Archive for the 'Compliance' Category
January 26, 2013
Steve Szentesi
Kevin Wright (Davis LLP)
(with contributions by Jonathan Gilhen – Davis LLP)
Extract from a chapter to be published in CLEBC’s
Annual Review of Law & Practice – 2013
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2012 was a busy year for Canadian competition and foreign investment law, with significant developments in all major areas including misleading advertising, mergers, abuse of dominance, criminal matters (including cartels, bid-rigging and deceptive marketing) and private actions. The following is an overview of some of the key abuse of dominance, private action and other competition developments in 2012.
Abuse of Dominance
Commissioner of Competition v. The Toronto Real Estate Board
In Commissioner of Competition v. The Toronto Real Estate Board, the Competition Bureau (the “Bureau”) commenced an abuse of dominance application against The Toronto Real Estate Board (“TREB”), Canada’s largest real estate board. The Bureau is alleging that TREB is dominant in the residential real estate services market in the Greater Toronto Area (“GTA”), certain TREB membership rules governing the use of its multiple listing service or “MLS®” data are anti-competitive and that competition has been substantially lessened in the relevant market (residential real estate services in the GTA).
In particular, the Bureau’s challenge involves TREB membership rules governing the use of its MLS® data that the Bureau argues restrict or prevent members from offering various innovative new services over the Internet, such as “virtual office websites” or “VOWs” that would allow potential clients to conduct their own property searches on brokers’ password protected websites without the assistance or involvement of brokers. The Bureau is arguing that TREB’s restrictions on using its MLS® data for VOWs has prevented the development of more efficient and cost effective business models by forcing existing members to use traditional broker models and prevented members from joining TREB to launch new Internet based services.
TREB in turn has argued that the rules for the use of its MLS® system are a legitimate exercise of intellectual property rights, its policies do not substantially prevent or lessen competition, that some proposed uses of its data raise privacy concerns and that it cannot be dominant in a market in which it does not participate (as a trade association it does not itself provide any real estate services).
Like the Bureau’s 2009 abuse of dominance challenge against The Canadian Real Estate Association, this case also focuses on membership rules and access to the MLS® system, and more specifically TREB’s ability to exclude and discipline non-compliant members by foreclosing access to its MLS® data. This case was ongoing at the time of writing.
New Abuse of Dominance Enforcement Guidelines
In September 2012, the Bureau issued new Abuse of Dominance Guidelines (“Abuse Guidelines”) that set out its enforcement policy for the civil abuse of dominance provisions of the Competition Act (the “Act”) (sections 78 and 79). The Bureau’s new Abuse Guidelines replace its former 2001 guidelines and several sector- and conduct-specific guidelines and bulletins relating to the airline, grocery and telecommunications industries and predatory pricing.
The new Abuse Guidelines are substantially shorter with significantly less analysis and fewer examples than the Bureau’s previous guidelines. In general, they also provide less comfort for firms regarding several key concepts, notably potential investigation risk in the absence of market power or conduct that is not exclusionary. They also introduce some new and somewhat controversial positions by the Bureau. Some key aspects of the new Abuse Guidelines include:
Preserving market share thresholds with no bright line safe harbors. As before, the new Abuse Guidelines contain no bright-line market share safe harbours below which the Bureau may not commence enforcement (for single firm dominance, a market share of less than 35% will generally not prompt further examination; between 35% and 50% will prompt further examination if a firm appears likely to increase its share through anti-competitive acts; and more than 50% will generally prompt further examination).
Expanding when the Bureau may investigate allegations of abuse. The new Abuse Guidelines state that the Bureau may investigate allegations of abuse of dominance in some instances even where a firm does not currently possess market power.
Joint dominance. The Abuse Guidelines provide new guidance on the degree of coordination the Bureau considers necessary for joint dominance, adopting a new approach to assess joint dominance (considering the ability of existing and potential competition to restrain firms’ market power and competition between firms) and stating that similar or parallel conduct alone is insufficient to conclude that firms are jointly dominant.
