Pass on defence.
Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57: “The passing on defence was typically advanced by an overcharger at the top of a distribution chain [for example in price-fixing cartel cases]. It was invoked under the proposition that if the direct purchaser who sustained the original overcharge then passed that overcharge on to its own customers, the gain conferred on the overcharger was not at the expense of the direct purchaser because the direct purchaser suffered no loss. As such, the fact that the overcharge was ‘passed on’ was argued to be a defence to actions brought by the direct purchasers against the party responsible for the overcharge.”
Laura F. Cooper, Charles M. Wright & Vaso Maric, “Section 36 of the Competition Act: Still a Work in Progress?”: “Pass on is frequently relied on by defendants in price-fixing cases as a means of preventing certification. The underlying rationale for this defence is that those who purchase goods at artificially inflated prices will ‘pass on’ any such price increases to downstream purchasers by charging higher prices. Thus, defendants may claim that direct purchasers (i.e., plaintiffs who have purchased the goods at issue directly from the defendants) have not suffered any loss at all because they either passed on any price increases to the next purchaser in the distribution chain, or that any recovery is necessarily limited to the amounts that each direct purchaser was unable to pass on, thereby making loss an individual issue. Conversely, as against indirect purchasers (i.e., purchasers further down the distribution chain, such as distributors, retailers and consumers), defendants may assert that such individuals suffered no losses either because no such losses were passed down to them or they passed on any such losses further down the distribution chain or to the ultimate consumer, or that any losses suffered require individual assessment. Where a class is comprised of both direct and indirect purchasers, defendants will often assert that a conflict exists between the different levels of purchasers.”
Chadha v. Bayer Inc. (2001), 54 O.R. 520 (Div. Ct.): “The respondents face insurmountable problems of proof with respect to the ‘pass on’ issue given the large number of parties in the chain of distribution and the multitude of variables affecting the end purchase price of a building. See the Chain of Distribution – Iron Oxide Pigment illustration included as an Appendix to these reasons. These problems of proof are compounded by the fact that the product in question, iron oxide, is used merely as a small component in another product or series of products and the alleged overcharge is only a trivial part of the purchase price of residential or commercial buildings, which are highly individualized end products. Assuming that the respondents can establish that the appellants engaged in a conspiracy that increased the price of iron oxide, they will still have to establish on balance that this price increase was ‘passed on’ to them. This they are unable to do on a class-wide basis. For a discussion of the problems of proof involved in actions such as the one at bar, see C.S. Coutroulis and D.M. Allen, ‘The Pass-On Problem in Indirect Purchaser Litigation’ (Spring 1999) The Antitrust Bulletin 179.”
Hanover Shoe Inc. v. United Shoe Machinery, 392 U.S. 481 (1968), per White J.: “We are not impressed with the argument that sound laws of economics require recognizing this defense. A wide range of factors influence a company’s pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economist’s hypothetical model, is what effect a change in a company’s price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued. Since establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable.”
Ruben Schellingherhout, “Standard-setting from a competition law perspective”: “A patent ambush is a clear example of a breakdown of the standardization system. It means that a company first hides the fact that it holds essential intellectual property rights over the standard being developed. It then starts asserting these intellectual property rights once the standard has been agreed and when other companies are locked into using it. A patent ambush frustrates the aims of standard-setting organizations and has a negative impact on both consumer welfare and competitiveness. A patent ambush prevents competition on its merits. During the standard-setting process multiple technologies may compete for incorporation into the standard, but – as a result of the ambush – crucial information on the cost of one of the technologies is intentionally hidden. Because disclosure only occurs once industry is locked-in, the company can charge a monopoly price which it would otherwise have been unable to charge”.
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.”
Patent misuse defence.
A patent infringement defence.
Zenith Radio Corp. v. Hazeltine Research, Inc. (1969), 395 U.S. 100 at 136: “… extend[ing] the monopoly of [a] patent to derive a benefit not attributable to the use of the patent’s teachings.”
G. Addy & E. Douglas, “Mind the Gap: Economic Costs and Innovation Perils in the Space Between Patent and Competition Law”, citing Scott Sher, Jonathan Lutinski, and Bradley Tennis, “The Role of Antitrust in Evaluating the Competitive Impact of Patent Pooling Arrangements”: “Patent pools are collective licensing arrangements where two or more owners of different patents agree to cross-license their patents to each other or third party sublicense the pooled patents to others”.
G. Addy & E. Douglas, “Mind the Gap: Economic Costs and Innovation Perils in the Space Between Patent and Competition Law”: “Densely overlapping patent rights held by multiple patent owners.”
Federal Trade Commission, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition (FTC, March, 2011): “Patent trolls are firms whose primary business activity is the acquisition of patents, from inventors or on the secondary patent market, for the purpose of enforcement against parties that are already using the patented technology.”
