Canadian COMPETITION LAW

August 5, 2010

Canada’s national broadcaster, CBC has reported that Bell Canada’s Solo wireless brand is planning to introduce unlimited calling and texting plans later in August.  CBC states that, according to Bell Canada’s chief executive George Cope, the new plans are part of repositioning to compete with Rogers’ recently launched Chatr brand (and to compete with new mobile carriers Wind Mobile, Mobilicity and Public Mobile, which already offer plans with unlimited texting and voice calls).

It has also been reported that new entrant Mobilicity plans to file a complaint with the Competition Bureau against Rogers, possibly on the basis that Rogers (in launching Chatr) is abusing its alleged dominant position.

According to the Winnipeg Free Press, Mobilicity views Chatr as a threat and is planning to commence legal proceedings against Rogers.  The Winnipeg Free Press quoted Mobilicity’s chief operating officer Stewart Lyons as saying: “we feel that this is an attempt to try to drive us out, so that they can eventually raise prices”.

While Mobilicity has indicated in public statements that it has a variety of legal options, including civil litigation and complaints to the CRTC, the focus has been on a potential complaint to the Competition Bureau, which would presumably be a complaint under the Act’s civil abuse of dominance provisions.

While abuse of dominance, together with cartels and deceptive marketing, continue to be enforcement priorities for the Bureau, predatory pricing cases, which would be the likely focus of a complaint by Mobilicity, are rare and notoriously difficult to make out.

While private parties used to be able to commence private actions for predatory pricing under the Competition Act, after the Act was significantly amended in March, 2009 the criminal predatory pricing provisions were repealed leaving only the Act’s abuse provisions to commence predatory pricing proceedings (and only the Bureau can make applications to the Competition Tribunal under section 79).  As such, any new entrant wanting to challenge Rogers or Bell on predation grounds will have to both get the Bureau’s attention and convince the Bureau that there is a credible basis to make out a predation case (at least at a preliminary stage).

Moreover, while section 79, in addition to allowing general predatory pricing cases to be commenced, also sets out several other “anti-competitive acts” that are in essence forms of predation, including the introduction of “fighting brands” by a dominant firm.  Like predatory pricing generally, however, few cases have considered these provisions, and what case law exists is decades old.

Moreover, the factual and economic hurdles to successfully establishing predation are well known and include establishing that a firm is dominant, that its conduct constitutes an anti-competitive act, that the conduct has no legitimate business purposes and that the conduct has resulted in (or will likely result in) a substantial prevention or lessening of competition – this last factor would involve a requirement to show that the dominant firm is likely to be able to “recoup” its losses in the event it was successful in driving a new entrant out of the market.

Lawyers and economists in many jurisdictions have expressed doubt as to whether the necessary market conditions for predation will exist more than only occasionally.

Another of the notoriously difficult elements to establish in a predation case is the appropriate measure of cost to use as a measure for below cost pricing.  It is easy to say (and relatively easy to understand) that predatory pricing involves below cost pricing, but quite another to agree on the appropriate standard of cost (not to mention to agree on what categories of costs should be included, time-frames for calculation, etc.).

While Canadian courts and the Tribunal have adopted or considered a variety of cost standards over the years, including average avoidable costs, average variable costs and average total costs, there is no real consensus in the case law as to the appropriate standard.

Even where it can be shown that a dominant firm has engaged in below cost pricing (whatever the appropriate measure of cost is determined to be, which is unsettled in Canada), Canadian courts and the Tribunal have clearly established that below cost pricing is not determinative.   For example, cases decided under the former criminal predatory pricing provisions (section 50 of the Act) held that a number of factors must also be considered – for example, the degree of price reduction, duration of below cost pricing, the purpose of the reductions (i.e., whether a legitimate business purpose can be shown) and whether a price reduction is “offensive” (e.g., unprovoked) or “defensive” (e.g., to meet a new entrant’s pricing or offers).

Similarly, the Competition Tribunal has held that in order for conduct engaged in by a dominant firm to be “anti-competitive”, it must be shown that it was engaged in for a “predatory, exclusionary or disciplinary purpose”, which in itself is a significant obstacle (not least of which, because the firm accused of predatory pricing can also argue, under section 79 of the Act, that the pricing was engaged in for a legitimate business purpose).

In sum, while the wireless wars continue in Canada, and Canadian wireless consumers benefit from increased choice, the new entrants predatory pricing battle against the existing incumbents Rogers and Bell may be a tough road indeed.

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