Archive for the 'Associations' Category
The CBC and others have reported on the continued progress of Bill C-10, the “Safe Streets and Communities Act”, which is now undergoing 11 days of Senate committee hearings (the Senate’s legal and constitutional affairs committee) that will hear from about 100 witnesses.
Conservative Justice and Public Safety Ministers Rob Nicholson and Vic Toews are asking Senators to “expeditiously” approve the Bill.
Bill C-10, which completed second reading in the Senate in December, would, among other things, eliminate conditional sentences of two years or less (i.e., sentences served in the community rather than a correctional facility) from being ordered by courts for violation of two of the core criminal offences under the Competition Act: criminal conspiracy agreements (section 45) and bid-rigging agreements (section 47).
FEBRUARY 29, 2012 – Teleconference
The National Competition Law Section of the Canadian Bar Association will be holding a teleconference on February 29, 2012 entitled: “Criminal Conspiracy or Legitimate Competitor Collaboration? Tips for In-House Counsel”
On January 19, 2012, the Competition Tribunal set hearing dates in the ongoing abuse of dominance case The Commissioner of Competition v. The Toronto Real Estate Board (see Scheduling Order).
The evidentiary portion of the hearing in this case is scheduled to begin on September 10, 2012 in Toronto.
A claim against two major real estate boards and their executives for breaching terms of an earlier settlement agreement, common law and Competition Act conspiracy and certain economic torts survived a motion to dismiss last week. The reasons for judgment provide insight into the sufficiency of pleadings in cases involving allegations of anti-competitive conspiracies against businesses and their executives.
Last Friday, Mr. Justice Kenneth L. Campbell of the Ontario Superior Court of Justice dismissed a motion by the defendants in Dale v. The Toronto Real Estate Board to dismiss Realtysellers (Ontario) Limited’s (“Realtysellers”) action against The Canadian Real Estate Board (“CREA”), The Toronto Real Estate Board (“TREB”) and 47 other defendants (for a copy of the decision see: Dale v. The Toronto Real Estate Board).
We are pleased to provide this global competition update, with a focus on Asia Pacific, from our friends at Rajah Tann in Singapore.
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Happy New Year! Welcome to our refreshed Competition Review 2012, which presents an overview of developments in competition laws from around the world in the past few months, with a focus on ASEAN and Asia. This issue covers developments, which have occurred in the second half of 2011 that may interest you.
Each of the decisions and studies discussed below is intended to give you a flavor of the issues in the competition and anti-trust scene so that, when you review your business activities, structure new deals or make acquisitions, you have these issues at the back of your mind and provide for them. For ease of convenience we have organized our Competition Review into three sections – anti-competitive agreements, abuse of dominance and mergers.
We set out below some of the key principles that emerge from the cases discussed below:
(a) co-operating with competition authorities for a speedy resolution may help reduce penalties (see EU: European Commission (‘Commission’) Fines Producers Of CRT Glass €128 Million In Cartel Settlement);
(b) a competition authority may recommend shareholders to replace their directors or officers if they do not fully cooperate with investigations (see Indonesia: Indonesian Competition Authority KPPU Recommends President Director Be Replaced);
(c) even though a competition authority may not have powers to review mergers, it may investigate the transaction for other anti-competitive aspects (see Malaysia: Malaysia Competition Commission (‘MYCC’) To Investigate Air Asia-Malaysian Airlines (‘MAS’), Share Swap And Collaborative Agreement);
(d) exchanging information between competitors through a third party, such as software service providers, may lead to a violation of competition laws if the exchange is of sensitive information (see UK: Motor Insurers Agree To Limit Data Exchange And Provide Commitments to the Office Of Fair Trading (‘OFT’)); and
(e) not all jurisdictions, where merging parties have presence, will require merger notification. Undertakings with large presence in one jurisdiction may not have sufficiently significant presence in other jurisdictions that crosses notification triggers (see Indonesia: Microsoft’s Acquisition Of Skype Does Not Need Notification).
On January 4, 2012, the U.S. Federal Trade Commission (“FTC”) announced that it filed complaints against three of the largest U.S. suppliers of ductile iron pipe fittings for an alleged price-fixing cartel.
The FTC is also alleging that parties used a trade association (the Ductile Iron Fittings Research Association) to exchange information and monitor adherence to the cartel agreement.
See: FTC Action Protects Competition in Market for Iron Pipe Fittings Used in Municipal Water Systems
The past year has been a busy one for Canadian competition law.
Developments in 2011 include new cases, enforcement and legislation in most key areas including abuse of dominance (the Competition Bureau’s ongoing challenge of The Toronto Real Estate Board and CREA settlement in late 2010), criminal conspiracy (developments in price-fixing class action litigation and some Bureau enforcement), refusal to deal (several important private access section 75 cases, including a decision of the Federal Court of Appeal), contested mergers (in the waste and airline markets), price maintenance (the merchant fees case involving Visa and MasterCard) and misleading advertising (involving Bell Canada, Rogers and others).
The Competition Bureau is testing the new rules under Canada’s Competition Act, which came into force in 2009 and 2010, and private plaintiffs are creating new law in a number of ongoing competition/antitrust class actions in Canada (principally indirect purchaser price-fixing cases relating to the sale and supply of dynamic random access, or “DRAMs”, high fructose corn syrup and computer operating systems).
At the same time, several new pieces of legislation have been introduced including a federal omnibus crime bill, which will eliminate conditional sentences for some competition law offences, and sweeping new anti-spam legislation (Bill C-28 or “FISA“) that once in force will be among the strictest anti-spam regimes in the world.
The Commissioner of Competition, and other federal enforcement officials including the RCMP, have also expressed intentions to adopt tougher enforcement stances in relation to competition law and other white collar crime.
In general, these developments mean that it remains important for Canadian companies, organizations and their executives to maintain a practical awareness of Canadian competition law.
Some of the key competition law and related developments of 2011 include:
Our friends at Associations Plus in Alberta have launched a new blog, with their latest blog post highlighting some of the practical aspects of Canada’s new federal anti-spam legislation (Bill C-28). See: $10 Million is the New Hefty Price Tag for Unsolicited E-mail Blasts!
We wish them all the best with their new associations blog.
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For more information about Bill C-28 see:
Most association activities are legitimate and unlikely to raise competition law concerns. However, given that many, if not most, association activities involve the direct interaction of competitors, it is prudent for association executives, staff and their advisors to take practical steps to reduce potential competition law risk.
