Competition Law Year in Review 2010

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Indirect purchasers cannot sue

Indirect purchasers of a product that was the subject of a price fixing conspiracy cannot sue to recover losses passed on to them by direct purchasers, the British Columbia Court of Appeal ruled in two landmark decisions issued in March 2011.^[i] The law does not allow defendants to avoid liability to direct purchasers by saying that the direct purchasers passed the loss on to their customers. It follows that claims by those customers, which depend on proving that the loss was passed on, are not allowed either, the court said.*

Damages no longer required?

Courts in Ontario and BC relied on aggregate damages provisions in class action legislation to certify class actions seeking damages for alleged conspiracies to fix prices for hydrogen peroxide and DRAM memory chips. Both courts side-stepped the statutory requirement that liability must be proved before damages can be assessed in the aggregate.^[ii] In Ontario, Rady J. said that only “potential liability” needs to be established. She also held that not every class member needs to have suffered a loss, even though only those who suffer a loss are entitled to recover. In BC, the Court of Appeal said that aggregate assessment of damages can be used to establish liability, even though liability is a pre-requisite to aggregate assessment. The BC court also relied on convictions in the United States as establishing liability in Canada.*

The wired and the wireless

Canada’s telecoms continued their advertising and court battles over who has the best and fastest network.

In May 2010, a New Brunswick court granted Bell Aliant an injunction to stop Rogers from claiming that its cable internet network offered the “fastest and most reliable speed”,^[iii] even though Bell Aliant was claiming it had the “world’s fastest” network. The court suggested that someone who advertises having the fastest service should have to prove it.

Days later, however, in two separate decisions, judges in Ontario refused to grant Bell Canada injunctions against Rogers’ “fastest and most reliable speed” claim,^[iv] and TV ads implying that Rogers internet and TV services were better than Bell’s.^[v] Bell had not shown irreparable harm caused by Rogers’ advertising. There was “no justification to interfere in the advertising war between these two large corporations”.

In August, a BC court granted Rogers an injunction to stop Bell from saying that its HSPA+ mobile network is the most reliable, but court refused to enjoin Bell from saying that it had larger HSPA+ coverage than Rogers, or from using other superlatives.^[vi]

Meanwhile, in July, a BC court struck down parts of a lawsuit by Vancouver cable, internet and telephone company Novus Entertainment that alleged that Shaw abused its dominant position and engaged in misleading advertising. Abuse of dominance does not count as “unlawful” conduct for purposes of the tort of unlawful interference with economic relations, even though fines can now be imposed for abuse of dominance.^[vii] This decision is under appeal.

Winds of change

New wireless telephone carriers Wind Mobile, Public Mobile, and Mobilicity entered the market offering cheaper prices but smaller coverage.

Rogers fought back with a pseudo-new entrant brand, “Chatr”, offering pricing similar to Wind’s. Rogers advertised that Chatr users experienced fewer dropped calls. After Wind complained, the Bureau sued Rogers under the civil marketing practices provisions in the Ontario Superior Court. Mobilicity has also complained that Rogers’ tactics violated the abuse of dominance provisions of the Competition Act.

Wind was dealt a major setback in February 2011 by a Federal Court decision overturning the Cabinet decision that had allowed Wind to commence operations. That Cabinet decision overturned a decision of the CRTC that found that Wind violated foreign ownership restrictions on telecom carriers. The Federal Court decision is under appeal.^[viii]

Credit card rules challenged… priceless?

When you pay by credit card, the merchant pays a fee. The more rewards your credit card offers, the more the merchant pays. Visa and MasterCard have rules that prohibit merchants from charging more to customers who pay by credit card and from rejecting premium reward cards. The Competition Bureau challenged these rules as anti-competitive price maintenance, the first challenge under the new price maintenance provisions, in December 2010.

Visa and MasterCard contend that their rules are needed to prevent merchants from penalizing customers who pay by credit card. They point out that merchants do not have to accept credit cards at all, and can offer discounts to customers who pay by cash or Interac.

