may be highly relevant to market definition, businesses and customers often do not use the term “market” in the same sense used in merger analysis. Therefore, agencies should be careful to distinguish between the technical term ‘market’ used in merger analysis and how the term ‘market’ may be used in other contexts.”  See also definitions of “geographic market definition” and “product market definition”.

Market division. 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 “market division”, where suppliers agree not to compete in designated geographic areas or for specified customers.

Marketing. Canadian Marketing Association, Code of Ethics and Standards of Practice: “Marketing is a set of business practices designed to plan for and present an organization’s products or services in ways that build effective customer relationships.”

Market power. [Mergers]: Competition Bureau, Merger Enforcement Guidelines: “Market power of sellers is the ability of a firm or group of firms to profitably maintain prices above the competitive level for a significant period of time. The jurisprudence establishes that it is the ability to raise prices, not whether a price increase is likely, that is determinative.”  [Abuse of dominance]: Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1 (Comp. Trib.): “[Market power] is generally accepted to mean an ability to set prices above competitive levels for a considerable period.”  Competition Bureau, Intellectual Property Enforcement Guidelines:  “Market power refers to the ability of firms to profitably cause one or more facets of competition, such as price, output, quality, variety, service, advertising or innovation, to significantly deviate from competitive levels for a sustainable period of time.”  Fundamentals of Canadian Competition Law, J. Musgrove ed., 2^nd edition (Carswell, 2010) at 28: “[market power] refers to the ability of a firm (or a group of firms, acting jointly) to raise price above the competitive level for a sustained period of time – that is, without losing so many sales so rapidly that price increase in unprofitable and must be rescinded.  If close substitutes are available or other firms could easily enter, a firm will not profit from a price increase and will not have market power.” Nadeau Poultry Farm Ltd. v. Groupe Westco Inc., 2009 Comp. Trib. 6, citing Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1: “market power is generally accepted to mean an ability to set prices above competitive levels for a considerable period.”  ICN, Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “There is broad consensus among ICN members that market power is the ‘ability to price profitably above the competitive level’.  The ability to maintain supra-competitive prices is used as shorthand for the various ways in which market power can be exercised, including non-price effects such as reductions in product quality or innovation.”

Market share. Market share is the most common and important “indirect indicator” of a firm’s market position used to assess market power in competition law, including assessing whether a firm is dominant (in an abuse of dominance analysis under section 79 of the Competition Act) or to assess whether merging parties will likely be able to exercise market power post-completion (in a merger analysis under section 92 of the Act).  Market shares can be calculated in different ways using different types of data (i.e., there is no single type of data that is used to calculate market shares and many industries have industry conventions for calculating market shares in that particular industry).  ICN, Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “Production and sales volumes, whether measured by physical or monetary unit, are the most widely used data to calculate market shares.  Calculating market shares using sales volume by monetary unit is often preferred when products are heterogeneous because the monetary unit serves as a common denominator.  Market shares using sales volume by monetary unit also account for qualitative differences among heterogeneous products.  By contrast, calculating market shares by sales of physical units is often preferred when output is measured in a standard unit such as tonnage.  Particular industries also sometimes adopt specialized output measures that can serve as the basis for calculating market shares.”  Competition Bureau, Merger Enforcement Guidelines (2004): “Market shares can be measured in terms of dollar sales, unit sales, capacity or, in certain natural resource industries, reserves.  When calculating market shares, the Bureau uses the best indicators of sellers’ future competitive significance.  In cases where products are undifferentiated or homogeneous (e.g., for example, having no unique physical characteristics or perceived attributes), and where firms are all operating at full capacity, market shares based on dollar sales, unit sales and capacity should yield similar results.”  See also Competition Bureau,Enforcement Guidelines on the Abuse of Dominance Provisions (2001); Draft Updated Enforcement Guidelines on the Abuse of Dominance Provisions – Sections 78 and 79 of the Competition Act (2009).

Mass marketing fraud. Competition Bureau, Ensuring Truth in Advertising: “Mass Marketing Fraud is defined as fraud committed via mass communication media using the telephone, mail, and the Internet. Provisions under the criminal regime of the Competition Act prohibit materially false or misleading representations made knowingly or recklessly, deceptive telemarketing and deceptive prize notices.”

“Material”. To violate the criminal or civil misleading advertising provisions under the Competition Act (sections 52 and 74.01) a representation must be made to the public that is “false or misleading in a material respect”.  In this regard, “materiality” does not depend on the value of a transaction, but rather has been held by Canadian courts to mean that a representation or claim could lead an average consumer to purchase a product (or otherwise alter their conduct).  For example, see Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet (2009): “To contravene certain provisions of the Act, a representation must be “false or misleading in a material respect”. This phrase has been interpreted to mean that the representation could lead a person to a course of conduct that, on the basis of the representation, he or she believes to be advantageous. It is important to note that omitting relevant information could also be viewed as material.”  See also R. v. Kenitex Can. Ltd. et al. (1980), 51 C.P.R. (2d) 103:  “[A] representation will be false or misleading in a material respect if, in the context in which it is made, it readily conveys an impression to the ordinary citizen which is, in fact, false or misleading and if that ordinary citizen would likely be influenced by that impression in deciding whether or not he would purchase the product being offered”.

