Canadian COMPETITION & ANTITRUST LAW

Refusal to deal. A “refusal to deal” is a term used in competition/antitrust law to refer to a refusal to supply goods or services.  Refusals to deal can be unilateral (i.e., involving one supplier) or concerted (i.e., involving multiple suppliers of goods or services, as in a concerted refusal to deal or “boycott”).  In Canada, refusals to deal can be reviewed under four sections of the Competition Act: criminal conspiracy (section 45), (ii) refusal to deal (section 75), (iii) price maintenance (section 76), or (iv) abuse of dominance (section 79), each of which involves different elements that are required to be met and allow for different remedies for persons to whom goods or services have been refused.  See Competition Act, ss. 45, 75, 76 and 79.  See also the Conspiracy, Refusal to Deal, Price Maintenance and Abuse of Dominance sections of this blog for more information and key resources.

Regulated Conduct Defence. The regulated conduct defence (“RCD”), which has been partially codified in subsection 45(7) of the Competition Act as a result of the 2009 amendments to the Act, is the Canadian equivalent of the U.S. state action immunity doctrine.  When met, the RCD offers a form of immunity from enforcement under the Competition Act for legislatively authorized or mandated conduct.  As such, the RCD can operate as a defence to some types of activities that would otherwise be subject to the Act. The Competition Bureau’s “Regulated” Conduct Bulletin (the “RCD Bulletin”) sets out the Bureau’s general approach to the RCD in light of the amendments to the Act.  For the RCD to apply, all of the following requirements must be met: (a) valid legislation, (b) conduct is legislatively mandated or authorized, (c) the authority to regulate has been exercised and (d) the regulatory scheme has not been hindered or frustrated by the conduct (or used as a “shield” to engage in unauthorized anti-competitive conduct).  Before the 2009 amendments to the Competition Act, it was not clear whether the RCD would apply as a defence in relation to provisions of the Act that did not contain so-called “leeway” language indicating that other legislation may apply (e.g., the phrase “unduly” preventing or lessening competition under the former section 45).  This uncertainty arose as a result of the Supreme Court of Canada’s decision in Garland v. Consumers’ Gas Co. which held that in the absence of such “leeway” language in the relevant federal legislation the RCD would not apply. This issue may now have been removed, at least with respect of the application of the RCD under section 45 (conspiracy agreements), given that subsection 45(7) now expressly refers to the former common law RCD as a defence.  The addition of the RCD to section 45, however, raises new questions including whether and to what extent the RCD continues to apply as a defence to other provisions of the Act.  With respect to other criminal offences under the Act, the Bureau’s position in its RCD Bulletin is that it will apply Garland to determine whether Parliament intended that the particular provision apply to the conduct and, if so, it “may still refrain from pursuing the case in reliance on the RCD.”  With respect to civil reviewable matters, the Bureau takes a more cautious approach stating that until RCD case law is further developed, it will consider the RCD in relation to reviewable matters but “will not consider RCD case law to be dispositive.”  The fact that this former common law defence has been partially codified under section 45 also does not resolve some of the existing uncertainties about its scope and application.  These include whether the RCD: (i) operates as a defence or an exception under other provisions of the Competition Act, (ii) applies equally to regulated persons (so-called “regulatees”) as to regulators, (iii) applies to civil reviewable matters as it does to criminal offences, (iv) applies in the federal sphere (i.e., where federal legislation provides the authorization for challenged conduct) and (v) the level of legislative authorization needed to invoke the RCD.  REQUIREMENTS: (a) valid legislation. The first condition for the application of the RCD is that there be validly enacted provincial or federal legislation mandating or authorizing challenged conduct. This is based on the principle that competition law liability should not be incurred for activities that are directed or authorized by other validly enacted legislation.  The mere fact that a particular industry or profession is generally regulated, however, will not provide a shield from the application of Canadian competition law.  For example, in Industrial Milk, the court held: “[i]t is not the various [regulated] industries as a whole, which are exempt from the application of the Competition Act but merely activities which are required or authorized by the federal or provincial legislation as the case may be.”  (b) conduct is mandated or authorized. The second condition for invoking the RCD is that the challenged conduct must be required or authorized by validly enacted provincial or federal legislation.  With respect to the degree of authorization, Canadian courts have held that the RCD may apply not only where conduct is mandated but also where there is specific or general authorization for the challenged activities.  The Bureau has also acknowledged that the RCD may apply where conduct is merely authorized as opposed to being mandated or compelled.  Despite the fact, however, that some Canadian courts have held that mere general authorization is enough to invoke the RCD, the level of authorization required remains unclear and unsettled.  For example, in the Law Society case, the Ontario General Division held that the “regulated conduct defence will apply to individuals and companies which are subject to regulation, and to regulatory agencies themselves, provided the impugned conduct is mandated, required or authorized by validly enacted legislation.  Similarly, in Industrial Milk, the court held that activities that are required or merely authorized by federal or provincial legislation may be exempt from the application of the Competition Act.  Despite these cases, Canadian courts have been inconsistent in articulating the degree of authorization needed to invoke the RCD.  For example, in Jabour, the Supreme Court of Canada held that a “broadly styled” mandate to determine what constituted “conduct unbecoming” lawyers was sufficient authority for the Law Society of British Columbia to invoke the RCD as a defence to regulating members’ advertising, despite the fact that the Law Society’s statutory authority did not specifically address advertising.  Based on the Supreme Court’s liberal application of the RCD, Jabour is considered to be the “high water mark” for a permissive approach to the level of authorization needed to invoke the RCD.  By contrast, some later cases have taken a more restrictive approach.  For example, in Mortimer, a by-law enacted by an association of land surveyors establishing mandatory minimum fee tariffs was challenged.  The British Columbia Supreme Court held that the RCD did not apply because, while the association’s enabling legislation granted some tariff-making powers, it was not clear that the legislation included the power to set minimum tariffs or fees.  The enabling legislation was construed strictly by the Court, which held that if the legislature had intended to give the association the power to set mandatory minimum tariffs it would have clearly done so.  Given that conduct must be mandated or authorized for the RCD to apply, courts in several cases have similarly refused to apply the RCD where there was no legislative authority for the challenged conduct.  For example, the RCD was held not to apply to a county law association that had not been delegated the authority to enforce a minimum fee schedule.  In another case, a Quebec notaries association pleaded guilty to conspiring to fix the prices of real estate services where the Quebec government no longer regulated notarial fees.  (c) regulatory authority exercised. The third requirement to invoke the RCD is that the regulatory power conferred by legislation must be exercised.  The RCD will not apply where a regulator has forborne from regulating.  For example, in B.C. Fruit Growers Association, members of a fruit growers association entered into an agreement with fruit packing houses to refuse to supply services to non-member growers.  The fruit growers association argued that the former Combines Investigation Act did not apply on the basis that there was authorization for the actions of the accused, given that the relevant legislation provided for a marketing board to be appointed to regulate the operation of packing houses.  The Court rejected this argument, finding that although a marketing board had been legislatively established, it had not exercised any authority it might have had to restrict the supply of packing services.  (d) regulatory scheme not frustrated. Finally, the RCD will only apply where the exercise of regulatory authority has not been frustrated by the conduct being regulated.  For example, in R. v. Canadian Breweries Ltd., it was held that if the regulation of an industry is hindered by the behavior of those subject to the regulation, the RCD will not apply to protect them.  The RCD also cannot be used by a regulatory body as a shield for anti-competitive conduct outside the scope of the statutory regime.   For example, in Industrial Milk, it was held that if “individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act”.

Relevant market. Antitrust Law Developments (Fifth), Volume I, p. 67: “Market analysis begins with the definition of the relevant market.  Without defining the relevant market, there is no meaningful context within which to assess the restraint’s competitive effects.  A relevant market has both product and geographic dimensions.”

