Canadian COMPETITION LAW

Mail-in rebate (Canadian advertising/marketing law).

Competition Bureau, Enforcement Guidelines, Consumer Rebate Promotions (2009): Consumers apply for the rebate after the purchase, by mail-in application, online or by other means. In [these guidelines] the term ‘mail-in rebate’ includes mail-in, Internet and other delayed-payment rebates.  Various market participants may be involved in promoting and administering rebates.”

Major supplier (Canadian tied selling / exclusive dealing / market restriction).

The required market power element varies for several of the provisions of the Competition Act.  For example, while the abuse of dominance provision (section 79) requires that anti-competitive acts be engaged in by a dominant supplier, the requirement for section 77 of the Competition Act (tied selling / exclusive dealing / market restriction) is that conduct is engaged in by a “major supplier” of a product (or is widespread in a market).

Director of Investigation and Research v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1: “A major or important supplier is one whose actions are taken to have an appreciable or significant impact on the markets where it sells.  Where available, a firm’s market share is a good indication of its importance since its ability to gain market share summarizes its capabilities in a number of dimensions.  Other characteristics of a supplier which might also be used in assessing its importance in an industry are its financial strength and its record as an innovator.  However, the characteristics which are most relevant will vary from industry to industry.”

For more information, see: Exclusive Dealing.

Malware (or “malicious software”) (fraud law).

A fraud term.

CRTC: “Malware, often sent through spam, is software that is installed for harmful purposes. It has many forms, such as viruses, worms, spyware, and keyloggers. Worms and viruses have many evil aims, including slowing down or otherwise interfering with the functioning of your computer or network. Spyware secretly spies on your computer, usually to collect personal information without your knowledge. Through keylogging, a person unknown to you can covertly record and monitor your keystrokes, thus picking up important information such as your online banking password.”

Government of Canada, Get Cyper Safe: “Malicious software that infects your computer, such as computer viruses, worms, Trojan horses, spyware, and adware.”

OnGuardOnline (U.S. Federal Trade Commission): “Malware is short for ‘malicious software.’  It includes viruses and spyware that get installed on your computer, phone, or mobile device without your consent.  These programs can cause your device to crash and can be used to monitor and control your online activity.  Criminals use malware to steal personal information, send spam, and commit fraud.”

Margin squeeze (Canadian abuse of dominance law).

International Competition Network (ICN), Report on the Analysis of Refusal to Deal with a Rival Under Unilateral Conduct Laws (April, 2010): “… when a dominant firm charges a price for an input in an upstream market that, compared to the price it charges for the final good using the input in the downstream market, does not allow a rival in the downstream market to compete.”

Pietro Crocioni and Centro Veljanovski, “Price Squeezes, Foreclosure and Competition Law: Principles and Guidelines”:  “A price or margin squeeze is an exclusionary practice used by a vertically integrated firm to leverage its market power in the upstream market to squeeze the margins of its downstream competitors.”

Competition Act, subparagraph 78(1)(a): “For the purposes of section 79 [abuse of dominant position] ‘anti-competitive act’, without restricting the generality of the term, includes any of the following acts: (a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of preventing the customer’s entry into, or expansion in, a market.”

OECD, Policy Roundtables, Margin Squeeze (2009): “A margin squeeze occurs when there is such a narrow margin between an integrated provider’s price for selling essential inputs to a rival and its downstream price that the rival cannot survive or effectively compete. A margin squeeze can arise only when (a) an upstream firm produces an input for which there are no good economic substitutes, (b) the upstream firm sells that input to one or more downstream firms and (c) the upstream firm also directly competes in that downstream market against those firms.  Many countries have investigated margin squeeze cases, particularly in newly liberalised sectors such as telecommunications.  In order for a margin squeeze case to arise, three elements must be present. First, an upstream firm must produce an essential or bottleneck input with no substitutes and no scope for other firms to provide the essential input themselves. Second, that firm must sell that essential input to one or more downstream firms which seek to use that input in the provision of some downstream product or service. Third, the upstream firm must itself use its own input to compete against those downstream firms in the market for that downstream product or service.”

Wakil, O., ed., Annotated Competition Act: “Paragraph [78(a) of the Competition Act] refers to a classical price squeeze whereby vertically integrated firms at, for example, the manufacturing and distribution level of operations ‘squeeze’ independent distributors so as to undercut the independent firm at the distributing level with consequential anti-competitive effects.  The ‘squeeze’ may arise from either an artificially high price to the independent distributors or from artificially low prices by the vertically integrated firm at the retail level.”

For more information, see: Abuse of Dominance.

Marker (Canadian conspiracy / cartel law).

Under the Competition Bureau’s Immunity Program, applicants typically follow a number of steps in order to obtain immunity, including making initial contact with the Bureau, obtaining a “marker” (i.e., an initial place in line, given that immunity is a “race”), providing information regarding the potentially illegal conduct (a “proffer”), negotiating and executing an immunity agreement, full disclosure and, should a matter proceed to contested proceedings, potentially testifying.

Competition Bureau, Bulletin, Immunity Program under the Competition Act: “Anyone may initiate a request for immunity by communicating with the Senior Deputy Commissioner of Competition, Criminal Matters, or the Deputy Commissioner of Competition, Fair Business Practices, to discuss the possibility of receiving immunity from prosecution in connection with an offence under the [Competition Act].  An applicant can make the first contact on the basis of a limited hypothetical disclosure that identifies the nature of the criminal offence it has committed in respect of a specified product with sufficient detail to secure a “marker” as first in line to request immunity.  Typically the request to the Bureau for this marker is made by an applicant’s legal representative.”

U.S. Department of Justice, Antitrust Division, “Frequently Asked Questions Regarding the Antitrust Division’s Leniency Program”: “The Division frequently gives a leniency applicant a “marker” for a finite period of time to hold its place at the front of the line for leniency while counsel gathers additional information through an internal investigation to perfect the client’s leniency application. While the marker is in effect, no other company can “leapfrog” over the applicant that has the marker.”

For more information, see: Conspiracy and Conspiracy FAQs. See also: Competition Bureau Immunity and Leniency Programs.

Market allocation agreement (Canadian conspiracy / cartel law).

Section 45 of the Competition Act prohibits three types of per se criminal offences between competitors, including market “division” or “allocation” agreements.  Paragraph 45(1)(b) makes it a criminal offence for competitors to agree to “allocate sales, territories, customers or markets for the production or supply of the product.”

