Competition Law Year in Review 2007

Contributors: Michael Osborne , Jennifer Cantwell, Sandra Monardo, Michelle Booth, Sonny Ingram, Hooman Zardarzadeh

TOP STORIES

Ice storm
Ice supplier Arctic Glacier Inc. tried to crush its fledgling competitor, Polar Ice Express Inc. by unlawfully interfering with its economic relations, an Alberta court found. Arctic Glacier bribed or attempted to bribe customers of Polar Ice to deal exclusively with it; it broke contracts with customers who also bought ice from Polar Ice; and it offered special discounts to liquor stores and Sobeys to induce them to breach their contracts with Polar Ice. The court held that the selective discounts to retailers supplied by Polar Ice violated the discriminatory pricing provision of the Competition Act, as Arctic Glacier did not offer the same prices to competitors of those retailers. The court did not consider whether the requirements of the discriminatory pricing provision were met, including whether the discounts were in respect of a sale of articles of like quality and quantity; it simply held that offering targeted discounts is unlawful. [1]

[1]Polar Ice Express Inc. v. Arctic Glacier Inc., 2007 ABQB 717, http://www.canlii.org/en/ab/abqb/doc/2007/2007abqb717/2007abqb717.html

Plastic resin class action certified
An Ontario court certified a class action by automotive parts supplier Axiom Plastics Inc. against Dupont. Dupont charges distributors for engineering resins (a class of plastic resin) based on a discount from list prices. It grants further discounts in particular cases through agreed rebates to distributors. Axiom says that the economic effect of this practice is to force distributors to sell at list prices, unless Dupont agrees, and is price maintenance contrary to the Competition Act. Axiom also alleges that Dupont conspired with various of its customers to fix prices. The court certified price maintenance as a common issue, but not issues relating to conspiracy. [2]

[2]Axiom Plastics Inc. v. E.I. Du Pont Canada Company, [2007] OJ No 3327 (Ont SC), http://www.canlii.org/en/on/onsc/doc/2007/2007canlii36817/2007canlii36817.html

Canada Pipe case capped
Canada Pipe Company Ltd. and the Bureau have settled their long running dispute over the rebate program offered to Canada Pipe’s distributors. Canada Pipe will offer distributors a choice between a modified rebate program and the existing program. The modified program can include multiplier discounts off list-price, and quarterly and annual rebates. It cannot be conditional on the distributor acquiring other Canada Pipe products. The settlement came seven months after the Supreme Court denied Canada Pipe’s application for leave to appeal. [3]

[3] Commissioner of Competition v. Canada Pipe Company Ltd., Registered Consent Agreement, CT-2002-006-0130, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=163#216

Is that seaweed in my clothes?
Vancouver athletic wear retailer Lululemon Athletica agreed to stop advertising that the seaweed in its VitaSea yoga clothes releases minerals and vitamins into the skin. In November, an investor who was shorting Lululemon’s stock revealed that tests showed VitaSea clothes do not contain any different minerals or vitamins from ordinary cotton. Lululemon’s agreement with the Bureau came a mere four days after the story broke. [4]

[4] "’Seaweed’ Clothing Has None, Tests Show The New York Times", New York Times, 14 Nov 2007. Competition Bureau News Release, 16 Nov 2007, Lululemon VitaSea Clothing, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02517e.html

The year of the guideline
The Bureau issued six guidelines and bulletins in 2007. The most important of these outlined tweaks to the Bureau’s highly successful Immunity Program. The Immunity Program now follows a "single step" process, has wider eligibility criteria, no longer requires restitution, and has clearer revocation rules. [5]

[5] Competition Bureau, Immunity Program under the Competition Act, October 2007, Competition Bureau, Policy Backgrounder: Adjustments to the Immunity Program, October 2007, Competition Bureau, Responses to Frequently Asked Questions, October 2007, all collected at http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/h_02000e.html

SECTORAL STUDIES

The Bureau published two reports following sectoral studies into generic drugs and self-regulated professions.

