Canadian Competition Law 2006: The Year In Review

In 2006, competition law in Canada continued to evolve through policy change, enforcement and litigation. Canada’s Competition Bureau (the "Bureau") held consultations and released new policy documents on merger remedies, corporate compliance programs and abuse of dominance. 20 years after the introduction of the civil abuse of dominance provisions, the Federal Court of Appeal issued its first decision interpreting those provisions. Criminal enforcement efforts continued to focus on domestic and international cartels, cooperation with other enforcement agencies through the International Competition Network and combating deceptive marketing practices. In the area of private enforcement, the Competition Tribunal released the first decision in a case where the applicant was a private party.

In 2006, new legislation was introduced aimed at telecommunication service providers and misleading representations. The Bureau also released several new policy documents related to merger remedies, corporate compliance programs, abuse of dominance in the telecommunications sector and immunity from prosecution.

In December 2006, the Conservative Government introduced its first proposed amendments to the Competition Act (the "Act") aimed solely at abuse of dominant position in the telecommunications sector. Bill C-41 , if passed, provides for administrative monetary penalties ("AMP’s") of up to $15 million for telecommunication service providers found by the Competition Tribunal (the "Tribunal") to have abused their dominant position. The proposed amendments add a second sector-specific penalty for abuse of dominant position and follows the release in the Fall of 2006 (for public comment) of the Bureau’s draft Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry. At present, only airlines can be ordered to pay an AMP. All others found by the Tribunal to have abused their dominant position are subject to orders to cease the offending conduct but not to payment of AMPs. Bill C-41 does not introduce many of the amendments proposed in Bill C-19 tabled under the previous Liberal Government. In particular, Bill C-19, if passed, would have provided the Tribunal with the power to impose AMPs on any firm found to have abused a dominant position, not just airlines and telecommunication service providers.

In May 2006, a private member’s bill was introduced in the House of Commons seeking amendments to the Criminal Code, the Canada Evidence Act, and the Competition Act. Bill C-299 would amend the criminal and civil misleading representation provisions of the Act to include an offence for anyone who "seeks to obtain personal information from a third party by fraud, false pretence or fraudulent personation" or promoting a product by fraud, false pretence or fraudulent personation. The Bill has received second reading and is currently before the Standing Committee on Justice and Human Rights

In September 2006, the Bureau released a new Information Bulletin on Merger Remedies. The Bulletin emphasizes the Bureau’s preference for:

• structural over behavioural remedies;

• the use of "fix-it first" remedies where the parties remedy competition issues on a voluntary basis before closing the proposed transaction without the need for a consent agreement or litigated solution;

• a short initial sale period of 3-6 months;

• the use of "crown jewels" in appropriate cases where a divestiture requires a trustee sale period.

The Bureau has also indicated that it intends to release an outline of a model consent agreement as an appendix to the Remedies Bulletin within the next few months.

In June 2006, the Bureau initiated a consultation program to update its 1997 Information Bulletin on Corporate Compliance Programs. Comments on the Bulletin were due by September 22, 2006 with a report on the consultations expected to be released within the next few months.

Following the release of a consultation report in March 2006, the Bureau released (for consideration) a draft Bulletin on Abuse of Dominance in Telecommunications in September 2006. The draft Bulletin is the latest in a series of sector specific guidelines on abuse of dominance which include guidelines specific to the airline and grocery sectors. The draft Bulletin is limited to the Bureau’s approach in reviewing complaints related to the abuse of dominant position provisions in the de-regulated telecommunications sector where the Canadian Radio-Television and Telecommunications Commission has made a determination to refrain from regulating such conduct.

In October 2005, the Bureau issued Responses to Frequently Asked Questions ("FAQ") about its successful Immunity Program. The new FAQ revises the version released in 2003 and addresses in greater detail the immunity application process and timelines. In February 2006, the Bureau released a consultation paper on various other issues arising under the Immunity Program including confidentiality, oral applications for immunity, the applicant's role in the offence, revocation, restitution and the potential creation of a formal leniency program. A revised draft of the Immunity Program Bulletin is anticipated in 2007 to address these issues.

In May 2006, the Bureau signed a cooperation agreement with the Korean Fair Trade Commission formalizing notification, cooperation and coordination of enforcement activities, exchange of information and avoidance of conflicts. The Bureau has similar agreements in place with competition agencies in Australia, New Zealand, Chile and the United Kingdom.

2006 saw continued merger activity in the grain and broadcasting industries as well as the continued use of registered consent agreements to resolve merger cases.

Port terminal grain handling services in Vancouver generated merger developments in 2006. In August 2005, Agricore United ("AU") filed a section 106 application based on an alleged change in circumstances to rescind a consent agreement entered into in 2002 which required a divestiture of a port terminal in Vancouver. After two weeks of hearing, the application was discontinued by AU and shortly thereafter a trustee was appointed to handle the divestiture. No sale has yet been announced. In November 2005, the Commissioner issued an application challenging a joint venture between Saskatchewan Wheat Pool ("SWP") and James Richardson International ("JRI") in relation to their Vancouver terminal operations. A consent interim hold separate order is in effect pending the outcome of the application which will include the participation of four separate intervenors granted leave by the Tribunal. In November 2006, SWP announced a hostile takeover bid for the shares of AU, which is also expected to raise competition issues.

