Archive for the 'Competition and IP' Category
By William Wu (Centre for Innovation Law and Policy)
Google has announced its new privacy policy, which will take effect on March 1. Google is doing away with the over 60 different existing privacy policies for its various products and replacing them with one single shorter and simpler privacy policy.
Those who are most affected by this change are people with Google accounts. Under the new privacy policy, if a user is signed in to the Google account, Google will be able to collect and combine user information from across its various products and services. For example, Google will be able to collect and analyze your search terms on the Google search engine and suggest related videos when you next go onto YouTube. This will enable Google to form fuller and more comprehensive user profiles. As Google emphasized in its announcement, this change will allow it “to create one beautifully simple and intuitive experience across Google.”
In a significant recent decision by the federal Competition Tribunal, the Tribunal granted leave to the Used Car Dealers Association of Ontario (the “UCDA”) to make a section 75 refusal to deal application relating to a refusal by the Insurance Bureau of Canada (the “IBC”) to supply data to it for one of its products for its members.
This recent case, reasons for which were issued on September 9, 2011, is significant, in that the UCDA was seeking leave to make its refusal to deal application in light of a longstanding adverse decision – the Warner music case.
(Leave from the Tribunal is a prerequisite to making refusal to deal applications to the Competition Tribunal, as well as private applications under the price maintenance (section 76) and exclusive dealing/tied selling/market restriction sections (under section 77).)
In its earlier Warner decision, the Tribunal held that licenses to use and reproduce intellectual property (music in Warner) was not a “product” for section 75 of the Competition Act and also that a license could not be in “ample supply” (two of a number of requirements under section 75), given that a license holder has a right under intellectual property legislation (e.g., the Copyright Act) to decide whether or not to license its IP to third parties.
In light of Warner, it has generally been thought that refusals to license intellectual property could not be the subject of refusal to deal applications under section 75 (or at minimum, that arguments would need to be made as to why Warner should not apply to a particular case, and that this could reduce the likelihood of success of section 75 applications in the context of intellectual property refusals to deal).
On August 31, 2011, The Canadian Real Estate Association requested leave to intervene in the Competition Bureau’s abuse of dominance case against The Toronto Real Estate Board to support TREB.
The Competition Tribunal Act allows any person affected by Tribunal proceedings to intervene in proceedings with leave from the Tribunal.
The Tribunal has held that to grant intervenor status, the following elements must be met: (i) the matter alleged to affect the person seeking leave to intervene must be legitimately within the scope of the Tribunal’s consideration (or must be a matter sufficiently relevant to the Tribunal’s mandate); (ii) the person seeking leave to intervene must be directly affected; (iii) all representations made by a person seeking intervenor status must be relevant to an issue specifically raised by the Commissioner; and (iv) the person seeking leave to intervene must bring a unique or distinct perspective to the Tribunal that will assist the Tribunal in deciding the issues before it (see e.g., Commissioner of Competition v. Canadian Waste Services Holdings Inc., 2000 Comp. Trib. 10; Commissioner of Competition v. The Canadian Real Estate Association, 2010 Comp. Trib. 12 (order allowing National FSBO Network Inc.’s motion for leave to Intervene)).
On July 7, 2011, the Competition Bureau filed an Amended Notice of Application in its abuse of dominance case against The Toronto Real Estate Board (“TREB”).
The Bureau’s Amended Notice of Application follows TREB’s issuance of a proposed policy and rule amendments to allow its broker members to operate “virtual office websites” (“VOWs”) (secure, password-protected websites operated by real estate brokers allowing customers to perform their own MLS searches over the Internet).
The Bureau first challenged TREB back in May (see: Commissioner of Competition and The Toronto Real Estate Board – Notice of Application and Competition Bureau Sues Canada’s Largest Real Estate Board for Denying Services Over the Internet).
The Bureau has taken the position that TREB and its members control the market for residential real estate brokerage services in the Greater Toronto Area, that TREB has engaged in a practice of anti-competitive acts (board rules and policies preventing members from operating VOWs) and that those rules have resulted in a substantial lessening of competition in the residential real estate brokerage services market in the GTA (in particular, blocking real estate firms from offering innovative Internet-based services, including VOWs).
The essence of the Bureau’s abuse of dominance argument was (and remains) that TREB has used its control of its MLS system (each local real estate board in Canada operates its own MLS system) to pass rules that discipline and exclude real estate firms that want to offer VOWs.