The generic drug study found that strong wholesale competition by generic drug makers has not lowered prices for consumers. Pharmacies have little incentive to pass savings on. The study recommends measures to incent pharmacies to pass savings on to consumers.[6]

The self-regulated professions study encourages accountants, lawyers, optometrists, pharmacists, real estate agents and other self-regulated professions to increase competition by relaxing rules that go further than necessary to protect public interest. The Bureau suggests reforming advertising regulations, pricing and fee structures, barriers to practice, and uneven licensing requirements across the country.[7]

In a related development, Ontario, Alberta, and Nova Scotia will allow dental hygienists to practise independently from dentists following recommendations from the Bureau.[8]

[6]Competition Bureau, Generic Drug Sector Study, October 2007,
http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02495e.html

[7]Competition Bureau, Self-regulated professions – Balancing competition and regulation, 2007, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02523e.html

[8]Competition Bureau, News Release, 15 Oct 2007,Competition Bureau Welcomes Greater Competition in Dental Hygiene Services,
http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02494e.html
Competition Bureau, News Release, 28 Nov 2007, Competition Bureau applauds Nova Scotia move to permit greater competition in dental hygiene,
http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02522e.html

CRIMINAL

German chemicals giant Bayer pleaded guilty and was fined $3.6m for participating in three international conspiracies to fix prices for rubber chemicals, nitrile rubber, and aliphatic polyester polyols made from adipic acid.[9]

Du Pont Performance Elastomers pleaded guilty and was fined $4m for participating in a conspiracy to fix the prices for a synthetic rubber known as polychloroprene rubber sold in North America. Polychloroprene rubber is used a wide range of automotive, adhesive and construction products.[10]

Japanese carbon producer SEC Carbon pleaded guilty and was fined $250,000 for participating in a conspiracy in the graphite electrodes market. Graphite electrodes are used in making steel. SEC is the eighth and last of the conspirators to be convicted. Its fine brings the total fines for this conspiracy to nearly $25m.[11]

The Bureau also wrapped up its investigation into the isostatic graphite conspiracy with a guilty plea and fine of $50,000 from Ibiden Co. Ltd. of Japan. Ibiden received leniency for helping the Bureau with its investigation. Total fines from this conspiracy are $550,000.[12]

The Bureau lost its appeal in the St John’s taxi conspiracy case. Almost every eligible taxi company agreed to bid as a group on contracts to pick passengers up from St John’s Airport and other institutions. In 2006, a provincial court judge dismissed the charges after a preliminary inquiry, finding that the Crown failed to lead enough evidence about the market. In July 2007, the Newfoundland and Labrador Supreme Court refused the Crown’s certiorari application (appeal).[13]

The Bureau raided offices of several major chocolate bar makers in November as part of an investigation into possible price-fixing, according to news reports. US authorities subsequently began a similar investigation.[14]

[9]Competition Bureau, News release, 30 Oct 2007, Bayer Group Fined $3.645 Million for its Role in Three International Cartels,
http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02510e.html

[10]Competition Bureau, News release, Du Pont Performance Elastomers Fined $4 Million for its Role in an International Price Fixing Agreement, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02370e.html

[11]Competition Bureau, News release, 9 Nov 2007, SEC Carbon Pleads Guilty to Conspiracy, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02512e.html

[12]Competition Bureau, News release, 19 Sept 2007, Japanese Company Pleads Guilty to Price Fixing, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02446e.html

[13]R. v. Bugden’s Taxi (1970) Ltd., [2007] NJ No 322 (SC), affirming [2006] NJ No 250 (Prov Ct).

[14]See for example "Competition bureau to probe alleged price-fixing by chocolate giants", National Post, 29 Nov 2007, http://www.nationalpost.com/news/canada/story.html?id=132292,
"Agency launches chocolate price-fixing probe", CTV News, 28 Nov 2007,
http://www.ctv.ca/servlet/ArticleNews/story/
CTVNews/20071128/chocolate_fixing_071128/20071128?hub=Canada, "Mars to assist US authorities in chocolate price fixing inquiry", Food Business Review, 24 Dec 2007,
http://www.food-business-review.com/
article_news.asp?guid=FACBDEA3-3DE7-4CE1-874A-A786F06A1E46

MERGERS

Dutch chemical giant Akzo Nobel NV obtained clearance in December to acquire Imperial Chemical Industries PLC (ICI) after agreeing to divest ICI’s Para and Crown Diamond paint businesses, and stop offering rewards in Quebec to retailers that carry only its brands.[15] In November, the Bureau cleared Schering-Plough Corporation‘s acquisition of Organon BioSciences NV from Akzo Nobel.[16]

The Bureau cleared Ontario Teachers’ Pension Plan Board‘s proposed acquisition of BCE Inc., parent company of Bell Canada, despite Teachers’ shareholding in Bell’s competitor, Manitoba Telecom Services Inc.[17]

The Bureau decided not to challenge the merger between lumber companies Abitibi-Consolidated Inc. and Bowater Incorporated.[18]

