February 1, 2020
A common question we receive, particularly from distributors and retailers, is whether refusals to sell or deal are illegal under Canada’s Competition Act. This question often arises in the context of a small to medium distributor or retailer who has been terminated from supply from a large brand or cannot obtain supply from a leading brand they want to distribute or sell. In Canada, in general, suppliers are free to determine whom to supply to and on what terms. Manufacturers and suppliers can also generally allocate exclusive sales or distribution territories (or impose re-sale restrictions on distributors or retailers). For more information, see Refusal to Deal.
Having said that, if a decision to refuse to supply or deal is concerted (i.e., subject to agreement by two or more competing manufacturers or distributors), this could potentially violate the criminal conspiracy offences under the Competition Act (and in particular, section 45(1)(c), which makes it a criminal offence for two or more competitors to enter into output restriction agreements).
More commonly, refusals to supply or deal in Canada are challenged under several reviewable matters provisions under Part VIII of the Competition Act (e.g., under the price maintenance, refusal to deal and abuse of dominance provisions.
For example, if a termination of supply is based on a customer’s or other resellers’ low pricing policy, a refusal to deal may be challenged by the Competition Bureau (Bureau) or a private applicant (with leave) before Canada’s federal Competition Tribunal (Tribunal) under section 76 of the Competition Act (price maintenance). For more information, see: Price Maintenance and Competition Litigation.
Refusals to deal or supply in Canada can also be challenged by the Bureau under sections 75 (a stand-alone civil refusal to deal provision of the Competition Act), 79 (abuse of dominance, if a manufacturer or distributor is dominant and the other requirements of section 79 are met) or 90.1 (the civil agreements provision, which allows the Tribunal to review competitor agreements if they prevent or lessen competition substantially in a market).
In most cases, however, under the Competition Act market effects must be considered as to whether a refusal to supply or deal violates the Competition Act (e.g., whether a refusal to deal has resulted in an adverse effect on competition for the refusal to deal (section 75) or price maintenance (section 76) provisions or if competition has been prevented or lessened substantially for the abuse of dominance provision (section 79).
Naked or per se collective refusals to supply or deal (i.e., where no market effects are required to be proven), however, are potential criminal offences under section 45 of the Competition Act, subject to fines of up to $25 million, imprisonment for up to 14 years, or both. For more information, see: Conspiracy (Cartels).
As such, competing manufacturers, distributors and other suppliers must be extremely cautious not to enter into any agreements that may violate the criminal conspiracy offences under section 45 of the Competition Act (including, in addition not to agree to restrict output or production with a competitor, to also not agree with competitors to fix prices or divide/allocate customers or territories).
For more information about Canadian competition/antitrust law, see: Competition Law, Competition Bureau Enforcement, Competition Bureau Complaints, Competition Law Compliance and the Canadian competition law overview pages to the left.
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We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
Our experience includes advising clients in Toronto, Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.
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For more information about our firm, visit our website: Competitionlawyer.ca
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