The Commissioner of Competition, Melanie Aitken, addressed current enforcement priorities in two engaging and wide-ranging talks in Vancouver this evening: a keynote speech at a reception hosted by the University of British Columbia, National Centre for Business Law at the Four Seasons and a Vancouver Competition Policy Roundtable meeting organized by Professor Tom Ross of the Sauder School of Business.
On November 2, 2011, Madam Justice Simpson of the federal Competition Tribunal (the “Tribunal”) granted leave to Realtysellers (“RS”) and The Canadian Real Estate Association (“CREA”) to intervene in the Toronto Real Estate Board (“TREB”) abuse of dominance case.
Following the Tribunal’s decision, CREA’s President Gary Morse said:
“We are pleased that the Tribunal is willing to hear our position in this matter and look forward to contributing to the Tribunal on important issues that will affect not only TREB and its members, but will also have broader implications for other Boards and Associations … The important issues under discussion may lead to a Tribunal Order affecting data sharing over the Internet which directly affects the interests of all CREA members … It is important for us, and our members, to be at the table and part of this discussion.”
CREA and RS both moved for leave to intervene in the TREB abuse of dominance case on October 18, 2011.
Abuse of Dominance
To establish abuse of dominance under the Competition Act, which is one of the Act’s civil “reviewable matters”, the Commissioner of Competition must establish: (i) that a firm (or firms) is dominant (possesses market power in a relevant market), (ii) the firm has engaged in a practice of anti-competitive acts and (iii) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially.
The Competition Bureau (the “Bureau”) commenced its case against TREB in May 2011, arguing that TREB was using its control of the MLS System to pass rules and policies restricting brokers access to and use of TREB’s MLS System. In particular, the Bureau has taken the position that certain TREB rules regarding the use of its MLS data prevents brokers from using “virtual office websites” (secure, password protected “VOWs” to provide real estate brokerage services to their customers over the Internet).
With respect to the necessary elements to establish abuse of dominance, the Bureau is arguing that TREB is dominant (in the residential real estate services market in the Greater Toronto area), that is has engaged in a practice of anti-competitive acts (rules governing the use of its MLS data) and that its conduct has resulted in a substantial prevention or lessening of competition.
CREA’s and Realtysellers’ Intervenor Applications
The Competition Tribunal Act provides that any person may intervene in Tribunal proceedings with leave from the Tribunal, which has held that applicants for intervenor status must meet the following elements: (i) they are directly affected, (ii) the matter is legitimately within the scope of the Tribunal’s consideration (or sufficiently relevant to its mandate), (iii) the intervenor’s representations are relevant to an issue raised by the Commissioner and (iv) the intervenor will bring a unique or distinct perspective to the proceedings.
CREA sought leave to intervene to deal with, among other things, relevant market definition (product and market definition), the use and competitive impact of VOWs (and other data-sharing vehicles in Canada) and the impacts of potential remedies on CREA and its members (including on its MLS and other trademarks).
Madam Justice Simpson granted CREA leave to intervene with respect to: (i) the use and competitive impact of other (i.e., non-VOW) Internet data-sharing vehicles in Canada, (ii) the appropriate terms of use/conditions to be included in rules to implement non-VOW Internet data-sharing vehicles and (iii) the impact of proposed remedies on CREA and its members (including on its MLS and other trademarks). With respect to process, the Tribunal granted CREA leave to intervene to review discovery transcripts and productions, call two fact or expert witnesses, cross-examine the Commissioner’s witnesses, participate in pre-hearing proceedings and make oral and written submissions.
The Tribunal also granted RS leave to intervene with respect to: (i) the cost savings and operational efficiencies of operating a virtual office (and the savings that can be passed on to consumers), (ii) the impact of TREB’s current rules and policies (including its recent VOW policy) on non-traditional brokerages that want to supply MLS information to consumers through a virtual office and (iii) the proposed order and impact it may have on non-traditional brokerages that want to provide consumers with MLS information through virtual offices.
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For the Tribunal’s order granting leave to RS and CREA see:
For recent media coverage see:
REM: CREA, Realtysellers Both Get Standing at TREB Competition Case, Toronto Sun: CREA to Have its Say at Competition Tribunal, Canada Newswire: CREA Welcomes Decision of Competition Tribunal, Toronto Star: Two Realty Players Join Competition Tribunal Case.
For more about the TREB case see:
CREA Seeks Leave to Intervene in TREB Abuse of Dominance Case, Toronto Real Estate Board Fights Back in Abuse of Dominance Case – Asserts Market Definition and Intellectual Property Rights Arguments, Competition Bureau Files Competition Tribunal Application Against the Toronto Real Estate Board.
For the pleadings in the TREB case see:
Commissioner of Competition v. The Toronto Real Estate Board – Notice of Application, Commissioner of Competition v. The Toronto Real Estate Board – TREB Response, Commissioner of Competition v. The Toronto Real Estate Board – Commissioner’s Reply.
On October 25, 2011, the Competition Bureau published the Commissioner of Competition’s speech given at the 2011 Canadian Bar Association’s Annual Competition Law Conference in Ottawa.
It is fair to say that the Commissioner’s recent speech presented a singular tone across the civil and criminal competition law areas: enhanced enforcement.
Of the Commissioner’s remarks, some of the more interesting points include the Bureau’s increased focus on reviewing non-notifiable mergers (i.e., transactions that do not trigger the notification thresholds under the Competition Act), the statement that the Bureau has begun to revoke markers in some immunity cases where in its view immunity applicants are not complying with its Immunity Program and a subtle suggestion that the Bureau was preparing to bring, but not quite yet in a position to commence, the first conspiracy cases under the amended section 45 (Canada’s new hard core criminal conspiracy offences). The following are some highlights from the Commissioner’s recent speech.
We are pleased to announce the forthcoming publication by Carswell this fall of The Competition Law Guide for Associations in Canada jointly authored by Steve Szentesi and Mark Katz.
The Guide, the first book of its kind in Canada, will be a practical and concise summary of Canadian competition law as it applies to trade, professional and other associations. It will include an overview of the major areas of Canadian competition law that apply to associations, including the conspiracy, bid-rigging, abuse of dominance and misleading advertising provisions of the federal Competition Act.
The Guide will also include discussions of some of the specific types of association activities that can raise competition law concerns including membership criteria and discipline, codes of conduct and standard setting, meetings and information exchanges and joint association activities (e.g., joint negotiation and marketing, joint purchasing activities and lobbying and advocacy). A compendium of “best practices” (i.e., do’s and don’ts) will also be provided together with sample guidelines for the conduct of association meetings, document creation and responding to government investigations (principally search and seizures). Basic sample association compliance presentations for associations will also be included.
