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.
On August 19, 2011, TREB filed its Response to the Bureau’s allegations that it has abused its dominance in residential real estate services in the GTA by making it more difficult or impossible for brokers to operate innovative online models, including VOWs.
Some of the more interesting arguments TREB makes in its defence include:
Market definition
TREB argues, not surprisingly, that it does not compete in the market referred to by the Bureau, in particular that it does not compete in the provision of residential real estate brokerage services in the Greater Toronto Area. As such, TREB argues that it cannot be dominant in that market (dominance in one or more relevant markets being the first of three necessary elements to make out abuse of dominance under section 79).
TREB points out that while it does provide a number of services to its members, including a platform for the exchange of data, arbitration services, a commercial real estate website, enforcement of professional standards and educational services, it does not trade in real estate. TREB in fact points out that, given the fact that it is not registered as a broker under Ontario legislation, it is prohibited from supplying residential real estate brokerage services.
The disagreement between the Bureau and TREB in relation to the relevant market, and in particular whether TREB could possibly be dominant in a market in which it does not provide goods or services, is reminiscent of the Bureau’s recently issued Competitor Collaboration Guidelines where, in the context of the amended conspiracy provisions of the Act, the Bureau takes the position that trade associations could be parties to agreements with their members (despite the fact that most if not all trade associations, like real estate boards, do not actually compete with and are not in the same market as their members, providing entirely different services).
Practice of Anti-Competitive Acts
TREB also argues that the conduct challenged by the Bureau in relation to VOWs, and in particular TREB rules challenged by the Bureau as precluding TREB members from operating VOWs, does not constitute a practice of anti-competitive acts (the second required element to establish abuse of dominance under section 79).
Legitimate Exercise of Copyright
TREB argues that it is the owner and author of its MLS database and, as such, that it has copyright over its MLS data. Subsection 79(5) of the Competition Act provides that the mere exercise of IP rights is not an anti-competitive act. Specifically, TREB argues that subparagraph 3(1)(a) of the Copyright Act includes the sole right “to produce, reproduce, perform or publish any translation of the [TREB MLS] … and to authorize any such acts.”
While each of the key provisions of the Competition Act address the application of the Act to intellectual property rights differently (i.e., there is no blanket restriction that the Act does not apply at all in the context of IP rights), section 79 provides that “an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under [intellectual property legislation, including the Copyright Act] … is not an anti-competitive act.”
Having said that, one key issue that is likely to arise in this case is whether any assertion by TREB of its IP rights in its data is a “mere exercise” of IP rights or something more. For example, TREB relies, among other things, on the Bureau’s own 2000 Intellectual Property Enforcement Guidelines, where the Bureau takes the position that a unilateral exercise of an IP right to exclude, without something more, does not violate the general provisions of the Competition Act:
“The unilateral exercise of the IP right to exclude does not violate the general provisions of the Competition Act no matter to what degree competition is affected. To hold otherwise could effectively nullify IP rights, impair or remove the economic, cultural and educational benefits created by them and be inconsistent with the Bureau’s underlying view that IP and competition law are generally complementary.”
On the other hand, there is authority in Canada, albeit under the criminal conspiracy provisions of the Act, and in particular the Apotex line of patent cases, where the Federal Court of Canada held that the conspiracy provisions of the Act could apply to the exercise of IP rights that involved “something more” than a mere exercise of an IP right.
This is also consistent with the Competition Tribunal’s reasoning in the Warner case that, while IP could not be a “product” under the refusal to deal provisions of the Act, other provisions of the Act may nonetheless apply (i.e., that there was no blanket prohibition on the Act applying in the context of the exercise of IP rights, but rather that each section of the Act must be individually considered).
TREB’s Conduct is not Predatory, Exclusionary or Disciplinary
TREB also takes the view that its conduct is not engaged in for a “predatory, exclusionary or disciplinary purpose” toward a competitor. In this regard, Canadian abuse of dominance case law has established that while there is no exhaustive list or categories of anti-competitive acts for the second branch of the test (some are set out in section 78 of the Act while others have been established through case law), an anti-competitive act must be one that is engaged in intentionally toward a competitor with a predatory, exclusionary or disciplinary purpose.
In this regard, TREB argues, among other things, that: (i) it does not compete in the relevant market, (ii) its rules affecting VOWs are informed by its “legitimate interest in preserving the value of its MLS system for the benefit of its members, (iii) its access terms have been designed to safeguard its members’ privacy rights and (iv) that its rules are a legitimate exercise of its intellectual property rights (in particular, those protected by the Copyright Act).
Substantial Prevention or Lessening of Competition
Finally, TREB argues that its rules that affect the operation of VOWs by its members do not prevent or lessen competition substantially (“SLC”) in the relevant market (the final required element to make out an abuse of dominance under section 79 is that a practice of anti-competitive acts has, is or is likely to prevent or lessen competition substantially).
According to TREB, its MLS access terms treat all members equally, have been developed and amended over time in consultation with members and it was within this framework of consultation that TREB’s existing VOW Policy was formulated.
With respect to the key test for evaluating whether there is an SLC, namely whether competition would likely be significantly more competitive “but for” the alleged anti-competitive conduct (a test set out by the Federal Court in the leading Canada Pipe abuse of dominance case), TREB takes the position that there is no basis for the Commissioner’s allegation that “’but for’ certain of TREB’s Access Terms, the Relevant Markets might benefit from ‘more innovation, enhanced quality of service and increased price competition …’”
In attempting to refute the Bureau’s market effects (SLC) arguments, however, TREB appears to largely rely on the state of existing competition, rather than make arguments as to what the competitive landscape would look like in the absence of its rules affecting VOWs. Given that the Federal Court in Canada Pipe held that the relevant inquiry was not how competitive the market is presently but rather the difference between competition in the presence and absence of the challenged conduct (i.e., whether competition would likely be significantly more competitive in the absence of the challenged anti-competitive conduct), it is not clear how successful TREB’s arguments regarding current competition will be.
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With this being the second recent Tribunal case proceeding with significant intellectual property points at issue (see also Ontario Used Car Dealers Association Attempts to Go Around Landmark Warner Decision in Data Refusal to Supply Case It will be interesting to see if either case adds to the relatively small body of Canadian IP/competition law cases.
For TREB’s Response in this case see:
Response of the Toronto Real Estate Board to the Amended Notice of Application
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