“Price maintenance may occur when a supplier prevents a customer from selling a product below a minimum price by means of a threat, promise or agreement. It may also occur when a supplier refuses to supply a customer or otherwise discriminates against them because of their low pricing policy.”
(Competition Bureau pamphlet, Setting Your Own Price)
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“In a typical price maintenance case, the analysis of whether prices have been influenced upwards is relatively uncomplicated. For example, a manufacturer sets a minimum price at which its dealers may sell its product. This price is above the price at which its dealers would otherwise sell the product thereby directly influencing its resale price upward. It necessarily prevents resellers of the product from competing with each other by cutting their prices below the stipulated minimum price. While resale price maintenance softens intra-brand price competition downstream, it can increase the incentive for resellers to engage in non-price inter-brand competition and can therefore be demand-increasing. In this case there would be an upward influence on price but no adverse effect on competition. Under some circumstances, however, resale price maintenance can reduce both intra-brand and inter-brand competition and is demand restricting as a consequence. In this case there would be both an upward influence on price and an adverse effect on competition.”
(Competition Tribunal,
Commissioner of Competition v. Visa and MasterCard)
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OVERVIEW OF CANADIAN PRICE
MAINTENANCE LAW (COMPETITION ACT SECTION 76)
Canada’s federal Competition Act contains several civil price maintenance provisions. Under section 76 of the Competition Act, the following may be subject to a Competition Tribunal (Tribunal) order:
1. Where a producer or supplier, by agreement, threat, promise or any like means, influences upward or discourages the reduction of the price at which a customer, or any other person to whom a product comes for resale, supplies, offers to supply or advertises a product in Canada.
2. To refuse to supply goods or services to a person, or otherwise discriminate against them, based on their low pricing policy.
3. To induce a supplier by agreement, threat, promise or any like means, as a condition to dealing with the supplier, to refuse to supply a product to another person because of that other person’s low pricing policy.
Section 76 of the Canadian Competition Act can apply to, among others, minimum advertised price (MAP) policies, minimum resale price policies, manufacturer suggested resale pricing (MSRP) policies and other types of agreements (e.g., supply/distribution agreements) and agreements and policies where producers or suppliers attempt to control the resale prices or advertised prices of their products.
Such MAP, minimum resale and MSRP policies may be implemented by suppliers/distributors for different reasons, including to maintain resale margins or in some cases based on pressure from traditional retailers responding to online or discount retailers.
In all cases, however, for the Tribunal to make an order under section 76 of Canada’s Competition Act, it must also be proven that the price maintenance conduct had, is having or is likely to have an adverse effect on competition in a relevant market (i.e., the required competitive effects test under section 76 must also be met).
In this regard, in 2009, Canada’s Competition Act was amended to replace the former per se criminal price maintenance offence under section 61 of the Act with an effects based civil provision under section 76. For more information, see: Competition Act Amendments.
While likely not determinative, in evaluating whether price maintenance conduct has an adverse effect on competition, whether a supplier possesses market power would likely be a key factor. In this respect, the Competition Bureau’s (Bureau) position is that a market share of less than 35% will typically not prompt further examination. It is not yet clear, however, how the Tribunal will approach market definition and the competitive effects test under section 76 in many cases relevant to producers and suppliers, given the relatively little case law to date under section 76 since it was enacted in 2009.
In this regard, there has only been one decided case under the civil section 76 since it was enacted in 2009 (Commissioner of Competition v. Visa Canada Corp), which was a very unusual and atypical case (see: Competition Tribunal Releases Public Reasons in Visa/MasterCard Price Maintenance Case). The Bureau’s challenge in this case ultimately was unsuccessful because the Tribunal found that there was no product being resold, which is an essential element under section 76(1)(a)(i) of the Competition Act.
Before the Competition Act was amended in 2009, price maintenance was a “per se” criminal offence. In other words, price maintenance was a criminal offence subject to fines and/or imprisonment that required no market effects to be proven. The new price maintenance provisions under section 76 of the Competition Act now require that market effects be shown – i.e., an adverse effect on competition in a market.
The Bureau has also issued Price Maintenance Enforcement Guidelines that set out the its approach to enforcing section 76 of the Competition Act. The Bureau’s Enforcement Guidelines discuss, among other things, the required elements to establish price maintenance under section 76, the required competitive effects test and several common commercial practices, including minimum resale price, manufacturer suggested resale pricing and MAP policies.
EXCEPTIONS TO SECTION 76 OF THE COMPETITION ACT
(RESALE PRICE MAINTENANCE)
There are several exceptions under section 76 of the Competition Act.
For refusals to supply, the Tribunal cannot make an order regarding a supplier’s refusal to supply or discrimination where a retailer engaged in any of the following: (i) loss leadering, (ii) bait-and-switch selling, (iv) misleading advertising or (iv) failed to provide a level of service that purchasers might reasonably expect.
The Tribunal also cannot make an order where the parties are principal and agent, affiliates or representatives of the same entity or affiliated entities, all as defined under the Competition Act.
ENFORCEMENT AND PENALTIES
UNDER SECTION 76 OF THE COMPETITION ACT
Under the civil price maintenance provisions of the Competition Act, the Bureau or private parties granted leave by the Tribunal to make an application to the Tribunal may commence price maintenance applications seeking remedial orders.
The Tribunal may order that price maintenance conduct stop or, in the case of a refusal to deal under section 76, order a supplier to accept a person as a customer within a specified period of time on usual trade terms.
No civil fines (i.e., “administrative monetary penalties”) are available under section 76, either to the Bureau or private parties that have obtained leave from the Tribunal to make private price maintenance applications. Also, like the other civil reviewable matters under the Competition Act, no damages actions can be commenced under section 76.
The routes to a remedy under section 76 are, therefore, the following: (i) a complaint made to the Bureau in which the Bureau makes a price maintenance application to the Tribunal (or negotiates a remedy with the party being investigated, such as a civil consent agreement); (ii) a price maintenance application brought before the Tribunal by the Bureau directly; or (iii) an application to the Tribunal by a private party that has obtained leave from the Tribunal.
OUR MAP, MINIMUM RESALE PRICE
AND MSRP SERVICES
We have helped many clients with advice relating to MAP, minimum resale price and MSRP policies, including reviewing and drafting MAP/minimum price policies, supply/distribution agreements and advice related to the legal risks of restricting resale or advertised prices and the Competition Bureau’s price maintenance related enforcement policies and guidelines.
We also advise clients as to how to minimize price maintenance, refusal to deal and other Canadian competition law risk relating to distributor, dealer and customer terminations. For more information, see: Refusal to Deal.
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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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For more information about our firm, visit our website: Competitionlawyer.ca
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