The Guide is intended to provide a practical resource for trade and professional association executives, their personnel and counsel to better understand Canadian competition law as it applies to association activities and to assist them in anticipating and reducing potential competition law liability.
For more information about this forthcoming book see Carswell’s product catalogue:
The Competition Law Guide for Trade Associations in Canada
Carswell will also be offering an online webinar in November in conjunction with the publication of the Guide. For more information see:
West LegalEdcenter – A Guide to Canadian Competition Law for Trade and other Associations
The British Columbia Real Estate Association will be hosting its 2011 Instructor Development Workshop in Whistler from September 22nd to 25th 2011, for instructors of REALTORS in British Columbia.
Steve Szentesi will be facilitating a competition law workshop (amendments to the Competition Act and developments in the first two years in force) on Sunday, September 25th.
For more information about the IDW workshop, event schedule and speakers see BCREA’s website:
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 September 2, 2011, the Competition Bureau released its “ex-post assessment” of its 2007 Self-Regulated Professions Study (Self-regulated professions – Balancing competition and regulation (December, 2007)).
According to the Bureau, its new Study “surveys and assesses developments that have taken place relating to recommendations made in [its] 2007 Study” and “provides an overview of the progress made since 2007” to the earlier recommendations made by the Bureau.
In 2007, the Bureau released a Study on the rules and regulations governing five Canadian professions (real estate agents, pharmacists, lawyers, accountants and optometrists), intended to study the impact (or lack of it in some cases) of competition on the self-regulated professions in Canada.
The Bureau’s 2007 Study examined six aspects of self-regulation – in particular, restrictions on entering a profession, mobility, business structure, scope of services/practice, advertising and pricing and compensation – and made 53 recommendations to the various professions in an effort to try and enhance competition in those professions.
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.
In a very interesting refusal to supply case currently before the federal Competition Tribunal the Used Car Dealers Association of Ontario (“UCDA”) is attempting to obtain leave from the Tribunal for the re-supply by the Insurance Bureau of Canada (“IBC”) of data used in one of the UCDA’s products (Auto Check – which provides used vehicle accident history searches to its dealer members).
According to the UCDA, the data previously supplied by the IBC is a “critical input” for its Auto Check product and is, as such, seeking a Tribunal order under the refusal to deal and price maintenance provisions of the Competition Act for the IBC to recommence supply (both sections 75 and 76 of the Act, refusal to deal and price maintenance, allow the Tribunal to order suppliers to re-supply where the elements of those sections are met).
Not surprisingly, the IBC argues that the UCDA’s leave application should be dismissed, including based on the 1997 Warner case. In Warner, which involved a rather rare application by the Competition Bureau under section 75 (refusal to deal) in the context of Warner Music’s refusal to grant music copyright licenses to its competitor BMG Canada for its competing Canadian mail order record club business, the Tribunal accepted Warner’s arguments that section 75 did not apply in a refusal to license context.
In particular, the Tribunal held that licenses are not a “product” for the purposes of section 75, that there cannot be an “ample supply” of legal rights over intellectual property which are “exclusive by their very nature” and that there cannot be “usual trade terms” for licenses when they may be withheld – all requirements to establish refusal to deal under the Act.
While the Tribunal went on in Warner to concede that a copyright license could be a “product” for under other sections of the Act, it relied largely on principles of statutory interpretation to decide that section 75 was not intended to encompass refusals to license intellectual property.
Since it was decided, Warner has generally been viewed as an obstacle to parties seeking to invoke section 75 in a refusal to license context. To decide otherwise has been seen by some as potentially leading to a “compulsory licensing regime” under the Competition Act. Others, however, have criticized Warner as having been wrongly decided.
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 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 its 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.
In its amended Application, the Bureau reinforces its earlier abuse of dominance arguments against TREB by arguing that TREB’s new VOW rules are a further anti-competitive act that would continue to discriminate against brokers wishing to offer VOWs (conduct must be predatory, disciplinary or exclusionary toward a competitor to constitute an anti-competitive act under section 79 of the Act).
In particular, the Bureau argues that by imposing limitations on the types of information available on VOWs that are not in place for traditional brokerages, including historical sales information, which can currently be provided by traditional means (e.g., hand, e-mail or fax), TREB is discriminating against brokers that want to operate VOWs.
In addition to proving that TREB engaged in a practice of anti-competitive acts, the Bureau will also need to show that as a result of TREB’s conduct, competition has been (or will likely be) prevented or substantially lessened, which involves considering whether a target’s market position will likely be maintained or enhanced as a result of its actions.
In this regard, the Bureau makes a number of new arguments including that TREB’s VOW rules would continue to require customers to contact a member broker personally for key information including historical sales data and that TREB’s VOW rules are “vague and ambiguous” so would “impede the entry of innovative real estate models”.
In essence, the Bureau argues that TREB’s proposed VOW rules would operate as a further barrier to entry for real estate brokerages wishing to operate VOWs using TREB’s MLS data, reinforcing the market position of traditional brokerage firms.
Interesting aspects of this case include whether the Bureau will be able to prove that TREB is dominant in the market for residential real estate services in the GTA (given that TREB, as a trade association, does not actually provide residential real estate brokerage services), whether TREB’s MLS system is indeed the essential facility the Bureau argues it is (the Bureau’s case turns in large part on the argument that TREB’s MLS system is an essential input into the provision of real estate services in the GTA, though there has not yet been a decided essential facilities case in Canada) and whether TREB’s rules constitute an anti-competitive act for section 79 of the Act (given the limited case law to date under the modern abuse of dominance provisions, and no direct precedent for the Bureau’s position on anti-competitive acts).
For a copy of the Bureau’s amended Notice of Application see:
Commissioner of Competition and The Toronto Real Estate Board – Amended Notice of Application
For a copy of the Bureau’s Notice of Application see:
Commissioner of Competition and The Toronto Real Estate Board – Notice of Application
For more information on abuse of dominance in Canada see:
Somewhat eclipsed by the recent Competition Bureau case commenced against Canada’s largest real estate board, the Toronto Real Estate Board, are signs that the Bureau may also intervene to stem complaints that provincial boards and associations are thwarting flat-fee listing agents from posting Canada-wide listings.