On May 27, 2011 the Competition Bureau commenced an abuse of dominance case against the Toronto Real Estate Board (“TREB”) before the federal Competition Tribunal.
To establish abuse of dominance under the Competition Act, the Commissioner of Competition must establish that a firm (or firms) is dominant in one or more relevant markets, it has engaged in a practice of anti-competitive acts that has resulted in (or is likely to result in) a substantial lessening of competition. Where the Tribunal finds that a firm has abused its dominant position, it may make remedial orders (e.g., for the conduct to cease) or order the payment of administrative monetary penalties of up to $10 million ($15 million for subsequent orders).
In its case against TREB, the Commissioner is essentially alleging that through TREB’s MLS rules, which govern the access and use of members’ property listing information, TREB is preventing members from offering innovative non-traditional real estate services including “virtual office websites” or “VOWs” (secure password-protected websites that allow residential real estate customers to search a database containing MLS information themselves, rather than utilizing traditional bricks and mortar real estate brokerage services – for example, receiving property listing information from agents in person, by fax or by email).
With respect to TREB’s market presence, the Bureau alleges that TREB and its members substantially or completely control the market for the supply of residential real estate brokerage services in the greater Toronto area. According to the Bureau, TREB achieves its control of the relevant market through its control of its MLS system, which contains detailed member property listing information including historical sales data, by enacting and interpreting rules, policies and agreements that exclude some business models and restrict the offering of some types of innovative real estate services, including VOWs.
Specific TREB restrictions that the Bureau is challenging include rules restricting the advertising of listings, how MLS reports are provided to customers and restrictions on direct client searches of TREB MLS information.
Like its recent abuse of dominance case against The Canadian Real Estate Association, the Bureau is taking the position that TREB’s MLS system is a key (i.e., essential) input in the supply of residential real estate brokerage services, without which competing innovative brokerage models wishing to operate VOWs and other emerging Internet-based brokerage services cannot effectively compete. While arguments are sometimes made that there are competing property listing services in Canada, or that new listing services can enter or be established, the Bureau argues that the size and breadth of TREB’s MLS system (i.e., network effects) operates as a significant barrier to entry for any new property listing system that could otherwise operate as a substitute to the TREB MLS system.
With respect to TREB’s conduct, the Bureau argues that the interpretation and enforcement of TREB’s MLS rules are a practice of anti-competitive acts, the “purpose and effect of which is to discipline and exclude innovative brokers who would otherwise compete with TREB’s member brokers who use traditional methods.”
Finally, the Bureau’s view is that TREB’s MLS rules have lessened and prevented competition in the market for residential real estate brokerage services in the greater Toronto area. According to the Bureau, “TREB’s control of the relevant market through [its] MLS Restrictions gives it the power to exclude innovative brokerage models … protecting and perpetuating the static traditional brokerage model for the delivery of residential real estate brokerage services.” This, it says, denies consumers the benefits of downward pressure on commission rates and, to illustrate its point, the Bureau describes the fact that VOW brokerages are commonplace in the United States and offer rebates of up to 50% of a broker’s ordinary commissions.
Like the recently settled case against The Canadian Real Estate Association, the Bureau’s most recent challenge against organized real estate raises a number of interesting and largely unsettled abuse of dominance issues.
These include whether, and the extent to which, a real estate board can be said to control the market for a product that it does not actually supply (residential real estate brokerage services), whether the Tribunal will accept that the TREB MLS system is an essential input or facility (there has not yet to date been a decided essential facilities case in Canada) and how successful TREB will be in making arguments that it should have the right to assert control over or licence its MLS information (for example, based on intellectual property or privacy law arguments).
For a copy of the Commissioner’s Notice of Application see: The Commissioner of Competition and The Toronto Real Estate Board. For a copy of the Competition Bureau’s news release see: Competition Bureau Sues Canada’s Largest Real Estate Board for Denying Services Over the Internet.
The Competition Bureau announced today that it has filed an application with the federal Competition Tribunal seeking, according to the Bureau, to “prohibit anti-competitive practices by the Toronto Real Estate Board that are denying consumer choice and the ability of real estate agents to introduce innovative real estate brokerage services through the Internet.”
