Canadian COMPETITION LAW

OVERVIEW OF CANADIAN ABUSE OF
DOMINANCE LAW (MONOPOLY LAW) UNDER SECTION 79
OF THE COMPETITION ACT

In Canada, like other major jurisdictions including the European Union and the United States, three of the core areas of competition/antitrust law are: (i) conspiracy (i.e., cartels); (ii) mergers (i.e., merger control laws); and (iii) abuse of dominance (i.e., monopoly laws).

In general, under section 79 of the Competition Act, which is one of many other types of reviewable matters under Part VIII, abuse of dominance can be established by the Competition Bureau or a private applicant to obtain a prohibition order where a dominant firm (or multiple firms in the case of joint dominance) engages in either: (i) a practice of anti-competitive acts; or (ii) conduct that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which a person has a plausible competitive interest and the effect is not the result of superior competitive performance.

A broader range of penalties are also available where all three of the following elements are met: (i) dominance; (ii) a practice of anti-competitive acts; and (iii) a prevention or substantial lessening of competition in a market in which the person has a plausible competitive interest. In 2023, the abuse of dominance provisions of the Competition Act were broadened to make it easier for the Competition Bureau or a private applicant to prove abuse of dominance. For a more detailed discussion of the substantive elements of abuse of dominance under section 79, see below.

In Canada, like other major jurisdictions, it is not mere dominance per se in a market that is prohibited, unless one of the types of anti-competitive conduct set out in section 79 of the Competition Act is also met. In addition, to obtain certain types of remedies a prevention or substantial lessening of competition in a relevant market must also be proven.

Canada’s modern civil abuse of dominance provisions were first introduced by the current Competition Act, which came into force in 1986 and replaced the former criminal monopolization provisions in the former Combines Investigation Act.

2023 AMENDMENTS TO ABUSE OF DOMINANCE PROVISIONS

On December 15, 2023, Bill C-56 (An Act to amend the Excise Tax Act and the Competition Act) introduced a number of significant amendments to the Competition Act. These included changes to the substantive test for abuse of dominance under section 79 of the Competition Act, a new anti-competitive act under section 78 and increased administrative monetary penalties (AMPs) for abuse of dominance. These amendments are discussed in more detail below.

NEW LEGAL TESTS FOR ABUSE OF DOMINANCE
UNDER SECTION 79 OF THE COMPETITION ACT

Prior to the 2023 amendments under Bill C-56, an abuse of dominant position occurred under section 79 of the Competition Act when a dominant firm (or group of firms in the case of joint dominance), engaged in practice of anti-competitive acts with the effect of preventing or lessening competition substantially in a relevant market.

As such, before Bill C-56 was enacted, to constitute an abuse of dominant position under section 79 of the Competition Act, all three of the following elements needed to be established on a civil standard of proof (i.e., balance of probabilities): (i) dominance; (ii) a practice of anti-competitive acts (as set out in section 78 or applicable case law); and (iii) the requisite anti-competitive effect in a relevant market (i.e., either a prevention of competition or a substantial lessening of competition).

Following the 2023 amendments, the substantive test for abuse of dominance now depends on the type of remedy being sought by the Competition Bureau or a private applicant.

In this regard, the Competition Tribunal may make a prohibition order against a dominant firm (or group of firms in the case of joint dominance) if the firm or firms are either: (i) engaging in a practice of anti-competitive acts (under section 79(1)(a)); or (ii) conduct that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which the person has a plausible competitive interest and the effect is not the result of superior competitive performance (section 79(1)(b)).

A broader range of remedies, including AMPs under section 79(3.1), are now available where all three of the following elements have been proven: (i) dominance; (ii) a practice of anti-competitive acts; and (iii) a prevention or substantial lessening of competition in a relevant market in which the person has a plausible competitive interest.

According to Canada’s Competition Bureau, these changes to the substantive test for abuse of dominance under section 79 “will provide a way of stopping dominant firm conduct that has either subverted competition in the marketplace or was intended to do so.”