The Globe and Mail has reported that:
“A fresh fight is brewing in the home sales industry, as the associations that represent real estate agents try to enforce restrictions on new, lower-cost competitors in an effort to prevent them from doing business across provincial boundaries.
The competitors offer low-cost, flat-fee listings on Realtor.ca, and were under the impression they would be able to accept clients from across the country after the real estate industry settled a case with the Competition Bureau last year that allowed them entry to the market.”
According to the Globe, some Canadian real estate firms are saying that they are being forced out of business by local real estate boards interpreting provincial legislation “in a way that prevents them from competing with commission-based agents” and that they have asked the Competition Bureau to intervene in this fresh fight.
The key issue is whether, as a result of the recent CREA settlement with the Bureau, real estate agents operating and licensed in one province should be permitted to post listings from other provinces on Realtor.ca (and the extent to which the voluntary trade associations to which they belong – i.e., the various local real estate boards and associations – should have the power to restrict such Canada-wide listings).
Some boards and provincial regulators have taken the position that the agents posting Canada-wide listings are trading in real estate and, as such, must be licensed in each province from which they are posting listings (i.e., an agent licensed in Ontario should not, for example, be permitted to post listings on Realtor.ca from Manitoba).
While the issue may seem straightforward enough when it comes to dealing with the local boards and associations, which do not have any legislative power to regulate broker and agent activities (local real estate boards and associations are non-statutory voluntary trade associations), it may prove to be a very different matter when the agents face the provincial regulators.
This is because the “regulated conduct defence” (“RCD”) may operate to preclude Bureau enforcement action where a legislatively authorized provincial regulator limits or restricts the ability of agents licensed in one province to post listings on Realtor.ca from another province in which they are not licensed to operate. In particular, the RCD can operate to exempt conduct that would otherwise be subject to the Competition Act where it is either mandated or authorized by valid provincial or federal legislation.
As such, while the Bureau may decide to take steps against local boards for restricting members from offering Canada-wide listings on Realtor.ca, or take the position that the terms of the recent settlement between CREA and the Commissioner are not being complied with, it may have no power to proceed against provincial regulators that discipline or sanction agents for not complying with provincial rules regulating real estate agents (e.g., for unlicensed trading in real estate).
For more see:
Competition Bureau Asked to Settle New Fight Over MLS Listings
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
On May 24th, the European Commission announced that it had fined Suez Environment and Lyonnaise des Eaux €8 million for breaching a seal during a regulatory inspection.
In making the announcement, the Commission stated:
“Joaquín Almunia, Vice President of the Commission in charge of competition policy, said: ‘Inspections are a key tool in the fight against cartels as companies rarely voluntarily hand over evidence of anti-competitive practices. Even when a company does give evidence in return for immunity, the Commission must still prove the participation of others, the practices themselves and their duration. It is therefore important that companies do not break seals, which may be necessary when there is more than one office to inspect or a day is not enough.’
From 13 to 16 April 2010 the Commission conducted an inspection at the premises of water management companies in France, including LDE, over suspicions of anti-competitive behaviour (see MEMO/10/134). Coming back the morning of the second day, the Commission officials found that a seal had been broken at LDE’s headquarters. The Commission immediately started an investigation (see IP/10/691). LDE and Suez Environnement admitted that an LDE employee breached the seal, arguing an unintentional act
Breaches of seals are a serious infringement of competition law. The Commission however took into account the immediate and constructive cooperation of Suez Environnement and LDE, which provided more information than was its obligation, when setting the fine.
The investigation into suspected anticompetitive practices in the water and waste water markets is still on-going (see MEMO/10/134).”
Like the European Commission, the Competition Bureau has a wide range of enforcement powers available to it to investigate potential violations of competition law under the Competition Act. These include the power to obtain search warrants, document production orders, orders compelling testimony under oath and wiretaps. The Bureau is increasingly resorting to these powers, particularly in relation to its enforcement priorities that include the detection and investigation of criminal cartels and deceptive and fraudulent marketing.
The Competition Act also contains obstruction provisions, which make it a criminal offence to impede or prevent (or attempt to impede or prevent) inquiries or examinations under the Act[1] (see for example: Morgan Companies Fined $1 Million for Obstruction and Price-fixing).
As such, companies and organizations that may realistically face the prospect of a competition law investigation or search at some point – for example, companies in higher risk industries including construction, oil and gas, trade associations, etc – are well advised to adopt basic search and seizure guidelines to reduce the likelihood of breaching Canadian competition law in the event of a search.
These commonly include guidelines dealing with how to deal with Bureau officials during a search, advising company/organization personnel, the control of information and PR, inspecting the search warrant and reducing the risk of breaching the obstruction provisions of the Act which can lead to additional liability (such as by breaching sealed boxes or rooms or impeding Bureau officers during a search).
For the full news release see: Commission Fines Suez Environnement and Lyonnaise des Eaux €8 Million for the Breach of a Seal During an Inspection.
For more information about the Competition Bureau’s enforcement powers see: Competition Bureau Enforcement.
[1] Obstruction of an inquiry or examination is a criminal offence under the Act, with potential penalties, on summary conviction, of a fine up to $100,000, imprisonment for up to 2 years, or both and, on indictment, an unlimited fine (i.e., in the discretion of the court), imprisonment for up to 10 years, or both (Act, subsections 64(1), (2)). Failure to comply with sections 11 (section 11 orders) or 15 (search warrants) are also criminal offences, with potential penalties, on summary conviction, of a fine up to 100,000, imprisonment for up to 2 years, or both and, on indictment, an unlimited fine (i.e., in the discretion of the court), imprisonment for up to 2 years, or both (Act, subsections 65(1), (2)). In addition, destruction or alteration of records that are sought by the Bureau under section 11 (section 11 orders) or 15 (search warrants) is punishable, on summary conviction, by fines up to 100,000, imprisonment for up to 2 years, or both and, on indictment, by unlimited fines (i.e., in the discretion of the court), imprisonment up to 10 years, or both (Act, subsection 65(3)). The Act also provides that corporate officers, directors or agents may be liable independently of whether a company is prosecuted for a failure to comply (Act, subsection 64(4)).
Competition Bureau Tests New Price Maintenance Provisions with Challenge Against Visa and MasterCard
The Competition Bureau announced earlier today that it had filed an application with the federal Competition Tribunal, and was launching a challenge, against Visa and MasterCard in relation to alleged “restrictive and anti-competitive rules that Visa and MasterCard impose on merchants who accept their credit cards.”