In making the announcement, the Bureau said:
“TREB is the largest real estate board in Canada, with approximately 31,000 members. It owns and operates the Toronto Multiple Listing Service system (the Toronto MLS system), which contains current property listings and historical information about the purchase and sale of residential real estate in Toronto and the surrounding area. The vast majority of local real estate transactions make use of the Toronto MLS system, which is an essential tool for agents to help customers buy and sell homes. TREB is restricting how its member agents can provide information from the Toronto MLS system to their customers, thereby denying member agents the ability to provide innovative brokerage services over the Internet.
Today, consumers are demanding a greater selection of service and pricing options when buying or selling their homes and many agents are eager to accommodate them, said Melanie Aitken, Commissioner of Competition. Yet TREB‘s leadership continues to impose anti-competitive restrictions on its members that deny consumer choice and stifle innovation.
Toronto MLS information is controlled by TREB and is only accessible to its members. It is much more detailed than what is available on public sites, such as Realtor.ca. For example, the Toronto MLS system contains data about previous listing and sale prices, historical prices for comparable properties in the area, and the amount of time a property has been on the market.
Because of TREB‘s restrictive practices, agents do not have the flexibility to share this important data with customers in innovative new ways, such as through password protected Web sites, also called Virtual Office Web sites (VOWs). VOWs permit a customer to search a full inventory of listings containing up to date data online, before making the decision to tour a home or attend an open house. This enables customers to be more selective and focused, and agents to spend less time trying to find an appropriate property for a specific customer.
While agents can provide detailed MLS listing information not available on Realtor.ca to customers by hand, mail, fax, or email, TREB‘s anti-competitive practices effectively prevent agents from providing the same MLS listing information to customers via a password-protected Web site. As a result, there are currently no VOWs operating in the Toronto real estate market that enable customers to search a full inventory of listings.”
For the full Competition Bureau news release see:
Competition Bureau Sues Canada’s Largest Real Estate Board for Denying Services Over the Internet
For a copy of the Commissioner’s Notice of Application see:
The Commissioner of Competition and The Toronto Real Estate Board
For more about competition law and real estate services see:
Consent Agreement Filed in CREA Abuse of Dominance Case
Final Agreement Paves Way for More Competition in Canada’s Real Estate Market
CREA Boards Ratify Settlement with Competition Bureau in MLS Abuse of Dominance Case
MLS Abuse of Dominance Case Settled
The CREA / MLS Abuse of Dominance Case
Hearing Dates Set for CREA Abuse of Dominance Application
Leave to Intervene Denied in CREA Abuse of Dominance Case
The Commissioner of Competition v. The Canadian Real Estate Association
Earlier this month, Canada passed its long-awaited anti-spam bill (Bill C-28 – the Fighting Internet and Wireless Spam Act) (“FISA”). In passing this new legislation, Industry Canada stated:
“On December 15, 2010, the Government of Canada passed the Fighting Internet and Wireless Spam bill, Bill C-28. In doing so, the government is delivered on a key commitment made by Prime Minister Harper to Canadians and Canadian businesses in September 2008. The legislation is a critical element of the development of a digital economy strategy.
The intent of the legislation is to deter the most damaging and deceptive forms of spam, such as identity theft, phishing and spyware, from occurring in Canada and to help to drive out spammers.
This law addresses the legislative recommendations of the Task Force on Spam, which brought together industry, consumers and academic experts to design a comprehensive package of measures to combat threats to the digital economy. As well the government studied successful legislative models in other countries and, based on their experiences, has developed a focused plan to address spam and related online threats.”
In his online videocast (“Government of Canada Moves to Enhance Safety and Security in the Online Marketplace”), the Minister of Industry said that the passage of FISA was intended to “help … enhance safety and security in the online world”, “deter the most damaging and deceptive forms of spam from occurring in Canada” and “drive spammers out of Canada”. The Minister also said that “Canadians need to feel just as confident in the electronic marketplace as they do at the corner store” and that “spam is at best a nuisance but it can also discourage electronic commerce, undermine privacy and introduce a host of online threats”.