Market division agreements can also violate the bid rigging provisions of the Competition Act, which makes it a criminal offence to, among other things, agree to submit a bid or tender that is arrived at by agreement or arrangement between two or more bidders or tenderers.

OECD, Recommendation of the Council on Fighting Bid Rigging in Public Procurement (2012): “Competitors carve up the market and agree not to compete for certain customers or in certain geographic areas. Competing firms may, for example, allocate specific customers or types of customers to different firms, so that competitors will not bid (or will submit only a cover bid) on contracts offered by a certain class of potential customers which are allocated to a specific firm. In return, that competitor will not competitively bid to a designated group of customers allocated to other firms in the agreement.”

Competition Bureau, Competitor Collaboration Guidelines: “Paragraph 45(1)(b) of the Act prohibits agreements between competitors in respect of a product ‘to allocate sales, territories, customers or markets for the production or supply of the product’. This provision prohibits all forms of market allocation agreements between competitors, including agreements between competitors to not compete with respect to specific customers, groups or types of customer, in certain regions or market segments, or in respect of certain types of transactions or products. The prohibition in paragraph 45(1)(b) applies to agreements to not compete with respect to direct sales to distributors, resellers or customers, as well as agreements entered into by suppliers to not compete in respect of indirect sales that are made through distributors or resellers. This provision prohibits market allocation agreements between actual and potential competitors.”

U.S. Department of Justice, Antitrust Division, An Antirust Primer for Federal Law Enforcement Personnel: “Market allocation schemes are agreements among competitors to divide the market among themselves.  For example, in customer allocation, competing firms may divide up specific customers or types of customers or types of customers so that only one competitor will be allowed under the conspiratorial agreement to sell, buy from, or bid on contracts let by those customers.  In return, the other competitor will not sell to, buy from, or bid on contracts let by customers allocated to its coconspirator.  Territorial market allocation is also illegal.  Its effects are comparable to customer allocation, but geographic areas are divided up instead of customers. … The conspirators thereby insulate themselves from outside competition and are collectively able to raise prices to all customers.”

For more information, see: Conspiracy and Conspiracy FAQs.

Market contact (Canadian merger review law).

“Market contacts” refer to the Competition Bureau contacting market participants in relation to Competition Act related investigations or inquiries.  Generally speaking, the Bureau has the power to gather information under the Competition Act in three ways: (i) voluntarily from individuals or companies, (ii) compulsory requests pursuant to court orders under section 11 of the Act (“section 11 orders”) or (iii) pursuant to search warrants obtained under section 15 of the Act.  In the context of mergers, for example, the Bureau routinely makes market contacts in its review of notifiable transactions, based on customer and supplier contact information provided by merging parties under section 16 of the Notifiable Transactions Regulations.

See e.g., Competition Bureau, Competition Bureau Fees and Service Standards Handbook for Mergers and Merger-Related Matters (2010): “It is standard practice in merger reviews for the Bureau to communicate with market participants, including customers, suppliers, and competitors of the merging parties. Even for a non-complex merger with no or minimal overlap, unless it is very clear that there is no need to go to the market, the Bureau will make at least some market contacts. The Bureau must be in a position to obtain information from market participants to properly assess a proposed transaction, including verification of the information supplied by the parties. … In all events, on receipt of a notification that complies with statutory requirements and thereby triggers the statutory waiting period, the Bureau will continue its practice of making market contacts if and when the Bureau considers it necessary. Notice will not be given to parties that the Bureau intends to commence market contacts, as confirmation from the Bureau that a notification complies with statutory requirements, and that the statutory waiting period has commenced, constitutes notice to the merging parties that market contacts will be made, if and as necessary. Parties that intend to submit a notification, but would like to have market contacts deferred, may consider submitting a draft notification that does not meet the statutory requirements. Subject to the Commissioner’s obligations under the Act, the Bureau will normally agree to defer making market contacts as long as there would be sufficient time before closing to make necessary contacts and parties have not triggered a statutory waiting period with the submission of a complete notification. In this situation, parties must appreciate that the statutory waiting period and the applicable service standard will not commence until the statutory requirements and the requirements in this Handbook, respectively, are satisfied. Where the Bureau decides not to defer making market contacts, it will first notify the parties.”

Market definition (Canadian competition law).

U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010): “Market definition focuses solely on demand substitution factors, i.e., on customers’ ability and willingness to substitute away from one product to another in response to a price increase or a corresponding non-price change such as a reduction in product quality or service.  The responsive actions of suppliers are also important in competitive analysis.”

International Competition Network, ICN Recommended Practices for Merger Analysis: “The purpose of market definition in merger analysis is to identify an appropriate frame of reference for assessing whether a merger may create or enhance market power. Market definition is not an end in itself, but is rather an exercise designed to inform the analysis of competitive effects of a merger by identifying which goods or services … in which geographic locations significantly constrain the competitive behavior of the merging firms. Where available, rigorous empirical proof of effects on competition may not only directly inform the analysis of competitive effects, but may also be useful in determining the relevant market. … The term ‘market’ in merger analysis has a distinct, precise meaning that may differ from the use of the term ‘markets’ in other contexts. An economically meaningful market is one that could be subject to an exercise of market power that likely would result in significant harm to competition, rather than anticompetitive effects that are insignificant or transient in nature. While reference to ‘markets’ in business documents and other contexts may provide important insights that may be highly relevant to market definition, businesses and customers often do not use the term “market” in the same sense used in merger analysis. Therefore, agencies should be careful to distinguish between the technical term ‘market’ used in merger analysis and how the term ‘market’ may be used in other contexts.”

OECD, Policy Roundtable, Market Definition (2012): “Market definition is a widely applied analytical framework to examine and to evaluate competitive concerns.  The relevant market should be defined in a way such that the competitive constraints a firm faces, i.e. demand and supply side substitution, are captured as accurately as possible.  The relevant market is usually defined by applying the hypothetical monopolist test (also known as the SSNIP test), according to which a ‘market’ comprises all the products and regions for which a hypothetical profit maximizing monopolist would impose a Small but Significant Non-transitory Increase in Price.  Market definition serves several purposes in identifying the scope of competition in a market.  The main goal of market definition is to assess the existence, creation or strengthening of market power, which is defined as the ability of the firm to keep the price above the long-run competitive level. The market shares of the respective firms provide an indication of market power.  Market definition also facilitates the identification of relevant competitors and is useful in evaluating the risk of potential coordinated effects in mergers.  In addition, identifying the area of competition allows other relevant competition issues to be examined, such as potential barriers to entry.  Even when the necessary data to perform the hypothetical monopolist test are not available, this test provides a coherent conceptual framework to define the relevant market.  The importance of market definition also extends beyond its role in analyzing competition concerns: the concept is used as a basis for calculating fines, for estimating the effects on trade between EU member states and has served as a procedural model for other areas of law.”