G. Addy & E. Douglas, “Mind the Gap: Economic Costs and Innovation Perils in the Space Between Patent and Competition Law”: “The term ‘patent troll’ comes from the tendency of patent trolls to unexpectedly appear and demand payment, like the mythical troll who hides under a bridge that he did not build, popping up to extract payment from passers-by. James Bessen, Jennifer Laurissa Ford & Michael J. Meurer, The Private and Social Cost of Patent Trolls (September 19, 2011), Boston University School of Law Working Paper No. 11-45. … The coining has been attributed to Peter Detkin during his time as VP and Assistant General Counsel of Intel, Tom Ewing & Robin Feldman, The Giants Among Us (2012), 2012 Stan. Tech. L. Rev. 1 at [Ewing & Feldman] 3, although Detkin gives credit to the troll dolls of his daughter, This American Life #441 When Patents Attack! (July 22, 2011).”
See Reverse Payment.
Ontario Superior Court of Justice, Canada (Competition Bureau) v. Chatr Wireless Inc., 2013 ONSC 5315 (CanLII): “The burden of proving adequate and proper testing lies upon the respondents by virtue of the express wording of s. 74.01(1)(b) of the Competition Act. The adequate and proper test must be made prior to the representation to the public. … The phrase ‘adequate and proper test’ is not defined in the Competition Act. Whether a particular test is ‘adequate and proper’ will depend on the nature of the representation made and the meaning or impression conveyed by that representation. Subjectivity in the testing should be eliminated as much as possible. The test must establish the effect claimed. The testing need not be as exacting as would be required to publish the test in a scholarly journal. The test should demonstrate that the result claimed is not a chance result …”
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.”
In the United States, courts have historically applied one of two tests to Section 1 of the Sherman Act, which makes some restraints of trade illegal: (i) a “per se” standard (under which some categories of agreements are illegal without any detailed consideration of their pro-competitive justifications or anti-competitive effects) and (iii) a “rule of reason standard” (under which a more detailed consideration of purposes and effects is made).
Categories of agreements that have been held to be “per se” illegal in the United States have included price-fixing, market allocation/division and bid-rigging agreements between competitors. Concerted refusals to deal (i.e., boycotts) have also, in some cases, been held to be per se illegal, although courts have sometimes reviewed such agreements under a strict per se standard, while in others applied the more generous rule of reason standard. U.S. courts have also, at times, applied variations of these two standards, such as “truncated rule of reason” or “quick look” reviews.
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.”
U.S. Department of Justice, Antitrust Division, An Antitrust Primer for Federal Law Enforcement Personnel (2005): “Price fixing, bid rigging, and market allocation are generally prosecuted criminally because they have been found to be unambiguously harmful, that is, per se illegal. Such agreements have been shown to defraud consumers and unquestionably raise prices or restrict output without creating any plausible offsetting benefit to consumers, unlike other business conduct that may be the subject of civil lawsuits by the federal government.”
Broadcast Music, Inc. V. CBS, 441 U.S. 1, 19-20 (1979): “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’”.
Northern Pacific Railway v. United States, 356 U.S. 1, 5 (1958): “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’”.
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.”
Personal Information Protection and Electronic Documents Act (PIPEDA): “ … information about an identifiable individual, but does not include the name, title or business address or telephone number of an employee of an organization.”
Office of the Privacy Commissioner of Canada: “Privacy Commissioners and courts have expanded and refined the meaning of personal information to include many things, from the commonplace (name, address and income tax returns) to the more unusual (voiceprints and tracking information collected by GPS).”
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.”
CRTC: “This is a type of fraud in which a scammer attempts to impersonate a reputable person or organization, such as a bank or another enterprise with which you may have done business. The swindler sends a phony e-mail that may ask you to confirm details about your account or to supply other personal information by clicking on a bogus link.”
Competition Bureau, The Little Black Book of Scams (2012): “Phishing scams are all about tricking you into handing over your personal and banking details to scammers. The emails you receive might look and sound legitimate but in reality genuine organizations like a bank or a government authority will never expect you to send your personal information by an email or online. Scammers can easily copy the logo or even the entire website of a genuine organization. So don’t just assume an email you receive is legitimate. If the email is asking you to visit a website to ‘update’, ‘validate’ or ‘confirm’ your account information, be sceptical.”
Government of Canada, Get Cyper Safe: “Fake e-mails, text messages and websites created to look like they’re from authentic companies. They’re sent by criminals to steal personal and financial information from you. This is also known as ‘spoofing’.”
RCMP, E-mail Fraud / Phishing: “Phishing is a general term for e-mails, text messages and websites fabricated and sent by criminals and designed to look like they come from well-known and trusted businesses, financial institutions and government agencies in an attempt to collect personal, financial and sensitive information. It’s also known as brand spoofing.”
