Following several years of relative inactivity, the Canadian Commissioner of Competition (the 'Commissioner') filed two applications with the Competition Tribunal ('Tribunal') in 2010 for relief under restrictive trade practices provisions of Canada's Competition Act (the 'Act'), and in 2009 secured a consent agreement in another matter without the need for full proceedings. This represents a marked increase in enforcement action by the Commissioner under these provisions and may signal a resurgence in the Commissioner's willingness to pursue complex cases that typically require substantial resources and time to resolve. 26
By way of background, enforcement action under the Act can generally take one of three forms: (i) prosecution pursuant to a criminal provision of the Act (e.g., conspiracy, bid-rigging); (ii) application before the Tribunal for relief under a civil "reviewable matters" provision of the Act; and (iii) a private action for damages resulting from violation of a criminal provision of the Act or non-compliance with an order of the Tribunal or a court.
In addition to mergers, the civil "reviewable matters" provisions of the Act address "restrictive trade practices" including abuse of dominance; exclusive dealing; tied selling; market restriction; refusal to deal; price maintenance; and, agreements or arrangements between competitors. The price maintenance and competitor agreements provisions were introduced as part of a package of major amendments to the Act in 2009 that also revised the criminal conspiracy provision to establish a per se offence for agreements between competitors to fix prices, allocate markets or restrict output; eliminated the criminal prohibitions on price maintenance, price discrimination and predatory pricing; and introduced significant administrative monetary penalties for abuse of dominance.
The Commissioner can apply to the Tribunal for relief in respect of conduct that contravenes the restrictive trade practices provisions (listed above). Potential relief includes prohibiting the conduct, imposing steps necessary to overcome the anticompetitive effects of the conduct and, in the case of abuse of dominance, an administrative monetary penalty ('AMP') of up to C$10m for an initial finding of non-compliance (there has so far not been a case of abuse of dominance where AMPs were sought). In addition, private parties can bring applications for relief under the refusal to deal, exclusive dealing, tied selling and market restriction, and price maintenance provisions, but only with leave of the Tribunal.1
While Canadian enforcement of criminal cartel activities has largely tracked the heightened enforcement activities in other jurisdictions such as the US and the EU, the same cannot be said of restrictive trade practices over the past decade. Until last year, the Commissioner had not initiated a contested proceeding under these provisions since Canada (Commissioner of Competition) vs. Canada Pipe Co.2 – an abuse of dominance case that commenced in 2002 and ultimately settled in 2007. Although a number of private parties have sought leave to bring proceedings, principally under the refusal to deal provision, most of these applications have been denied and only two cases have proceeded to a full hearing.
Notably, however, in 2009, the Commissioner did secure a consent agreement with respect to alleged anti-competitive conduct by jointly dominant firms in the commercial waste collection business in central Vancouver Island;3 the matter was resolved without the need for a contested proceeding before the Tribunal. Additionally, and particularly demonstrative of a resurgence of enforcement activity, the initiation of two proceedings in 2010 by the Commissioner under two of the restrictive trade practices provisions of the Act was a significant development.We describe below the two cases, The Commissioner of Competition vs. The Canadian Real Estate Association;4 and The Commissioner of Competition vs. Visa Canada Corporation and MasterCard International Incorporated,5 both of which raise complex factual and legal issues. We then discuss practical considerations for businesses in the management of conduct that may raise issues under these provisions. The Commissioner of Competition vs. The Canadian Real Estate Association
In February 2010, following a three-year investigation, the Commissioner initiated a proceeding against the Canadian Real Estate Association ('CREA') under the abuse of dominance provision. This is not the first time that CREA has been the subject of enforcement action by the Commissioner. In 1988, after a series of inquiries into the activities of real estate boards across Canada, CREA agreed to a 10-year prohibition order which barred CREA from engaging in a number of activities that the Commissioner considered to contravene the criminal and civil provisions of the Act.
In her recent application to the Tribunal, the Commissioner alleged that by adopting and enforcing certain rules restricting access to the multiple listing service ('MLS') system and trademarks, CREA had, through its members, lessened or prevented competition substantially in the market for residential real estate services in Canada. The Commissioner took issue with the minimum service requirements imposed on all brokers as a condition of access to the MLS system and trademarks, including the prohibition against offering listing-only ('Mere Posting') services. The proceeding was concluded by a registered consent agreement filed with the Tribunal on October 25, 2010. Under the Consent Agreement, which has a term of 10 years, CREA has agreed not to adopt, maintain or enforce any rules that prevent members from providing or offering to provide 'Mere Posting' services or that discriminate against members that offer such services. CREA has also agreed not to license MLS trademarks to any real estate board member that adopts or enforces rules that are inconsistent with the requirements of the consent agreement. The case confirms the Commissioner's willingness to challenge rules restricting access to proprietary networks where such restrictive rules substantially lessen or prevent competition in a market, whether or not such networks are protected by intellectual property rights.
