Canada: 2006 Year In Review: Abuse Of Dominance And Other Reviewable Practices, Marketing And Advertising And Other Developments

By Angela Di Padova, Huy A. Do, Mark A.A. Warner and Mark D. Magro

ABUSE AND OTHER REVIEWABLE PRACTICES

The Canada Pipe Case: New Life for the Abuse of Dominance Provisions of the Competition Act

The Federal Court of Appeal discussed the appropriate standards for identifying exclusionary conduct and evaluating the conduct of dominant firms in its June 23, 2006 decision in Commissioner of Competition v. Canada Pipe Company Ltd.¹ The Court set aside a prior decision of the Competition Tribunal ("Tribunal") on the basis that the Tribunal had applied the incorrect legal tests for determining what constitutes an "anti-competitive act" and a "substantial prevention or lessening of competition" ("SPLC"). The Court also issued a decision regarding Canada Pipe's cross appeal on the proper market definition and market power.² In a 2-1 decision, the Court dismissed Canada Pipe's cross-appeal.³

In 2002, the Commissioner of Competition ("Commissioner") brought an application alleging that the loyalty rebate program operated by Canada Pipe, referred to as the Stocking Distributor Program ("SDP"), contravened the abuse of dominance and exclusive dealing provisions of the Competition Act (the "Act"). In 2005, the Tribunal found that Canada Pipe was dominant, but dismissed the Commissioner’s application on the basis that for a practice to be anti-competitive, "it must have a negative effect on competition." The Tribunal reasoned that the SDP was not an anti-competitive act because it did not impose significant switching costs on distributors and, thus, did not raise entry barriers; in fact, there was some evidence of entry and competition from imports on the record. To be guilty of abuse of dominance, a dominant firm must have engaged in a practice of anti-competitive acts and these acts must have resulted, or be likely to result, in a SPLC in contravention of paragraph 79(1)(c) of the Act.

1. Effect on Competition

The Court agreed with the Commissioner that the Tribunal had erred by focusing its analysis on whether a substantial level of competition continued to exist in the market rather than whether competition would have been substantially greater in the absence of the SDP. The Court characterized the appropriate test as a "but for" test that asks: "would the relevant markets – in the past, present or future – be substantially more competitive but for the impugned practice of anti-competitive acts".⁴ The Court held that the "but for" test is not the only correct approach, but nonetheless is one that must be at least considered in all cases.

2. Anti-Competitive Acts

The Tribunal had determined that the SDP did not constitute an anti-competitive act primarily because it did not have a negative effect on competition. The Court held that the Tribunal had incorrectly required a causal link between the act and a decrease in competition. The Court repeatedly stressed that an anti-competitive act is identified by reference to its purpose and that the proper analysis in deciding whether an act is anti-competitive for Section 79(1)(b) only requires a finding that an act has an intended negative effect on "competitors", not on "competition".

The Court indicated that to the extent that "efficiency" concerns are relevant to the abuse of dominance analysis, they are relevant in the context of Section 79(1)(b) such that "a business justification must be a credible efficiency or pro-competitive rationale for the conduct in question, attributable to the respondent, which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts."⁵

The Court sent the case back to the Tribunal for a re-determination of the SPLC issue (and the issue of whether Canada Pipe had engaged in a practice of anti-competitive acts). Canada Pipe has sought leave to appeal to the Supreme Court, and it is expected that the leave application will be determined this year.

Abuse of Dominance: Telecommunications Amendments

In December 2006, the Minister of Industry tabled amendments to the Act in the House of Commons that, if adopted, would empower the Tribunal to order telecommunications service providers to pay an administrative monetary penalty of up to $15 million in cases where there is an abuse of a dominant position. This announcement followed the recommendations of the final report released in March 2006 of the Telecommunications Policy Review Panel. This Panel had recognized the value of administrative monetary penalties to promote compliance in the telecommunications industry.