Government of Canada, Canadian Anti-Fraud Centre, “Financial Crime Trend Bulletin: Spear Phishing” (2013): “Phishing is a term for e-mails, websites or even text messages that are created and disseminated by fraudsters to ‘trick’ a person into supplying their personal information (usually user name and password). The intent is that you will think the communication is from your bank / credit union, a business (like an upgrading request from your Google / MSN / Yahoo security) or a government institution (i.e., Canada revenue Agency) and you will trust the communication to the extent that you supply personal data. Where a phishing email is disseminated to a random audience composed of as many email addresses collected as possible, a spear phishing email has a more selective audience. This time the fraudster has been able to collect some type of information identifying certain groups of people as having a common link. Perhaps a company has been hacked or it could be a collection of information done through the internet (Blogs / chat groups / social networking sites). The result is a selection of email addresses associated to a known commodity. It could be a bank, a company or even an educational facility. Generally there is a link in the email leading you to a very authentic looking website where you are asked to confirm or supply personal information. Because you are at the onset familiar with the company or organization you are not alarmed and the website is very official looking so you are less likely to see a red flag that should be there.”
The Personal Information Protection and Electronic Documents Act (or “PIPEDA”) is Canada’s federal privacy legislation, which governs how organizations may collect, use or disclose personal information about individuals during commercial activities. PIPEDA also, among other things, gives individuals the right to review and ask for corrections to information an organization may have collected about them.
Competition Bureau, Leniency Program: Frequently Asked Questions: “A plea agreement between the Director of Public Prosecutions (DPP) and an Applicant establishes the agreed terms and conditions under which the Applicant is granted leniency in sentencing. The agreement sets out the Applicant’s obligations to provide full, frank, timely and truthful disclosure and cooperation throughout the Bureau’s investigation and any subsequent prosecutions. It also states who is covered by the agreement, how information provided by the leniency recipient will be treated and under what circumstances the agreement can be revoked. The PPSC’s policy on plea agreements is set out in Chapter 20 of the Federal Prosecution Service Deskbook.”
In Canada, anti-competitive agreements under the conspiracy provisions of the Competition Act may be proven by direct or circumstantial evidence. Sometimes this concept is also discussed under the terms “facilitating factors” or “plus factors”.
Competition Act, section 45(3): “In a prosecution under subsection (1), the court may infer the existence of a conspiracy, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties to it, but, for greater certainty, the conspiracy, agreement or arrangement must be proved beyond a reasonable doubt.”
Competition Bureau contribution, OECD Roundtable, Information Exchanges Between Competitors under Competition Law (2010): “Information exchanges in and of themselves are not per se illegal under section 45 of the [Competition Act]. However, proof that competitors have exchanged information can sometimes serve as evidence of an agreement to fix prices, allocate markets or restrict output. For example, the exchange of pricing information followed by parallel price increases could be sufficient to infer an agreement to fix prices, particularly if accompanied by other ‘plus factors’, such as evidence that representatives of the competitors were present at the same function or communicated prior to the price increases coming into effect. Other ‘plus factors’ include: a relatively small number of firms a relatively homogenous product; inelastic demand; evidence that prices were well above costs or moved in a way that seemed inconsistent with competition; actions that can only be explained by the existence of an agreement, such as secret meetings and enforcement activities; and the simultaneous adoption of facilitating practices that make coordination possible without the need for any direct communications, such as pre-announcing price increases, the advance circulation of price lists, open pricing policies, net pricing schemes, similar consignment sales programs, similar delivered pricing systems, most-favored-nation clauses, meet-or-release clauses, common product standards and public statements about the need to achieve pricing stability.”
OECD, Policy Roundtable, Prosecuting Cartels without Direct Evidence (2006): “Circumstantial evidence is employed in cartel cases in all countries. … There are two general types of circumstantial evidence: communication evidence and economic evidence. Of the two, communication evidence is considered to be the more important. Economic evidence is almost always ambiguous. It could be consistent with either agreement or independent action. Therefore it requires careful analysis.” “There are different types of circumstantial evidence. One is evidence that cartel operators met or otherwise communicated, but does not describe the substance of their communications. It might be called ‘communication’ evidence … It includes: records of telephone conversations between competitors (but not their substance), or of travel to a common destination or of participation in a meeting, for example during a trade conference. Other evidence that the parties communicated about the subject – e.g., minutes or notes of a meeting showing that prices, demand or capacity utilization were discussed; internal documents evidencing knowledge or understanding of a competitor’s pricing strategy, such as an awareness of a future price increase by a rival. A broader category of circumstantial evidence is often called ‘economic’ evidence. Economic evidence identifies primarily firm conduct that suggests that an agreement was reached, but also conduct of the industry as a whole, elements of market structure which suggest that secret price fixing was feasible, and certain practices that can be used to sustain a cartel agreement. Conduct evidence is the single most important type of economic evidence. … observation of certain, suspicious conduct frequently triggers an investigation of a possible cartel. Conduct evidence includes … parallel pricing … capacity reductions, adoption of standardized terms of sale and suspicious bidding patterns …”
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.”