Maverick. [Mergers]: Competition Bureau, Merger Enforcement Guidelines (2011): “A maverick is a firm that plays a disruptive role and provides a stimulus to competition in the market.  An acquisition of a maverick may remove this constraint on coordination and, as such, increase the likelihood that coordinated behaviour will be effective. … Alternatively, a merger may not remove a maverick but may instead inhibit a maverick’s ability to expand or enter, or otherwise marginalize its competitive significance, thereby increasing the likelihood of effective coordination.” Competition Bureau, Merger Enforcement Guidelines (2004), fn 75: “A maverick is a firm that has a disproportionate incentive to deviate from coordinated behaviour.  For instance, such a firm may realize greater gains by deviating or may be less susceptible to punishment mechanisms if its cost structure is lower than its rivals.”  Competition Bureau, Merger Enforcement Guidelines, p. 25: “Pre-merger, effective coordination may be constrained by the activities of a particularly vigorous and effective competitor (a ‘maverick’).  An acquisition of a maverick may remove this constraint on coordination by reducing incentives to behave in an aggressive manner.  Such an acquisition increases the likelihood that coordinated behaviour will be effective.”

Merger. The term “merger” is a term of art under the federal Competition Act and is broadly defined.  Competition Act, s. 91:  “The acquisition or establishment, direct or indirect, by one or more persons, whether by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of control over or significant interest in the whole or a part of a business of a competitor, supplier, customer or other person.”  Asian Development Bank (ADB), Competition Law Toolkit, Overview of Competition Law Practices:  “Many systems of competition law enable a competition authority to investigate mergers between independent firms that could be harmful to the competitive process. Clearly, if one competitor were to acquire its main competitor, the possibility exists that consumers would be deprived of choice and may have to pay higher prices. In many systems of competition law, certain transactions cannot be completed without the approval of the relevant competition authority.”

Misleading advertising. Competition Bureau, Ensuring Truth in Advertising, Misleading Advertising and Labelling: “The misleading advertising and labelling provisions enforced by the Competition Bureau prohibit making any deceptive representations for the purpose of promoting a product or a business interest, and encourage the provision of sufficient information to allow consumers to make informed choices.  The false or misleading representations and deceptive marketing practices provisions of the Competition Act contain a general prohibition against materially false or misleading representations. They also prohibit making performance representations which are not based on adequate and proper tests, misleading warranties and guarantees, false or misleading ordinary selling price representations, untrue, misleading or unauthorized use of tests and testimonials, bait and switch selling, double ticketing and the sale of a product above its advertised price. Further, the promotional contest provisions prohibit contests that do not disclose required information.  The Consumer Packaging and Labelling Act, Textile Labelling Act and Precious Metals Marking Act all contain prohibitions regarding false or misleading representations. They also require certain labelling or marking information aimed at assisting consumers in making informed purchasing decisions.”  See also Competition Act, sections 52 and 74.01.

Monopolization. The U.S. equivalent of abuse of dominance in Canada under section 79 of the Competition Act (see definition of abuse of dominance).  Section 2 of the Sherman Act (15 U.S.C. § 2 (2000) provides: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony …”  The U.S. Supreme Court in United States v. Grinnell Corp., 384 U.S. 563 (1966) set out the elements of the offence as follows: “The offense of monopoly under § 2 of theSherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product business acumen, or historic accident.”  As in Canada under section 79 of the Competition Act, mere possession of a large market share or monopoly power is not an offence in the U.S. without more.  For example, as put by Learned Hand in the Alcoa case: “[t]he successful competitor, having been urged to compete, must not be turned on when he wins” (United States v. Aluminum Corp. of America (Alcoa), 148 F.2d 416).

Monopoly.  OECD, Competition Assessment Toolkit (2011): “A monopoly exists when a good or service can reasonably be purchased only from one supplier.”

Monopsony power. [Mergers]: Competition Bureau, Merger Enforcement Guidelines: “Market power of buyers is the ability of a single firm (monopsony power) or a group of firms (oligopsony power) to profitably depress prices paid to sellers (by reducing the purchase of inputs, for example) to a level that is below the competitive price for a significant period of time.”  Competition Bureau, Competitor Collaboration Guidelines (2009): “where the buyer holds market power in the relevant purchasing market such that it has the ability to decrease the price of a relevant product below competitive levels with a corresponding reduction in the overall quantity of the input produced or supplied in a relevant market, or a corresponding diminishment in any other dimension of competition.”  See definition of oligopsony power.

Multi-level marketing plan. Competition Act, subsection 55(1): “… a plan for the supply of a product whereby a participant in the plan receives compensation for the supply of the product to another participant in the plan who, in turn, receives compensation for the supply of the same or another product to other participants in the plan.”  See also Competition Bureau, Truth in Advertising, Multi-level Marketing: “Multi-level marketing is a plan for the distribution of products whereby participants earn money by supplying products to other participants in the same plan. They, in turn, make money by supplying the same or other products to other participants.  Operators of, and participants in, legitimate multi-level marketing plans should disclose:
the different levels of earnings or compensation received by participants in the plan; the amount of money earned by a typical participant; and the time and effort required to reach specific levels of income.”  The Competition Act makes it a criminal offence for operators and participants of multi-level marketing plans to make compensation claims to prospective participants unless certain disclosure requirements are met – i.e., “fair, reasonable and timely” disclosure within the knowledge of the person making the claim is made to prospective participants of the: (i) actual or (ii) likely compensation to be received in the plan (based on a number of prescribed factors).  The penalties for contravening the multi-level marketing provisions of the Act include unlimited fines (i.e., in the discretion of the court), imprisonment for up to five years, or both.  Multi-level marketing plans that constitute pyramid selling schemes under the Act are illegal.  See definition of “pyramid selling scheme” and subsection 55.1(1) of the Act.  In other words, while multi-level marketing plans are legal provided certain prescribed disclosure requirements are met, pyramid selling as defined in the Act constitutes a criminal offence.  For more information see: Competition Bureau, Enforcement Guidelines, Multi-level Marketing Plans and Schemes of Pyramid Selling (2009); Competition Act, subsection 55(1).