Overview of FISA (Bill C-28)
According to Industry Canada, the intent of the new legislation is as follows:
“The intent of the legislation is to deter the most damaging and deceptive forms of spam from occurring in Canada, creating a more secure online environment. It does this by addressing the sending of spam, the undesired installation of spyware and malware on the computers of businesses and individuals, and the alteration of transmission data. The bill also extends the provisions of the Competition Act concerning false and misleading marketing to electronic messages, and restricts the scope of certain exceptions under the Personal Information Protection and Electronic Documents Act.”
Some of the highlights of FISA include: (i) addressing spam by prohibiting the sending of commercial electronic messages without consent, (ii) prohibiting false or misleading commercial representations online, (iii) prohibiting the installation of computer programs without consent for commercial activities, (iv) prohibiting the collection of personal information through unlawful access to computer systems (as well as the unauthorized compilation or supply of lists of electronic addresses), (v) creating a private right of action for consumers and businesses, (vi) giving the CRTC and the Competition Tribunal the power to impose administrative monetary penalties for violations of FISA (of up to $1 million for individuals and $10 million for corporations) and (vii) allowing for cross-border exchanges of information and evidence to investigate spammers operating outside Canada.
The Government has also announced that it intends to create a spam reporting centre that will work together with the three enforcement agencies responsible for enforcing FISA (the CRTC, Office of the Privacy Commissioner and the Competition Bureau) to “engage in public awareness” and ”identify and analyze trends in online threats”.
Enforcement
FISA will be enforced by the following three organizations:
Competition Bureau – The Competition Bureau’s mandate will be to focus on misleading and deceptive practices and representations online, including false or misleading headers and Internet website content. In this regard, FISA extends the Bureau’s existing jurisdiction over misleading advertising and deceptive marketing practices in Canada, which already included online advertising and marketing.
Canadian Radio-television and Telecommunications Commission (CRTC) – The CRTC will have the power to investigate and take action (including using significant monetary penalties) against unsolicited electronic messages, altering of transmission data or installation of computer programs without consent.
Office of the Privacy Commissioner of Canada – The Office of the Privacy Commissioner will have the power to take measures against the collection of personal information through access to computers (as well as the unauthorized compiling or supplying of lists of electronic addresses).
Penalties
Persons contravening FISA are subject to administrative monetary penalties of up to $1 million (for individuals) and $10 million (for corporations).
FISA also provides for the issuance of preservation demands to ISPs (requiring the preservation of transmission data), notices of production (requiring the production of documents or preparation of documents based on data, information or documents) and search warrants.
Legislative History
FISA, which was first introduced in April, 2009 and reintroduced on May 25, 2010, addresses legislative recommendations made by the Task Force on Spam, which assembled consumers, academic experts and industry to design comprehensive legislation to fight spam in the digital economy. In 2005, the Task Force on Spam completed its one year mandate and issued its final report (Task Force on Spam Report: Stopping Spam: Creating a Stronger, Safer Internet). The Government also studied successful anti-spam measures in other countries.
From the time Bill C-28 was first introduced, amendments were made to address concerns raised during Industry Committee testimony (which heard from a wide variety of witnesses, including representatives from enforcement agencies, industry associations, ISPs, consumer groups, the financial sector and marketers). During third reading, the amended Bill received unanimous support in the House of Commons and received Royal Assent on December 15, 2010.
More Information
For more information about Bill C-28 see:
Fighting Internet and Wireless Spam Act
Industry Canada News Release: “Harper Government is Getting Things Done for Canadians”
Industry Canada Summary of Bill C-28: “Bill C-28: Canada’s Online Protection Legislation”
Bill C-28 Questions and Answers (Industry Canada)
Task Force on Spam Report: Stopping Spam: Creating a Stronger, Safer Internet
Industry Canada News Release: “Task Force on Spam Presents Final Report to Minister” (2005)
Industry Canada News Release: “Lucienne Robillard Announces Measures to Combat SPAM” (2004)
The Consent Agreement, which represents the settlement between the Competition Bureau and The Canadian Real Estate Association, has been filed with the federal Competition Tribunal.
This marks the conclusion of more than three years of investigation and negotiation between organized real estate in Canada and the Competition Bureau.
The case, though settled, also represents one of the landmark abuse of dominance cases in Canada, given that there have been less than ten contested abuse cases since the modern Competition Act was introduced in 1985.
