Canadian COMPETITION LAW

“Exclusive dealing occurs when a firm supplies its product or products to a customer on the condition that the customer or supplier buy and/or sell only those versions of the product(s). In addition, or alternatively, exclusive dealing may also occur when a firm requires that customers (or suppliers) do not buy (and/or sell) products of competitors. Exclusive dealing can also take the form of a firm requiring or inducing its own suppliers to deal only with the firm itself and not with that firm’s competitors. Exclusivity may be mandated explicitly, or induced through other methods, such as technological incompatibilities, requirements contracts, meet-or-release clauses, most-favoured-nation (MFN) clauses, or other contractual practices.”

Competition Bureau
(Abuse of Dominance Enforcement Guidelines)

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DECEMBER 2023 COMPETITION ACT AMENDMENTS

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 new significant rounds of amendments to the federal Competition Act, largely came into force.

This first round of new amendments to the Competition Act, which is intended to strengthen the ability of the Competition Bureau (Bureau) and private parties to enforce Canadian competition law and enhance competition generally in Canada, includes fundamental changes to Canadian competition law not seen since the last major amendments in 2009.

In general, the amendments to the Competition Act under Bill C-56 include new broad powers for the Bureau to conduct market studies, changes to the core substantive test for abuse of dominance under section 79 (creating a new two-track test for abuse of dominance), increased penalties for abuse of dominance, broadening the civil agreements provision (section 90.1) to include agreements between non-competitors (i.e., to also apply to vertical agreements, such as distribution/supply agreements, vertical joint venture agreements, etc.) and repealing the efficiencies defences under section 90.1 and also for mergers under section 96.

These amendments increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition law.

The amendments introduced by Bill C-56 in December 2023 are expected to be followed by a second and more significant round of amendments contained in Bill C-59, which is currently working its way through Parliament. If passed, Bill C-59 would be the most important amendments to Canadian competition law since the current modern Competition Act replaced the former Combines Investigation Act in the 1980s.

2023 Competition Act Amendments Relevant
to Exclusive Dealing Agreements/Arrangements

The December 2023 Competition Act amendments expanded section 90.1 (the civil agreements provision) to apply to vertical agreements. These amendments, which come into force on December 15, 2024, added a new exception (section 90.1(1.1)) that provides that the Competition Tribunal may make orders even if none of the parties to an agreement are competitors if both: (i) a significant purpose of the agreement, or any part of it, is to prevent or lessen competition in a market; and (ii) the agreement or arrangement prevents or lessens, or is likely to prevent or lessen, competition substantially.

Before this amendment, section 90.1 of the Competition Act was restricted to horizontal agreements (i.e., agreements that included at least two or more competitors). Following this amendment, once in force, it will be possible to challenge exclusive dealing agreements/arrangements under section 90.1 of the Competition Act in addition to under sections 77 and 79. For more information about section 90.1, see: Conspiracy (Cartels).

In addition, the substantive test for establishing abuse of dominance, under which exclusive dealing can also be reviewed in addition to under the standalone exclusive dealing provision of the Competition Act (section 77), was amended to create a new two-track test for abuse of dominance, add a new anti-competitive act under section 78 and increase the penalties for abuse of dominance. For more information, see: Abuse of Dominance.

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For more information about the December 2023 amendments, see: Significant Canadian Competition Act Amendments Come Into Force (Bill C-56). See also: Competition Bureau, Guide to the December 2023 amendments to the Competition Act. For more information about Bill C-59, the second amending bill, which has not yet passed, see here.

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EXCLUSIVE DEALING
UNDER THE COMPETITION ACT

In general, exclusive dealing in Canada under the Competition Act occurs when a supplier of a product either requires (e.g., through agreement) or induces (e.g., through discounts or incentives) its customers to only purchase its products or services.

Substantive Tests for Exclusive Dealing

Exclusive dealing can potentially be reviewed under sections 77 (exclusive dealing, tied selling and market restriction) and 79 (abuse of dominance) of the Competition Act. For more information about section 79, see: Abuse of Dominance.

In addition, following amendments to the Competition Act that were enacted on December 15, 2023, and which will come into force on December 15, 2024, section 90.1 will also apply to vertical agreements including potentially exclusive dealing agreements/arrangements. For more information, see: Abuse of Dominance and Section 90.1 (Civil Agreements Provision).

While contested exclusive dealing cases are relatively uncommon in Canada, the Competition Bureau (Bureau) has in the past generally commenced them under both sections 77 and 79 of the Competition Act. For more information about Bureau enforcement, see: Competition Bureau Enforcement.

