The Year in Review 2003

W. Michael G. Osborne
Affleck Greene McMurtry LLP

Year in Review / The Litigator (Print Edition)

February 11th, 2004

TOP STORIES

Competition Bureau proposes new “per se” conspiracy provision: Agreements between competitors for the purpose of or that have the effect of fixing prices, allocating customers or markets, or restricting output would be illegal even if they do not harm competition. If passed, this provision’s wide scope could make many existing agreements unlawful.

Other proposed amendments include allowing the Tribunal to impose “administrative monetary penalties” (fines) in civil cases and allowing victims of civil anti-competitive conduct to recover damages in court, but only after Tribunal ruling.¹

Court refuses to certify indirect purchaser class: In Chadha v. Bayer Inc.,² the Ontario Court of Appeal refused to certify a class of indirect purchasers of pigments used to colour bricks, but declined to adopt a rule barring claims by indirect purchasers. The Supreme Court has denied leave to appeal. In order to certify future indirect purchaser classes, plaintiffs will need expert evidence showing how they will prove that higher prices were passed on to the indirect purchasers. This will make it considerably more difficult to certify indirect purchaser classes. [See: Court refuses to certify indirect purchaser class…]

Tribunal defines “avoidable cost” concept: In July the Competition Tribunal defined “avoidable costs” in a decision in the Commissioner’s abuse of dominance case against Air Canada.³ Since the Bureau will apply the avoidable cost concept in predation cases, the Tribunal’s findings are important. A key aspect of its approach that may apply in other cases is its finding that costs can be avoided through redeployment of a resource associated with a cost from one use to another.

The Tribunal held that most of Air Canada’s costs are avoidable, and found that Air Canada flew below those costs on two routes. The Tribunal stayed its decision – and thus future proceedings in the case – until Air Canada emerges from bankruptcy protection under the Companies Creditors Arrangement Act.

Earlier in the year, Air Canada succeeded in overturning the Commissioner’s temporary order power when the Quebec Court of Appeal ruled that it offends the Canadian Bill of Rights due process guarantees.⁴ The Supreme Court has granted leave to appeal. [See: Commissioner’s Temporary Order Power Struck]

Tribunal considers new rules that limit disclosure in Canada Pipe and Sears: New Tribunal rules that allow the Commissioner (and other parties) to hide “bad” or exculpatory documents do not offend due process guarantees in the Canadian Bill of Rights, Blanchard J. held in Canada Pipe. It is enough for respondents to know the case they have to meet, which is provided for by rules requiring the Commissioner to produce documents on which she intends to rely.⁵

However, in Sears, Dawson J. noted that the right to a fair hearing includes the right to make full answer and defence, which “carries with it the right to know all of the information provided to the Commissioner in the affidavits upon which the Commissioner has chosen to rely”.⁶ The reasoning of Dawson J. is more consistent with rules in both civil and criminal law that require disclosure of all relevant documents.[See: New Rules Constitutional, Tribunal finds]

¹The proposals and comments can be found at: http://www.ppforum.ca/competitionact/index.html

²Chadha v. Bayer Inc. (2003), 63 O.R. (3d) 22 (C.A.)

³Canada (Commissioner of Competition) v. Air Canada (2003), 26 C.P.R. (4th) 476 (Comp. Trib.)

⁴Air Canada v. Canada (Attorney General) (2003), 23 C.P.R. (4th) 129 (Que. C.A.)

⁵Commissioner of Competition v. Canada Pipe Company, 2003 Comp. Trib. 15,
http://www.ct-tc.gc.ca/CMFiles/0030a38OKK-3172004-9927.pdf

⁶Commissioner of Competition v. Sears Canada Inc., 2003 Comp. Trib. 19, http://www.ct-tc.gc.ca/CMFiles/CT-2002-004_0085_38MTA-452004-1883.pdf

The long arm of US antitrust law: The US has been flexing its antitrust muscles outside its borders recently in several areas. In Empagran S.A. v. Hoffman-Laroche, Ltd. (January 2003),⁷ a federal appeal court held that non-US victims of an international conspiracy to fix prices for vitamins could sue in the US to recover damages they suffered outside of the US. The court held that it had jurisdiction so long as someone in the US could sue for damages from the same conspiracy. There is a split among US courts of appeal on this point. Empagran is being appealed to the US Supreme Court.

If Empagran stands, the US will likely become the jurisdiction of choice for those injured outside of the US by international conspiracies because of the availability of treble damages. But will Canadian courts recognize – and enforce – US courts’ assumption of jurisdiction in cases lacking a “real and substantial connection” between the case and the US?

The Federal Trade Commission filed claims in US courts against Canadian telemarketers in at least ten cases. In some, it obtained injunctions. Some of these cases involved cooperation with the Bureau or other Canadian authorities.⁸ FTC statistics indicate that Canadian companies accounted for 46% of complaints of cross-border telemarketing fraud.

The FTC also sought relief in Canadian courts directly. In U.S. v. Yemec, the FTC obtained an Anton Piller order, a Mareva injunction, and other orders, against a Yemec, a seller of Canadian lottery tickets to Americans. In October the Ontario Superior Court dissolved these orders, holding that the FTC does not have standing to commence stand-alone proceedings in Canada.⁹ It can only bring proceedings where it has an antecedent judgment from a US court.