Market division (Canadian conspiracy / cartel law).

Section 45 of the Competition Act prohibits three types of per se criminal offences between competitors, including market “division” or “allocation” agreements.  Paragraph 45(1)(b) makes it a criminal offence for competitors to agree to “allocate sales, territories, customers or markets for the production or supply of the product.”

Market division agreements can also violate the bid rigging provisions of the Competition Act, which makes it a criminal offence to, among other things, agree to submit a bid or tender that is arrived at by agreement or arrangement between two or more bidders or tenderers.

OECD, Recommendation of the Council on Fighting Bid Rigging in Public Procurement (2012): “Competitors carve up the market and agree not to compete for certain customers or in certain geographic areas. Competing firms may, for example, allocate specific customers or types of customers to different firms, so that competitors will not bid (or will submit only a cover bid) on contracts offered by a certain class of potential customers which are allocated to a specific firm. In return, that competitor will not competitively bid to a designated group of customers allocated to other firms in the agreement.”

Competition Bureau, Competitor Collaboration Guidelines: “Paragraph 45(1)(b) of the Act prohibits agreements between competitors in respect of a product ‘to allocate sales, territories, customers or markets for the production or supply of the product’. This provision prohibits all forms of market allocation agreements between competitors, including agreements between competitors to not compete with respect to specific customers, groups or types of customer, in certain regions or market segments, or in respect of certain types of transactions or products. The prohibition in paragraph 45(1)(b) applies to agreements to not compete with respect to direct sales to distributors, resellers or customers, as well as agreements entered into by suppliers to not compete in respect of indirect sales that are made through distributors or resellers. This provision prohibits market allocation agreements between actual and potential competitors.”

U.S. Department of Justice, Antitrust Division, An Antirust Primer for Federal Law Enforcement Personnel: “Market allocation schemes are agreements among competitors to divide the market among themselves.  For example, in customer allocation, competing firms may divide up specific customers or types of customers or types of customers so that only one competitor will be allowed under the conspiratorial agreement to sell, buy from, or bid on contracts let by those customers.  In return, the other competitor will not sell to, buy from, or bid on contracts let by customers allocated to its coconspirator.  Territorial market allocation is also illegal.  Its effects are comparable to customer allocation, but geographic areas are divided up instead of customers. … The conspirators thereby insulate themselves from outside competition and are collectively able to raise prices to all customers.”

American Antitrust Institute, Amicus Brief, D&G, Inc. v. SuperValue Inc. and C&S Wholesale Grocers, Inc., “Horizontal market allocation is of a piece with horizontal price fixing. From an economic perspective, the two restraints represent different routes to similar anticompetitive ends. Horizontal price fixing involves firms agreeing on a price at which to sell their products. In contrast, horizontal market allocation is the assignment of markets, submarkets, or customers to different firms.  Rather than establish a price floor, it gives a firm market power over its designated market, submarket, or group of customers. Both practices reduce market output and produce higher prices for consumers.”

For more information, see: Conspiracy and Conspiracy FAQs.

Marketing.

Canadian Marketing Association, Code of Ethics and Standards of Practice: “Marketing is a set of business practices designed to plan for and present an organization’s products or services in ways that build effective customer relationships.”

Market power (competition/antitrust economics).

[Mergers]: Competition Bureau, Merger Enforcement Guidelines: “Market power of sellers is the ability of a firm or group of firms to profitably maintain prices above the competitive level for a significant period of time. The jurisprudence establishes that it is the ability to raise prices, not whether a price increase is likely, that is determinative.”

[Abuse of dominance]: Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1 (Comp. Trib.): “[Market power] is generally accepted to mean an ability to set prices above competitive levels for a considerable period.”

[Abuse of dominance]: Competition Bureau, Enforcement Guidelines, The Abuse of Dominance Provisions: Sections 78 and 79 of the Competition Act (2012):  “The Bureau considers market power, in the general sense, to be the ability to profitably maintain prices above the competitive level (or similarly restrict non-price dimensions of competition) for a significant period of time.”

[Abuse of dominance]:  Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001): “’Market power’ is the ability to set prices above a competitive level for a considerable amount of time.”  See also Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289 (Comp. Trib.); Canada (Director of Investigation and Research) v. The D&B Companies of Canada Ltd. [1995], 64 C.P.R. (3d) 216 (Comp. Trib.).

Competition Bureau, Intellectual Property Enforcement Guidelines:  “Market power refers to the ability of firms to profitably cause one or more facets of competition, such as price, output, quality, variety, service, advertising or innovation, to significantly deviate from competitive levels for a sustainable period of time.”

Fundamentals of Canadian Competition Law, J. Musgrove ed., 2^nd edition (Carswell, 2010) at 28: “[market power] refers to the ability of a firm (or a group of firms, acting jointly) to raise price above the competitive level for a sustained period of time – that is, without losing so many sales so rapidly that price increase in unprofitable and must be rescinded.  If close substitutes are available or other firms could easily enter, a firm will not profit from a price increase and will not have market power.”

Nadeau Poultry Farm Ltd. v. Groupe Westco Inc., 2009 Comp. Trib. 6, citing Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1: “market power is generally accepted to mean an ability to set prices above competitive levels for a considerable period.”

ICN, Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “There is broad consensus among ICN members that market power is the ‘ability to price profitably above the competitive level’.  The ability to maintain supra-competitive prices is used as shorthand for the various ways in which market power can be exercised, including non-price effects such as reductions in product quality or innovation.”

European Commission, Guidelines on horizontal cooperation agreements (2011): “Market power is the ability to profitably maintain prices above competitive levels for a period of time or to profitably maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a period of time.”

Market restriction (Canadian competition law).

