Canadian COMPETITION & ANTITRUST LAW

Patent holdup.  T.F. Cotter, University of Minnesota Law School, “Patent Holdup, Patent Remedies, and Antirust Responses: The role of Patent Remedies and Antitrust Law in Dealing with ‘Patent Holdups’” (2009):  “Most of the literature on patent holdup takes as its starting point an assertedly commonplace fact pattern in which a downstream user (or users) makes, uses, or sells an end product that incorporates multiple components, one or more of which components is covered by (or may be covered by) a patent owned by another entity.  In such a case, the risk that a patentee could obtain an injunction against the manufacture, use, or sale of the end product, absent a license on the part of the downstream user, provides the patentee with leverage to extract a greater share of the value derived from the manufacture, use, or sale of the end product than would be attributable to the economic value of the patent alone (measured in terms of the actual profit or cost saving attributable to the patent alone).  The intuition is that sometimes patentees use the threat of injunctive relief to extract larger royalties than would be attributable to the patented invention alone, and that in doing so patentees (1) obtain rents in “excess” of what they “deserve,” and (2) threaten to “impede” or “discourage” innovation on the part of downstream users. There is, in other words, potentially both a static (short run) and a dynamic (long run) efficiency loss.  On this view “patent holdup” is simply one of many “holdup” or “holdout” phenomena identified by law and economics scholars over the years.  For example, if a developer is seeking permission from multiple landowners to develop a tract of land for a shopping center, each landowner has an incentive to “hold out”—to be the last to agree to sell his or her land— but if every landowner attempts this strategy, the development may never get underway. Eminent domain may be one solution to this problem in the real property context.  In the patent context, efforts to engage in holdup may provide patentees with rewards disproportionate to the value of their inventive contribution, and may discourage users from making asset-specific investments in new technologies or standards, out of fear that those technologies or standards will be subject to holdup ex post.”

Performance claim. Competition Bureau, Ensuring Truth in Advertising, Misleading Advertising and Labelling: “Businesses should not make any performance claims unless they can back them up. The Competition Act prohibits any representation in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of any given product, not based on adequate and proper testing. The onus is on advertisers to prove that the representation is based on an adequate and proper test. The test must have been concluded before the representation is made and the data must be readily available upon request by the Bureau.”  See also the definition of “misleading advertising”.

Per se. A standard of review to be contrasted to the “rule of reason standard” (which requires an analysis of a challenged restraint’s effect on competition in a relevant market).  In the United States, bare price-fixing, bid-rigging and market allocation agreements have been held to be per se illegal and, in some cases, boycott agreements (collective refusals to deal).  In Canada, under section 45 of the Competition Act, price-fixing, market allocation and supply restriction agreements between actual or potential competitors are per se illegal.  Under section 47 of the Competition Act, bid-rigging agreements are also per se illegal.  Competition Bureau, Competitor Collaboration Guidelines, fn 8: “… behaviour [deemed] to be illegal without requiring proof of anti-competitive effects.”  Competition Policy Review Panel, Final Report, Compete to Win (2008) “the legal term per se, in the context of conspiracy, means that the act of a defined anti-competitive agreement is presumed to be illegal without the necessity of proving its effect on a market.”  Antitrust Law Developments (Fifth), Volume I, p. 47:  “Some categories of restraints, such as horizontal price-fixing and market allocation agreements among competitors, have been conclusively presumed to restrain competition unreasonably without a study of the market in which they occurred or an analysis of their actual effect on competition or the purpose for their use; such agreements have been held per se illegal.”  When a “practice facially appears to be one that would always or almost always tend to restrict competition and decrease output” [rather than] “one designed to ‘increase economic efficiency and render markets more, rather than less, competitive’” (Broadcast Music, Inc. V. CBS, 441 U.S. 1, 19-20 (1979)).  Under the per se standard of review, a challenged restraint may be presumed to be illegal “without elaborate inquiry as to the precise harm [the restraint] caused or the business excuse for [the restraint’s] use” (Northern Pacific Railway v. United States, 356 U.S. 1, 5 (1958)).  U.S. Federal Trade Commission, FTC Guide to the Antitrust Laws:  “For the most blatant agreements not to compete, such as price fixing, bid rigging, and market division, the rules are clear.  The courts decided many years ago that these practices are so inherently harmful to consumers that they are always illegal, so called per se violations.  For other dealings among competitors, the rules are not as clear-cut and often require fact-intensive inquiry into the purpose and effect of the collaboration, including any business justifications.”  See also the definition of “rule of reason”.

Phishing.  Industry Canada, The Digital Economy in Canada: “Phishing is a technique which counterfeits existing legitimate web sites and businesses, in order to obtain credit card numbers, bank account information, social insurance numbers and passwords, directly leading to identity theft and fraud.”  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.”