The Commissioner of Competition vs. Visa Canada Corporation and MasterCard International Incorporated
In December 2010, the Commissioner filed an application under the new civil price maintenance provision seeking to strike down Visa and MasterCard rules that impede or limit the ability of merchants to:
discriminate against or discourage the use of particular credit cards in favour of any other credit card, or any other method of payment; impose a surcharge on the use of particular credit cards or set prices for customers based on the particular credit card used; and refuse to accept particular credit cards.
The Commissioner alleges that these rules result in higher prices for consumers, as merchants are forced to pass on higher Visa and MasterCard fees than would otherwise prevail.
It is noteworthy that merchant rules imposed by Visa, MasterCard and American Express are also the subject of a civil antitrust suit filed by the US Department of Justice and several US States in a US District Court in October 2010. In that case, the plaintiffs allege that merchant restraints imposed by the defendants constitute agreements that unreasonably restrain competition in markets for general purpose network card services provided to merchants, contrary to section 1 of the Sherman Act. Visa and MasterCard have agreed to settlement terms, but American Express continues to contest the suit. Generally, the proposed settlement enjoins Visa and MasterCard from imposing certain rules that restrict merchants from: offering incentives for, or promoting the use of, other credit cards or forms of payment; expressing a preference for a particular credit card or form of payment; and communicating the costs incurred by the merchant when a particular credit card is used.6
The Commissioner's application follows an investigation launched in April 2009 in response to complaints filed by merchants and their associations. Interestingly, although the investigation was originally pursued under section 79 (abuse of dominance), the application is based solely on price maintenance. The Commissioner's reasons for not pursing the matter as abuse of dominance have not been made public . A possible explanation is that abuse of dominance requires proof of a greater negative effect on competition than does price maintenance – a substantial lessening or prevention of competition, as opposed to an adverse effect on competition.
Relief under the abuse provision also requires proof of single or joint dominance – something that is not required under the price maintenance provision. However, reliance by the Commissioner on the price maintenance provision is not without its challenges. Both Visa and MasterCard have responded to the Commissioner's application arguing, among other things, that the price maintenance provision is inapplicable to their conduct as they do not supply a product or service for resale and that the merchant restraints challenged by the Commissioner do not have an adverse effect on competition. A decision by the Tribunal in this proceeding will provide important guidance on the scope of the new civil price maintenance provision. As the case involves a "network industry", a decision may also provide important insight into treatment of network effects under Canadian competition law.
Practical considerations for Businesses
The limited private enforcement of the restrictive trade practices provisions of the Act can largely be attributed to the following:
(i) the Act does not provide a private right of action for damages suffered as a result of conduct contrary to the reviewable practices provisions of the Act, unless the Tribunal (or a court) has issued an order in respect of that practice and the party subject to the order has not complied with the order;7
(ii) only the Commissioner can bring a challenge in respect of certain restrictive trade practices, including abuse of dominance, and even where private access is permitted, leave to proceed with an application is first required; and
(iii) proceedings before the Tribunal are typically highly complex, involve substantial time and resources, and the remedies available are, as a practical matter, often limited to prohibition orders.
For the Commissioner, having regard to her finite resources, and the substantial time and resources required to investigate and present a case before the Tribunal in respect of most restrictive trade practices (particularly with respect to the requirement to prove the requisite economic harm), the Commissioner will be selective in deciding what cases to take on. Commissioners have, historically, oftentimes relied on remedies obtained in other jurisdictions to address the anti-competitive effects of restrictive trade practices in Canada.8 We would expect the current Commissioner, Melanie Aitken, to follow the same approach where circumstances warrant.
Generally, it appears that the existence of the following three factors will markedly increase the risk that the Commissioner will (if necessary) pursue a matter involving a restrictive trade practice to the point of fully contested proceedings: (1) the party engaging in the impugned practice or conduct has substantial market power, or conditions exist for joint dominance (e.g., a highly concentrated market);9 (2) the impugned practice or conduct has a substantial economic impact; and (3) there is a clear and material impact, whether direct or indirect, on consumers.