Competition Bureau, Pamphlet, Restricting the Supply and Use of Products:  “Market Restriction occurs when a supplier requires the customer to sell the specified products in a defined market, for example by penalizing the customer for selling outside that defined market. … The exclusive dealing, tied-selling and market restriction sections of the Competition Act may apply when the following conditions are met: [1] The conduct is engaged in by a major supplier or is widespread in a market.  A firm with less than 35 percent market share is not generally considered to be a major supplier.  However, market share is only one factor that must be considered.  Others include the existence of barriers to entry that limit competition, a lack of substitute products, and lack of competition among existing suppliers.  [2] The conduct in question constitutes a practice.  Different restrictive acts considered together, as well as repeated instances of one act with one or more customers, may constitute a practice.  [3] The restrictive practice discourages a firm’s entry into, or expansion in, the market; in other words, you must show an exclusionary effect.  [4] The practice has substantially lessened competition, or is likely to do so.  This may happen when the supplier’s restrictive practice prevents, for example, a rival’s entry into the market, potential competition, product innovation or lower prices.”

Market share (competition/antitrust economics).

Market share is the most common and important “indirect indicator” of a firm’s market position used to assess market power in competition law, including assessing whether a firm is dominant (in an abuse of dominance analysis under section 79 of the Competition Act) or to assess whether merging parties will likely be able to exercise market power post-completion (in a merger analysis under section 92 of the Act).  Market shares can be calculated in different ways using different types of data (i.e., there is no single type of data that is used to calculate market shares and many industries have industry conventions for calculating market shares in that particular industry).

ICN, Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “Production and sales volumes, whether measured by physical or monetary unit, are the most widely used data to calculate market shares.  Calculating market shares using sales volume by monetary unit is often preferred when products are heterogeneous because the monetary unit serves as a common denominator.  Market shares using sales volume by monetary unit also account for qualitative differences among heterogeneous products.  By contrast, calculating market shares by sales of physical units is often preferred when output is measured in a standard unit such as tonnage.  Particular industries also sometimes adopt specialized output measures that can serve as the basis for calculating market shares.”

Competition Bureau, Merger Enforcement Guidelines (2004): “Market shares can be measured in terms of dollar sales, unit sales, capacity or, in certain natural resource industries, reserves.  When calculating market shares, the Bureau uses the best indicators of sellers’ future competitive significance.  In cases where products are undifferentiated or homogeneous (e.g., for example, having no unique physical characteristics or perceived attributes), and where firms are all operating at full capacity, market shares based on dollar sales, unit sales and capacity should yield similar results.”

Competition Bureau, Draft Updated Enforcement Guidelines: The Abuse of Dominance Provisions (2009): “Market shares can be measured in terms of revenues (dollar sales), demand units (unit sales), capacity (to produce or sell), or, in certain natural resource industries, reserves. If products in the relevant market are homogeneous and firms are all operating at capacity, firms’ relative shares of the market should be fairly similar whether measured on the basis of dollar sales, demand units or capacity. Where firms producing homogeneous products have excess capacity, market shares based on capacity may best reflect a firm’s relative market position and competitive influence in the market; if competitors can easily increase supply in response to an increase in price, they may be able to constrain a firm’s ability to raise its price above competitive levels. However, where products are more differentiated, market shares based on dollar sales, demand units and/or capacity can increasingly invite different inferences concerning firms’ relative competitive positions. Where markets are highly differentiated, total capacity may be a misleading indicator of market position, and shares based on revenues or demand units may be more probative in this regard.”

See also Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001); Competition Bureau, Draft Updated Enforcement Guidelines: The Abuse of Dominance Provisions (2009).

Market studies (Competition Bureau power).

On December 15, 2023, Bill C-56 (An Act to amend the Excise Tax Act and the Competition Act), which introduced the first of two sweeping rounds of federal Competition Act amendments together with Bill C-59, received royal assent. As part of the 2023 amendments, formal market inquiry powers were given to the Competition Bureau under the new section 10.1 of the Competition Act. In general, section 10.1 gives the Competition Bureau the power to conduct inquiries into the state of competition in a market or industry if the Commissioner is of the opinion that it is in the public interest to do so.

The Competition Bureau’s market inquiry powers require it to prepare terms of reference for the inquiry, publish the terms of reference, allow the public to provide comments for a minimum of 15 days and publish a final report. Section 10.1 also allows participants that were compelled under section 11(1) of the Competition Act to participate in the market inquiry to comment on the draft report and make confidentiality related requests prior to final publication. These formal market inquiry powers were given to the Bureau in 2023 as a result, among other things, of perceived limitations on the Competition Bureau to conduct such studies under the existing provisions of the Competition Act in key consumer sectors (e.g., under sections 125 and 126, under which the Bureau has historically based its competition advocacy efforts where it may not have had formal enforcement powers).

For more information about Bill C-56 and the 2023 Competition Act amendments, see: Competition Act Amendments.

Market transparency (competition/antitrust economics).

OECD, Policy Roundtable, Unilateral Disclosure of Information with Anti-competitive Effects (2012): “Market transparency is an important factor which affects the likelihood of competitive or collusive outcomes.  A market‘s degree of transparency can be loosely defined as the speed with which leading firms can reliably inform themselves of rivals‘ actions.  The economic literature has historically placed transparency and access to information at the centre of the competition process and of the economic benefits that it generates.  The economic thinking on market transparency and its relevance for antitrust purposes is twofold.  In 1776 Adam Smith warned us about the possible consequences of competitors‘ communications on competition.  However, in order for the invisible hand to produce benefits for society as a whole it is necessary for independent actors to plan and conduct their economic activity according to price signals. Therefore, market transparency, can either facilitate collusion or competition, depending on the circumstances.”

Mass marketing fraud (fraud law).

Competition Bureau, Ensuring Truth in Advertising: “Mass Marketing Fraud is defined as fraud committed via mass communication media using the telephone, mail, and the Internet. Provisions under the criminal regime of the Competition Act prohibit materially false or misleading representations made knowingly or recklessly, deceptive telemarketing and deceptive prize notices.”

“Material” (Canadian misleading advertising law).

To violate the criminal or civil misleading advertising provisions under the Competition Act (sections 52 and 74.01) a representation must be made to the public that is “false or misleading in a material respect”.  In this regard, “materiality” does not depend on the value of a transaction, but rather has been held by Canadian courts to mean that a representation or claim could lead an average consumer to purchase a product (or otherwise alter their conduct).

Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet (2009): “To contravene certain provisions of the Act, a representation must be “false or misleading in a material respect”. This phrase has been interpreted to mean that the representation could lead a person to a course of conduct that, on the basis of the representation, he or she believes to be advantageous. It is important to note that omitting relevant information could also be viewed as material.”

R. v. Kenitex Can. Ltd. et al. (1980), 51 C.P.R. (2d) 103:  “[A] representation will be false or misleading in a material respect if, in the context in which it is made, it readily conveys an impression to the ordinary citizen which is, in fact, false or misleading and if that ordinary citizen would likely be influenced by that impression in deciding whether or not he would purchase the product being offered”.

Commissioner of Competition v. Yellow Pages Marketing, 2012 ONSC 927 (Ont. Sup. Ct.), citing Canada (Commissioner of Competition) v. Sears Canada, [2005] CCTD No. 1 (Comp.Trib.): “A representation is ‘misleading in a material respect’ where an ‘ordinary citizen would likely be influenced by that impression in deciding whether or not he would purchase the product being offered.’  A misleading representation is material where it is of ‘much consequence of [is] important or pertinent or germane or essential to the matter.’”

Commissioner of Competition v. Chatr Wireless Inc. and Rogers Communications Inc., Notice of Application (November 19, 2010): “… the Representations made by the Respondent are false and misleading in a material respect.  Network reliability, including dropped call rates, is a material aspect of wireless telecommunication services and is a component of a consumer’s decision to purchase a particular wireless telecommunication service.  The Representations are material because prospective customers would likely be influenced by the Representations in deciding whether to purchase wireless service from Chatr or a new entrant.  The Representations mislead consumers to believe there is a meaningful difference in dropped call rates, when that is in fact not the case.”

R. v. Sears Canada Inc. (1989), 28 C.P.R. (3d) 248 (Ont. Dist. Ct.): “I am satisfied that the construction of the advertisement, as to whether it is false or misleading in material particular, is a question of law alone and, in construing the advertisement, the proper test to be applied is the meaning that would be discerned by the average person to whom the representation are directed: R. v. International Vacations Ltd. (1980), 56 C.P.R. (2d) 251, 124 D.L.R. (3d) 319, 59 C.C.C. (2d) 557 (C.A.). Moreover, if the ‘ads’ give rise to any ambiguity of construction or alternative interpretation that was not in contravention of s. 36(1)(a) of the Combines Investigation Act, R.S.C. 1970, c. C-23, that this would result in an acquittal: R. v. R.M. Lowe Real Estate Ltd. (1978), 39 C.P.R. (2d) 266 at p. 267, 40 C.C.C. (2d) 529 (Ont. C.A.).”

R. v. Simpsons Ltd. (1988), 25 C.P.R. (3d) 34 (Ont. Dist. Ct.), at para 16: “In R. v. Patton’s Place Ltd. Magistrate Carson, at page 16 says “… I think the word ‘material’ used here must be its normal meaning and that is, it is a representation which is calculate to, and in effect does, lead a person to a certain course of conduct because he believes the information put before him indicates that this would be advantageous to himself.’ I respectfully agree with that opinion.”

For more information, see: Advertising Law,  Advertising Law FAQs and Misleading Advertising.

Maverick (competition/antitrust economics).

[Mergers]: Competition Bureau, Merger Enforcement Guidelines (2011): “A maverick is a firm that plays a disruptive role and provides a stimulus to competition in the market.  An acquisition of a maverick may remove this constraint on coordination and, as such, increase the likelihood that coordinated behaviour will be effective. … Alternatively, a merger may not remove a maverick but may instead inhibit a maverick’s ability to expand or enter, or otherwise marginalize its competitive significance, thereby increasing the likelihood of effective coordination.”

Competition Bureau, Merger Enforcement Guidelines (2004), fn 75: “A maverick is a firm that has a disproportionate incentive to deviate from coordinated behaviour.  For instance, such a firm may realize greater gains by deviating or may be less susceptible to punishment mechanisms if its cost structure is lower than its rivals.”

Competition Bureau, Merger Enforcement Guidelines, p. 25: “Pre-merger, effective coordination may be constrained by the activities of a particularly vigorous and effective competitor (a ‘maverick’).  An acquisition of a maverick may remove this constraint on coordination by reducing incentives to behave in an aggressive manner.  Such an acquisition increases the likelihood that coordinated behaviour will be effective.”

McNamara model (conspiracy/cartel law).

A term used in criminal conspiracy cases.  One potential basis for party liability in a conspiracy.

See e.g.: R. v. J.F., 2013 SCC 12:  “There are two schools of thought in Canada as to how, and under what circumstances, a person can be found liable as a party to the offence of conspiracy.  The narrower approach (the Trieu model) limits such liability to aiding or abetting the formation of the agreement.  The broader approach (the McNamara model) extends such liability to also include aiding or abetting the furtherance of the conspiracy’s unlawful object.  The approach to be followed is Trieu and not McNamara.  Party liability is limited to cases where the accused aids or abets the initial formation of the agreement, or aids or abets a new member to join a pre‑existing agreement.  The Trieu model is a legitimate basis for party liability to a conspiracy.  A person becomes party to an offence if he aids or abets a principal in the commission of the offence.  It follows that party liability to a conspiracy is made out where the accused aids or abets the actus reus of conspiracy, namely the conspirators’ act of agreeing.  The McNamara model is not a basis for party liability to conspiracy.  Acts that further the unlawful object of a conspiracy are not an element of the offence of conspiracy.  Aiding or abetting the furtherance of the unlawful object does not establish aiding or abetting the principal with any element of the offence of conspiracy, and thus cannot ground party liability for conspiracy.  However, where a person, with knowledge of a conspiracy, does or omits to do something for the purpose of furthering the unlawful object, with the knowledge and consent of one or more of the existing conspirators, this provides powerful circumstantial evidence from which membership in the conspiracy can be inferred.  While party liability to conspiracy includes aiding or abetting the formation of a new agreement (the Trieu model), it also includes aiding or abetting a new member to join a pre‑existing agreement.  Such assistance or encouragement facilitates the new member’s commission of the offence of conspiracy — that is, the act of agreeing.”

Merger (corporate commercial / competition law).