In making its announcement, the Bureau stated:
“The Commissioner of Competition alleges that these rules have effectively eliminated competition between Visa and MasterCard for merchants’ acceptance of their credit cards, resulting in increased costs to businesses and, ultimately, consumers. Merchants in Canada pay an estimated $5 billion annually in hidden credit card fees.
The anti-competitive restraints on merchants result in higher prices for all consumers, whether they pay by cash, cheque, debit or credit, because merchants pass along some or all of the high costs they are forced to pay as a result of Visa’s and MasterCard’s anti-competitive rules.
…
The rules challenged by the Bureau prohibit merchants from encouraging consumers to consider lower cost payment options like cash or debit, and prohibit merchants from applying a surcharge to a purchase on a high cost card. Further, once a merchant agrees to accept one of Visa or MasterCard’s credit cards, that merchant must accept all credit cards offered by that company, including cards that impose significant costs on merchants, such as premium cards.
Canada has among the highest credit card fees in the world. Many countries have taken steps to reduce the fees paid by merchants. Canadian merchants that accept Visa and MasterCard credit cards must pay a fee ranging between 1.5 and 3 percent or more of each purchase, nearly twice as much as their counterparts pay in Europe, New Zealand and Australia, but slightly less than in the United States. By contrast, the card acceptance and processing fee paid by merchants in the case of an Interac debit transaction is a flat fee of approximately 12 cents, regardless of the value of the purchase. To provide a practical example, a 3 percent hidden credit card fee on a $400 set of snow tires is $12, but if a debit card is used for the same purchase, the fee is 12 cents.”
According to the Bureau, Visa and MasterCard together processed more than 90% of all credit card transactions by Canadian consumers in 2009, representing more than $240 billion in purchases.
This case is interesting in that it is the first price maintenance application made by the Bureau to the Competition Tribunal since the new civil price maintenance provisions were passed as part of sweeping amendments to the Competition Act in 2009. As part of the changes to the Competition Act, a number of previous criminal pricing provisions, including the former criminal price maintenance provisions, were repealed (and a new civil price maintenance provision enacted).
The new price maintenance provisions prohibit, among other things, agreements to influence customers to increase prices and refusals to supply based on another person’s low pricing policy. Also, whereas the former price maintenance offences were “per se” offences (i.e., not requiring any adverse market effects to be proven), the new civil provisions now include a competitive effects test – i.e., it must be proven that price maintenance conduct has an “adverse effect” on competition in a market. The former price maintenance provisions were widely criticized as being out of step with current economic thinking.
The case is also interesting in that the price maintenance provisions expressly includes credit card suppliers as one category of supplier against whom Tribunal orders can be made (though we are not aware of another Canadian price maintenance case that has proceeded on this footing).
If this case proceeds, it will offer welcome clarity to one of the key new provisions of the Competition Act, including what is required to prove price maintenance under the new section 76, the meaning and test for the new competitive effects element and how the economic analysis accords with other reviewable matters under the Act (e.g., abuse of dominance and the refusal to deal provisions, which as a result of previous amendments also incorporated an “adverse effects” competitive effects test).
For a copy of the Bureau’s Competition Tribunal application see: Competition Tribunal.
For a copy of the Bureau’s News Release see: Competition Bureau Challenges Visa and MasterCard’s Anti-competitive Rules.
“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues. Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct. A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition. It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct. Such programs may allow trade associations and its members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities. They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.” (Competition Bureau, Corporate Compliance Programs Information Bulletin)
OVERVIEW
Trade and professional associations can serve many legitimate purposes, including promoting common interests to the public, lobbying and advocacy, research, member education and the promotion and improvement of product standards.
However, because association activities by definition involve the interaction of direct competitors, they can in some cases raise serious competition law concerns under the federal Competition Act.
In general, some of types of association activities that can raise competition law issues include those dealing with pricing, advertising, customers, territories, market shares, terms of sale and other key elements of competition.
Some of the specific association activities that can be problematic include: (i) board and membership meetings, (ii) exchanges of competitively sensitive information (e.g., relating to fees, customers, costs, bidding/tendering, etc.), (iii) association rules and bylaws (e.g., mandatory or suggested fee guidelines, advertising restrictions, etc.) and (iv) advertising or marketing restrictions.
This summary discusses Canadian competition law as it applies to trade and professional associations, including an overview of the Competition Act, key sections relevant to associations, some association activities that can raise competition law issues and searches and investigations.
CANADIAN COMPETITION LAW
Legislation
Competition law in Canada is governed by the federal Competition Act (the “Act”). The Act, which contains both criminal offences and civil “reviewable matters”, is law of “general application” in that it applies to most business activities in Canada including many trade association activities.
Purposes
The Act sets out four objectives of Canadian competition law that are not always easily reconcilable: (i) to promote the efficiency and adaptability of the Canadian economy, (ii) to expand opportunities for Canadian participation in world markets, (iii) to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and (iv) to provide consumers with competitive prices and product choices.
As a practical matter, at least from the perspective of competition law enforcement agencies, the main overarching purpose of competition law is to ensure that consumers benefit from competitive markets.
Criminal and Civil Sections
The Act contains a number of criminal provisions. These include the conspiracy, bid-rigging, criminal misleading advertising and deceptive telemarketing sections.
The Act also contains a number of civil (non-criminal) “reviewable matters” sections. These include the price maintenance, civil misleading advertising, refusal to deal, abuse of dominance and tied selling, exclusive dealing and market restriction sections.
Enforcement
The Act is administered and enforced by the federal Competition Bureau (the “Bureau“), which is a federal enforcement agency headed by the Commissioner of Competition (the “Commissioner“).
These have included associations of ambulance operators, banks, building contractors, business forms suppliers, coal dealers, corrugated box manufacturers, corrugated metal pipe manufacturers, electrical contractors, fruit growers, gypsum dealers and manufacturers, insurance salespersons, lawyers, mandarin orange importers, notaries, pharmacists, paper mills, plumbing contractors and suppliers, real estate agents, softwood lumber dealers, surveyors and wholesale grocers, among many others.
A great many international cartel cases have also involved associations, including in the flat glass, fasteners, synthetic rubber, raw tobacco, copper fittings, sorbates, citric acid, acrylic glass, choline chloride, industrial bags, copper tubes, carbon brushes, concrete reinforcing bar, industrial gases and carbonless paper industries, among others.