Canadian telemarketers take note: the FTC is likely to enforce its “Do Not Call Registry” against Canadian telemarketers who call into the US.¹⁰

Ontario Court of Appeal upholds warrants against Falconbridge: The Bureau obtained search warrants and evidence gathering orders under the Mutual Legal Assistance in Criminal Matters Act against Falconbridge to assist a US investigation into an alleged conspiracy. Falconbridge challenged the warrants and orders, lost, and appealed. The Court of Appeal rejected its submissions that offences under the Sherman Act are not “offences” under the Mutual Legal Assistance Treaty (MLAT) between Canada and the US. The court also held that there is no “reciprocity of offence” requirement; but that, if there were, s. 45 of the Competition Act is a substantive counterpart to the Sherman Act, since both address fundamentally the same conduct.¹¹

Divestitures secure approval of Pfizer-Pharmacia merger: In July 2002, Pfizer announced it was buying Pharmacia to create the world’s largest pharmaceutical company. US and EU competition authorities and the Bureau cleared the deal in early 2003 after Pfizer agreed to divest (among other things) a Pharmacia drug that had the potential to compete with Pfizer’s Viagra.¹² Soon thereafter, two competitors to Viagra arose: Ely Lilly’s Cialis (aka “Le Weekend”) and Bayer and GlaxoSmithKline’s Levitra. Pfizer commenced patent litigation in the US and Canada in an attempt to block this competition. Pfizer unsuccessfully sought an injunction to block the sale of Cialis in Canada.¹³

⁷Empagran S.A. v. Hoffman-Laroche, Ltd., 315 F.3d 338 (D.C. Cir. 2003)

⁹[2003] O.J. No. 3863

¹⁰The Telemarketing Sales Rule, 16 CFR Part 310, establishes a federal “Do-Not-Call Registry” and makes it an “abusive telemarketing act or practice” to call someone whose name is on the registry. Both the FTC and the Federal Communications Commission enforce the Do-Not-Call Registry. Two lower courts declared the registry unconstitutional in September, but the government is enforcing it while those decisions are under appeal. The FTC has taken the position that the Telemarketing Sales Rule applies to Canadian telemarketers calling into the US (see Med Plan, http://www.ftc.gov/opa/2003/02/medplan.htm). For more information on the Do-Not-Call Registry, see https://www.donotcall.gov

¹¹Canada (Commissioner of Competition) v. Falconbridge Ltd. [2003] O.J. No. 1563

¹²Bureau press release:
http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02556e.html ;
EU Non-opposition decision: http://europa.eu.int/comm/competition/
mergers/cases/decisions/m2922_en.pdf – Pfizer agreed to two additional divestitures relating to the EU; FTC materials: http://www.ftc.gov/os/caselist/c4075.htm

¹³2003 FC 1278, [2003] F.C.J. No. 1603.

MERGERS

In January, the Federal Court of Appeal upheld the Tribunal’s finding that Superior Propane’s acquisition of ICG Propane was saved by efficiencies, even though it resulted in a monopoly in a number of markets.

In March, the Federal Court of Appeal dismissed Canadian Waste Services’ appeal from the Tribunal’s decision that its acquisition of the Ridge landfill would substantially prevent and lessen competition. In January 2004 the Supreme Court denied leave to appeal. In May 2003 CWS applied under s. 106 to rescind the Tribunal’s divestiture order, claiming that the circumstances that led the Tribunal to its findings had changed. The Tribunal heard the case in the late fall.

Alcan’s hostile takeover bid for Pechiney, launched in July, succeeded. In 1999, Alcan acquired Alusuisse after its attempt to merge with both Alusuisse and Pechiney was blocked by the EU.¹⁴ This time, Alcan got EU approval after offering divestitures.¹⁵ The Bureau and US authorities also approved the deal.¹⁶

The FTC challenged AspenTech’s acquisition of Hyprotech, an Alberta company, claiming that together they have an 82% market share in the engineering simulation software market.¹⁷

CRIMINAL

Toyota agreed to a prohibition order and donated $2.3 million to settle allegations that its “Access Toyota” program prohibited dealers from selling for less than the “Access” price, violating price maintenance provisions of the Act.¹⁸

Realtor Re/Max settled a Bureau investigation into rules preventing its franchisees from advertising commission rates by agreeing to a prohibition order.¹⁹

Toyo Tanso USA Inc. paid a fine of $200,000 for trying to raise the price of isostatic graphite with its independent distributor.²⁰

Price fixing conspiracies netted the Bureau several large fines: Akzo Nobel Chemicals paid $2.9 million²¹ and Bioproducts Inc. paid $600,000²² for their involvement in conspiracies to fix prices for animal feed additives. Rhône-Poulenc Biochimie, a subsidiary of Aventis, paid $500,000 for conspiring with Merck to fix prices for methylglucamine.²³ Arteva Specialities paid $1.5 million for fixing prices for polyester staple fibre.²⁴ Robert Krass, former head of UCAR International Inc. was fined $70,000 for leading his firm’s involvement in a conspiracy to fix prices for graphite electrodes.²⁵

CIVIL

Major civil cases in 2003 were Air Canada and Canada Pipe (see above).