The term “merger” is a term of art under the federal Competition Act and is broadly defined.

Competition Act, s. 91:  “The acquisition or establishment, direct or indirect, by one or more persons, whether by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of control over or significant interest in the whole or a part of a business of a competitor, supplier, customer or other person.”

Asian Development Bank (ADB), Competition Law Toolkit, Overview of Competition Law Practices:  “Many systems of competition law enable a competition authority to investigate mergers between independent firms that could be harmful to the competitive process. Clearly, if one competitor were to acquire its main competitor, the possibility exists that consumers would be deprived of choice and may have to pay higher prices. In many systems of competition law, certain transactions cannot be completed without the approval of the relevant competition authority.”

Merger control (merger law).

“Merger control” refers to state rules for the review of mergers pre-closing / pre-completion.  Very generally, competition/antitrust laws are focused on the anti-competitive effects of market power, which can take a number of forms including arising as a result of cartels/combines (e.g., market power created through agreements to fix prices between competitors), monopolization (e.g., dominant firms engaging in conduct that may foreclose or lessen competition in a relevant market) or, in the case of mergers, through the combination of firms that may prevent or lessen competition in one or more relevant markets post-completion.  Many countries now have competition/antitrust laws that include the review of mergers, which review, depending on the relevant jurisdiction, may be triggered by: monetary thresholds (e.g., asset and/or revenue/turnover thresholds); market share thresholds; and/or thresholds based on specified percentages of share acquisition (sometimes referred to as “de jure” control) or control (which may be measured by “bright line” share acquisition thresholds and/or through factual tests of control, sometimes referred to as “de facto” control).  Where such thresholds are exceeded, mergers (variously defined across jurisdictions) commonly require pre-closing filings and clearance by competition/antitrust regulatory agencies.  In Canada, mergers are reviewed by the federal Competition Bureau, which applies merger control rules set out in the Competition Act, related regulations and policy guidelines formulated and issued by the Competition Bureau from time-to-time.

Merger remedy (merger control law).

Competition Bureau, Reviewing Mergers, Merger Remedies: “Remedies are required when a merger or proposed merger is likely to prevent or lessen competition substantially in one or more relevant markets.  In such cases, the Commissioner of Competition will take remedial action to prevent a merged entity, alone or in coordination with other firms, from having the ability to exercise market power, as a result of the merger.  When the Bureau believes that a merger is likely to prevent or lessen competition substantially, it can either apply to the Competition Tribunal to challenge it under section 92 of the Competition Act or negotiate remedies with the merging parties in order to resolve the competition concerns by consent.”

OECD, Policy Roundtables, Paper, Remedies in Merger Cases (2011):  “Remedies are used by competition agencies to resolve and prevent the harm to the competitive process that may result as a consequence of a merger. They allow for the approval of mergers that would otherwise have been prohibited, by eliminating the risks that a given transaction may pose to competition. As such, they play an essential role in the merger review process, and their careful crafting is of the utmost importance to the competition agencies carrying out the review.  Merger remedies are generally classified as either structural, if they require the divestiture of an asset, or behavioural, if they impose an obligation on the merged entity to engage in, or refrain from, a certain conduct. Structural remedies may include both the sale of a physical part of a business or the transfer or licensing of intellectual property rights.  They can be imposed either as a condition precedent to a merger, or their completion may be required within a certain period from the approval of the merger. Behavioural remedies, on the other hand, are always forward looking in that they consist of limits on future business behaviour or an obligation to perform a specific prescribed conduct for a given, sometimes considerable, period of time following the consummation of the merger. They often consist of non-discrimination obligations, firewall provisions or non-retaliation or transparency provisions or contracting limitations.  Both types of remedies have their benefits and drawbacks. While the decision as to which type to use must be first and foremost guided by its suitability to address the competition risk at hand, the advantages and disadvantages of structural versus behavioural remedies must be carefully weighed as well. Generally, the benefits of structural remedies are of a one-off nature (which eliminates the need for subsequent long-term monitoring) and of relatively straightforward character. Their drawbacks, on the other hand, include high costs to the merging parties, potential disruption to relationship with customers, and their irreversibility (given the fact that some of the feared competitive risks are transitory).  Behavioural remedies pose their own challenges. Often difficult to craft in order to capture all possible eventualities, they also require monitoring in order to ensure that the merged entity is adhering to them in the months and years following the consummation of the merger. Long lasting oversight of a company’s behaviour is something competition agencies typically are neither well-equipped nor entrusted to do. On the other hand, behavioural remedies offer clear advantages in vertical and conglomerate mergers, where structural remedies typically offer little help. In addition, they avoid the substantial disruption to the merging parties’ businesses that a divestiture would cause.”

Metadata.

Office of the Privacy Commissioner of Canada, Fact Sheet, “The Risks of Metadata”: “Metadata is usually defined as ‘data about data’ or ‘information about information’.  Think of it as a hidden level of extra information that is automatically created and embedded in a computer file.  An example that you may be familiar with is that of the label on a can of soup.  The label contains, in a standardized, structured format, information about the contents of the can (e.g., the type of soup, who made it, the ingredients and nutritional value and so on).  In a similar fashion, the metadata associated with a document (in the form of keywords, for instance) can provide information about the contents of the document.  Whenever a document is created, edited or saved, metadata is added to a document.  This information accompanies the document whenever it is sent in electronic form (e.g., as an attachment to an e-mail) to other groups or individuals, internally or externally to an organization.  This metadata may contain potentially sensitive information that could be inadvertently disclosed to unauthorized individuals or groups.”

“Mini rules” / “short rules” (Canadian contest/sweepstakes law).

Canada’s federal Competition Act requires that certain disclosures be made when conducting “any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise [disposing] of any product or other benefit …” Key Competition Act requirements include: (i) disclosing the number and approximate value of prizes, (ii) disclosing the area (or areas) to which they relate and (iii) any fact that may materially affect the odds of winning. The Competition Act also prohibits contest organizers from “unduly delaying” the award of prizes. Based on these requirements, most contest organizers provide short rules / mini-rules in all point-of-purchase materials regardless of media (i.e., in all print, online and other electronic media), with long rules (i.e., official contest rules) available on request and commonly posted on the sponsor’s website.  Point-of-purchase disclosure (short rules) commonly includes both the required statutory disclosure and other key contest elements. While short, and usually straightforward, it is important that the mandatory statutory disclosure be drafted precisely and correctly.  It is also important that the timing for the launch of a contest and accompanying promotional materials ensure that the necessary disclosure is included in point-of-purchase and similar marketing materials where entrants first see a contest promoted.