In July, the Bureau announced that divestitures required to deal with two mergers in the grain handling industry in Western Canada were complete. Agricore United has divested a grain handling terminal in Vancouver to Alliance Grain Terminal Ltd., and Saskatchewan Wheat Pool has sold nine grain elevators and a port terminal elevator to Cargill Ltd. Still to come are divestitures of two grain elevators by James Richardson International.[19]

The Bureau released and independent report setting out a framework for incorporating effects on innovation into merger review,[20] and a review of three merger transactions that concludes that the Bureau accurately predicted future market conditions.[21]

[15]Competition Bureau, News release, 14 Dec 2007, Competition Bureau Resolves Concerns in Paint Merger, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02544e.html

[16]Competition Bureau, News release, 5 Sept 2007, Competition Bureau Clears Schering-Plough’s Acquisition of Organon BioSciences, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02516e.html

[17]Competition Bureau, News release, 21 Sept 2007, Competition Bureau Clears Teachers- BCE Transaction, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02458e.html

[18]Competition Bureau, News release, 24 July 2007, Competition Bureau Will Not Contest Abitibi-Consolidated Inc. and Bowater Incorporated Merger, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02374e.html

[19]Competition Bureau, News release, 5 July 2007, Competition Bureau completes measures to increase competition in grain handling industry, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02368e.html

[20]Andrew Tepperman and Margaret Sanderson, Innovation and Dynamic Efficiencies in Merger Review, 9 April 2007, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02376e.html

[21]Mark Neuman and Margaret Sanderson, Ex Post Merger Review: An Evaluation of Three Competition Bureau Merger Assessments, 1 August 2007, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02447e.html

REVIEWABLE MATTERS

The Bureau found no evidence suggesting an abuse of dominance by Air Canada in advertising flights at the Toronto Island Airport.[22]

[22]Competition Bureau, Discontinued Cases, Air Canada and Jazz Air LP, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02246e.html

MARKETING PRACTICES

Oleg Oks will spend one year in jail and two years probation, and his partner in crime, Aleksandr Oks, will spend six months under a conditional sentence and a year on probation, for defrauding Americans of more than $5 m in a pre-approved credit card scam. Both were also prohibited from telemarketing for ten years.[23]

The Bureau’s crack-down on the deceptive telemarketing of toner and business directories resulted in four convictions, over $3.3 m in fines, and conditional sentences or probation of between 15 months and two years for individuals behind the scams. As well, new charges were brought against 11 individuals for deceptive telemarketing of business directories to US firms, and against three Montreal residents for deceptive telemarketing of toner to businesses across Canada.[24]

The Bureau alleges in an application in the Tribunal that Premier Career Management Group and its president falsely told potential clients that they would almost certainly find them work within 90 days for equal or better pay, using their extensive network of contacts with senior executives. The hearing is scheduled to begin in April.[25]

Premier Fitness Clubs agreed to pay a $200,000 amp and publish corrective notices, for advertising a "free" trial offer that was not really free, as customers had to pay for fitness assessments or one-year memberships.[26]

Six cigarette companies agreed to discontinue the use of "light" and "mild" on cigarette packaging by the end of 2007. 92 brands of cigarettes are now covered by such agreements.[27]

[23]Competition Bureau, News Release, 5 Sept 2007, Competition Bureau Investigation Results in Jail Sentence For Deceptive Telemarketer, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02439e.html

[24]Competition Bureau, News Release, 30 Mar 2007, Competition Bureau investigation Leads to Sentencing For Deceptive Telemarketing Operation, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02295e.html, 20 Aug 2007, Toner and Ink-Jet Telemarketing Operation Fined Over $800,000, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02416e.html, 29 May 2007, Telemarketer Fined $1-million, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02350e.html, 5 Sept 2007, News Release Competition Bureau Investigation Results in Jail Sentence For Deceptive Telemarketer, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02439e.html

[25]Commissioner of Competition v. Premier Career Management Group Corp. and Minto Roy, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=285#390

[26]Competition Bureau, News Release, 27 Nov 2007, Premier Fitness Undisclosed Fees Investigation Successfully Concluded, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02518e.html

[27]Competition Bureau, News Release, 31 July 2007, Competition Bureau Reaches Further Agreements with Six Cigarette Companies to Stop Using "light" and "mild" on Cigarette Packages, http://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02383e.html