Unfortunately, however, the settlement means that many legal questions remain about the scope and application of Canada’s abuse of dominance provisions. These include the definition of relevant markets (in this case, in the context of a trade association that did not provide any of the services in which its dominance was alleged), what legitimate business justifications may offset allegations of anti-competitive acts (one of the most serious unanswered questions raised by the last contested abuse of dominance case – Canada Pipe) and to what extent the exercise of intellectual property rights can be unilaterally exercised without raising abuse of dominance issues (in this case, relating to the exercise of CREA’s MLS trade-mark rights).
Some of the key terms of the settlement between CREA and the Bureau include prohibitions on CREA adopting (or enforcing) rules that: (i) prevent members from offering “mere postings” (a listing on a MLS system where a member has chosen or agreed not provide services to their seller client other than merely posting the listing), (ii) discriminate against mere postings, (iii) prevent members from cooperating with other members that offer mere postings, (iv) prevent members from listing a seller’s contact information in the REALTOR-only remarks section of a real estate board’s MLS system or (v) prevent members from negotiating compensation to be paid to selling agents (as long as the offered compensation is not zero).
Interestingly, the Consent Agreement, in force for ten years, also includes restrictions on CREA’s use of its MLS trade-marks. These include prohibitions on licensing its MLS trade-marks to member real estate boards that fail to amend their MLS rules, in accord with the Consent Agreement, or licensing its MLS marks to member boards that adopt or enforce rules inconsistent with the terms of the Consent Agreement.
The intellectual property related terms in particular bring into high relief the importance of IP (i.e., trade-mark) rights in this case, the scope of the legitimate exercise of which will, unfortunately, remain to be determined in the next abuse case involving allegations of abuse of dominance and intellectual property rights.
For a copy of the Consent Agreement registered with the Competition Tribunal, see: Registered Consent Agreement.
Earlier today, the Competition Bureau announced that it was participating, together with members of the International Consumer Protection and Enforcement Network (ICPEN), in a joint Internet advertising sweep, focused on fraudulent and deceptive advertising on social media sites. In making its announcement, the Bureau said:
“More than 16 million Canadians are active users of social media sites. Marketers and advertisers have targeted these platforms. The international sweep is designed to identify unscrupulous fraudsters who may use social media sites to target those most likely to fall victim to their scams.
Here are some tips on how to avoid getting caught up in an Internet scam: be vigilant when evaluating ads, sending money or giving credit card or account details; know who you are dealing with. Be aware of any unsolicited phone calls, emails, text messages or letters from unknown sources; search for the company, the individuals, the product or the offer on the Internet and verify any contact and company details; trustworthy businesses will rarely contact you, particularly by email, phone or text message, to ask for personal details, banking or financial information; keep in mind that wiring money is like sending cash – the sender has no protection against loss; beware of ads that promise too much – if it sounds to good to be true, it probably is!
Consumers should also take measures to protect themselves in the online environment. It is important to install reputable computer security software and keep it up to date. Use a spam filter and a firewall to avoid malicious software damaging your computer and stealing your personal information. Consumers should also avoid clicking on links to Web sites contained in unsolicited emails or online messages.”
This latest Internet sweep by the Bureau is a reminder that the general misleading advertising provisions of the Competition Act apply to advertising and marketing claims regardless of form, including print, oral, online and social media claims, and also shows that the Bureau is increasingly focused on new media in its enforcement efforts. Recent Internet sweeps by the Bureau include one completed late last year (see: Competition Bureau Participates in International Internet Sweep (November 30, 2009)). The Bureau has also recently updated its Internet advertising enforcement guidelines (see: Application of the Competition Act to Representations on the Internet (October 16, 2009)). Unlike some other international antitrust agencies, the enforcement of misleading advertising and deceptive marketing represents a significant portion of the Bureau’s enforcement efforts and continues to be a top enforcement priority for the Bureau.
For a copy of the Bureau’s news release in connection with this latest Internet advertising sweep see: Social Media Sites Targeted by Competition Bureau in International Sweep.
Misleading Advertising Law in Canada
The federal Competition Act contains both criminal and civil provisions that prohibit false or misleading representations. The general civil misleading advertising provision of the Act prohibits representations to the public, to promote a product or any business interest, that are false or misleading in a material respect. For a representation to be false or misleading under the civil misleading advertising provision, it must be established on the civil burden of proof (i.e., on a balance of probabilities) that: (i) a representation has been made, (ii) to the public, (iii) to promote a product (including services) or any business interest, (iv) the representation is false or misleading and (v) that it is false or misleading in a “material” respect. The criminal misleading advertising provision of the Act is substantially similar, except that in order to establish criminal misleading advertising, it must also be established on the criminal burden of proof (i.e., beyond a reasonable doubt) that a representation was intentionally made (i.e., was made “knowingly or recklessly”).