NEW ANTI-COMPETITIVE ACT UNDER
SECTION 78 OF THE COMPETITION ACT

Section 78 of the Competition Act sets out a non-exhaustive list of acts that may be considered by the Competition Tribunal to be an anti-competitive act for abuse of dominance under section 79. In addition to these expressly enumerated anti-competitive acts, the Competition Tribunal has also held other types of conduct to be anti-competitive acts for the purposes of section 79.

Following the amendments under Bill C-56 in 2023, the practice of “directly or indirectly imposing excessive and unfair selling prices” was added to the list of anti-competitive acts in section 78. Similar tests have been included in provincial/territorial consumer protection legislation in Canada, but this type of non-economic effects based test has not until now been included in Canada’s modern Competition Act. As such, it remains as yet unclear how the Competition Tribunal will interpret this new type of conduct.

Importantly, such a practice must also under section 78(1) of the Competition Act, as is the case with the other enumerated examples of anti-competitive acts, be “intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition.”

ABUSE OF DOMINANCE EXCEPTIONS
AND FACTORS

Under section 79(4) of the Competition Act, the Competition Tribunal may consider the following factors in determining whether conduct has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market: (i) the effect of the conduct on barriers to entry in the market, including network effects; (ii) the effect of the conduct on price or non-price competition, including quality, choice or consumer privacy; (iii) the nature and extent of change and innovation in a relevant market; and (iv) any other factor that is relevant to competition in the market that is or would be affected by the conduct.

Section 79(5) also provides that any act engaged in pursuant only to the exercise of a right under certain intellectual property (IP) legislation, including the Copyright Act, Patent Act or Trademarks Act, is not an anti-competitive act for the purposes of section 79. The intersection of IP law rights and competition law, and the application of the Competition Act generally to the exercise of IP rights, can be complex and remains as yet a largely untested area of law in Canada.

In addition, as a result of the Canada Pipe case, a legitimate business purpose can be relevant in determining whether conduct has been engaged in for an anti-competitive purpose. In this regard, the Federal Court of Canada held in the Canada Pipe case that a “business justification must be a credible efficiency or pro-competitive rationale for the conduct in question, which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts.”  It largely remains to be seen, however, what the Competition Tribunal will consider to be legitimate business justifications for the purposes of section 79.

ENFORCEMENT AND PENALTIES

Both the Commissioner of Competition and private parties (that have obtained leave from the Competition Tribunal under section 103.1) may commence abuse of dominance applications under section 79 of the Competition Act.

So-called “private access” rights (i.e., the ability for private parties to seek Competition Tribunal remedies) were extended for abuse of dominance cases pursuant to 2022 amendments to the Competition Act. Following these amendments, private parties can now apply directly to obtain leave from the Competition Tribunal under section 103.1 of the Competition Act if they are directly and substantially affected by the conduct. Prior to amendments to section 79 that came into force on June 23, 2022, Canada’s Commissioner of Competition had exclusive jurisdiction to commence abuse of dominance applications to the Competition Tribunal.

Where abuse of dominance is established under section 79(1) of the Competition Act (see discussion above for the substantive test), Canada’s Competition Tribunal may make a prohibition order prohibiting a person (or persons in the case of joint abuse) from engaging in the practice or conduct.

The Competition Tribunal may also, where it finds that a practice of anti-competitive acts amounts to conduct that prevents or lessens competition substantially in a market in which the person (or persons) have a plausible competitive interest and one of the above types of orders is not likely to restore competition in a market, order a person to take additional actions, including the divestiture of assets or shares, that are reasonable and necessary to overcome abusive conduct in a relevant market.

In addition to the above, where the Competition Tribunal finds that a practice of anti-competitive acts amounts to conduct that prevents or lessens competition substantially in a market in which the person has a plausible competitive interest, the Tribunal may (in addition to the above two types of orders) also order the payment of an AMP of up to the greater of $25 million ($35 million for each subsequent order), three times the value of the benefit derived from the abusive conduct or, if the latter amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues.

Both of the above types of potential penalties incorporate elements from the former penalty provisions (i.e., structural remedies and the imposition of monetary penalties), while also incorporating jurisprudence from case law (i.e., the TREB abuse of dominance case) that established that a dominant firm need not necessarily engage in anti-competitive conduct with one of its own competitors as long as it has a “plausible competitive interest” in the affected market.

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