For more information about Canadian contest/sweepstakes law, see: Contests, Contests and CASL, Contest FAQs, Contest Tips and Contests and Social Media.

For information about the Canadian contest/sweepstakes precedents (template rules) and checklists that we offer for sale, see: Canadian Contest Forms/Precedents.

Minors / age of majority (Canadian contest/sweepstakes law).

In many jurisdictions, minors (i.e., individuals under the age of majority in the relevant jurisdiction) cannot enter into legally binding contracts. As such, contest/sweepstakes sponsors commonly require that any winners of a contest that are minors have a parent or legal guardian agree to the contest terms on their behalf and enter into the contest winner release form. In trip/destination contests, contest sponsors commonly require that any travel companions of the winner also enter into a winner release form and have their parent or legal guardian complete a parent/guardian release form.

For more information about Canadian contest/sweepstakes law, see: Contests, Contests and CASL, Contest FAQs, Contest Tips and Contests and Social Media.

For information about the Canadian contest/sweepstakes precedents (template rules) and checklists that we offer for sale, see: Canadian Contest Forms/Precedents.

Misleading advertising.

Competition Bureau, Ensuring Truth in Advertising, Misleading Advertising and Labelling: “The misleading advertising and labelling provisions enforced by the Competition Bureau prohibit making any deceptive representations for the purpose of promoting a product or a business interest, and encourage the provision of sufficient information to allow consumers to make informed choices.  The false or misleading representations and deceptive marketing practices provisions of the Competition Act contain a general prohibition against materially false or misleading representations. They also prohibit making performance representations which are not based on adequate and proper tests, misleading warranties and guarantees, false or misleading ordinary selling price representations, untrue, misleading or unauthorized use of tests and testimonials, bait and switch selling, double ticketing and the sale of a product above its advertised price. Further, the promotional contest provisions prohibit contests that do not disclose required information.  The Consumer Packaging and Labelling Act, Textile Labelling Act and Precious Metals Marking Act all contain prohibitions regarding false or misleading representations. They also require certain labelling or marking information aimed at assisting consumers in making informed purchasing decisions.”

For more information, see: Advertising Law,  Advertising Law FAQs and Misleading Advertising.

Monopolization (abuse of dominance / monopolization law).

The U.S. equivalent of abuse of dominance in Canada under section 79 of the Competition Act (see definition of abuse of dominance).

Section 2 of the Sherman Act (15 U.S.C. § 2 (2000) provides: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony …”

The U.S. Supreme Court in United States v. Grinnell Corp., 384 U.S. 563 (1966) set out the elements of the offence as follows: “The offense of monopoly under § 2 of theSherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product business acumen, or historic accident.”

As in Canada under section 79 of the Competition Act, mere possession of a large market share or monopoly power is not an offence in the U.S. without more.  For example, as put by Learned Hand in the Alcoa case: “[t]he successful competitor, having been urged to compete, must not be turned on when he wins” (United States v. Aluminum Corp. of America (Alcoa), 148 F.2d 416).

For more information, see: Abuse of Dominance.

Monopoly (competition/antitrust economics).

OECD, Competition Assessment Toolkit (2011): “A monopoly exists when a good or service can reasonably be purchased only from one supplier.”

Before the modern Competition Act was introduced in Canada in 1986, the former Combines Investigation Act (Canada’s federal antitrust legislation) defined “monopoly” as a party or parties who substantially controlled a class or species of business and operated to the detriment or against the interest of the public.  The Combines Investigation Act at the time created a “criminal offence of monopoly”.  For Canada’s modern monopoly provisions, see “abuse of dominance”.

Hawkins P.C. bk. 1, c. 29: “A monopoly is an allowance by the king to a particular person or persons of the sole buying, selling, making, working, or using of anything whereby the subject in general is restrained from the freedom of manufacturing or trading which he had before.”

Pollexfen in East India Company v. Sandys, Skin. 165, 169: “By common law, he said that trade is free, and for that cited 3 Inst. 81; F.B. 65; 1 Roll. 4; that the common law is as much against ‘monopoly’ as ‘engrossing;’ and that they differ only, that a ‘monopoly’ is by patent from the king, the other is by the act of the subject between party and party; but that the mischiefs are the same from both, and there is the same law against both. Moore, 673; 11 Rep. 84. The sole trade of anything is ‘engrossing’ ex rei natura, for whosoever hath the sole trade of buying and selling hath ‘engrossed’ that trade, and whosoever hath the sole trade to any country hath the sole trade of buying and selling the produce of that country, at his own price, which is an ‘engrossing.'”

Lord Coke, 3 Inst. 181, c. 85: “A monopoly is an institution, or allowance by the king by his grant, commission, or otherwise to any person or persons, bodies politic or corporate, of or for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade.”

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911): “The frequent granting of monopolies and the struggle which led to a denial of the power to create them, that is to say, to the establishment that they were incompatible with the English constitution, is known to all, and need not be reviewed. The evils which led to the public outcry against monopolies and to the final denial of the power to make them may be thus summarily stated: 1. The power which the monopoly gave to the one who enjoyed it to fix the price and thereby injure the public; 2. The power which it engendered of enabling a limitation on production; and, 3. The danger of deterioration in quality of the monopolized article which it was deemed was the inevitable resultant of the monopolistic control over its production and sale. As monopoly as thus conceived embraced only a consequence arising from an exertion of sovereign power, no express restrictions or prohibitions obtained against the creation by an individual of a monopoly as such. But as it was considered, at least so far as the necessaries of life were concerned, that individuals, by the abuse of their right to contract, might be able to usurp the power arbitrarily to enhance prices, one of the wrongs arising from monopoly, it came to be that laws were passed relating to offenses such as forestalling, regrating and engrossing by which prohibitions were placed upon the power of individuals to deal under such circumstances and conditions as, according to the conception of the times, created a presumption that the dealings were not simply the honest exertion of one’s right to contract for his own benefit unaccompanied by a wrongful motive to injure others, but were the consequence of a contract or course of dealing of such a character as to give rise to the presumption of an intent to injure others through the means, for instance, of a monopolistic increase of prices.”