Recent Canadian cases have involved the Saskatchewan Roofing Contractors Association (2009 – alleged bid-rigging issues) and The Canadian Real Estate Association (2009/2010 – alleged abuse of dominance).
Under the Act, the Commissioner’s enforcement powers include the power to make voluntary information requests, obtain compulsory production orders and search warrants and orders to interview employees under oath. In addition, the Commissioner has the power to apply to the federal Competition Tribunal (the “Tribunal”) for orders and refer criminal matters to the Director of Public Prosecutions (“DPP”) for criminal prosecution.
Proceedings may be commenced under the Act by the Bureau itself as a result of its own investigations or based on complaints from customers, competitors, suppliers or other industry participants.
In addition to Bureau investigations, private parties may commence private civil actions against persons contravening the criminal sections of the Act, including the criminal conspiracy and criminal misleading advertising sections, and make “private access” applications to the Tribunal for Tribunal orders.
In the context of trade associations, for example, private actions can be commenced by competitors or customers that have suffered damages as a result of the activities of an association or its members.
The Bureau has also recently issued new enforcement guidelines setting out its enforcement approach to collaborations between competitors, including trade association activities (Competitor Collaboration Guidelines).
Penalties
Contravention of the Act can be a serious matter and lead to significant penalties, lost time and negative publicity for companies, associations and their management. Potential penalties under the Act include criminal fines, civil “administrative monetary penalties” (essentially civil fines), imprisonment, damages as a result of private civil actions and prohibition orders or injunctions to stop conduct and/or take positive action (e.g., adopt compliance programs).
For example, penalties under the Act include criminal fines of up to $25 million or imprisonment for up to 14 years (under the criminal conspiracy provisions) and civil fines of up to $10 million (under the abuse of dominance provisions). In addition, there is also potential director and officer liability under the Act.
Recent fines in the last year, in connection with price-fixing investigations, include $3 million against suppliers of air compressors, $17 million against air cargo suppliers, $2.7 million against gasoline suppliers and $5.6 million against hydrogen peroxide suppliers. Recent penalties imposed on individuals include 54 months imprisonment (served in the community) imposed on gasoline company employees in the Quebec gasoline price-fixing case.
As a practical matter, the Bureau is more likely to proceed criminally (as opposed to civilly) where there has been intentional or fraudulent anti-competitive conduct, as opposed to where, for example, conduct has been engaged in accidentally or negligently and immediate remedial steps are taken.
SECTIONS RELEVANT TO ASSOCIATIONS
There are no specific sections of the Act dealing exclusively with trade or professional associations. However, some of the general sections that are particularly relevant to trade association activities include the criminal conspiracy, abuse of dominance, price maintenance and misleading advertising sections of the Act. These are discussed in more detail below.
Criminal Conspiracy
Section 45 of the Act, which is in many cases the most important section for trade associations to understand and comply with, contains three criminal conspiracy offences. Under section 45, three types of “hard core” anti-competitive agreements are illegal:
Price fixing agreements. Section 45 makes it a criminal offence for competitors (or potential competitors) to fix, maintain, increase or control the price for the supply of a product or service (e.g., agreements to set prices, discounts, minimum prices or establish fee tariffs). “Price” is broadly defined to include discounts, rebates, allowances, etc.
Market allocation/division agreements. Section 45 also makes it a criminal offence for competitors (or potential competitors) to allocate sales, territories, customers or markets for the production or supply of a product or service (e.g., agreements between competitors to not compete in relation to certain customers, groups or types of customers, in certain regions or market segments or in relation to certain types of transactions or products).
Output restriction agreements. Finally, section 45 also makes it a criminal offence for competitors (or potential competitors) to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product or service (e.g., agreements to limit the quantity or quality of products supplied, reduce the quantity of quality of products supplied to specific customers, limit increases in production or discontinue supply to specific customers or groups of customers).
In general, the risk for trade associations under the criminal conspiracy sections is twofold: (i) that an association may become a party to an anti-competitive agreement (or aid or abet an agreement) or (ii) that trade association members may become parties to an anti-competitive agreement.
To establish these offences, it is not necessary to prove that there have been any negative effects on any particular market (i.e., the offences are “per se” offences, which means that merely establishing that there was an agreement and intent to enter the agreement is sufficient). It is also not necessary to show that an agreement was ever carried out (i.e., the offence is in the agreement not in the implementation). An agreement can also be, and in a great many cases has been, established based merely on circumstantial evidence (i.e., while the existence of an agreement must be proven beyond a reasonable doubt, an actual written agreement does not need to be produced, which can be proven by other evidence or so-called “facilitating factors” – e.g., evidence of meetings, exchanges of competitively sensitive information, behaviour that can only be explained based on the existence of an agreement, etc.).
Finally, with respect to the criminal conspiracy offences, there is now a new “ancillary restraints” defense, which provides a defense under section 45 where it can be shown that an agreement between competitors is: (i) ancillary to a broader agreement, (ii) is directly related to and reasonably necessary to give effect to the broader agreement and (iii) that the broader agreement does not itself constitute an offence under section 45. While this new defense will likely apply to agreements that are either potentially pro-competitive (e.g., certain joint venture arrangements) or “on the line” it will likely provide no defense to “hard core” anti-competitive agreements – i.e., bare price fixing, market division/allocation or output restriction agreements between competitors.
The penalties for violating the criminal conspiracy sections can be severe, and include fines of up to $25 million (per count), imprisonment for up to 14 years, or both. In addition, court orders (so-called “prohibition orders”) may also be imposed to stop the conduct. In addition, private parties that have suffered actual loss or damage as a result of criminal conduct under the Act, including under section 45, may commence private civil damages actions.
Bid Rigging
The criminal bid-rigging provisions of the Act are also relevant to association activities – for example, where an association’s members are engaged in competitive bids or tenders (e.g., in the construction and IT sectors, etc.) or where an association attempts to regulate or control competitive tendering processes.
Section 47 of the Act sets out three distinct criminal bid-rigging offences, making it a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted (which was added to the Act as part of recent amendments) or (iii) submit a bid or tender that is arrived at by agreement.
Bid-rigging is ”per se” illegal, in that no anti-competitive effects on a relevant market (or markets) needs to be established in order to make out an offence (though, like conspiracy, all elements need to be established on the criminal burden – i.e., beyond a reasonable doubt).
Some common types of bid-rigging that can violate section 47 include: (i) “cover”, “courtesy” or “complementary” bidding (some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder), (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or withdraw a previously made bid), (iii) bid rotation (all parties submit bids but take turns being the low bidder according to a systematic or rotating basis), (iv) market division (where suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (parties that agree not to submit a bid, or submit a losing bid, are awarded subcontracts or supply agreements by the successful bidder).