In addition to the “general” misleading advertising provisions, the Competition Actalso contains a number of other criminal and civil provisions that prohibit or regulate specific types of marketing practices. These include provisions in relation to deceptive telemarketing (section 52.1), deceptive prize notices (section 53), double ticketing (section 54), multi-level marketing (section 55), pyramid selling schemes (section 55.1), representations that are not based on adequate and proper tests (subparagraph 74.01(1)(b)), false or misleading ordinary selling price representations (subsections 74.01(2) and (3)), misleading or unauthorized use of tests and testimonials (section 74.02), bait and switch selling (section 74.04), the sale of a product above its advertised price (section 74.05) and promotional contests (section 74.06).
2009 Amendments – Increased Penalties
Also, as a result of the 2009 amendments, significantly increased penalties for civil false or misleading representations have been introduced including “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals ($1 million for subsequent orders) and $10 million for corporations ($15 million for subsequent orders), which are more than ten times the previous penalties.
Misleading Advertising & Deceptive Marketing – Links & Resources
For more information about misleading advertising and deceptive marketing law in Canada see:
Misleading Advertising, Bait and Switch Selling (Pamphlet), Consumer Packaging and Labelling Act, Consumer Rebate Promotions (Enforcement Guidelines), Deceptive Notices of Winning a Prize (Enforcement Guidelines), Deceptive Prize Notices (Pamphlet), Enforcement Guidelines for “Product of Canada” and “Made in Canada” Claims, False or Misleading Representations and Deceptive Marketing Practices (Pamphlet), Guidance on Labelling Textile Articles Derived From Bamboo (Enforcement Guidelines), Guide for the Labelling and Advertising of Pet Foods, Guide to the Consumer Packaging and Labelling Act, Guide to the Textile Labelling and Advertising Regulations, Misleading Representations (Pamphlet), Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track (Bulletin), Multi-level Marketing Plans and Schemes of Pyramid Selling (Enforcement Guidelines), Multi-level Marketing and Pyramid Selling (Pamphlet), Multi-level Marketing and the Competition Act (Multi-media), Ordinary Price Claims: Subsections 74.01(2) and 74.01(3) (Enforcement Guidelines), The Ordinary Selling Provisions of the Competition Act (Bulletin), Promotional Contests (Pamphlet), Promotional Contests – Section 74.06 (Enforcement Guidelines), Telemarketing: Section 52.1 of the Competition Act (Enforcement Guidelines), Textile Labelling Act, Understanding How the Ordinary Selling Provisions of the Competition Act Apply to Your Business, What You Should Know About Telemarketing (Pamphlet).
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To be published in an all Canadian edition of Competition Policy International’s Antitrust Chronicle.
On February 8, 2010, the Canadian Competition Bureau (the “Bureau”) filed an abuse of dominance application against one of Canada’s largest single industry trade associations – The Canadian Real Estate Association (“CREA”).[1]
According to the Bureau, CREA has used rules, under which it licences its MLS trade-mark and related marks to member real estate boards, to maintain control of the market for residential real estate brokerage services in Canada. In particular, the Bureau has taken the position that CREA’s MLS Rules inhibit or prevent non-traditional business models, including fee-for service and flat fee models, from effectively competing in the residential real estate services market.
Abuse of Dominance in Canada
In Canada, the Commissioner of Competition may apply to the Competition Tribunal (the “Tribunal”) under section 79 of the Competition Act (the “Act”) for remedial orders where a firm (or firms) has abused its dominant position by engaging in a practice of anti-competitive acts that prevent or lessen competition substantially in a market. As a result of recent sweeping amendments to the Act, the Tribunal may also now order “administrative monetary penalties” (essentially civil fines) of up to Cdn. $10 million (Cdn. $15 million for subsequent orders) (although the Bureau is not seeking AMPs in this case).[2]
While abuse of dominance remains an enforcement priority for the Bureau, together with criminal cartels and deceptive marketing, fully contested abuse cases remain rare in Canada. In this regard, there have been less than ten contested abuse cases in Canada in the past twenty-five years.