In September 2006, a Registered Consent Interim Agreement was registered with the Tribunal with respect to the proposed acquisition of CHUM Limited by Bell Globemedia pending the outcome of the Commissioner’s review of the proposed transaction. The interim agreement provides for a hold separate voting trust pending the resolution or application to the Tribunal with respect to the transaction.

In June 2006, a Registered Consent Agreement was filed resolving issues surrounding the television ratings services of BBM Canada and Neilsen Media Research. The agreement provides for an independent audit to determine the choice of processes and methodology to be used by the new company and a protocol for the measurement of viewing audiences in new markets in Canada.

In December 2004, a consent agreement filed with the Tribunal required the divestiture of two saw mills in Burns Lake, B.C. to remedy the effects of the merger between West Fraser Timber Company Limited and Weldwood of Canada Limited. In February 2005, Burns Lake Native Development Corporation, which owns a minority stake in the saw mills to be divested, launched a section 106 application to rescind the consent agreement, relying on its standing as a person "directly affected" by the transaction. In the first Notice of Reference ever brought before the Tribunal, the Commissioner asked the Tribunal to interpret the meaning of "directly affected person" in section 106 (among other issues). In March 2006, after Burns Lake unsuccessfully challenged the Commissioner's ability to bring the reference during an ongoing application, the Tribunal held that in order to be "directly affected" within the meaning of section 106, a party must experience first-hand a significant, definite impact on a right which relates to competition. Following these reasons, the section 106 application was dismissed on April 3, 2006.

On March 1, 2006, a consent agreement was filed requiring the divestiture of assets used in fine paper sales in Alberta and British Columbia to resolve issues arising out of PaperlinX’ acquisition of Cascades Fine Papers. The consent agreement appointed a hold separate monitor until the divestiture obligations are fulfilled. The Bureau issued Technical Backgrounders with respect to the acquisition of Maytag by Whirlpool in the appliance sector, the acquisition of ID Biomedical Corporation by GlaxoSmithKline Inc. in the pharmaceutical sector, and the acquisition of control of Matériaux Coupal Inc. by RONA Inc. in the home improvement sector.

In June 2006, the Federal Court of Appeal ("FCA") released its first decision on the abuse of dominant position provisions. In Canada (Commissioner of Competition) v. Canada Pipe Company Ltd. , the Commissioner alleged that a loyalty rebate program offered by a division of Canada Pipe to its distributors constituted an anti-competitive act by a dominant firm which substantially lessened competition. The Tribunal held that Canada Pipe had sufficient market power to exercise market control in all relevant markets (i.e. was in a dominant position), but its loyalty rebate program did not constitute a practice of anti-competitive acts and did not have the requisite negative effect on competition to constitute abuse of dominance.

On appeal, the FCA concluded that the Tribunal erred in its effects-based approach to determining whether the loyalty program constituted a practice of anti-competitive acts. The FCA held that the focus of the inquiry to identify an anti-competitive act is the intended effect on a competitor, not competition generally. The FCA also held that the Tribunal erred in its analytical approach with respect to whether the loyalty program has had, or is likely to have the effect of preventing or lessening competition substantially. The FCA adopted a comparative and relative analysis which assesses the effect of the alleged anti-competitive act with reference to the past and present actual effects and likely future effects. The FCA held that the Tribunal’s analysis of anti-competitive effects incorrectly made an absolute evaluation of the state of the market. The FCA sent the case back to the Tribunal for reconsideration and it remains to be seen whether the adoption of a different test will lead the Tribunal to a different conclusion.

2006 continued to demonstrate the Commissioner’s enforcement priority against deceptive marketing practices. In September 2006, the Tribunal issued a ten year prohibition order and ordered the owners of diet clinics in Quebec to pay $70,000 in administrative monetary penalties ("AMP") for misleading representations about a weight loss product called Cellotherm. In July 2006, men’s apparel retailer Grafton-Fraser agreed to pay a $1 million AMP and $200,000 in costs to settle allegations that it significantly inflated the regular price of certain garments resulting in an overstatement of the savings to consumers. A consent agreement was also filed against a resume distribution company in relation to misleading representations generally and about the regular selling price of its services. The consent agreement contained a 10 year prohibition, required the publication of corrective notices and payment of a $100,000 AMP. The Bureau and U.S. FTC continue to collaborate on "Fat Foe", a website that informs consumers about weight-loss scams.

Cartel cases and deceptive marketing continued to be enforcement priorities for the Commissioner in 2006.

There were no major contested criminal proceedings in Canada in 2006. The Bureau and the Attorney General obtained a fine in cartel investigations involving carbonless paper. Fines and jail sentences were also imposed for price maintenance and deceptive marketing practices.

