Canadian COMPETITION LAW

July 2, 2010

We are pleased to launch the innaugural first edition of our Canadian Business Law Update newsletter.   Our Business Law Updates, online and in print to our clients, will provide Canadian business law updates in strategic areas of Canadian business law and Canadian competition/antitrust law.

This third instalment discusses two landmark Supreme Court competition / antitrust law cases  – one Canadian (denying leave to appeal in the recent DRAMS price-fixing class action) and the second from the U.S. Supreme Court – the American Needle case (with a holding on the issue of when a group of entities will be considered to be multiple, rather than a single, entity for Sherman Act section 1 antitrust liability, which is the U.S. parallel to Canada’s conspiracy rules under sections 45 and 90.1 of the recently amended Competition Act).

U.S. Supreme Court Tackles Single v. Multiple Enterprise Question in Landmark American Needle (NFL) Case: Some Potential Impacts for Canada

On May 24, 2010, the U.S. Supreme Court (“USSC”) delivered its opinion in the landmark American Needle antitrust case.   In this important decision, the USSC revisited the difficult question as to when an entity will be considered to be a single entity (as opposed to multiple entities) for the purposes of the application of section 1 of the Sherman Act, which prohibits certain illegal restraints of trade and is the U.S. equivalent to Canada’s criminal conspiracy offences.

This case involved a decision by the 32 separately owned teams in the NFL to grant exclusive licenses for their intellectual property and, in particular, an exclusive 10-year licence to Reebok International Ltd. to manufacture and sell trade-marked head wear for all 32 teams.

The plaintiff American Needle alleged that the agreements between the NFL, its teams, a corporation formed to manage the teams’ intellectual property, and Reebok violated sections 1 and 2 of the Sherman Act.  The defendants argued that they were incapable of conspiring within the meaning of section 1 “because they [were] a single economic enterprise, at least with respect to the conduct challenged.”

The issue in this case was therefore whether the NFL defendants were capable of engaging in a “contract, combination … or conspiracy” for the purposes of potential antitrust liability under section 1 of the Sherman Act.

The USSC held that the NFL’s licensing activities constituted concerted, not unilateral, action and, as such, was within the scope of section 1 of the Sherman Act.

In coming to its decision, the USSC rejected both lower courts’ holdings that the defendants had “so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.”  While the USSC and lower courts have considered this difficult question of how to distinguish between a single and multiple entities for the purpose of antitrust liability on a number of occasions (e.g., in Copperweld Corp. v. Independent Tube Corp., Texaco Inc. v. Dagher and Bork J.’s seminal decision in Rothery Storage & Van Co. v. Atlas Van Line, Inc.), the USSC in American Needle provided significant additional insight into how this distinction should be made.

In holding that the defendants’ activities constituted concerted action the USSC made a number of other noteworthy statements that may have a bearing on the interpretation of Canada’s recently amended conspiracy law.  For example, the USSC emphasized that in considering whether conduct is unilateral or concerted for the purposes of section 1 of the Sherman Act, the question does not merely turn on whether parties involved are legally distinct entities (or organized themselves under a single umbrella or into a structured joint venture), but that the “central substance of the situation” must be considered (the Court stated it was “moved by the identity of the persons who act, rather than the label of their hats”) and that “substance, not form” should dictate whether an entity is capable of conspiring under section 1 of the Sherman Act.

As the bar has been lowered to establish criminal conspiracy offences in Canada, it may now prove to be more important than ever to make arguments that parties to an alleged conspiracy are not multiple entities (which is a pre-condition for the application of the Competition Act’s conspiracy offences).  This may particularly be the case, for example, in the context of some decisions or rules adopted in the trade association or joint venture contexts.

Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action

On June 3, 2010 the Supreme Court of Canada (“SCC”) denied leave to appeal in the DRAMS price-fixing class action case (Infineon Technologies AG et al. v. Pro‑Sys Consultants Ltd.).  In this historic case, leave to appeal to the Supreme Court was sought from the British Columbia Court of Appeal (“BCCA”) that had approved certification of the DRAM memory price-fixing class action.  The BCCA had reversed the British Columbia Supreme Court’s decision and certified the class action against a group of five technology manufacturers accused of fixing their prices for computer memory chips.

The respondent computer firms in this case include Infineon, Hynix Semiconductor Inc., Samsung Electronics Co. Ltd., Micron Technology Inc. and Elpida Memory, Inc., who together represent approximately 76% of the global production of “dynamic random access memory” (or “DRAM”) that provides electronic memory and information retrieval for computer and telecommunications products.  Three of the respondents have settled U.S. class action proceedings for USD $160 million and all of the respondents, except Micron, have pleaded guilty to criminal cartel charges in the U.S. paying fines totalling about USD $731 million.

The BCCA held that the British Columbia Class Proceedings Act should be “construed generously in order to achieve its objectives” – for example, to improve access to justice and avoid duplication in legal proceedings.  The impact of the recent SCC decision denying leave in this case is that the BCCA’s plaintiff-favourable decision is now the latest appellate judgment on the certification of competition law class actions in Canada (and first Canadian appellate decision certifying a contested competition law class action).

It is also widely thought that the BCCA’s decision has significantly lowered the bar to certify competition law class actions in Canada and, together with recent amendments to the Competition Act is likely to lead to a marked increase in competition law private action activity in Canada.

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