As previously noted, the two cases filed last year, as well as the 2009 amendments to the Act, may signal a more active enforcement approach by the Commissioner going forward. While businesses obviously should continue to be vigilant in ensuring compliance with the criminal prohibitions in the Act, increased attention to the reviewable practices provisions may be in order, especially where the aforementioned conditions exist. Responding to civil investigations and, where applicable, contested proceedings before the Tribunal can involve substantial costs and management time. If the investigation becomes public or proceedings are launched there is also the risk of negative publicity.
To mitigate these risks, businesses need to have in place a competition compliance policy that includes effective monitoring and training programmes in relation to the restrictive trade practices provisions.
Footnotes:
1. For refusal to deal, exclusive dealing, tied selling and market restriction, leave may be granted where the Tribunal has reason to believe that the applicant is directly and substantially affected" in its business by the challenged practice. For price maintenance, the test is similar, with the standard being that the Tribunal must have reason to believe that the applicant is "directly affected" by the challenged conduct. Leave will not be granted if the matter in respect of which leave is sought is the subject of an ongoing inquiry by the Commissioner, was the subject of an inquiry by the Commissioner that was discontinued because a settlement was reached, or is the subject of an application that has already been filed by the Commissioner.
2. CT 2002-06, 2006 FCA 233, 2006 FCA 236; leave to appeal to S.C.C. refused, 31637 (May 10, 2007).
3. See Competition Bureau, Announcement, 'Competition Bureau Cracks Down on Joint Abuse of Dominance by Waste Companies' (June 16, 2009), online: Competition Bureau, http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/03081.html .
4. CT-2010-002.
5. CT-2010-010.
6. United States of America, et al. vs. American Express Company, et al., '[Proposed] Final Judgment as to Defendants MasterCard International Incorporated and Visa, Inc.', Civil Action No. CV-10-4496 in the US District Court for the Eastern District of New York (filed October 4, 2010), online: US Department of Justice, Antitrust Division, http://www.justice.gov/atr/cases/f262800/262875.htm , at Part IV, Section A.
7. In a recent decision, Novus Entertainment Inc. vs. Shaw Cablesystems Ltd., 2010 BCSC 1030, the Supreme Court of British Columbia followed previous jurisprudence holding that, for the purposes of establishing unlawful conduct for the tort of unlawful interference with business and economic interests, an order of the Tribunal is necessary before the court will consider finding that an unlawful act has occurred by way of a breach of the abuse of dominance provision. The plaintiff had argued that the introduction of AMPs for abuse of dominance in 2009 distinguished its case from previous jurisprudence. The court rejected this argument.
8. See 'Canadian Perspectives on the Role of Comity in Competition Law Enforcement in a Globalized World; To Defer or Not Defer? Is that the question?' (Speech to the American Bar Association's Section of Antitrust Law, 2006 Spring Meeting, Washington, DC, March 29, 2006), online: Competition Bureau, http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/02049.html , wherein immediate past Commissioner, Sheridan Scott, noted that reliance on remedies obtained by foreign antitrust authorities will be appropriate where there is a sufficient nexus with the other jurisdiction (e.g., similar competition laws and investigative authorities) and there would be duplication of efforts, resources and remedies if proceedings were undertaken in Canada. As an example, she made reference to an abuse of dominance case in the US involving Microsoft. This approach is consistent with the Commissioner's policy in the case of mergers of relying on remedies in other jurisdictions where they are sufficient to address a lessening or prevention of competition in Canada: Competition Bureau, 'Information Bulletin on Merger Remedies in Canada' (September 22, 2006), online Competition Bureau: http://www.competitionbureau.gc. ca/eic/site/cbbc. nsf/eng/02170.html at para. 78.
9. Furthermore, the Commissioner's draft updated enforcement guidelines for abuse of dominance, released for comment in 2009, propose that joint dominance could be established simply by aggregating the market shares of multiple firms engaging in similar conduct: Competition Bureau, 'Updated Enforcement Guidelines on the Abuse of Dominance Provisions' (Draft for Public Consultation – January 2009),online: Competition Bureau, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02942.html .Indeed, this approach appears to have informed the negotiation of the consent agreement in the matter involving allegedly jointly dominant firms in the commercial waste collection business in central Vancouver Island (discussed above).
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