In June 2006, the Commissioner announced an investigation into alleged price fixing between competitors in the retail gasoline industry in local markets in Quebec. To date, no charges have been laid. In April 2006, the Bureau released its findings and conclusions of its examination of gasoline pricing in the wake of Hurricane Katrina, finding no evidence of anti-competitive behaviour. A record fine for a domestic conspiracy was imposed on Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada, Inc. for price-fixing in carbonless paper . In August 2006, a prohibition order was entered against Sotheby’s and its Canadian subsidiary to address the Bureau’s concerns with respect to an international cartel to fix auction commission rates. In September 2006, taxi companies accused of an alleged conspiracy to lessen competition in bidding for taxi-service contracts in Newfoundland were ordered to be discharged after a preliminary inquiry. In October 2006, the Attorney General filed an application seeking to overturn the discharge and ultimately, to have the accused stand trial. International enforcement authorities continued to increase cooperation efforts through the International Competition Network.

On February 15, 2007, a Prohibition Order was issued by the Federal Court in Her Majesty the Queen v. Shamrock Maintenance and Hotshot Services Ltd. et al arising from conduct of several auto body businesses in Fort McMurray, Alberta directed toward offences under sections 45(1)(c) (conspiracy) and 61(1)(a) (price maintenance) of the Competition Act. According to the Agreed Statement of Facts filed with the Court virtually all of auto body repair shops in Fort McMurray agreed to increase their labour rates for repair services and sent a notice to insurance companies and customers announcing the increase in which they referred to themselves as the Fort McMurray Auto Body Association. Their collective activity (aided no doubt by their decision to publicize it) resulted in a criminal investigation by the Competition Bureau in which the Bureau used both search warrants and section 11 orders.

The Prohibition Order, which the Respondents consented to, among other things requires them to discontinue association activities and inappropriate communications, to implement a Competition Act compliance policy and to publish a notice in a local paper outlining parts of the Order.

This case shows that even low-level unsophisticated domestic cartel activity is taken seriously by the Bureau. The Bureau’s willingness to resolve the matter by way of a Prohibition Order, which does not result in a criminal conviction, was likely influenced by the fact that the Respondents did not conceal their activity and were not aware that they were doing anything improper.

In November 2006, David Stucky was acquitted on charges of false or misleading representations related to alleged unsolicited deceptive mailings promoting the purchase of shares in lottery tickets. In October 2006, a U.S. man was sentenced to 4 years in prison after pleading guilty to mass marketing fraud, including false and misleading misrepresentations under the Act. 2006 also saw the continuation of charges and prison sentences for deceptive telemarketing.

In September 2006, obstruction of justice charges were laid against an individual for alleged destruction of documents and obstruction of an investigation in the course of the execution of a search warrant in February and March 2006.

2006 saw the continuation of class action litigation for alleged cartel activity and a decision was released by the Tribunal relating to the first fully litigated private access refusal to deal application.

National settlement agreements were approved in 2005, resolving class action proceedings in Ontario, British Columbia and Quebec against DuPont Dow and Crompton/Uniroyal and their affiliates with respect to allegations that the defendants conspired to fix the price of EPDM, a synthetic rubber compound used in seals, tubing, belts, motor and oil additives. The settlement agreements provide for a payment by DuPont of $187,095, while Crompton agreed to pay $4.5 million. National settlement agreements were also approved in class action proceedings against DuPont Dow relating to PCP, a synthetic rubber used in the production of hoses and automobile parts. DuPont agreed to pay $566,274. The litigation with respect to both products is continuing against several other non-settling defendants.

Since the 2002 introduction of private applications to the Tribunal in cases of exclusive dealing, tied selling, market restriction and refusal to deal, the Tribunal has granted leave in five of eleven cases but had yet to decide a case on the merits where the applicant was a private litigant. In December 2006, the Tribunal released its decision and reasons in a refusal to deal case where a private party applied for a remedial order. In B-Filer Inc. v. The Bank of Nova Scotia, a bank terminated banking services that the applicant claims are essential for it to operate an internet debit payment service. The Tribunal’s decision is also the first decision since the amendment of the refusal to deal provision to require an applicant to demonstrate that the refusal to deal has had "an adverse effect on competition in a market." The Tribunal dismissed the application and held that B-Filer failed to establish that it was substantially affected in its business, unable to obtain adequate supply from another source because of insufficient competition, and that the refusal to deal was having, or was likely to have, an adverse effect on competition. With respect to "adverse effect on competition", the Tribunal held that it requires a similar approach to a determination of a substantial lessening of competition under the abuse of dominance provisions of the Act, the only difference being one of degree. An "adverse effect on competition’ is a lower threshold than a "substantial lessening of competition". Both such provisions require an analysis of market power in the presence of, and absent, the refusal to deal. B-Filer has appealed the Tribunal’s decision to the Federal Court of Appeal.

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