Both sections 77 (the standalone exclusive dealing provision) and three of the types of abuse of dominance under 79 of the Competition Act (sections 79(1)(b), 79(2) and 79(3.1)) require that all of the following be proven to establish exclusive dealing: (i) a specified level of market power (a supplier is a major supplier for section 77 or is dominant under section 79); and (ii) a specific type of anti-competitive conduct (a practice of exclusive dealing with an exclusionary effect for section 77 or the specified types of anti-competitive conduct set out under sections 79(1)(b), 79(2) and 79(3.1)); and (iii) the prescribed competitive effects (a substantial lessening of competition for section 77 or a prevention or substantial lessening of competition for sections 79(1)(b), 79(2) or 79(3.1)).

Unlike sections 77 or 79 of the Competition Act, section 90.1, which may also apply to exclusive dealing once amendments to that section come into force on December 15, 2024, does not require any level of market power between parties to an agreement. However, like sections 79(1)(b), 79(2) and 79(3.1) (under section 79, abuse of dominance), section 90.1 will require a prevention or substantial lessening of competition in a market in order to obtain an order under that section for exclusive dealing.

Also, further to amendments to section 79 that came into force on December 15, 2023, abuse of dominance under section 79(1)(a) of the Competition Act no longer requires any adverse market effects to be proven for the federal Competition Tribunal (Tribunal) to issue a remedial order prohibiting exclusive dealing conduct (as opposed to, for example, to obtain an order for administrative monetary penalties or other remedies requiring market effects to be proven).

Section 77 (Exclusive Dealing) Remedies

Where an exclusive dealing application is successful under section 77, the Tribunal can make an order to prohibit the conduct or any other order necessary to restore or stimulate competition in the market.

Section 79 (Abuse of Dominance) Remedies

Where abuse of dominance is established under section 79(1) of the Competition Act, including exclusive dealing, the Tribunal may make a prohibition order prohibiting a person (or persons in the case of joint abuse) from engaging in the practice or conduct.

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

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

For more information, see: Abuse of Dominance.

Section 90.1 (Civil Agreements Provision) Remedies

Under section 90.1, once the relevant amended section comes into force in December 2024 (discussed above), the Tribunal will be able to, on application by the Commissioner of Competition, make remedial orders for exclusive dealing (e.g., for conduct to stop) where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.

The Tribunal will also be able to make orders in relation to exclusive dealing: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.

For more information, see: Conspiracy (Cartels).

Competition Tribunal
Private Access Applications

Private parties may also commence Tribunal applications for exclusive dealing under either sections 77 or section 79 if they are granted leave from the Tribunal under section 103.1 of the Competition Act.

Leave may be granted to a private party if the Tribunal has “reason to believe” that the applicant was “directly and substantially affected” in its business by a practice that could be subject to an order under either section 77 or 79.

Private access rights to the Tribunal were added under section 79 (abuse of dominance) as a result of amendments to the Competition Act in 2022.

A leave applicant’s burden of proof is lower than a balance of probabilities (i.e., lower than the civil standard of proof) and must adduce sufficient credible evidence supporting a bona fide belief that they may have been directly and substantially affected in their business by the exclusive dealing and that each element of sections 77 or 79 may be satisfied.

For more information, see: Competition Litigation.

Exclusive Dealing Cases
Under the Competition Act

There have only been several contested exclusive dealing cases in Canada under the Competition Act (the Canada Pipe and NutraSweet cases).

Canada Pipe

In the Canada Pipe case, the Tribunal held that a “stocking distributor program” (SDP) that was being offered by one of Canada Pipe’s divisions (Bibby Ste-Croix (Bibby)), which provided quarterly and annual rebates to distributors that purchased products exclusively from Bibby, constituted a practice of exclusive dealing.  The Tribunal also found that Bibby was a major supplier.

The Tribunal concluded, however, that there was insufficient evidence that the SDP had an exclusionary effect.

While the Federal Court of Appeal overturned the Tribunal’s decision and referred it back to the Tribunal for redetermination, the Bureau settled the case with Canada Pipe in 2007 under a consent agreement.

NutraSweet

In the NutraSweet case, exclusive dealing was alleged by the Bureau under both sections 77(1)(a) and 77(1)(b) of the Competition Act.

While the Tribunal found that there was no evidence of exclusive dealing under section 77(1)(a) (exclusivity as a condition of supply), it concluded that there was exclusive dealing under section 77(1)(b) (induced exclusivity by offering more favourable terms or conditions) based on the nature of the fidelity rebates that were offered.

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SERVICES AND CONTACT

We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

Our experience includes advising clients in Toronto, across Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

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