Plus factors. Factors that may support the inference of a conspiracy in the absence of an express agreement.  Antitrust Law Developments (Fifth), Volume I, p. 11:  “While some decisions have suggested that parallelism is a factor to be weighed, and generally to be weighed heavily, other facts and circumstances, often referred to as ‘plus factors’, typically must be combined with evidence of conscious parallelism to support an inference of concerted action.  The courts emphasize that these plus factors should not be viewed in a vacuum but should be considered as a whole against the entire background in which the alleged behaviour takes place.”  Some common examples of “plus factors”, sometimes also referred to as “facilitating factors”, include evidence of meetings, simultaneous price increases or other simultaneous actions, statements inferring the existence of an agreement, enforcement or monitoring and conduct that can only be explained by the existence of an agreement.  See the definition of “facilitating factors”.

Portfolio effects. OECD, Policy Roundtable, Portfolio Effects in Conglomerate Mergers (2001): “’Portfolio effects’ … in the context of conglomerate mergers usually refer to the pro- and anti-competitive effects that may arise in mergers combining branded products: in which the parties enjoy market power, but not necessarily dominance; and which are sold in neighbouring or related markets.”

Predatory pricing.  Competition Bureau, Predatory Pricing Enforcement Guidelines:  Where a “firm deliberately [sets its] prices to incur losses for a sufficiently long period of time to eliminate, discipline, or deter entry by a competitor, in the expectation that the firm will subsequently be able to recoup its losses by charging prices above the level that would have prevailed in the absence of the impugned conduct, with the effect that competition would be substantially lessened or prevented.”  Stikeman Elliott, 2012 Competition Act & Commentary: “A dominant firm is rarely able to both eliminate its rivals through use of low prices that force them to unprofitably follow its price lead, and then to raise its prices to monopoly or near monopoly levels in order to recoup the losses incurred during the period of low prices.  Unless the second part of the predation strategy can be successfully carried out, no harm in the form of higher prices will befall customers.  Significant market power thus was recognized as a prerequisite for customer harm from a predation strategy, as noted in the Predatory Pricing Enforcement Guidelines issued by the Bureau in 2008 …”  See also: Competition Bureau, Predatory Pricing Enforcement Guidelines; Competition Bureau, draft Abuse of Dominance Guidelines; Competition Bureau, The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) as Applied to the Canadian Grocery Sector.

Price-fixing agreement. Competition Bureau, Competitor Collaboration Guidelines: “Paragraph 45(1)(a) of the Act prohibits agreements between competitors in respect of a product “to fix, maintain, increase or control the price for the supply of the product”. Further, subsection 45(8) defines the term “price” to include “any discount, rebate, allowance, price concession or other advantage in relation to the supply of a product”. Taken together, these provisions prohibit agreements between competitors to fix or control the price, or any component of the price, to be charged by such competitors. In the Bureau’s view, this includes agreements to fix prices at a predetermined level, to eliminate or reduce discounts, to increase prices, to reduce the rate or amount by which prices are lowered, to eliminate or reduce promotional allowances and to eliminate or reduce price concessions or other price–related advantages provided to customers. For paragraph 45(1)(a) to apply, the agreement need not establish an actual price for the relevant product; rather, this section also prohibits agreements between competitors on methods of establishing prices or other indirect forms of agreements to fix or increase the price paid by customers. Such price–fixing agreements could include agreements between competitors to use a common price list in their negotiations with customers, agreements to apply specific price differentials between grades of products, agreements to apply a pricing formula or scale and agreements not to sell products below cost. In addition, the Bureau interprets paragraph 45(1)(a) as applying to agreements between competitors on a component of a price, such as a surcharge or credit terms.”  U.S. Department of Justice, Antitrust Division, Price Fixing, Bid Rigging, and Market Allocation Schemes: “Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold.  It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry join the conspiracy.  Price fixing can take many forms, and any agreement that restricts price competition violates the law.  Other examples of price-fixing agreements include those to: establish or adhere to price discounts, hold prices firm, eliminate or reduce discounts, adopt a standard formula for computing prices, maintain certain price differentials between different types, sizes, or quantities of products, adhere to a minimum fee or price schedule, fix credit terms or not advertise prices.”

Private access. Under the Competition Act, private parties may commence private damages actions (i.e., civil actions) in provincial courts for breach of the criminal provisions of the Act (e.g., for damages suffered as a result of a criminal conspiracy, such as a price-fixing agreement or refusal to supply/deal) and also make “private access” applications to the federal Competition Tribunal under sections 75 (refusal to deal), 76 (price maintenance) and 77 (exclusive dealing, tied selling).  The private access rights for private parties were added to the Competition Act in June 2002 with the passage of Bill C-23, allowing private parties to apply directly to the Competition Tribunal, with leave from the Tribunal, if they are directly and substantially affected by conduct under sections 75, 76 or 77.  Unlike private actions (i.e., private civil actions), however, damages are not available for private access proceedings, but rather only so-called “remedial orders” from the Tribunal – for example, orders for conduct to stop, ordering suppliers to accept distributors as customers on usual trade terms, etc..  See Competition Bureau, Information Bulletin on Private Access to the Competition Tribunal; Competition Act, section 103.1.  See also definition of private action.