William E. Kovacic, et al., “Plus Factors and Agreement in Antitrust Law” (2012): “Plus factors are economic actions and outcomes, above and beyond parallel conduct by oligopolistic firms, that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action.
William E. Kovacic, et al., “Plus Factors and Agreement in Antitrust Law” (2012): The line that distinguishes tacit agreements (which are subject to section 1 scrutiny) from mere tacit coordination stemming from oligopolistic interdependence (which eludes section 1 [of the Sherman Act’s] reach) is indistinct. The size of the safe harbor that Theatre Enterprises recognized depends on what conduct courts regard as the “extra ingredient of centralized orchestration of policy which will carry parallel action over the line into the forbidden zone of implied contract and combination. Courts enjoy broad discretion to establish the reach of section 1 [of the Sherman Act] by defining this “extra ingredient” broadly or narrowly. Legal scholars have recognized that certain industry structures, firm histories, and market environments are conducive to and/or facilitate collusion. However, courts have relied on operational criteria known as plus factors to determine whether a pattern of parallel conduct results from an agreement. The chief plus factors have included: (i) actions contrary to each defendant’s self-interest unless pursued as part of a collective plan; (ii) phenomena that can be explained rationally only as the result of concerted action; (iii) evidence that the defendants created the opportunity for regular communication; (iv) industry performance data, such as extraordinary profits, that suggest successful coordination; and (v) the absence of a plausible, legitimate business rationale for suspicious conduct (such as certain communications with rivals) or the presentation of contrived rationales for certain conduct.
In Re: Electronic Books Antitrust Litigation, 11 MD 2293 (DLC), citing Anderson News, L.L.C. v. Am. Media, Inc., No. 10-4591-cv, 2012 WL 1085948 at 17 (2d Cir. Apr. 3, 2012), Monsanto, 465 U.S. at 764: “Because unlawful conspiracies tend to form in secret, such proof will rarely consist of explicit agreements. Rather, conspiracies ‘nearly always must be proven through inferences that may fairly be drawn from the behavior of the alleged conspirators.’ Thus, to prove an antitrust conspiracy, ‘the antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the [defendant] and others had a conscious commitment to a common scheme designed to achieve an unlawful objective.’”
North York Branson Hospital v. Praxair Canada Inc.,  O.J. No. 5993 (S.C.J.): “In truth, the very nature of a claim of conspiracy is that the tort resists detailed particularization at early stages. The relevant evidence will likely be in the hands and minds of the alleged conspirators. Part of the character of a conspiracy is its secrecy and the withholding of information from alleged victims. The existence of an underlying agreement bringing the conspirators together, proof of which is a requirement borne by a plaintiff, often must be proven by indirect or circumstantial evidence. A conspiracy is more likely to be proven by evidence of overt acts and statements by the conspirators from which the prior agreement can be logically inferred. Such details would not usually be available to a plaintiff until discoveries.”
Competition Bureau, The Little Black Book of Scams (2012): “Ponzi schemes are fraudulent investment operations that work in a similar way to pyramid schemes. The Ponzi scheme usually entices new and well-to-do investors by offering higher returns than other investments in the form of short-term returns that are either abnormally high or unusually consistent. The schemer usually interacts with all the investors directly, often persuading most of the existing participants to reinvest their money, thereby minimizing the need to bring in new participants as a pyramid scheme will do.”
RCMP, Investment and Securities Fraud: “This type of scheme is named after Charles Ponzi who became notorious for using the technique in early 1920. A Ponzi scheme is an investment fraud that promises high financial returns or dividends that are not available through traditional investments. Unknown to the investors, returns are paid from their own money or money paid by subsequent investors rather than from profit. This provides an appearance of legitimacy. In a Ponzi scheme, there is no legitimate investment. The scheme generally falls apart when either the operator flees with all of the proceeds, a sufficient number of new investors cannot be found to allow the continued payment of the promised returns, or the scheme is discovered by authorities. Two recent Ponzi schemes include the Earl Jones case in Montreal and Bernard Madoff in the USA. Another form of a Ponzi scheme is a called a Pyramid or Multi-Level Marketing Scheme. In this scheme, participants earn money not by the sale of any product but by recruiting new participants to pay money to join the program.”
RCMP, Internet Security: “Pop-up ads are those small windows containing advertisements that literally pop up during your Internet sessions. In some cases, closing the window results in the repeated opening of one or more advertisement boxes. These boxes often are generated when you are surfing a commercial site, but they can also be launched by spyware. As a rule, these windows are perfectly harmless. However, most Web users find them annoying because they hamper their Web sessions. It is possible to reduce and even to eliminate these pop-up ads.”