To establish a bid rigging offence, all of the following elements must be established: (i) an agreement or arrangement between two or more persons (or bidders or tenderers as the case may be), (ii) to not submit a bid or tender, withdraw a bid or tender already made, or submit bids or tenders arrived at by agreement, (iii) intent, (iv) a call or request for bids or tenders and (v) the agreement or arrangement is not made known to the person calling for bids or tenders at or before the submission or withdrawal of a bid or tender by any party to the agreement.
Bid-rigging cannot be established where an agreement only involves affiliates (i.e., where an agreement or arrangement is entered into only between affiliates, as defined in the Act). In addition, a bid-rigging offence can also not be established where parties (or bidders) expressly communicate an agreement to a party calling for bids or tenders at or before the time when a bid is submitted or withdrawn.
The penalties for contravention of the bid-rigging provisions can be severe and include unlimited fines (i.e., fines in the discretion of the court), imprisonment for up to 14 years, or both.
Abuse of Dominance
The abuse of dominance provisions of the Act are also potentially relevant to trade and professional associations. Under sections 78 and 79 of the Act, abuse of dominance occurs where: (i) a dominant firm (or firms) in a market, (ii) has engaged in or is engaging in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, (iii) with the result that competition has been, is being or is likely to be prevented or lessened substantially.
Evaluating whether conduct constitutes abuse of dominance under the Act can be highly complex and require significant economic analysis, but in general terms usually involves anti-competitive conduct by one or more dominant firms that is either predatory (e.g., predatory pricing) or exclusionary (e.g., making it more difficult for some firms to compete, such as through long-term exclusive contracts).
Some of the types of trade association activities that can potentially raise abuse of dominance issues include efforts to restrict access to essential services or markets or set educational, qualification or membership standards that make it more difficult for competitors to enter or effectively compete.
The penalties for abuse of dominance include “administrative monetary penalties” (essentially civil fines) of up to $10 million ($15 million for repeat contraventions).
Price Maintenance
The new civil price maintenance sections of the Act under section 76 can also, in some cases, be relevant to trade association activities.
The first type of price maintenance that is potentially relevant to associations involves refusals to supply products (including services) or discriminate against other persons engaged in business based on their low pricing policy, where the conduct has an adverse effect on competition in a market.
The second type of price maintenance that is potentially relevant to association activities involves inducing a supplier, by agreement, threat, promise or any like means, as a condition of doing business with the supplier, to refuse to supply to another person based on the other person’s low pricing policy.
Where the elements for price maintenance are established under section 76, the Tribunal has the power to make “remedial orders” for parties to cease the conduct.
Misleading Advertising
The misleading advertising provisions of the Act can also be highly relevant to both trade associations and their members. In this regard, the Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations to promote the supply or use of a product, including services, or any business interest.
For a representation to be false or misleading, it must be shown that it has been made to the public, to promote a product or business interest, that it is literally false or misleading (or creates a false or misleading general impression) and that it is “material” (i.e., likely to influence a consumer into buying or using the product, or otherwise alter their conduct). The criminal misleading advertising provision is substantially similar, but requires in addition to the above elements that a representation be made intentionally (i.e., knowingly or recklessly).
The penalties for civil misleading advertising include “administrative monetary penalties” (essentially civil fines) of up to $750,000 (for individuals) and up to $10 million (for corporations), an order to cease the activity or an order to publish a corrective notice. The penalties for criminal misleading advertising include fines up to $200,000 and/or imprisonment for up to one year (on summary conviction) or fines in the discretion of the court and/or imprisonment for up to 14 years (on indictment).
Based on the potential liability, associations and their members should ensure that they do not engage in false or misleading representations in their day-to-day business dealings and that their rules and bylaws do not overly restrict legitimate pro-competitive advertising and marketing by members.
TRADE ASSOCIATION ACTIVITIES
Some of the specific association activities that can raise competition law concerns in some cases include: (i) association meetings, (ii) information exchanges (i.e., exchanges of competitively sensitive information relating to fees, customers, costs, bidding/tendering, etc.), (iii) association rules and bylaws (e.g., mandatory or suggested fee guidelines, advertising restrictions, etc.) and (iv) advertising or marketing restrictions.
Association Meetings
Meetings are a normal part of professional and trade association activities and can be related to a variety of legitimate and pro-competitive activities.
However, given that association meetings also in many, if not most, cases involve the interaction of direct competitors they are considered to be a high risk area for associations and their personnel.
This is because meetings between direct competitors can in some instances either result in conduct that actually violates the Act (e.g., lead to a price-fixing or other agreement that contravenes the Act) or can make it easier for a court or the Bureau to infer that anti-competitive conduct has occurred (e.g., use a meeting, if precautions are not taken, as evidence of an anti-competitive agreement).
As such, associations should adopt and comply with basic conduct of meeting guidelines.
Information Exchanges
Information exchanges (i.e., the exchange of competitively sensitive information between competitors) is another of the main risk areas for trade and professional associations, which may include the exchange of information relating to current/future pricing, market shares, costs, customers, current/future business plans and strategic plans and markets.
The reason the exchange or discussion of such information can potentially raise issues under the Act is because, when shared with competitors, it can in some cases lead to either the formation of an anti-competitive agreement (e.g., a price fixing agreement) or be used to infer the existence of an anti-competitive agreement (e.g., the exchange of pricing information between competitors followed by a stabilization of price).
Based on the potential risk, associations should adopt basic compliance guidelines for information exchanges between members in relation to legitimate association activities such as benchmarking, research, lobbying or other joint member initiatives.
Association Rules and Bylaws
Association rules, policies or bylaws can also, in some instances, raise competition law issues if they deal with competitively sensitive topics such as fees/pricing, marketing, advertising or membership restrictions or discipline. The key potential issue is that where an association enacts or enforces rules on competitively sensitive topics (e.g., fee tariffs, advertising restrictions, etc.), an allegation may be made that the association is either a party to or assisting in the formation of an anti-competitive agreement under section 45 of the Act. Association rules and codes of conduct can also in some cases raise concerns under the price maintenance and abuse of dominance provisions of the Act.
For example, the Bureau, in its recently issued Competitor Collaboration Guidelines, takes the position that anti-competitive agreements involving industry trade associations (or association rules, policies or by-laws that prevent or lessen competition substantially, and are enacted and enforced by an association with the approval of members who are competitors), can lead to liability for an association as either a party to an offence or on the basis of aiding and abetting an agreement.