PRIVATE ENFORCEMENT

Sun-Rype pleaded that a conspiracy by suppliers of high fructose corn syrup was "fraud" under BC’s Limitation Act. The court held that conspiracy is not "fraud" and struck the claim as statute-barred. Sun-Rype’s claim for constructive trust survived, however. The court suggested that discoverability may apply to the Competition Act‘s two year limitation period for private actions, but did not elaborate.[28]

Must all parties to a civil "unlawful act" conspiracy have committed an unlawful act, or is it enough that some aided and abetted their co-conspirators? A proposed class action by Quizno‘s franchisees alleges that Quizno’s designated supplier assisted in price maintenance by the franchisor. The court refused to strike the pleading.[29]

Sono Pro Inc., a Montreal professional audio equipment reseller, was denied leave to bring a private application to force Sonotechnique P.J.L. Inc. to supply it with Dolby products because it did not lead enough evidence.[30]

Once again, the Tribunal found that parliamentary privilege trumps the Competition Act and refused leave to Robert Gauthier, and The National Capital News Canada to bring an application to force the Speaker of the House of Commons to grant him access to the Parliamentary Press Gallery.[31]

Sears lost its bid to force the supplier of Dior and Givenchy cosmetics to continue supplying it, after which London Drugs withdrew its application for the same relief.[32]

[28]Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2007 BCSC 640, http://www.canlii.org/en/bc/bcsc/doc/2007/2007bcsc640/2007bcsc640.html

[29]2038724 Ontario Ltd. v. Quizno’s Canada Restaurant Corp., [2007] OJ No 1136, leave to appeal refused, [2007] OJ No 2404 (Div Ct) http://www.canlii.org/en/on/onsc/doc/2007/2007canlii9617/2007canlii9617.html

[30]Sono Pro Inc. v. Sonotechnique P.J.L. Inc., 2007 Comp. Trib. 18. http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=64&CaseID=284

[31]National Capital News Canada v. Speaker of the House of Commons, 2007 Comp. Trib. 23, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=286#391

[32]Sears Canada Inc. v. Parfums Christian Dior Canada Inc. and Parfums Givenchy Canada Ltd., 2007 Comp. Trib. 6, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=280#385, London Drugs Limited v. Parfums Givenchy Canada Ltd., http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=281#386

UNITED STATES

The Antitrust Division of the Department of Justice lost its fight to evict Stolt-Neilsen S.A. from its immunity program. Stolt-Neilsen did take prompt and effective action to terminate its involvement in a conspiracy. The Division received and used evidence from Stolt-Neilsen to prosecute other conspirators, then prosecuted Stolt-Neilsen. This was fundamentally unfair, the court held in dismissing all charges against Stolt-Neilsen.[33]

The US Supreme Court held that vertical price maintenance should be judged by the "rule of reason" standard, overturning a nearly century-old rule that vertical agreements setting minimum resale prices are per se unlawful. The court held that vertical price maintenance can have either procompetitive or anticompetitive effects, depending on the circumstances of the case.[34]

[33]US v. Stolt-Nielsen S.A., 2007 US Dist Lexis 88628 and 2007 US Dist Lexis 88011 (Eastern Dist Penn, 2007)

[34]Leegin Creative Leather Products Inc. v. PSKS Inc., 551 US __ (2007), http://www.law.cornell.edu/supct/html/06-480.ZS.html

EUROPE

The European Union Court of First Instance upheld a €497m fine imposed by the Commission against Microsoft for abuse of dominance. In October, the Commission announced that Microsoft had taken steps to comply with its 2004 ruling that it must provide certain interoperability information.[35]

Exemplary (punitive) damages should not be available in a follow on private action against participants in a conspiracy where those participants have already been fined by competition authorities, the English court held, as this offends the principle of double jeopardy. Nor is a restitutionary award or accounting for profits available in such a case, despite the difficulties in calculating the loss suffered by the plaintiffs.[36]

The House of Lords clarified the distinction between the torts of inducing breach of contract and unlawful interference with economic relations.[37]

[35]European Commission, DG Competition, Microsoft case homepage: http://ec.europa.eu/comm/competition/antitrust/cases/microsoft/

[36]Devenish Nutrition Ltd. v. Sanofi-Aventis SA (France), [2007] EWHC 2394 (Ch).

[37]OBG Limited v Allan; Douglas v. Hello! Limited; Mainstream Properties Ltd v Young, [2007] UKHL 21

Affleck Greene McMurtry LLP practises competition law and all types of commercial litigation. We act for clients in Competition Tribunal and criminal proceedings, merger reviews and Competition Bureau investigations, and provide advice about business practices. .