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.”
“Practice of Anti-competitive Acts”.
The second branch of the test for abuse of dominance under the Competition Act (section 79) requires the Commissioner of Competition to show before the Competition Tribunal that a firm (or firms) has engaged in a practice of anti-competitive acts. The word “practice” has been held to mean more than an isolated act. Different anti-competitive acts, taken together, can constitute a practice. See e.g., Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001). See also Canada (Director of Investigation & Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1 (Comp. Trib.); Canada (Director of Investigation and Research) v. The D&B Companies of Canada Ltd. , 64 C.P.R. (3d) 216 (Comp. Trib.).
Competition Bureau, Enforcement Guidelines, The Abuse of Dominance Provisions: Sections 78 and 79 of the Competition Act (2012): “Predatory conduct involves a firm deliberately setting the price of a product(s) below an appropriate measure of cost to incur losses on the sale of product(s) in the relevant market(s) for a period of time sufficient to eliminate, discipline, or deter entry or expansion of a competitor, in the expectation that the firm will thereafter recoup its losses by charging higher prices than would have prevailed in the absence of the impugned conduct.”
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.”
Irish Competition Authority, Complying With Competition Law: A Guide for Businesses and Trade Associations: Selling a product or service below cost to drive competitors out of the market or create barriers to expansion for such competitors, or to create barriers to entry for potential new competitors.
Dr. Michael Noel, “The 2012 Abuse of Dominance Draft Guidelines: An Economic Review”, paper presented to the 2012 Competition Law Fall Conference, Gatineau (September, 2012): “The theory of predatory pricing is one that receives more legal attention than economic attention. In fact, most economists doubt the existence of predatory pricing strategies in practice except, if at all, in very rare cases. As the theory goes, a predator with deep pockets sets its prices below its own costs and suffers losses in the short run. It squeezes competitors’ margins until they eventually leave the marketplace. In the long run, assuming there are barriers to entry preventing previously existing competitors from re-entering the market, a strong assumption, the predator recoups its short run losses and now earns monopoly (or near-monopoly) profits to the detriment of consumers.”
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.
Predictive Dialing Device (PDD).
CRTC Unsolicited Telecommunications Rules: “Any software, system, or device that automatically initiates outgoing telecommunications from a pre-determined list of telecommunications numbers.”
Consumer Protection BC, “Top Ten Scams 2013 – Just in case a scam is around the corner”: “The “pretender scheme” is when scammers send you an invoice or bill requesting payment for goods or services. These invoices may state that you are past the due date for payment and threaten that non-payment will affect your credit rating. The invoices are fake and are for goods or services you haven’t ordered or received. For example, you might be sent an invoice for a domain name that is very similar to your current domain name or for a small amount of stationery. The scammer hopes that you don’t notice the difference and just pay the invoice.”
A mechanism to avoid political fundraising rules by using another person/company or “prête-nom” or “front-man” to make contributions to political parties when another person or company is not permitted (e.g., when another person or company has reached their contribution limit or where only individuals not companies are permitted to contribute).
“Prevent” merger cases.
In Canada, the relevant question in substantive merger reviews is whether a merger will prevent or lessen competition substantially. This test, which is set out in section 92 of the Competition Act, has two branches – i.e., a merger may be challenged by the Competition Bureau where it either prevents or lessens competition (or is likely to do so).
“Prevent” cases have been relatively uncommon in Canada, with the “prevention” branch of the substantive test under section 92 having been considered by the Competition Tribunal in Canada (Director of Investigation and Research) v. Southam Inc. (1992), 43 C.P.R. (3d) 161 (Comp. Trib.), The Commissioner of Competition v. Canadian Waste Services Holdings Inc., 2001 Comp. Trib. 3, and Commissioner of Competition v. Superior Propane 2000 Comp. Trib. 15, 7 C.P.R. (4th) 385 (Comp. Trib.).
In The Commissioner of Competition v. CCS Corporation et al., 2012 Comp. Trib. 14 (Comp. Trib.), the Tribunal applied a “but for” test to determine whether competition would likely be prevented substantially:
“In Commissioner of Competition v. Canada Pipe Company Ltd., 2006 FCA 233, the Federal Court of Appeal decided that a ‘but for’ analysis was the appropriate approach to take when considering whether, under paragraph 79(1)(c) of the Act, ‘…the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially.’ The specific question to be asked is stated, as follows, at paragraph 38 of the decision ‘…would the relevant markets – in the past, present or future – be substantially more competitive but for the impugned practice of anti-competitive acts?’