As such, associations should review any rules, policies or bylaws that touch on competitively sensitive topics including fees/pricing, discounts, marketing and advertising and membership restrictions and discipline.
Advertising and Marketing
The misleading advertising provisions of the Act, discussed above, can also be potentially relevant to associations.
As such, trade and professional associations should ensure that their advertising and marketing activities comply with the Act. In addition, it is prudent for associations to review any association rules or codes of conduct regulating member advertising to reduce the likelihood that such rules themselves (i.e., association restrictions on member advertising) may be challenged under the Act.
SEARCHES AND INVESTIGATIONS
Finally, the Bureau has a wide range of enforcement powers available to it to investigate potential violations of the Act.
These include the ability to obtain search warrants, document production orders, orders compelling testimony under oath and wiretaps. Moreover, the Bureau is increasingly resorting to these powers, particularly in relation to its enforcement priorities, notably the detection and investigation of criminal cartels. The Act also contains obstruction provisions, which make it a criminal offence to impede or prevent (or attempt to impede or prevent) inquiries or examinations being conducted under the Act.
As such, associations and other organizations should adopt basic “search and seizure guidelines” in the event of a Bureau search or investigation. Such guidelines are meant to assist associations and other organizations to protect their rights (e.g., by claiming solicitor-client privilege to protect the confidentiality of legally privileged documents) and to reduce the potential liability that can arise in the context of a search (e.g., to avoid allegations of obstruction).
OUR SERVICES
We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. We regularly counsel trade associations and their executives and personnel on compliance with theCompetition Act. Our Canadian competition law services for trade associations include:
- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.
CONTACT US
We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients. Contact Us
Steve Szentesi and Christine Mingie Duhaime
Last month, the federal Competition Bureau started a criminal investigation into possible collusion involving the Quebec construction industry. The investigation is separate from an on-going investigation by the Bureau of the Quebec construction industry into bid-rigging, intimidation, fraud and influence. This investigation, together with others, shows that the Competition Bureau has significantly stepped up its enforcement efforts against the construction and other industries and is being closely watched by companies in British Columbia.
In the last year alone, the Bureau has assessed over $28 million in fines against companies for price-fixing, including $3 million against suppliers of air compressors, $17 million against air cargo suppliers, $2.7 million against gasoline suppliers and $5.6 million against hydrogen peroxide suppliers.
The Bureau tends to take enforcement action against companies, including when there is evidence of a criminal conspiracy, abuse of dominance, misleading advertising or deceptive marketing. Of these, the criminal conspiracies and abuse of dominance remain top enforcement priorities. With the Commissioner of Competition recently remarking that the Bureau currently had 42 on-going criminal investigations in Canada, this is also not merely enforcement agency bluster.
Under the Competition Act, it is illegal for individuals or companies to, among other things, fix prices with competitors, rig bids or engage in intentional misleading advertising. The Competition Act also regulates a variety of civil (i.e., non-criminal) conduct including some types of marketing and advertising, mergers and companies that abuse their dominant position. In addition, the Act applies to virtually all businesses and industries in Canada.
Canada’s New Conspiracy Law
In March, 2009 the Competition Act was significantly amended, with some changes coming into effect this year. These included three new criminal offences for price-fixing, market/division and supply restriction agreements. It is now “per se” illegal (i.e., without needing to show any adverse market effects) for competitors to, for example, fix the prices of their products or agree to divide geographic territories, customers or product lines.
The maximum penalties for criminal conspiracy agreements have also now more than doubled, with fines of up to $25 million (per count), imprisonment for up to fourteen years, or both. The penalties for criminal bid-rigging agreements have also been increased with a new bid-rigging offence having been introduced.
Based on the significant penalties, as well as director and officer liability, the potential risks associated with price-fixing activities are clear. Issues can, however, also arise in connection with many types of common commercial activities including joint ventures and strategic alliances between competitors and trade association activities (e.g., meetings, information exchanges, collective negotiations or attempts to regulate member fees or marketing).
In addition, certain industries and markets are more at risk than others – for example, industries that are declining, highly consolidated or where it is difficult to compete other than on price (e.g., construction, cement, steel, chemical inputs, etc.).
Implications and Steps to Reduce Risk
The Bureau’s stepped up enforcement efforts and increased penalties means that there is heightened risk associated with some types of business activities.
As such, British Columbia companies should be aware of the new rules, the potential risks related to some types of activities and steps that can be taken to reduce potential liability. These include:
Competition compliance and document retention programs. Adopt a competition compliance and document retention program to reduce potential liability. An effective document retention program is particularly important, given that many investigations are based on a company’s own internal documents produced on a voluntary or compelled basis (i.e., based on a court order).
Trade associations. Trade associations should have competition compliance programs or at minimum competition law guidelines for key activities, including meetings, get-togethers, contract negotiations, etc. before companies permit employees to join and participate.
Accurate communications. Ensure that all employees are aware of the importance of accurate internal and external communications from a competition law perspecitive– i.e., not incorrectly suggesting that prices/fees have been fixed, markets or customers have been divided or that an agreement or arrangement exists to limit supply.
Joint ventures and strategic alliances. Ensure that significant initiatives with competitors – for example joint venture and strategic alliance agreements – are reviewed by competent legal counsel for potential competition law concerns.
Information exchanges. Avoid the exchange of competitively sensitive information with competitors and potential competitors (e.g., current or future pricing, costs, customers or business or strategic plans).
Competitive bids and tenders. Do not agree with competing bidders to arrange the terms of a bid, withdraw a bid already made or not submit a bid. In addition, if participating in a bid consortium, ensure that the rules requiring disclosure before a bid is made are complied with (which can act as a defence).
Dealing with competitors. Ensure that employees are aware of what is and isn’t appropriate to discuss with competitors, as well as the types of competitor collaborations that can raise competition law issues in some cases (e.g., trade associations or joint ventures/strategic alliances).
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.
OUR BOOKS
The Competition Law Guide for Trade Associations in Canada is a practical and concise summary of Canadian competition law as it applies to trade, professional and other associations.
OUR COURSES
Competition Law and REALTORS®: What You Say and Do Matters was designed by ACRE with the assistance of CREA to help Canadian REALTORS® understand and comply with Canadian competition law.
This course is available
to members of Canadian
real estate boards.
For more information see ACRE