Enforcement in the absence of exclusionary conduct. The Abuse Guidelines also indicate that the Bureau may take enforcement action in some cases where conduct is not exclusionary (i.e., not only where a dominant firm engages in conduct that is predatory, exclusionary or disciplinary toward a competitor, the test for an anti-competitive act established by the Tribunal and the Federal Court).
Valid business justification. The Abuse Guidelines discuss what may constitute a valid business justification for the second branch of the test for abuse of dominance under section 79 with some examples, including reducing costs or improvements in technology. While the Federal Court of Appeal held in the leading Canadian abuse of dominance case, Canada Pipe, that proof of a valid business justification for allegedly anti-competitive conduct can offset and provide an alternative explanation for conduct, Canadian courts and the Bureau have to date provided little guidance as to what may in fact constitute a valid business justification.
January 17, 2013
For anyone following the unusual, to say the least, story of Manti Te’o and apparent online romance fraud played on him, this may be of interest.
The Competition Bureau, together with a number of other Canadian consumer protection agencies including Consumer Protection BC, the Better Business Bureau and RCMP have published a Top Ten Scams 2013 list describing the “Scam of the Year” together with nine other types of fraud the agencies have been combatting.
Online scams described, along with warning signs, include the following entertaining medley of online ways one can get duped: advertising trolls, online romance scams, affinity fraud, curbers, computer virus fixing schemes, twisted text prizes and pretender invoices.
If nothing else, a very entertaining (if slightly disturbing) read.
For the news release and blog post see: Consumer Protection BC – Top Ten Scams 2013 – Just in case a scam is around the corner and We’re counting down the Top 10 Scams.
January 17, 2013
Yesterday the U.S. Department of Justice (DoJ) issued a business review letter concluding that it would not challenge a proposed “gainsharing” program by a New York State hospital association (the Greater New York Hospital Association).
The DoJ’s business review letter (the Canadian parallel being advisory opinions available for proposed conduct under section 124.1 of the Competition Act) is interesting in that it shows the importance of minimizing the exchange of competitively sensitive information in the context of association activities.
In this case, the hospital association sought assurance from the DoJ that its proposed program to have physicians take into account their use of hospital resources (and rewards based on shares of achieved savings) would lead to improvements in quality and efficiency and would not violate federal antitrust laws.
The specifics of the particular program in this case aside (the so-called “gainsharing” program involving some 100 hospitals), the aspect of the review letter I found interesting was the DoJ’s analysis of information exchanges. In this regard, the DoJ considered whether the proposed program would constitute a horizontal agreement among competing hospitals relating to physicians’ compensation or an information exchange between hospitals that would facilitate anticompetitive coordination to limit physician compensation (concluding that the proposed program would be unlikely to facilitate collusion or otherwise raise competitive concerns).
In making this determination, the DoJ considered the fact that the program would not involve the exchange of competitively sensitive information between participating hospitals (and would be limited to non-competitively sensitive cost and benchmark data) and would follow the DoJ/FTC antitrust safety-zone requirements set out in their Statements of Antitrust Enforcement Policy in Health Care (the “Health Care Policy Statements”), namely that the data would be at least three months old, supplied by at least five providers and appropriately aggregated.
In Canada, as in the U.S., the exchange of competitively sensitive information between competitors, such as price, cost, market, supplier or output information, particularly in the context of trade and professional associations, can raise competition law concerns (see e.g.: here).
Generally speaking, there are two potential issues that can arise from the exchange of this type of information without adequate precautions: first, that the exchange results in an agreement that violates the criminal conspiracy provisions of the Competition Act (or raises concerns under the civil agreements provision – section 90.1); and second, that an exchange may allow the Competition Bureau, a court or private plaintiff to infer the existence of illegal or problematic agreement among competitors.