Rebates, savings, and gift cards

Whirlpool agreed to pay up to $2,000 each to nearly 400 customers who were denied a rebate because they purchased appliances at dealers that were not “participating” in Whirlpool’s promotion.^[ix]

Three major retailers, Zellers, Reitman’s brand Smart Set, and Mexx,along with its parent Liz Claiborne Canada Inc.,agreed to rectify gift and savings card promotions that left out key conditions, notably that consumers had to buy something before using the cards.^[x]

Criminal

Klason Industries Inc. pleaded guilty and was fined $250,000 for conspiring to allocate customers for the sale of refrigeration and food service equipment components in Canada and the US.^[xi]

Tassimco Technologies Canada Inc. pleaded guilty to rigging bids for traffic signals for the City of Quebec with its competitor Electromega.^[xii] Electromega was later acquitted at trial, even though Electromega met with competitors and its price list was found in a Tassimco executive’s briefcase.^[xiii]

Eight companies and five individuals were accused of rigging bids for about $8 million worth of contracts for HVAC systems in residential construction projects in Montreal.^[xiv]

Solvay Chemicals Inc. pleaded guilty to fixing the price of hydrogen peroxide and was fined $2.5 million.^[xv]

25 individuals and three companies were charged with fixing retail gas prices in Quebec. To date, four companies and nine individuals have pleaded guilty and been fined a total of $2.8 million. Six individuals have received sentences to be served in the community.^[xvi]

The Quebec Court of Appeal upheld an absolute discharge granted to an individual charged in the Quebec gas case. The individual had no previous convictions, did not lead the conspiracy or benefit from it, was sorry, and had made a $10,000 donation to charity.^[xvii]

Embraco North America Inc. and Panasonic Corporation pleaded guilty to fixing prices for hermetic refrigeration compressors and were fined $1.5 million each. The compressors were mainly sold to W.C. Wood Corporation for use in chest freezers.^[xviii]

Cargolux pleaded guilty to fixing air cargo fuel surcharges and was fined $2.5 million. To date, the Bureau has collected more than $17 million in fines from airlines involved in this conspiracy.^[xix]

Mergers

Media mergers: the Bureau decided not to challenge cable giant Shaw Communications Inc.’s purchase of Canwest Global Communications Corp.’s over-the-air and specialty TV channels^[xx] or BCE Inc.’s acquisition of CTVglobemedia Inc.^[xxi] Canada’s two satellite radio providers, XM and Sirius, were allowed to merge because AM/FM radio and MP3 players compete with satellite radio.^[xxii]

Waste merger trashed: the Bureau challenged CCS Corporation’s acquisition of Complete Environmental Inc. and its proposed Babkirk Secure Landfill in Northeastern BC. The Bureau says that the deal will reduce competition for the disposal of hazardous waste from the oil and gas industry.^[xxiii] Waste companies BFI Canada Inc.^[xxiv] and Clean Harbors, Inc.^[xxv] completed divestitures they had agreed to earlier.

The Coca-Cola Company’s purchase of its primary bottler, Coca-Cola Enterprises Inc. meant it would be distributing competing products of Dr. Pepper Snapple Group. Cokeagreed to use information about these products only for the purpose of bottling and distributing Dr. Pepper beverages.^[xxvi]

Novartis AG agreed to divest its multi-purpose contact lens cleaner called Solocare Aqua and other assets to resolve concerns raised by its proposed acquisition of Alcon Inc.^[xxvii]

Australian pesticide maker Nufarm Limited resolved concerns in Canada, the US, and the UK that its 2008 acquisition AH Marks Holding Limited would lessen competition for the herbicide ingredient MCPA. Nufarm agreed with the FTC to sell rights relating to MCPA to competitors and made additional undertakings to the Bureau in Canada.^[xxviii]

Teva Pharmaceutical Industries Inc., a maker of prescription painkillers, sold some assets and generic drug licences to Sandoz Canada Inc. in order to resolve the Bureau’s concerns that its merger with Merckle Group would substantially lessen competition.^[xxix]

Danaher Corporation agreed to divest the laser microdissection (LMD) instruments, reagents and consumables assets of MDS Inc. to alleviate the Bureau’s concerns about the impact of its merger with this company. LMD instruments are used to visualize and extract specific cells from microscopic tissue samples.^[xxx]

Reviewable Matters

Real estate agents across Canada agreed to eliminate rules that prevent agents who offer less than full service from posting listings on MLS. Agents can now offer a “mere posting” service for private sales.^[xxxi]

Private Enforcement

Porter Airlines’ popularity with the downtown Toronto business community led Air Canada to return to the Island airport. The Federal Court rejected Air Canada’s application for judicial review of the Toronto Port Authority’s process for allocating landing and take-off slots on the basis that the TPA is not a federal board, and its slot allocation process was not a “decision”.^[xxxii]

