Archive for the 'Competition Law' Category
January 23, 2013
Steve Szentesi & Kevin Wright (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 misleading advertising developments (with summaries of other significant developments in 2012 to come over the next few days).
Richard v. Time
(“General Impression” Test & Disclaimers)
In Richard v. Time Inc. (2012 SCC 8), a Quebec resident received a prize mail-out relating to magazine subscription marketing leading him to believe he had won more than $800,000 (the mail-out stated he “WON $833,337.00!” when small print disclaimers disclosed that only a chance to win was being offered). He returned the mail-out, subscribed to the magazine and then requested his prize. When told he had not won, but was merely eligible to participate in a sweepstakes, he sued under the Quebec Consumer Protection Act (“QCPA”). While successful at trial, the Court of Appeal reversed and the recipient appealed to the Supreme Court.
On appeal, the Supreme Court considered the standard for the “general impression” test for misleading advertising under the QCPA. In this regard, advertising can be false or misleading, under some consumer protection legislation as well as the Competition Act (the “Act”), where a claim is literally false or the “general impression” is misleading. This “general impression” test can apply where, for example, a disclaimer fails to alter the overall misleading impression of a “headline” claim, two true claims are made but, when associated, they create a misleading general impression or material information is omitted (e.g., additional pricing, key limitations/conditions, etc.).
The Supreme Court held that the relevant consumer for the QCPA’s general impression test was a “credulous and inexperienced” consumer. Accordingly, courts should view the average consumer as “someone … not particularly experienced at detecting the falsehoods or subtleties found in commercial representations” (both a lower standard than held by the Court of Appeal in this case as well as other cases decided under the Act, where courts have generally held the relevant consumer to be an “average consumer”).
The Supreme Court in this case held that the general impression of the prize mail-out was that the grand prize had been won, which was misleading, and awarded compensatory and punitive damages. The Court also confirmed that in considering whether an advertisement is misleading the entire context, including layout and arrangement of text, must be considered and that fine print disclaimers (in this case “riddled with misleading representations”) failed to cure the otherwise misleading prize claim. Though decided under Quebec law, this case is important in that it has started a debate as to whether Canadian courts will lower the bar for the general impression test for competition law advertising cases.
Yellow Page Marketing
(Misleading Business Claims & Disclaimers)
In Commissioner of Competition v. Yellow Page Marketing, 2012 ONSC 927 (Sup. Ct.), a group of companies and individuals sent faxes designed to lead recipients to believe they were confirming online directory information for the Yellow Pages Group (“YPG”). In fact the companies, which used names and logos resembling YPG, were unrelated to YPG and used fine print disclaimers to sign-up recipients to new two-year online directory contracts with significant fees. The Ontario Superior Court reviewed the relevant law under the general civil misleading advertising provision of the Act (s. 74.01), finding that the faxes were misleading, material and that the fine print disclaimers failed to cure otherwise misleading claims. The penalties ordered by the Court included a ten-year prohibition order, compensating consumers and more than $9 million in AMPs (including more than $1 million against three individuals). This was the highest award to date in contested proceedings for a Canadian misleading advertising case.
Rogers and Rogers/Bell/TELUS Advertising Cases
(Performance Claims and Mobile Advertising)
In two of the most important advertising law developments in 2012, the Competition Bureau (the “Bureau”) challenged Rogers, Bell and TELUS in cases involving performance claims (Commissioner of Competition v. Chatr Wireless Inc., CV-10-8993-00CL (Ont. Sup. Ct.)) (“Rogers”) and price claims for “premium texting” wireless services (Commissioner of Competition v. Rogers Communications Inc., 12-55497 (Ont. Sup. Ct.)) (“Rogers/Bell/TELUS”).
In the Rogers case, the Bureau is challenging two performance claims made by Rogers in relation to its cell phone brand Chatr: that its service had “fewer dropped calls than new wireless carriers” and that customers had “no worries about dropped calls”. The Bureau argues that these claims, made to compete with new wireless entrants, were literally false in some cases (in markets where new entrants’ dropped call rates were superior) and where true, were nevertheless misleading because while giving the general impression of appreciably lower dropped call rates, any differences in performance were in reality “inconsequential and imperceptible”. The Bureau is also arguing that disclaimers used by Rogers, which included language that in the Bureau’s view would be “meaningless” to an average consumer, failed to cure the otherwise misleading general impression of the performance claims. Rogers in turn is challenging the appropriate data and methodology for performance claims made and is also making constitutional challenges to the performance claim provision of the Act (based on Charter freedom of expression arguments) and to the $10 million AMPs that may now be imposed under the Act for misleading advertising (arguing they are criminal in nature, constitute penal consequences and should be given the same procedural safeguards as criminal offences).