Private action. Private parties may commence private damages actions (i.e., civil actions) under the Competition Act in provincial courts for breach of the criminal provisions of the Act (e.g., for damages suffered as a result of a criminal conspiracy, such as a price-fixing agreement or concerted refusal to deal / boycott) or breach of a Competition Tribunal or court order made under the Act.  Unlike in the United States, however, damages in civil actions brought under the Competition Act are limited to actual damages suffered as a result of the criminal conduct (or breach of a Tribunal/court order); treble damages are not available.  Civil actions cannot be brought for violation of the civil (i.e., “reviewable matters”) provisions of the Act (e.g., the price maintenance, abuse of dominance or tied selling / exclusive dealing / market restriction provisions).  Class actions are also possible for contravention of the criminal provisions of the Act and are becoming increasingly common in Canada, particularly under the conspiracy provisions.  See Competition Act, section 36.  See also definition of private access.

Product. Competition Act, section 2: “’Product’ includes an article and a service.”  The Competition Act applies to most businesses and industries in Canada and to both products and services.

Product market definition. International Competition Network (ICN), Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011) [product market in the context of an abuse of dominance analysis]: “Defining the relevant [product] market entails identifying the set of products that are substitutable from the point of view of consumers.  If a sufficiently large number of consumers view a product’s substitutes as presenting a reasonable alternative, significant market power cannot be exercised … Competition authorities can use qualitative methods to assess substitutability (focusing, for example, on product characteristics and use) and quantitative methods which rely on empirical methods to measure substitutability.  The most commonly used method of assessing demand-side substitution is the hypothetical monopolist test.  Starting with the alleged dominant firm’s product, this test asks whether, in response to a small but significant and non-transitory increase in price for this product, a sufficient number of customers would switch to other products such that the dominant firm would not impose the price increase.  If so, the product market must be expanded to include one or more additional substitutes.  This iterative process continues until a group of products is identified for which a hypothetical monopolist selling those products could profitably raise the price significantly. … Agencies can and should use a variety of sources in the process of considering demand-side substitution.  These sources include: evidence on characteristics and usage of the products (e.g., consumer surveys, market research, and trade publications); internal documents (e.g., market studies or strategy documents) of the firm or its competitors; patterns in price changes of the products, in particular price changes and switching patterns before the alleged anticompetitive conduct started; the ability to price discriminate, which can suggest a relevant product market defined in part by users of the product.  If the seller of the product is able to price differently among customer segments, it may be possible to exercise substantial market power with respect to one or more specific customer segments.”  U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010) [product market definition in the context of mergers]: “When a product sold by one merging firm (Product A) competes against one or more products sold by the other merging firm, the Agencies define a relevant product market around Product A to evaluate the importance of that competition.  Such a relevant product market consists of a group of substitute products including Product A.  Multiple relevant products may thus be identified.”  See also the definitions of “market definition” and “geographic market definition”.

Publisher’s defence.  Competition Bureau, Application of the Competition Act to Representations on the Internet: “For reviewable conduct under sections 74.01 to 74.06 of the Act [the civil misleading advertising and promotional contest provisions of the Competition Act], a defence is found in subsection 74.07(1) for a person who merely ‘prints or publishes or otherwise disseminates a representation, including an advertisement, on behalf of another person in Canada’, so long as certain conditions are met. This exception is sometimes referred to as the ‘publisher’s defence’ but, provided its conditions are met, it applies to any person who merely disseminates or distributes a false or misleading representation. In other words, it is available to any person who does not have decision-making authority or control over the content. The required conditions which must be met under this exception are: the disseminating person accepted the representation for dissemination in good faith and in the ordinary course of its business; and the person on whose behalf the representation is being made is in Canada, and the disseminating party recorded its name and address.  The Bureau will focus its enforcement efforts primarily on businesses which are responsible for content or have a degree of control over that content, rather than on businesses operating as a conduit, that is, a disseminator or distributor of the content.”

Pyramid selling. Competition Bureau, Truth in Advertising, Pyramid Selling: “A scheme of pyramid selling is illegal under the Competition Act. It is a multi-level marketing plan that includes either compensation for recruitment, required purchases as a condition of participation, inventory loading, or the lack of a buy-back guarantee on reasonable commercial terms.”  “Sections 55 and 55.1 of the Competition Act are criminal provisions addressing multi-level marketing and pyramid selling. Section 55 prohibits operators or participants in a multi-level marketing plan from making representations relating to compensation without fair, reasonable and timely disclosure of the amount of compensation received or likely to be received by typical participants in the plan. Section 55.1 of the Act provides that a multi-level marketing plan that includes either compensation for recruitment, required purchases as a condition of participation, inventory loading, or the lack of a buy-back guarantee on reasonable commercial terms, constitutes a prohibited “scheme of pyramid selling.  Any person who contravenes section 55 or 55.1 is guilty of an offence and liable to a fine of up to $200,000 and/or imprisonment up to one year on summary conviction, or to fines in the discretion of the court and/or imprisonment up to five years upon indictment.”  See definition of multi-level marketing plan; Competition Bureau, Enforcement Guidelines, Multi-level Marketing Plans and Schemes of Pyramid Selling – Sections 55 and 55.1 of the Competition Act; Competition Act, sections 55, 55.1.