A class action alleging that Toyota and some of its dealers fixed prices on new cars can proceed, the BC Court of Appeal held. Proof of loss on a class-wide basis may be possible, the court held.^[xxxiii]

Tate & Lyle settled allegations that it participated in a conspiracy to fix prices for high fructose corn syrup for $650,000. The case continues against other defendants, including Archer Daniels Midland and Cargill.^[xxxiv]

A class action by unhappy Quizno’s franchisees against the franchisor can proceed, the Ontario Court of Appeal confirmed.^[xxxv]

Two defendants in a proposed class action seeking damages from retail gas price fixing in Quebec got “civil immunity”: they settled on the basis that they would assist, but not pay, the plaintiffs.^[xxxvi]

The discoverability rule does not extend the limitation period applicable to private actions launched to recover damages caused by breaches of the Competition Act, the Federal Court ruled.^[xxxvii]*

The Ontario Court of Appeal ruled that the “unlawful” element of unlawful interference with economic interests must be conduct that is actionable by a third party.^[xxxviii] Ten days later a different panel of the same court said that the “unlawful” element is conduct that the defendant is not at liberty to commit.^[xxxix]

Internet domain registrar Brandon Gray Internet Services failed to lead any evidence that the Canadian Internet Registration Authority’s refusal to recertify it as a .ca registrar would adversely impact competition, the Tribunal said in refusing Brandon Gray leave to commence an application against CIRA.^[xl]

After the Competition Tribunal rejected Nadeau Poultry’s application to force Groupe Westco to supply it with chickens for processing, the New Brunswick government changed the law to require that all NB chickens be processed by Nadeau. The NB court struck down the law because it would prevent the export of chickens from NB.^[xli] Meanwhile, the Tribunal sentenced Westco to pay $75,000 for contempt for breaching an earlier order that it continue supplying Nadeau pending the outcome of Nadeau’s application.^[xlii]

Marketing Practices

Bamboozled: a Bureau investigation into labels on clothes made from bamboo identified 27 dealers and 94 online merchants whose labels were inaccurate. As a result, more than 450,000 textile articles have been re-labelled and over 250 web pages corrected.^[xliii]

The Competition Bureau unliked fraudulent and deceptive advertising on social networking sites.^[xliv]

An Alberta man who defrauded more than 49,000 victims of $3.6 million in a GST refund scheme was sentenced to 5 years in jail.^[xlv]

An Edmonton man was sentenced by a US court to 33 months in prison for selling fake sodium dichloroacetate, a highly sought after experimental cancer drug.^[xlvi]

Another Edmonton man was charged with criminal misleading advertising and breaching an earlier consent agreement, in relation to an online job opportunities scam.^[xlvii]

Paint Products Company agreed to end alleged misleading environmental and “Made in Canada” claims.^[xlviii]

Mutual Consolidated Services was to ordered pay approximately $1.5 million to victims in Canada and the US for falsely claiming that its “Rapid Debt Reduction” service would reduce credit card interest rates and save consumers thousands of dollars.^[xlix]

The Bureau filed an application against two Alberta spa retailers alleging they falsely claimed that their products were associated with the ENERGY STAR Program^[l].

Several Montreal companies and individuals were charged criminally for deceptive telemarketing activities related to business directory scams.^[li] The Bureau also issued yet another warning about a directory listing scam.^[lii]

An Alberta court held that the general misleading advertising provision (s. 52) does not apply to telemarketing because there is a special provision for telemarketing (s. 52.1). The court found five individuals guilty of offences under this provision and of fraud for operating a business directory scam.^[liii]

Olufemi Olutunde was sentenced to 12 months in jail for participating in a “secret shopper” scam. Victims were given counterfeit cheques to deposit and instructed withdraw cash and wire it to individuals through Western Union Financial Services. The victims thought they had been hired to assess the money transfer outlet’s customer service.^[liv]

The Long Arm of US Antitrust

Intel agreed to settle allegations that it engaged in monopolization by deceiving computer manufacturers about the performance of non-Intel products. Intel had not disclosed that its “compiler”, a product that plays an important role in CPU performance, reduces the performance of non-Intel chips by not registering all of their features. Its settlement with the FTC prohibits it from using various means to prevent its competitors from selling their products and from deceiving computer manufacturers about the performance of non-Intel chips.