In the Rogers/Bell/TELUS case, the Bureau commenced additional proceedings in Ontario against Bell Canada, Rogers Communications, TELUS Corporation (the “Telecoms”) and the Canadian Wireless Telecommunications Association (“CWTA”) for alleged misleading advertising in relation to “premium texting services” (see: Competition Bureau, News Release, “Competition Bureau Sues Bell, Rogers and Telus for Misleading Consumers” (September 14, 2012)). In this second case, the Bureau is alleging that the Telecoms and CWTA facilitated the sale of 3rd party premium-rate digital content (e.g., news, advice, trivia, horoscopes, ringtones, etc.) without adequately disclosing their fees and suggested that some services were free and is seeking $31 million in AMPS and restitution for consumers. The essence of the Bureau’s claim is twofold: first, that the wireless companies made false or misleading representations to the public the general impression of which was that consumers could receive premium text messaging and other services for free (when they were in fact charged for content); and second, that claims were made that consumers were safeguarded from receiving and having to pay unauthorized charges, when the Telecoms collected and facilitated such charges keeping a percentage. The Bureau also argues that the recent lower general impression test from the Supreme Court of Canada’s decision in Richard v. Time (discussed above) should apply, alleging that the Telecoms’ claims were targeted at wireless users including “credulous, inexperienced, and vulnerable” persons, such as children.
Implications of Recent Advertising Cases
While the two telecom cases discussed above were ongoing at the time of writing, several of these cases have established new law, including lowering the bar for the “general impression” test in Quebec (which may be adopted by courts in other provinces), clarifying the meaning of “business interest” in misleading advertising cases, adding to the case law on disclaimers and illustrating some of the factors Canadian courts will consider in imposing the now more significant penalties possible for misleading advertising.
They are also a reminder of some established advertising law principles, including that courts will consider the overall context and impression of challenged advertising, that fine print or overly legalistic disclaimers may not cure otherwise false or misleading headline claims, that the misleading advertising provisions of the Act apply to product and business claims, and that a claim may violate the misleading advertising provisions of the Act where it is either literally false or the general impression is false or misleading.
Finally, these cases illustrate several important enforcement trends, including increased scrutiny of price and performance claims, challenges of fine print disclaimers, a focus on mobile devices and other new technologies, and a willingness by the Bureau to regularly seek the maximum statutory penalties for misleading advertising.
January 22, 2013
The Conference Board of Canada published a news release and report earlier today on Canada/China trade entitled: “Walking the Silk Road: Understanding Canada’s Changing Trade Patterns”. Abstract:
“Canada’s trading patterns have changed fundamentally over the past decade. The Canadian–U.S. trade relationship is waning in importance, while emerging markets, particularly China, are becoming increasingly important. Also, our trade strengths are shifting away from some manufactured products toward professional services and products related to our natural resource wealth. These changes are not just the result of the strong dollar; the growing role of emerging markets and shrinking trade barriers are key drivers. This briefing examines these changes and a wide array of factors affecting them.”
For copies of the news release and report see: here and here.
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
Howard Langer (of Langer Grogan & Diver) has authored a new competition/antitrust text on U.S. antitrust law, published by Wolters Kluwer, entitled Competition Law of the United States. Abstract:
“Derived from the renowned multi-volume International Encyclopaedia of Laws, this practical analysis of competition law and its interpretation in the United States covers every aspect of the subject – the various forms of restrictive agreements and abuse of dominance prohibited by law and the rules on merger control; tests of illegality; filing obligations; administrative investigation and enforcement procedures; civil remedies and criminal penalties; and raising challenges to administrative decisions. Lawyers who handle transnational commercial transactions will appreciate the explanation of fundamental differences in procedure from one legal system to another, as well as the international aspects of competition law. Throughout the book, the treatment emphasizes enforcement, with relevant cases analysed where appropriate. An informative introductory chapter provides detailed information on the economic, legal, and historical background, including national and international sources, scope of application, an overview of substantive provisions and main notions, and a comprehensive description of the enforcement system including private enforcement. The book proceeds to a detailed analysis of substantive prohibitions, including cartels and other horizontal agreements, vertical restraints, the various types of abusive conduct by the dominant firms and the appraisal of concentrations, and then goes on to the administrative enforcement of competition law, with a focus on the antitrust authorities’ powers of investigation and the right of defense of suspected companies. This part also covers voluntary merger notifications and clearance decisions, as well as a description of the judicial review of administrative decisions. Its succinct yet scholarly nature, as well as the practical quality of the information it provides, make this book a valuable time-saving tool for business and legal professionals alike. Lawyers representing parties with interests in the United States will welcome this very useful guide, and academics and researchers will appreciate its value in the study of international and comparative competition law.”
For an overview of the new book see: Competition Law of the United States.
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.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