As a result, key elements of abuse of dominance remain unsettled, including what will constitute a practice of anti-competitive acts, what will constitute a legitimate business purpose to counter allegations of anti-competitive conduct and how in practice it is to be demonstrated that competition has been prevented or lessened substantially in a relevant market.
Overview of the MLS Case
In its application, the Bureau takes the position that CREA has a dominant position (“substantial or complete control”) over the supply of residential real estate brokerage services in Canada and has used its MLS Rules to exclude non-traditional business models (e.g., flat fee and fee-for-service models) to entrench “the traditional full-service real estate business model” in Canada. The Bureau’s case essentially turns on the proposition that the MLS system is an essential input, and that non-traditional real estate business models cannot effectively compete without uninhibited access to the MLS system (essentially a “raising rivals cost” argument).
In challenging CREA, the Bureau has focused on CREA’s “three pillars”, which are rules that require that the following conditions be satisfied to list a property on a local real estate board’s MLS system: (i) membership (only member REALTORS may list properties on a local board’s MLS system), (ii) agency (a listing REALTOR must act as agent for the seller throughout the duration of a property listing) and (iii) compensation (as the MLS system is a cooperative selling system, the listing REALTOR must offer some compensation to selling REALTORS – that is, REALTORS bringing potential buyers to a transaction).
The Bureau is particularly concerned with CREA’s “agency pillar”, taking the view that this requirement either completely excludes or severely impedes non-traditional real estate brokerage models in their ability to compete, reducing consumer choice for residential real estate services in Canada.
CREA’s response has been that: (i) the Bureau’s definition of the market is flawed (i.e., given that CREA, as a trade association, does not provide real estate brokerage services, it cannot possess market power in the residential real estate services market), (ii) that its MLS Rules do not constitute a practice of anti-competitive acts (based, in part, on its right to assert control over its MLS and other trade-marks) and (iii) that its MLS Rules do not prevent or lessen competition substantially – citing, for example, vigorous actual competition from discount, fee-for-service and flat fee business models.
Implications
The MLS case, hearings for which will begin in April, 2011, raises a number of interesting and challenging issues. These include the appropriate market definition when the target is a trade association not engaged in providing the relevant product (in this case, according to the Bureau, residential real estate brokerage services), whether (and on what basis) a network or other asset should be considered to be an essential facility to what extent intellectual property rights (in this case CREA’s trade-mark rights) can be unilaterally exercised without triggering competition law liability.
Market Definition
The Bureau has taken the position that CREA, through its MLS Rules, controls the market for residential real estate brokerage services in Canada. Not surprisingly, CREA’s reply is that, given that it is a trade association and does not provide residential real estate brokerage services, that it cannot possess market power in that market (or any market for that matter).
The Bureau’s approach in the CREA case is similar to that reflected in its recently issued Competitor Collaboration Guidelines (the “Guidelines”) discussing the potential liability of trade associations under Canada’s new conspiracy law regime.[3] Canada’s new conspiracy offences apply when competitors (or potential competitors) enter into three types of proscribed “hard core” agreements (bare price-fixing, market allocation or supply restriction agreements). The Bureau takes the view in its Guidelines that a trade association can attract liability under the cartel offences, notwithstanding questions about how a trade association can constitute a “competitor” of anyone, unless perhaps a rival trade association in the same industry.
One wonders whether a better approach for the Bureau would have been to argue that CREA is jointly or collectively dominant with its member real estate boards (the abuse of dominance provision applies to both unilateral and joint dominance). Another possibility for the Bureau would have been to treat the case as a concerted boycott under the Act’s conspiracy rules. However, while the new conspiracy offences include supply restriction agreements, the MLS Rules do not seem to qualify as the type of “hard core” cartel conduct that the Bureau typically pursues under this offence (or has indicated it will pursue in recent public announcements). Moreover, the Bureau has a very poor track record in criminal prosecutions, so it is understandable why it preferred to proceed under the civil abuse of dominance provisions.
The MLS System as an Essential Facility
Another interesting aspect of the MLS case is that it may be the first decided “essential facilities” case in Canada. The Bureau argues that the Canadian MLS system “has become a key input to the provision of residential real estate brokerage services” and that there are no reasonable substitutes as a result of network effects (i.e., the MLS system is effective because it represents such a high buyer/seller participation rate and contains the largest inventory of homes for sale in Canada).