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911): “Generalizing these considerations, the situation is this: 1. That, by the common law, monopolies were unlawful because of their restriction upon individual freedom of contract and their injury to the public. 2. That as to necessaries of life, the freedom of the individual to deal was restricted where the nature and character of the dealing was such as to engender the presumption of intent to bring about at least one of the injuries which it was deemed would result from monopoly, that is, an undue enhancement of price. 3. That, to protect the freedom of contract of the individual not only in his own interest, but principally in the interest of the common weal, a contract of an individual by which he put an unreasonable restraint upon himself as to carrying on his trade or business was void. And that, at common law, the evils consequent upon engrossing, etc., caused those things to be treated as coming within monopoly, and sometimes to be called monopoly, and the same considerations caused monopoly, because of its operation and effect, to be brought within and spoken of generally as impeding the due course of, or being in restraint of, trade.”

For more information, see: Abuse of Dominance.

Monopsony power (competition/antitrust economics).

Competition Bureau, Merger Enforcement Guidelines: “Market power of buyers is the ability of a single firm (monopsony power) or a group of firms (oligopsony power) to profitably depress prices paid to sellers (by reducing the purchase of inputs, for example) to a level that is below the competitive price for a significant period of time.”

Competition Bureau, Competitor Collaboration Guidelines (2009): “where the buyer holds market power in the relevant purchasing market such that it has the ability to decrease the price of a relevant product below competitive levels with a corresponding reduction in the overall quantity of the input produced or supplied in a relevant market, or a corresponding diminishment in any other dimension of competition.”

Competition Bureau, Report, Round Table on Monopsony and Buyer Power (2008): “Monopsony power is understood to mean those instances where a price decrease is such that it falls below competitive levels and there is a corresponding reduction in the input supplied or a corresponding diminishment in any other dimension of competition. As noted in footnote 1, here and throughout this submission, monopsony includes within its meaning situations where supply is perfectly inelastic such that a decrease in price below competitive levels does not result in a decrease in output. As is the case when examining downstream market power, the Bureau generally considers such price and output decreases in a relevant market. As noted above, monopsony power is generally used by the Bureau to include within its meaning oligopsony power.”

Most-favored-nation (MFN) clause (abuse of dominance / monopolization law).

U.S. Department of Justice: “The most commonly used MFN provisions guarantee a customer that it will receive prices that are at least as favorable as those provided to other buyers of the same seller, for the same products or services.  Although at times employed for benign purposes, MFNs can under certain circumstances present competitive concerns.  This is because they may, especially when used by a dominant buyer of intermediate goods, raise other buyers’ costs or foreclose would-be competitors from accessing the market.  Additionally, MFNs can facilitate collusion and stabilize coordinated pricing among sellers.”

Multi-level marketing plan (Canadian competition law).

Competition Act, subsection 55(1): “… a plan for the supply of a product whereby a participant in the plan receives compensation for the supply of the product to another participant in the plan who, in turn, receives compensation for the supply of the same or another product to other participants in the plan.”

See also Competition Bureau, Truth in Advertising, Multi-level Marketing: “Multi-level marketing is a plan for the distribution of products whereby participants earn money by supplying products to other participants in the same plan. They, in turn, make money by supplying the same or other products to other participants.  Operators of, and participants in, legitimate multi-level marketing plans should disclose:
the different levels of earnings or compensation received by participants in the plan; the amount of money earned by a typical participant; and the time and effort required to reach specific levels of income.”

The Competition Act makes it a criminal offence for operators and participants of multi-level marketing plans to make compensation claims to prospective participants unless certain disclosure requirements are met – i.e., “fair, reasonable and timely” disclosure within the knowledge of the person making the claim is made to prospective participants of the: (i) actual or (ii) likely compensation to be received in the plan (based on a number of prescribed factors).  The penalties for contravening the multi-level marketing provisions of the Act include unlimited fines (i.e., in the discretion of the court), imprisonment for up to five years, or both.  Multi-level marketing plans that constitute pyramid selling schemes under the Act are illegal.  In other words, while multi-level marketing plans are legal provided certain prescribed disclosure requirements are met, pyramid selling as defined in the Act constitutes a criminal offence.

Competition Bureau, Enforcement Guidelines, Multi-level Marketing Plans and Schemes of Pyramid Selling: “Subsection 55(1) of the Act defines an MLM plan as a plan in which a participant receives compensation for the supply of a product to another participant, who in turn receives compensation for the supply of the same or another product to yet another participant in the MLM plan. Subsections 55(2) and 55(2.1) set out certain obligations relating to compensation disclosure by operators of and participants in MLM plans. Failure to comply with these obligations is subject to criminal penalties as set out in subsection 55(3). The full text of these provisions is set out in Appendix A to this bulletin.”

Canadian Consumer Handbook:  “Multi-level marketing (MLM) is a system for selling products in which participants get paid for selling products to other participants who, in turn, are paid for selling the same products to yet more participants.  This type of marketing is legal in Canada when the plan does not contravene the Competition Act.  Referral selling, matrix marketing and binary systems are all similar types of multi-level marketing plans, though some may be illegal under the Criminal Code, the Competition Act and some provincial and territorial laws.  Under the Competition Act, MLM plans that make claims about potential compensation must also disclose the amount of compensation typical participants in the plan earn.  Pyramid selling is an MLM plan that incorporates the following deceptive practices, which make it a criminal offence under the Competition Act: participants pay money for the right to receive compensation for recruiting new participants; a participant is required to buy a specific quantity of products, other than at cost price for the purpose of advertising as a condition of participation; selling unreasonable amounts of inventory to participants; having an unreasonable product return policy.  Pyramid selling is also a criminal offence under the Criminal Code.”

Federal Government, Consumer Information website (www.consumerinformation.ca): “Multi-level marketing is a system for selling products whereby participants are paid for selling products to other participants who, in turn, are paid for selling the same products to yet more participants. This type of marketing must comply with the Competition Act.  Pyramid selling is a type of multi-level marketing that is a criminal offence under the Competition Act due to the following deceptive practices: paying money to those who recruit new members (who also pay money for the same right); requiring new recruits to buy products as a condition of participation; selling unreasonable amounts of inventory to participants; and having an unreasonable product return policy.  Pyramid selling is also a criminal offence under the Criminal Code of Canada.”

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