In this regard, in his first public remarks, the Interim Commissioner of Competition specifically highlighted information sharing agreements among association members as a potential concern:
“… we are concerned with conduct that reduces incentives to compete vigorously. Information sharing agreements are an example of this. Competitively sensitive information exchanged among competitors who can have serious negative effects on competition, especially if these are in highly concentrated markets with relatively homogeneous product offerings. Clearly, Trade/Industry Associations must be extra vigilant in their efforts to manage and alleviate risk with respect to their activities.”
January 15, 2013
In my inbox this morning, from one of the services I subscribe to, was a very good note on buying groups and U.S. antitrust law (Ten Practical Counseling Tips for Joint Purchasing Without Violating the Antitrust Laws) by Venable LLP.
This rather good and practical note discusses a recent DoJ business review letter for STARS Alliance LLC (an association of nuclear utility operators) and the application of U.S. antitrust law to joint purchasing activities by competitors. In addition to an overview of the potential application of section 1 of the Sherman Act to concerted purchasing activities, this note also includes a number of best practices for joint purchasing activities to mitigate potential competition/antitrust law risk.
In reading the note, I thought that many of these best practices were also good counsel for joint purchasing activities under Canadian competition law including: (1) consult with antitrust counsel prior to establishing a joint purchasing program and periodically throughout the process to ensure compliance with the antitrust laws; (2) for trade associations, participation in the joint purchasing arrangement should be available to all association members and should not be limited by the size, type, or location of a member; (3) the program should not impose minimum purchasing requirements on members; (4) joint purchasing should not be used to raise, lower, or stabilize prices (or boycott suppliers); (5) any meetings of a joint purchasing group should have an agenda and minutes; (6) all discussions should be limited to the purposes of the joint purchasing group; (7) antitrust counsel should be present at meetings where competitively sensitive information is discussed; and (8) members should not share competitively sensitive information or enter any agreement or understanding on prices or other competitive conduct in the downstream market.
In Canada, since the Competition Act was amended in 2009, section 45 of the Competition Act (Canada’s equivalent to section 1 of the Sherman Act which deals with hard-core conspiracy agreements among competitors) is now focused on price-fixing, market allocation and output restriction agreements among competing suppliers. As such, the principal competition law risks associated with buying groups in Canada are generally speaking three-fold:
1. That a buying group may possess sufficient buying power (i.e., monopsony power) to substantially lessen competition in the relevant upstream purchasing market (see e.g., the Competition Bureau’s discussion of buying groups in its Competitor Collaboration Guidelines), thereby raising issues under section 90.1 of the Competition Act (the civil agreements provision).
January 12, 2013
A recent settlement between the U.S. Department of Justice (DoJ) and an Oklahoma chiropractors association (the Oklahoma State Chiropractic Independent Physicians Association) shows the potential risk of association collective bargaining in the absence of competition law immunities/exceptions.
On January 10th, the DoJ announced that it had reached a settlement with this chiropractors association that will require the association to stop jointly determining prices and negotiating contracts with insurers on behalf of competing chiropractors in Oklahoma. According to the DoJ, the association, representing approximately 45% of the state market, and its executive director negotiated at least seven contracts between chiropractors and insurers that set prices for chiropractic services, with the effect of consumers having to paying higher fees in Oklahoma. The DoJ also took issue with collective steps by the association’s chiropractors to suspend pre-existing contracts with insurers and stop offering insurers incentives or rebates. In making the announcement, the DoJ said:
“By jointly negotiating fees on behalf of competing chiropractors, the association and its executive director increased the prices that consumers paid for chiropractic services in Oklahoma. … Today’s settlement promotes competition among Oklahoma chiropractors and prevents the association and its executive director from engaging in illegal conduct that caused consumers to pay more for their health care.”