While the Act includes the pre-emption of a “scarce facility or resource” as one of a non-exhaustive list of anti-competitive acts for the purpose of section 79, there has never been a decided essential facilities case in Canada. The closest parallel was the 1995 Interac case, which was a joint abuse of dominance case involving the establishment of an electronic banking network by nine of Canada’s largest financial institutions.[4]
In Interac, the Bureau alleged that certain rules associated with the Interac network, which denied certain competitors access to the network, constituted a practice of anti-competitive acts that substantially prevented or lessened competition. The Interac case, however, was settled by way of consent order, which included terms to increase access to the network and alter the association’s governance structure.
Given that Interac was resolved by way of a consent order, many questions still remain as to when a network or other asset should appropriately be considered to be an essential facility and when access to such a facility must be granted by a dominant party. These are difficult issues and raise, among other things, questions relating to the extent that parties should be required to grant access to joint venture assets (the MLS system has been persuasively characterized as a cooperative joint venture), as well as the potential negative effects of mandating access to assets on the incentives to create them.
CREA’s Trade-mark Rights
Finally, perhaps the most interesting aspect of the Bureau’s MLS case relates to CREA’s assertion that it cannot be accused of engaging in an anti-competitive act when it is simply enforcing its intellectual property rights (i.e., its MLS and related trade-marks). CREA argues that it has a right to assert control over the use of its trade-marks, and that such control constitutes a valid business justification for the MLS Rules.
This is one of CREA’s most intuitively persuasive arguments, though it is not clear whether it will be a successful argument. While the Tribunal has held that a mere refusal to licence trade-marks, without “something more”, will not be an anti-competitive act, it has also found that the exercise of an IP right in one market to obtain a competitive advantage in another can constitute an anti-competitive act. The risk for CREA is that the Tribunal may conclude that CREA’s exercise of its trade-mark rights constitutes “something more” than the mere exercise of IP rights (for example, extending or leveraging its IP rights in order to control the residential real estate services market). CREA also argues that its MLS Rules are necessary for the efficient operation of the MLS system.
The difficult question will be, of course, where CREA’s legitimate intellectual property rights end and any anti-competitive conduct (the requisite “something more”) begins. It is also not clear how strong CREA’s argument is that its exercise of its IP rights constitutes a valid business justification, or whether the Tribunal will accept that its MLS Rules are necessary for the efficient operation of the MLS system.
In this regard, the Federal Court of Appeal held in the Canada Pipe case that while a party may advance legitimate business justifications to offset an alleged anti-competitive purpose, any business justification must be a “credible efficiency or pro-competitive rationale” for the challenged conduct and that self-interest alone is insufficient. Unfortunately, however, the content of this test remains uncertain. It may be, however, that CREA will be more successful making pro-consumer efficiency arguments than it will with its IP arguments, which may not be seen as sufficiently efficiency enhancing.
Conclusion
The MLS case will be a challenging one for the Bureau. It must establish that a trade association such as CREA can exercise market power (as opposed to its members acting jointly); the MLS system is an essential facility; and CREA’s MLS Rules have been exercised to exclude or discipline alternative real estate services models. By the same token, it also will be interesting to see whether CREA can convince the Tribunal that the exercise of its trade-mark rights constitutes a valid business justification. Regardless of the outcome, the CREA case will be an important and needed addition to the small universe of Canadian abuse cases.
[1] The pleadings for this case, including the Commissioner’s Notice of Application and CREA’s Response, are available on the Tribunal’s website at http://www.ct-tc.gc.ca/.
[2] Canada’s abuse of dominance provisions are set out in sections 78 and 79 of the Act. While section 78 contains a list of anti-competitive acts for the purposes of section 79, they are non-exhaustive and many aspects of what constitutes an anti-competitive act for the purposes of section 79 remain uncertain.
[3] Competition Bureau, Competitor Collaboration Guidelines (2009), available on the Bureau’s website at: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/home.
[4] Canada (Director of Investigation and Research) v. Bank of Montreal (1996), 68 C.P.R. (3d) 527 (Comp. Tribunal), which is available on the Competition Tribunal’s website at: http://www.ct-tc.gc.ca/.
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