In response to continuing deregulation in the telecommunications industry and a corresponding increased reliance on the laws of general application in the Competition Act, the Bureau has released a Draft Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry ("Draft Telecom Bulletin"). The Draft Telecom Bulletin is not a departure from the Bureau’s existing Enforcement Guidelines on the Abuse of Dominance Provisions. Rather, the Draft Telecom Bulletin describes the Bureau’s enforcement approach in the specific context of the telecommunications industry, which is characterized by the Bureau as a network industry, where, in many respects, competition depends on interconnection both among competitors in the same market and across market boundaries. The Draft Telecom Bulletin sets out the Bureau’s approach to issues such as market definition, market power, anti-competitive acts, SPLC and remedies, as these issues pertain to the telecommunications industry.

In January of this year, the Bureau posted on its website the written responses it received in connection with its call for comments on the Draft Telecom Bulletin. The Draft Telecom Bulletin can be viewed online at:
http://www.competitionbureau.gc.ca/PDFs/TAB_E.pdf.

In 2006, the Competition Bureau ("Bureau") continued to be active in the enforcement of the Act’s provisions dealing with deceptive marketing. The following highlights some of the Bureau’s enforcement actions pursuant to these provisions.

On June 14, the Bureau announced that it had entered into a consent agreement with Media Syndication Global ("MSG"), Havas S.A. and Interactive Marketing Group ULC, involving alleged overstated regular prices for binoculars and blood pressure monitors. Pursuant to the consent agreement, among other things, MSG and Havas agreed to issue a partial refund to customers. Certain of the parties are also required to implement a corporate compliance program in accordance with the terms of the consent agreement.

The Tribunal issued its reasons and order on September 8 in respect of Commissioner of Competition v. Gestion Lebski inc. et al,⁶ which involved alleged deceptive marketing practices relating to a weight loss method. The defendants in this case argued that paragraphs 74.01(a) and (b) of the Act (which are civil provisions respecting (a) false and misleading representations and (b) performance claims not based on adequate and proper tests, respectively), infringed rights under paragraph 11(d) (presumption of innocence), section 7 (right to life, liberty and security of the person) and paragraph 2(b) (freedom of expression) of the Canadian Charter of Rights and Freedoms (the "Charter").

The Tribunal ruled that section 11 of the Charter was not applicable on the basis that paragraphs 74.01(1)(a) and (b) do not create an offence within the meaning of section 11, in that the proceedings are not criminal and the sanctions are not "true penal consequences". With respect to section 7, the Tribunal found that the respondents had not shown that their life, liberty or security interests were threatened. With respect to paragraph 2(b), the Tribunal concluded (noting that the point appeared to be conceded by the respondents) that paragraph 74.01(1)(a) was constitutional on the basis that any impairment of freedom of expression was justified in a free and democratic society. Paragraph 74.01(1)(b) was declared of no force or effect for purposes of this case because the Commissioner did not present evidence on the question of whether the infringement of free expression was justified. Having declared paragraph 74.01(1)(a) to be constitutional, the Tribunal went on to make an order against certain respondents under that section, as it found that the representations made were false or misleading in a material respect. Among other things, the Tribunal ordered the payment of an administrative monetary penalty by each of Gestion Finance Tamalia Inc. and its president.

Also in September, the Bureau reached a consent agreement with Econoco Inc. and its directors in relation to fuel-saving and emission-reducing claims that the Bureau alleged were not based on adequate and proper tests. The respondents agreed in a consent agreement to pay an administrative monetary penalty and issue a corrective notice.

The Bureau announced in November that three major cigarette manufacturers had agreed to remove the words "light" and "mild" from packaging in advance of anticipated regulations requiring their removal.

In June 2006, the Bureau issued a Technical Bulletin on Regulated Conduct ("Regulated Conduct Bulletin") which outlines the Commissioner’s general approach to the enforcement of the Act with respect to conduct which may be regulated by another federal, provincial or municipal law or legislative regime, and, as a corollary to the Bureau’s approach, addresses the Bureau’s treatment of the "Regulated Conduct Doctrine" ("RCD"). The Regulated Conduct Bulletin can be viewed on the Bureau’s website:
http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2141&lg=e.

The Regulated Conduct Bulletin is largely based on the prior Supreme Court of Canada jurisprudence, most notably: (1) Jabour v. Law Society of B.C.,⁷ a criminal conspiracy case under the Act, where the Supreme Court applied the RCD to conduct that was simply authorized (as opposed to compelled) by a provincial law; and (2) Garland v. Consumers Gas Co.,⁸ where the Supreme Court stated that the RCD can only immunize conduct from the application of the Criminal Code where the Criminal Code clearly allows for the reliance on the RCD by "leeway language" such as "against the interests of the public" or "unduly".