Language similar to that found in section 79 appears in section 92 of the Act. Section 92 says that an order may be made where ‘…the Tribunal finds that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen competition substantially.’ For this reason, the parties and the Tribunal have determined that the ‘but for’ approach is also appropriate for use in cases under section 92 of the Act. The parties recognize that the findings will be forward looking in nature and CCS has cautioned the Tribunal against unfounded speculation. With this background, we turn to the ‘but for’ analysis.
The discussion below will address the threshold issue of whether effective competition in the supply of Secure Landfill services in the Contestable Area identified by Dr. Kahwaty likely would have materialized in the absence of the Merger. Stated alternatively, would effective competition in the relevant market likely have emerged ‘but for’ the Merger? After addressing this issue, the Tribunal will turn to the section 93 factors that are relevant in this case, as well as the issue of countervailing power.”
Irish Competition Authority, Complying With Competition Law: A Guide for Businesses and Trade Associations: Applying different conditions to similar transactions, putting one business customer at a competitive disadvantage to another.
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.”
U.S. Department of Justice, Antitrust Division, An Antitrust Primer for Federal Law Enforcement Personnel (2005): “Price fixing is an agreement among competitors at any level of the economy (manufacturers, distributors, or retailers) to raise, fix, or otherwise maintain the price at which their products or services are sold. Price fixing can take many forms, such as an agreement among manufacturers of a particular product to establish a minimum price for that product. Price fixing can also be an agreement among competing buyers of a product to lower prices they will pay for that product. Price fixing is any agreement among competitors, which affects the ultimate price or terms of sale for a product or service. It is not necessary, however, that the conspirators agree to charge exactly the same price for a given item; for example, an agreement to raise their individual prices by a certain amount or maintain a certain profit margin also violates the law. Other examples of price fixing include agreements to: establish or adhere to uniform price discounts; eliminate discounts; adopt a standard formula for the computation of selling prices; notify others prior to reducing prices; fix credit terms; maintain predetermined price differentials between different quantities, types, or sizes of products; and maintain floor prices.”
A negative term sometimes used by consumers in the context of alleged monopoly (abuse of dominance) or cartel (conspiracy or collusion) conduct. In Canada, there is no known competition/antitrust law offence relating to “price gouging”. While charging supra-competitive prices can be evidence of dominance (in an abuse of dominance case under section 79 of the Competition Act) or of illegal coordination in a criminal conspiracy case (under section 45 of the Competition Act), charging high prices alone is not an offence and does not by itself violate the Competition Act.
Wikipedia: “Price gouging is a pejorative term referring to a situation in which a seller prices goods or commodities much higher than is considered reasonable or fair. This rapid increase in prices occurs after a demand or supply shock: examples include price increases after hurricanes or other natural disasters. In precise, legal usage, it is the name of a crime that applies in some of the Unites States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market, or to windfall profits. In the Soviet Union, it was simply included under the single definition of speculation. The term is similar to profiteering but can be distinguished by being short-term and localized, and by a restriction to essentials such as food, clothing, shelter, medicine and equipment needed to preserve life, limb and property. In jurisdictions where there is no such crime, the term may still be used to pressure firms to refrain from such behavior.”
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.”
Wakil, O., ed., Annotated Competition Act: “Paragraph [78(a) of the Competition Act] refers to a classical price squeeze whereby vertically integrated firms at, for example, the manufacturing and distribution level of operations ‘squeeze’ independent distributors so as to undercut the independent firm at the distributing level with consequential anti-competitive effects. The ‘squeeze’ may arise from either an artificially high price to the independent distributors or from artificially low prices by the vertically integrated firm at the retail level.”
Erik N. Hovenkamp and Herbert Hovenkamp, “The Visibility of Antirust Price Squeeze Claims”, Arizona Law Review 51: 273-303 (2009): “[A price squeeze occurs when] a vertically integrated firm ‘squeezes’ a rival’s margins between a high wholesale price for an essential input sold to the rival and a low output price to consumers for whom the two firms compete.”
Primary-line price discrimination.
Fundamentals of Canadian Competition Law, 2nd ed. (Canadian Bar Association): “Primary-line discrimination occurs where a pricing practice has the anti-competitive effect of disciplining or harming competitors of the supplier, and was dealt with by the regional price discrimination provisions previously found at paragraph 50(1)(b) of the Competition Act” [which was repealed in 2009]. Price discrimination may, depending on the facts, still be reviewed under the abuse of dominance provisions of the Competition Act (sections 78 and 79).
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.
Competition Bureau, Information Bulletin on Private Access to the Competition Tribunal (April, 2005): “Private access to the Tribunal is only available for conduct reviewable under sections 75 (refusal to deal) and 77 (exclusive dealing, tied selling and market restriction) of the Act. The private access provisions were added to the Act to complement the Bureau’s public enforcement and increase the deterrent effect of the Act. Private litigation before the Tribunal will also yield valuable jurisprudence which will assist the Bureau in its enforcement and application of the Act and will better delineate the bounds of legitimate behaviour to the business community.”
