“Tying occurs when, as a condition of obtaining or using one product (the ‘tying’ product), a firm requires or induces a customer to purchase another product as well (the ‘tied’ product). Closely related, bundling typically refers to situations whereby products are sold together in fixed proportions. Tying and bundling are ubiquitous in many industries, as many items for sale can be viewed as distinct tied products or a bundle of different components. In many cases there are often strong cost efficiencies that motivate tying and bundling.”
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 new round of 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 new two-track tests 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.
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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OVERVIEW OF TIED SELLING UNDER THE COMPETITION ACT
Tied selling can potentially be reviewed under sections 77 (exclusive dealing, tied selling and market restriction) and 79 (abuse of dominance) of the Competition Act.
Also, 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 potentially apply to vertical agreements including tied selling agreements/arrangements.
For more information, see: Abuse of Dominance and Section 90.1 (Civil Agreements Provision).
Substantive Tests for Tied Selling
Under the Competition Act
Tied selling is defined in section 77 of the Competition Act as any practice whereby a supplier of a product, either as a condition of supplying the product (e.g., by agreement) or by inducement (e.g., discounts or more preferential terms), requires a customer to acquire another product from the supplier (or the supplier’s nominee) or refrain from using or distributing, in conjunction with the tying product, another product that is not of a brand or manufacture designated by the supplier (or the supplier’s nominee).
Tied selling is not, however, per se prohibited in Canada. In this regard, the Competition Tribunal may only make an order under section 77 (the standalone tied selling provision of the Competition Act) where all of the following elements are met: (i) the tied selling is engaged in by a major supplier or is widespread in a market; (ii) the tied selling is likely to impede entry into or expansion of a firm in a market, impede introduction of a product into or expansion of sales of a product in a market or have any other exclusionary effect in a market; and (iii) competition is or is likely to be lessened substantially.
Separate substantive tests to establish tied selling apply under sections 79 (abuse of dominance) and 90.1 (the civil agreements provision).
For more information, see: Abuse of Dominance and Conspiracy (Cartels).
Enforcement of Tied Selling
Both the Commissioner of Competition (Commissioner) and private parties that have been granted leave by the Competition Tribunal (Tribunal) under section 103.1 of the Competition Act may commence applications to the Tribunal under sections 77 (tied selling / exclusive dealing / market restriction) or 79 (abuse of dominance).
Private access rights to the Tribunal were added under section 79 of the Competition Act in June 2022 based, among other things, on a perceived gap in the ability of private applicants to seek remedies for abuse of dominance. Prior to this amendment to the Competition Act in 2022, only the Commissioner of Competition could commence abuse of dominance applications to the Tribunal.
Under sections 77 (tied selling / exclusive dealing and market restriction) and 79 (abuse of dominance) of the Competition Act, leave may be granted to a private party if the Tribunal has “reason to believe” that the applicant is “directly and substantially affected” in its business by a practice that could be subject to an order under sections 77 or 79.
A leave applicant’s burden of proof is lower than a balance of probabilities (i.e., lower than the general 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 tied selling and that each element of section 77 may be satisfied.
For more information, see: Competition Litigation.
Section 77 (Tied Selling) Remedies
Where a tied selling application is successful under section 77 (tied selling / exclusive dealing / market restriction), the Tribunal can make an order to prohibit the conduct or make any other order necessary to restore or stimulate competition in the market. No monetary penalties or damages are available under section 77.
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 may, on application by the Commissioner of Competition, make remedial orders (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: (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).
Contested Tied Selling Cases
Under the Competition Act
There have been relatively few decided tied selling cases in Canada (Canada (Director of Investigation & Research) v. Tele-Direct (Publications) Inc. and BBM Bureau of Measurement v. Canada (Director of Investigation & Research)).
In the Tele-Direct case, the Tribunal held that the main criteria to establish tied selling under section 77 are whether: (i) whether there are two products; (ii) the tying conduct constitutes a “practice”; and (iii) the tying results or is likely to result in a substantial lessening of competition.
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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.
To contact us about a potential legal matter, see: contact
For more information about our firm, visit our website: Competitionlawyer.ca
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