Canadian COMPETITION LAW

December 26, 2010

Derek Ireland, Steve Szentesi and Subhadip Ghosh

Regardless of the jurisdiction or the experience of its competition authorities, every competition agency has limited resources compared with the huge number of transactions and the potentially large number of anticompetitive practices and arrangements that take place in a typical month or year in a developing or emerging market economy.  Every competition agency therefore learns how to target its limited resources in a manner that generates maximum benefits for competition and the consumer.

For example, in Canada, the Canadian Competition Bureau is presently focusing on investigating and bringing more domestic cartel, abuse of dominance and deceptive marketing cases against high-profile companies.  Egregious deceptive marketing and advertising, particularly involving false performance claims and telemarketing targeting vulnerable consumers, also remain top priorities for the Bureau.

However, no competition agency has the resources to investigate in detail every allegation and complaint on possible anticompetitive conduct from competitors, business customers and other businesses, industry associations, civil society, other government ministries and agencies, the media and concerned citizens.  Difficult choices have to be made and competition agencies have to learn how to say no in a forthright but diplomatic manner that will encourage the complainant to provide information on anticompetitive conduct in the future.

Many competition agencies address this challenge through applying what could be called a notional risk based benefit-cost analysis to complaints, allegations of misconduct, and the information the agency collects itself on possible anticompetitive conduct and arrangements.  The analytical framework typically takes account of and weighs and compares the importance of a number of parameters that can include:

(1) the size and importance of the industry and relevant market for the national economy, other businesses and especially consumers;

(2) the actual or anticipated harm to competition and consumers – in short, whether the conduct, merger or other arrangement is likely to generate adverse competitive effects and pass the substantial lessening of competition (SLC) test;

(3) whether the allegation, complaint and complainant appears motivated by a desire to promote competition and the consumer interest, rather than a desire to protect another company: a competitor, supplier, business customer, and/or a company that may enter the relevant market in the future;

(4) whether competition law represents the correct legal instrument to address the alleged anticompetitive conduct and whether competition law appears to provide  feasible and implementable remedies to reduce and eliminate the anticompetitive practice or arrangement;

(5) the cost to the competition authorities of investigating and prosecuting the case;

(6) the probability of winning the case when it is argued before a competition court, tribunal or commission;

(7) the amount of attention the case will receive from other government departments, the business community, media, civil society, other stakeholders and the general public; and,

(8) the potential that winning the case will provide important jurisprudence, guidance to business and other stakeholders, and demonstration and spillover effects that go beyond the relevant market to influence business, government and other stakeholder behaviour and decisions in other markets, industries, regions of the country and for some cases throughout the national economy.

The establishment and consistent application of the kind of analytical framework discussed above is particularly important to new competition agencies or established competition agencies that are enforcing new competition statutes.  Developing a reputation very early in the enforcement of a new competition law for investigating and winning important and difficult cases that involve major companies and industries and benefit large numbers of consumers will reverberate throughout the business community, civil society and national economy, and thereby greatly assist the competition agency in its future enforcement efforts.  This has undoubtedly been the case in Canada with several landmark cartel, abuse of dominance and other civil cases discussed below.

The experience of the writers of this note is that the Canadian Competition Bureau has been successfully applying such an analytical framework since the Competition Act of 1986 started to be enforced.  This was the subject of a favorable editorial in the Ottawa Citizen, the largest newspaper in Canada’s national capital, which appeared on December 18 2010:

“Competition is at the heart of the capitalist system that generates the wealth and tax revenue that makes our society work. So measures that restrict competition impair the ability of Canada to function properly.  Critical to the success of our market economy is an aggressive federal Competition Bureau. Without it, private concerns can get away with abuses of capitalism.

Unfortunately, companies practise more anti-competitive measures than the Competition Bureau has resources to police.  So every now and then, the bureau must take on a high-profile target just to show companies that the law has come to town.  If publicity was the goal, then taking on the credit card companies certainly worked. Headlines across the country screamed out about the bureau initiative. Certainly the warning was heard.

Credit card fees cost retailers, who pass on most of these costs to consumers, a whopping $5 billion a year. Just to put that in perspective, the federal government, when it used to run surpluses, took in about an extra $14 billion a year.

So credit cards are big business.

The bureau is taking on Visa Canada Corp. and MasterCard International Inc., which control about 90 per cent of the business in this country.  The rates they charge retailers here are about double those in Europe, Australia and New Zealand. The bureau is concerned that retailers can’t place a surcharge on purchases made with premium cards, for which credit card companies charge retailers more. Retailers taking the cards are not allowed to counsel customers to use lower-cost options and stores taking the two major cards must also take the company’s entire fleet of cards.

This offensive against the credit card giants is another major initiative by a newly aggressive Competition Bureau. The wireless communication and real estate industries have already faced the wrath of the bureau over controversial practices.

The bureau would like to foster competition in the rather limited field of major card companies. Allowing retailers to charge consumers extra to use the more expensive forms of payment is likely to foster more competition in setting fees, the bureau says.

Predictably, Visa and MasterCard are fighting the bureau move. They say they are protecting the consumer from retailers charging consumers for their fees, thus padding retail profits. But surely those fees are in the cost of a product already.

The point is not about who takes home the profit from the space occupied by credit card fees.  Instead, it is about creating competition in the credit card field over the size of those fees. With two firms holding 90 per cent of the market, the chance of oligopoly pricing exists. And that’s not good for the marketplace. The fees charged in other countries illustrate that.