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.
“Prize-promotion,” “gimme gift”, “cheap gift” or “prize pitch” scam.
Canadian Department of Justice, Report of the Canada – United States Working Group on Telemarketing Fraud (Updated December 1, 2011): “Telemarketers ‘guarantee’ that the victims have won valuable prizes or gifts, such as vacations or automobiles, but require victims to submit one or more payments for non-existent shipping, taxes, customs or bonding fees, or anything else the offender thinks plausible. Some schemes never provide their victims with any prize or gift, while others provide inexpensive items, often called ‘gimme gifts’ by U.S. telemarketers and ‘cheap gifts’ by Canadian telemarketers.”
Canadian Anti-Fraud Centre: “One of the most common scams is the “prize pitch”. Consumers are told they have been specially selected to win a prize, or have been awarded one of three or two of five prizes. These prizes usually include cash or a vehicle. You must purchase a product and pay in advance to receive your prize. These products may include “coin collections”, personalized pen sets, etc. The products are generally cheap or overpriced, but may sound valuable over the phone.”
RCMP, Prize Pitch (Lottery) Scams: “The classic prize pitch scam involves victims receiving notification by post, phone, or e-mail indicating they have won a prize (monetary or other valued item). However, in order to collect the prize the victim is required to pay various fees or taxes in advance. Victims either never hear from the organization again or receive further requests for money. If you have won a prize in Canada there are no fees or taxes to be paid.”
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-hopping” or “product-switching” is a term used in the pharmaceutical industry to refer to one strategy to delay entry by generic drugs by brand manufacturers. OECD, Global Forum on Competition 2014, “Competition Issues in the Distribution of Pharmaceuticals”, Contribution from Canada (Competition Bureau), January 16, 2014: “’Product-hopping’ or ‘product-switching’ describes situations where a brand manufacturer responds to the threat of patent expiry and/or entry by a generic drug by introducing a patented reformulation of its original patented brand drug. The reformulation involves minor changes (such as a change in dosage method or product strength) that are of little therapeutic benefit, but differentiate the product just enough so that a generic version of the original drug would not be considered equivalent to the reformulated drug for purposes of automatic substitution at the pharmacy level.”
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”.
Under the Competition Bureau’s Immunity Program, applicants typically follow a number of steps in order to obtain immunity, including making initial contact with the Bureau, obtaining a “marker”, providing information regarding the potentially illegal conduct (a “proffer”), negotiating and executing an immunity agreement, full disclosure and, should a matter proceed to contested proceedings, potentially testifying.
Competition Bureau, Bulletin, Immunity Program under the Competition Act (2010): “If the party obtains a marker and decides to proceed with the immunity application, it will need to provide a detailed description of the illegal activity and to disclose sufficient information for the Bureau to determine whether it might qualify [for immunity] … This is known as a ‘proffer’ and is usually made in hypothetical terms by the applicant’s legal representative. The Bureau will need to know with sufficient detail and certainty the nature of any records the applicant can provide, what evidence or testimony a potential witness can give and how probative the evidence is likely to be. The Bureau may request an interview with one or more witnesses, or an opportunity to view certain documents, prior to recommending that the [Director of Public Prosecutions] grant immunity. If the Bureau concludes that the party demonstrates its capacity to provide full co–operation and fully satisfy the requirements of [the Bureau’s Immunity Program] it will present all relevant proffered information, together with a recommendation regarding the party’s eligibility under the Program, to the DPP. The DPP will exercise its independent discretion and determine whether to grant the party immunity from prosecution.”
Competition Bureau, Immunity Program: Frequently Asked Questions: “After receiving an immunity marker, an Applicant must provide the Bureau with a statement known as a proffer. In a proffer, an Applicant describes in detail the illegal activity, its role in the offence for which immunity is sought, and the effect of the illegal activity in Canada. The Applicant must also outline all of the supporting evidence and witnesses that it can provide at that point in time as part of its cooperation under the Immunity Program. Proffers are generally provided on a “without prejudice” basis by an Applicant’s counsel.”
Promotional contests in Canada are largely governed by the federal Competition Act (statutory disclosure and misleading advertising rules), federal Criminal Code (provisions governing “illegal lotteries” that must be avoided), federal and provincial privacy legislation (relating to the collection of entrant personal information), the common law of contract (contests have been held to be contracts) and intellectual property laws (e.g., relating to the transfer of original artistic materials, for example in skill contests, or reproduction of 3rd party logos, trade-marks or other intellectual property not owned by a contest organizer). In addition, Quebec has a separate regime governing contests, regulated by the Régie des alcools, des courses et des jeux.