Some of the specific allegations made by the DoJ in its civil section 1 Sherman Act complaint related to a membership requirement for association members to authorize the association to contract with 3rd party insurers, terminate existing contracts with insurers, stipulate a minimum reimbursement floor for chiropractors and agree not to pay incentives or rebates (e.g., waive deductibles or co-pays). For example, the association’s website stated: “[the association] concentrates the power of [its] state chiropractic physicians into one group. Through [the association], a chiropractor can maintain an individual practice while associating with other chiropractors to increase contract-negotiating power”. The DoJ also took the position that the defendants’ joint negotiation activities in this case were not ancillary to any pro-competitive purpose or reasonably necessary to achieve any efficiencies.
January 10, 2013
The American Antitrust Institute (AAI) has published an interesting new working paper on cartels in the energy industry entitled Collusive Agreements in the Energy Industry: Insights into U.S. Antitrust Enforcement. Abstract:
“This working paper examines collusive agreements in the U.S. energy industry, with a focus on Section 1 energy cases brought by the U.S. government since the early 1990s. It observes that public Section 1 enforcement in various segments of the domestic energy sector appears not to follow the pattern of enforcement against anticompetitive agreements more generally. Anomalies are apparent in terms of the relative number of cases won, a preponderance of civil (versus criminal) enforcement actions, and liberal use of injunctions. The paper proceeds to examine possible explanations for these observations, including the roles of regulation and judicially- created antitrust immunities in restraining a more vigorous approach to public enforcement. It concludes with observations and policy recommendations.”
Some of the key conclusions in this paper include relatively few energy cases being enforced under Section 1 of the Sherman Act (compared to more aggressive enforcement in relation to mergers), price-fixing in the gasoline sector likely being subject to criminal prosecution (while other types of coordination, such as output restraints, tend to more likely face civil enforcement), U.S. enforcement agencies predominantly pursue enforcement in the energy sector civilly generally and through injunctions rather than monetary penalties and antitrust immunities have not played a strong role in enforcement. These conclusions, if accurate, are in contrast to Canada in some key respects, including the fact that the Competition Bureau continues to pursue criminal enforcement in the downstream oil and gas sector and routinely seeks criminal fines and penalties, including against individuals.
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January 9, 2013
Last Friday, Industry Canada released highly anticipated (well at least in Internet, advertising and competition law circles) new draft regulations relating to the impending new Canadian anti-spam legislation (CASL). The new draft regulations, among other things, expand on some key terms in the legislation, clarify some exceptions existing in the legislation and add several new exceptions. These include sending commercial electronic messages to enforce a legal right, an exception for some types of referrals and for electronic communications sent within a company (or between companies in an existing business relationship).
January 6, 2013
The ABA’s Section of International Law has published its December, 2012 edition of “Hot Topics” in International Antitrust Law, with a short but very interesting discussion of the ongoing auto parts price-fixing investigation: “Lessons to Be Learned from the Antitrust Division’s Criminal Investigation of the Auto Parts Industry” (by J.M. Driscoll-Chippendale of Sheppard Mullin).
Overview:
“The U.S. Department of Justice, Antitrust Division closed another record- breaking year of criminal enforcement in 2011-2012 based in part on its success in prosecuting both companies and individuals in what is known as the “auto parts investigation.”
The origins of the investigation were not particularly exceptional. On February 24, 2010, as most of the automotive industry focused on Toyota President Akio Toyoda’s congressional testimony about safety and recall issues, the FBI and the Division executed search warrants on the U.S. subsidiaries of three auto parts manufacturers—Denso, Yazaki International and Tokai Rika—for allegedly violating Section One of the Sherman Act. But these three raids spawned what has become the largest cartel investigation in the Division’s history with a rumored 64 parts currently under investigation.
The auto parts investigation has exposed a decade-old “keiretsu” of price-fixing and project allocation among some of the most venerable suppliers in Japan. To date, the Division has collected nearly $800 million in fines from its investigation with Yazaki alone paying $470 million. In addition to the corporate penalties, 11 individuals have been prosecuted and received sentences ranging from a year and a day to two years for their respective roles in the cartel.”
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