Credit cards matter. They are one of the great facilitators of purchasing in the market economy. A retailer who doesn’t have credit card purchasing available is at a competitive disadvantage. Credit card companies know that and also understand that little competition exists in their field. At a time when the economy is slow and businesses are struggling to survive, Canadians can no longer afford to allow anti-competitive practices. The new aggressive stance of the Competition Bureau is welcome to put an end to some oligopolistic measures that hamper the free marketplace.”[1]

This one editorial mentions many of the parameters listed earlier in this note.  The case described in the editorial will involve the first application of a new price maintenance provision of Canada’s Competition Act, which was amended in March 2009, whereby the previous criminal “per se” price maintenance offence was replaced by a civil price maintenance provision, which reduces the burden of proof placed on the Competition Bureau.[2]  Like the Bureau’s recently settled case against organized real estate discussed below (the CREA abuse of dominance case), the Visa/MasterCard case combines high profile firms, with allegedly significant market shares (a combined market share on the order of 90%) and a product that has wide impacts on consumers – i.e. consumer credit.

Other recent Canadian examples of high profile cases include the following.

Rogers misleading advertising case: The Bureau recently launched a misleading advertising challenge against Rogers, based on misleading advertising and predatory pricing complaints made by several new entrant Canadian wireless companies (Wind Mobile and Mobilicity).  Rogers is one of Canada’s largest telecommunications and cable television service providers and the owner of Canada’s only major league baseball team.[3]  If the Bureau is successful, it will result in a CAD $10 million fine against Rogers under Canada’s recently amended misleading advertising provisions, which now include dramatically increased penalties including AMPs (essentially civil fines) of up to $10 million and restitution to consumers that have purchased products or services.

Interestingly, as an example of an efficient use of resources, and likely also based on an evaluation of the chances of success, the Bureau commenced its case against Rogers in provincial court as a misleading advertising case not a predatory pricing case (which are notoriously long and difficult) based on allegedly deceptive comparative advertising claims made by Rogers in relation to the new entrant’s wireless products.  In other words, the Bureau appears to have evaluated how to proceed (i.e., on the basis of alleged misleading advertising or predatory conduct), choosing to expend its enforcement resources on the likely more efficient misleading advertising route.

Canadian Real Estate Association (CREA) abuse of dominance case: The Bureau’s recently settled abuse of dominance case in the organized real estate sector is another high-profile Canadian example of the Bureau acting against high profile firms (in this case one of Canada’s largest single industry trade associations) with significant consumer impacts.

In its case against CREA, the Bureau had alleged that CREA had abused its dominance in the residential real estate brokerages sector.  The case was one of the longest, hardest fought Canadian competition cases in recent years (lasting about four years, without proceeding before the Competition Tribunal).  While it was settled, the case resulted in significant publicity for the Bureau, a perception that the Bureau was aggressively acting against significant incumbents in relation to a product with wide consumer impacts – residential real estate services.

The Quebec gas price-fixing cartel: In this recent case, which represented the largest criminal investigation in the Bureau’s history, the Bureau seized over 100,000 records, searched 90 locations in Quebec and intercepted thousands of telephone conversations during the course of the investigation.  In one telling statistic cited by the Bureau in announcing further charges in this case, the Bureau stated that according to Statistics Canada, Canadians spent over $38 billion on automotive fuels, oils and additives in 2009.  When this investigation concluded, 38 individuals and 14 companies had been charged and jail time of 54 months had been imposed (served in the community).

The editorial and the experience of Canada’s Competition Bureau over the past 25 years illustrate the benefits of allocating limited competition law resources to important, high profile and “winnable” cases that meet the parameters listed earlier and other criteria developed by each competition agency.

In addition, if the first year and a half under Canada’s new competition laws, and the first steps of Canada’s new Commissioner of Competition (Melanie Aitken), are any indication, we are in for more enforcement, more high profile cases and a far lower tolerance by enforcement officials of white collar crime that has historically fallen under the radar in Canada.

The Bureau’s current cases are not without controversy and some critics,[4] but controversy is best seen as free publicity for competition agencies and other regulators that are too often ignored by the media and general public.

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[1] Ottawa Citizen “Free the Market” December 18 2010

http://www.ottawacitizen.com/opinion/Free+market/3997339/story.html?cid=megadrop_story

[2]For more in formation on this case, see: Barry Zalmanowitz, Q.C., Sandra Walker and Jenelle Matsalla “Visa and MasterCard Rules Challenged by the Competition Bureau” Focus on Competition/Antitrust FMC, Law Fraser Milner Casgrain LLP December 2010.

For more information on the 2009 amendments to the Canadian Competition Act, see: Canadian Competition & Antitrust Law (2010) “Canada’s Competition Act Amendments – 2009/2010” News and Developments in Canadian Competition Law by Steve Szentesi of Hakemi & Company Law Corporation, February 10 2010

http://www.ipvancouverblog.com/2010/02/torontocompetitionlawyer-canadiancompetitionactamendments/

[3] National Post “Bureau Urges Rogers be hit with $10M fine” November 20 2010

http://www.nationalpost.com/todays-paper/Bureau+urges+Rogers+with+fine/3859662/story.html

[4]Terrence Corcoran “Why competition czar is wrong about credit cards” National Post December 16 2010

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