With respect to the Competition Act, subsection 74.06 makes it a reviewable (i.e., civil) matter, subject to civil penalties, to operate a contest without certain required disclosure, to unduly delay the award of prizes and also governs the selection of participants and distribution of prizes:
“A person engages in reviewable conduct who, 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, conducts any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise disposes of any product or other benefit by any mode of chance, skill or mixed chance and skill whatever, where: (a) adequate and fair disclosure is not made of the number and approximate value of the prizes, of the area or areas to which they relate and of any fact within the knowledge of the person that affects materially the chances of winning; (b) distribution of the prizes is unduly delayed; or (c) selection of participants or distribution of prizes is not made on the basis of skill or on a random basis in any area to which prizes have been allocated.”
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.”
321665 Alberta Ltd. v. Husky Oil Operations Ltd., 2013 ABCA 221 (Alta. C.A.): “Punitive damages flow from ‘high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour’: Whiten v. Pilot Insurance Co., 2002 SCC 18 at para 94,  1 SCR 595, Richard v. Time Inc., 2012 SCC 8 at para 149,  1 SCR 265. The Supreme Court advises that ‘punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own,’ and that ‘conduct meriting punitive damages must be ‘harsh, vindictive, reprehensible and malicious’ as well as ‘extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment (Vorvis at p. 1108)’: Honda Canada Inc. v. Keays, 2008 SCC 39 at paras 62 & 68,  2 SCR 362. A punitive damages award should only be awarded in exceptional cases where the misconduct would otherwise remain unpunished or where other penalties are (or are likely to be) inadequate to achieve the objectives of retribution, deterrence and denunciation.”
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.”
Competition Bureau, The Little Black Book of Scams (2012): “In a typical pyramid scheme, unsuspecting investors are encouraged to pay large membership fees to participate in moneymaking ventures. The only way for you to ever recover any money is to convince other people to join and to part with their money as well. People are often persuaded to join by family members or friends. But there is no guarantee that you will recoup your initial investment. Although pyramid schemes are often cleverly disguised, they make money by recruiting people rather than by selling a legitimate product or providing a service. Pyramid schemes inevitably collapse and you will lose your money. In Canada, it is a crime to promote a pyramid scheme or even to participate in one.”
Competition Bureau, Enforcement Guidelines, Multi-level Marketing Plans and Schemes of Pyramid Selling: “Section 55.1 of the Act defines a “scheme of pyramid selling” as an MLM plan with one or more of the following features: requires a payment for the right to receive compensation for recruiting others into the MLM plan (compensation for recruitment); requires purchases as a condition of participation (purchase requirement), other than a specified amount of product at the seller’s cost for the purpose of facilitating sales; includes inventory loading; or lacks a buy-back guarantee on reasonable commercial terms or participants are not informed about the guarantee. It is a criminal offense to establish, operate, advertise or promote a scheme of pyramid selling.”
Canadian Consumer Handbook: “Multi-level marketing (MLM) is a system for selling products in which participants get paid for selling products to other participants who, in turn, are paid for selling the same products to yet more participants. This type of marketing is legal in Canada when the plan does not contravene the Competition Act. Referral selling, matrix marketing and binary systems are all similar types of multi-level marketing plans, though some may be illegal under the Criminal Code, the Competition Act and some provincial and territorial laws. Under the Competition Act, MLM plans that make claims about potential compensation must also disclose the amount of compensation typical participants in the plan earn. Pyramid selling is an MLM plan that incorporates the following deceptive practices, which make it a criminal offence under the Competition Act: participants pay money for the right to receive compensation for recruiting new participants; a participant is required to buy a specific quantity of products, other than at cost price for the purpose of advertising as a condition of participation; selling unreasonable amounts of inventory to participants; having an unreasonable product return policy. Pyramid selling is also a criminal offence under the Criminal Code.”
Federal Government, Consumer Information website (www.consumerinformation.ca): “Multi-level marketing is a system for selling products whereby participants are paid for selling products to other participants who, in turn, are paid for selling the same products to yet more participants. This type of marketing must comply with the Competition Act. Pyramid selling is a type of multi-level marketing that is a criminal offence under the Competition Act due to the following deceptive practices: paying money to those who recruit new members (who also pay money for the same right); requiring new recruits to buy products as a condition of participation; selling unreasonable amounts of inventory to participants; and having an unreasonable product return policy. Pyramid selling is also a criminal offence under the Criminal Code of Canada.”
Halsbury’s Laws of Canada, 1st ed.: “Pyramid selling is a type of multi-level marketing plan where participants pay for the right to receive compensation from the recruitment of other participants into the plan. Those recruits also pay, in turn, for the right to receive compensation from the recruitment of further participants. It also includes schemes where, as a condition of participating in the scheme, a participant must purchase commercially unreasonable amounts of a product. The establishment, operation, advertisement or promotion of a pyramid selling scheme is prohibited.”
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