The US government can enforce an Illinois judgment against George Yemec, an Ontario man who telemarketed lottery tickets into the US, the Ontario Court of Appeal held. There is no defence of “denial of a meaningful opportunity to be heard” to enforcement of foreign judgments, the court said. But the court also said that the US could not resile from the undertaking in damages it gave when seeking injunctions against Yemec that destroyed his business. The injunctions were dissolved because the US had failed to make full and frank disclosure to the court.^[lv]

^[i] Sun-Rype Products Ltd. v. Archer Daniels Midland Company, 2011 BCCA 187; Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2011 BCCA 186.

^[ii] Irving Paper Ltd. v. Atofina Chemicals Inc., [2009] O.J. No. 4021 (S.C.J.), leave to appeal denied, 2010 ONSC 2705 and Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503, leave to appeal denied [2010] S.C.C.A. No. 32.

^[iii] Bell Aliant Regional Communications Ltd. v. Rogers Communications Inc. [2010] N.B.J. No. 145 (Q.B.)

^[iv] Bell Canada v. Rogers Communications Inc., 2010 ONSC 3010.

^[v] Bell Canada v. Rogers Communications Inc., 2010 ONSC 2788

^[vi] Rogers Wireless Partnership v. Bell Canada, 2009 BCSC 1884.

^[vii] Novus Entertainment Inc. v. Shaw Cablesystems Ltd., 2010 BCSC 1030.

^[viii] Public Mobile Inc. v. Canada, 2011 FC 130.

^[ix] Competition Bureau, Press Release, 1 Dec 2010, “Competition Bureau Requires Whirlpool to Reimburse Customers for Misleading Rebate Program”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03320.html.

^[x] Competition Bureau, Press Release, 29 June 2010, “Zellers Agrees to Take Action to Correct Misleading Promotion”, Competition Bureau, Press Release, 13 May 2010, “Reitmans Agrees to Correct Misleading Smart Set Promotion”, Competition Bureau, Press Release, 6 April 2010, “Major Clothing Retailer Agrees to Correct Misleading Gift Card Promotions”.

^[xi] Competition Bureau, Press Release, 6 May 2011, “Competition Bureau Exposes Customer Allocation Conspiracy”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02644.html.

^[xii]Competition Bureau, Press Release, 26 January 2010, “Company Pleads Guilty to Bid-Rigging in Quebec City”. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03192.html.

^[xiii] R. v. Électromega Limitée, 2010 QCSS 2283.

^[xiv] Competition Bureau, Press Release, 21 December 2010, “Charges Laid in Residential Construction Bid-Rigging Scheme in Montreal”. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03327.html.

^[xv] Competition Bureau, Press Release, 12 May 2010, “Solvay Chemicals Fined $2.5 Million for its Role in a Price-Fixing Conspiracy”. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03228.html.

^[xvi] Competition Bureau, Press Release, 15 July 2010, “Criminal Charges Laid by Competition Bureau in Gas Price-Fixing Case”. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03262.html; Gas Prices Charges Chart, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03260.html; Gas Prices Guilty Pleas, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03079.html.

^[xvii] R. v. Drouin, 2010 QCCA 513. Competition Bureau, Press Release, 31 Aug 2009, “Individual Sentenced in Quebec Price-Fixing Cartel”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03116.html.

^[xviii] Competition Bureau, Press Release, “Embraco North America Inc. Pleads Guilty to Price-Fixing Conspiracy” 27 October 2010. http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03307.html; Competition Bureau, Press Release, 3 November 2010, “Panasonic Corporation Pleads Guilty to Price-Fixing Conspiracy” http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03310.html

^[xix] Competition Bureau, Press Release, 28 October 2010, “Cargolux Pleads Guilty in Air Cargo Price-fixing Conspiracy”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03304.html

^[xx] Competition Bureau Press Release, 13 August 2010, Competition Bureau Clears Shaw’s Acquisition of Canwest, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03279.html

^[xxi] Competition Bureau, Press Release, 1 Feb 2011, “Competition Bureau Statement Regarding BCE’s Acquisition of CTV”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03345.html.

^[xxii] Competition Bureau, Press Release, 23 Feb 2011, “Competition Bureau Statement Regarding Merger of XM Canada and Sirius Canada”, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03351.html