In its Regulated Conduct Bulletin, the Bureau has indicated that it will always consider whether the RCD applies to conduct that may be regulated by provincial law. It will do so by focusing on the question of whether a validly enacted provincial law authorizes (expressly or impliedly) or requires the impugned conduct be undertaken. Where conduct is properly authorized, the Bureau will not pursue a case under the criminal conspiracy provisions of the Act (section 45) on the basis of an application of the RCD.

With respect to federal law (other than the Act), the Bureau will not pursue a matter under any provision of the Act where Parliament: (a) has articulated an intention to displace competition law enforcement by establishing a comprehensive regulatory regime; and (b) provided a regulator an authority to take, or an authority to authorize another to take, action inconsistent with the Act. However, the regulator must have exercised its regulatory authority (e.g. excluding regulatory forbearance) in respect of the conduct in question.

With respect to the civil reviewable practices provisions of the Act, until jurisprudence addressing the RCD is further developed in respect of these provisions, the Bureau will not find case law dispositive in its examination of reviewable matters. Additionally, the Bureau will not refrain from pursuing regulated conduct under the reviewable matters provisions simply because a provincial law may be interpreted as authorizing the conduct or is more specific than the Act. To support its position, the Bureau has noted that a lower court decision supports the proposition that resort to the RCD is available for reviewable matters;⁹ however, the Bureau concedes that the lower court, in making its decision, did not expressly consider the issue: it merely accepted the agreement of all parties (including the then Commissioner) that the RCD, if engaged, was applicable to all provisions of the Act.

In June 2006, the Bureau requested comments for the purpose of updating its Bulletin on Corporate Compliance Programs (the "Compliance Bulletin"). The Compliance Bulletin was published in 1997 and is available on the Bureau’s website at: http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=1638&lg=e.

In its request for comments, the Bureau sought views on the need for:

• corporate compliance training tools,¹⁰
• templates for corporate compliance programs, and
• Bureau monitoring/approval of corporate compliance programs.

Comments were received from a number of stakeholders and the Bureau is currently in the process of reviewing the Bulletin and the input received from these stakeholders. It is expected that a revised Bulletin on Corporate Compliance Programs will be released for comment this year.

Last year, in collaboration with Industry Canada and the Canadian Intellectual Property Office, the Bureau commissioned a review paper intended to serve as a roadmap for certain key issues arising from the interface between competition and intellectual property law. This paper was released in March 2007 and is available on the Bureau’s website at:
http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2285&lg=e.

Coinciding with the release of this review paper was a top-level symposium held March 29-30, 2007, where the following topics were covered:

1. Authorized Generics: examination of the extent to which brand-name Canadian pharmaceutical companies have launched generic drugs just prior to the expiration of patents and the impact such a practice may have on the entry of competitors and marketplace competition.
2. Collective Management of Copyright: evaluation of Canada’s current system of copyright collectives, with a view to assessing its functionality in terms of minimizing transactions costs and encouraging innovation.
3. Extension of Intellectual Property Rights: review of certain actions firms have undertaken to extend intellectual property rights beyond the intent of legislation (such as the recent attempt to obtain a trademark for LEGO blocks, considered by the Supreme Court of Canada).
4. Compulsory Licensing: examination to determine the effectiveness of Patent Act provisions dealing with government owned patents and abuse of patent rights, and a provision the Competition Act providing remedies for restrictive trade practices through the exercise of intellectual property rights.
5. Tying/Bundling in the Intellectual Property Context: review of economic literature in this area to determine when tying/bundling practices begin to extend intellectual property protection and inhibit innovation.

The product of the foregoing initiatives should assist the Bureau in its effort to maintain a current policy in respect of evolving areas where intellectual property and competition laws interface.

The Bureau is undertaking a study of the generic pharmaceutical industry, noting that generic prices are high relative to other countries. In addition, the Bureau is examining the state of competition in the self-regulating professions, noting its recent advocacy work in relation to the real estate and dental hygienist professions.

For more information on the subject of this bulletin, please contact the authors:

www.fasken.com

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