MARKETING PRACTICES

Women’s clothing retailer Suzy Shier agreed to a $1 million fine for putting a “regular price” on “on sale” items even though it rarely sold these items at the “regular price”.²⁶ However, it is questionable whether a fine of this size could have been imposed after a trial.

The hearing into charges that Sears inflated the “regular” prices of tires it offered at “sale” prices in 1999 began in October with a challenge to the constitutionality of the ordinary price provisions and a flurry of procedural motions. Sears’ constitutional motion is still under reserve. Among the procedural decisions is the Tribunal’s finding that the request to admit provisions in the Federal Court rules are available to parties to Tribunal proceedings.²⁷

Paint manufacturer Para settled complaints about its Radiance “energy saving paint” by agreeing to limit claims about energy savings.²⁸

Quebec soil company Modugno-Hortibec Inc. agreed to a fine of $4,250 for overstating quantities of compost and marble chips.²⁹

Telemarketing schemes investigated in 2003 include allegedly billing businesses and even government for toner they did not order (charges laid and pending against several companies and individuals);³⁰ and a medical discount plan sold to U.S residents (charges laid and pending).³¹

PRIVATE APPLICATIONS

Two applications for leave to make an application under the refusal to deal provisions were filed. Winnipeg bar code equipment seller Barcode Systems Inc. claims its former supplier Symbol Technologies Canada ULC wants to “bury” it after Barcode sued Symbol by refusing to supply it. Symbol products accounted for 75% of its business, says Barcode in its application.³² The Tribunal granted Barcode leave on January 15, 2004.

Newfoundland retailer Morgan’s Furniture has sold La Z Boy chairs for over 25 years, but recent restrictions on fabrics and models available to the furniture store is harming its business, claims Morgan’s.³³

PRIVATE ACTIONS

Health insurance contracts between Blue Cross and employers and policy holders do not constitute agreements to buy pharmaceuticals as a group, the Nova Scotia Supreme Court held. It dismissed claims by three pharmacies that Blue Cross’ contractual limits on their dispensing fees offend s. 45. Also, Blue Cross policy holders represent only 7% of the market for prescription drugs; thus Blue Cross had insufficient market power to lessen competition unduly.³⁴

The Federal Court struck out Apotex Inc.’s allegations that an assignment of a patent to Eli Lilly by Shionogi was a conspiracy to limit competition unduly.³⁵ Patents involve legally sanctioned monopolies, the court noted in following an earlier decision of the Federal Court of Appeal.³⁶

The BC court refused an injunction to auto broker Skybridge pending trial of its claim that Ford Canada’s efforts to prevent dealers from selling cars to brokers who intend to export them to the US violates s. 45.³⁷

The Quebec court applied the discoverability principle to the two year limitation period on private actions under s. 36 to claims arising out of the Quebec snow removal conspiracy. Following guilty pleas by several snow removal companies in 1999, affected cities sued for damages.³⁸

PEOPLE

Sheridan Scott, formerly Bell Canada’s Chief Regulatory Officer, replaced Konrad von Finckenstein as Commissioner following his appointment to the Federal Court in August.

Tribunal news: Paul Gervason, appointed in January 2003, brings a background in agricultural economics. Justice Simpson was appointed Chairperson in June. Full-time economist Larry Schwartz left at the end of his term in the fall.

Note: Affleck Greene McMurtry LLP acts for parties involved in some of the cases outlined above.

Affleck Greene McMurtry LLP practises in commercial litigation and competition law. Our competition law (antitrust) practice includes representing clients in criminal and civil proceedings before the courts and the Competition Tribunal and advising clients on the competition aspects of proposed or existing business practices.

¹⁴See: Case No COMP/M.1663 Alcan/Alusuisse, http://europa.eu.int/comm/competition/mergers/cases/
decisions/m1663_en.pdf; Case No COMP/M1715 Alcan/Pechiny – “Aborted or withdrawn 14.03.2000”, http://europa.eu.int/comm/competition/mergers/cases/
index/by_nr_m_34.html#m_1715

¹⁵Case No COMP/M.3225 – ALCAN / PECHINEY (II), Article 6(2) Non-opposition: http://europa.eu.int/comm/competition/mergers/cases/
decisions/m3225_en.pdf

¹⁶Bureau press release: http://strategis.ic.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02731e.html
DOJ materials:
http://www.usdoj.gov/atr/cases/alcan0.htm
EU Non-opposition decision: http://europa.eu.int/comm/competition/mergers/cases/
decisions/m3225_en.pdf

¹⁷for materials see: http://www.ftc.gov/opa/2003/08/aspen.htm

¹⁸ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02539e.html

¹⁹ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02499e.html

²⁰ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02559e.html

²¹ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02711e.html

²² http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02712e.html

²³ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02507e.html

²⁴ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02715e.html

²⁵ http://cb-bc.gc.ca/epic/internet/incb-bc.nsf/
vwGeneratedInterE/ct02723e.html