Resale price maintenance. Under section 76 of the Competition Act, it is a “reviewable practice” (i.e., civil matter) for a supplier of goods or services to influence a customer to raise its prices where this has an adverse effect on competition.  Section 76 of the Act also prohibits dictating the prices at which goods or services are advertised (or the prices charged by any other person to whom the product comes for resale).  Under section 76, it is also a reviewable practice for a person to refuse to supply goods or services to a person, or discriminate against them, based on their low pricing policy (and the conduct results in an adverse effect on competition).  Finally, it is also a reviewable practice under section 76 for a person to actually induce a supplier to refuse to deal with another person because of that other person’s low pricing policy.  Whereas price maintenance under the Act was formerly a “per se” criminal offence (i.e., no market effects were needed to be proven), subject to criminal fines and imprisonment, since 2009 it has been a civil reviewable practice with a market effects test, under which the Competition Tribunal may make remedial orders based on applications made by the Commissioner of Competition (or private parties who are granted leave from the Tribunal).  OECD Policy Roundtable, Resale Price Maintenance (2008): The term “resale price maintenance” (RPM) refers to a particular type of vertical agreement in which an upstream firm controls or restricts the price (or sometimes the terms and conditions) at which a downstream firm can on-sell its product or service, usually to final consumers.  Resale price maintenance arises when an upstream firm – usually the manufacturer, producer, or importer of a good or service – limits or restricts the ability of a downstream firm – usually a distributor or retailer – to set the prices at which it on-sells the products of the upstream firm.  Two different forms of RPM are usually distinguished: ―Maximum RPM‖ places an upper limit or ceiling on the price the retailer can charge for the product. ―Minimum‖ RPM, on the other hand, places a lower bound or floor on the price at which the retailer can on-sell the product. Some countries treat both of these forms in the same way in their competition law. Most countries treat maximum RPM as being the lesser competition concern; in some cases maximum RPM is not illegal at all.  Usually, for RPM to constitute a violation of competition law, the upstream firm must actively seek to penalise deviations from the prescribed prices – perhaps by threatening to cut-off supply to the retailer. In most cases, manufacturer ―recommended‖ retail prices do not raise competition concerns, provided departures from these recommended prices are not penalized.  In some cases, the upstream firm may impose other, related conditions, such as a requirement to not advertise or promote a price which deviates from the minimum or maximum price. In some instances these practices will also constitute a violation of laws prohibiting RPM.

Restitution order.  Competition Bureau, Ensuring Truth in Advertising:  “Under section 74.1(1)(d) of the Competition Act, the court is empowered to make restitution orders against parties who are found to have engaged in reviewable conduct by making materially false or misleading representations to the public under section 74.01(1)(a) of the Act. Restitution, along with the other remedies available under section 74.1 of the Act, serves as an additional incentive for advertisers to comply with the Act.”

Robocall.  A term used in the telemarketing industry to refer to the use of “automated calling devices”.  See e.g., CRTC: “Automated calling devices are used to dial telephone numbers and automatically deliver a pre-recorded message. The CRTC’s Automatic Dialing and Announcing Device Rules prohibit telemarketers from using these devices to sell or promote a product or service unless a consumer has consented to be called by them.  They can, however, be used by police and fire departments, schools and hospitals if they have a valid public service message to communicate. Automated calling devices can also be used for appointment reminders and thank you calls.”

Rule of reason. A standard of review for potentially anticompetitive conduct contrasted with a per se standard of review, which requires an analysis of a challenged restraint’s effect on competition in a relevant market.  U.S. Federal Trade Commission and Department of Justice, Antirust Guidelines for Collaborations Among Competitors (2000): “Agreements not challenged as per se illegal are analyzed under the rule of reason to determine their overall competitive effect. These include agreements of a type that otherwise might be considered per se illegal, provided they are reasonably related to, and reasonably necessary to achieve procompetitive benefits from, an efficiency-enhancing integration of economic activity.  Rule of reason analysis focuses on the state of competition with, as compared to without, the relevant agreement. The central question is whether the relevant agreement likely harms competition by increasing the ability or incentive profitably to raise price above or reduce output, quality, service, or innovation below what likely would prevail in the absence of the relevant agreement.”  Chicago Board of Trade v. United States, 246 U.S. 231 at 238 (1918): “The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.  To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable.  The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.”  See also the definition of “per se unlawful.”