Review of Competition Law – April 2007
Contributors: Michael Osborne , Jennifer Cantwell, Kyle Peterson , Sonny Ingram, Michael Binetti, and Adam Wygodny
TOP STORIES
Appeal court revises test for abuse of dominant position
In identifying anti-competitive acts, one must ask whether the conduct had an intended predatory, exclusionary or disciplinary effect on a competitor, not on competition, the Federal Court of Appeal held in overturning the Tribunal’s 2005 finding that Canada Pipe’s rebate program was not anti-competitive. The court emphasized the centrality of intention in this analysis. A valid business justification must provide a “credible efficiency or pro-competitive explanation”, and can only counter evidence of anti-competitive intent. In assessing whether there has been a substantial lessening of competition, the Tribunal must compare market conditions with, and without, the impugned practice. The fact that the market is competitive and experiences entry is not relevant. Canada Pipe has applied to the Supreme Court for leave to appeal. [1]
[1]Canada (Commissioner of Competition) v. Canada Pipe Co., [2006] F.C.J. No. 1027
Dial “D” for deregulation
Canada ’s telecom industry is about to experience a massive shift from regulation to open markets. In March 2006, a federal panel recommended a presumption against regulation in favour of market forces and competition policy. In September, the Bureau released guidance on abuse of dominance in telecommunications. In November, the CRTC began reviewing regulations on essential services. In December the government proposed fines of up to $15m against a telecom that abuses its dominant position. The government also announced changes to CRTC rules to speed up deregulation of local telephone services. [Further analysis: Deregulation, Telecom ]
Tribunal turns down private applicants
Sears’ will lose Dior and Givenchy cosmetics after the Tribunal refused it leave to commence a private application in March 2007. In assessing whether the termination would have a substantial effect on Sears’ business, Sears’ entire department store business must be considered, the Tribunal held. Sales of Dior and Givenchy are an insignificant percentage of Sears’ sales. Thus Sears’ business was not substantially affected. London Drugs has applied for leave to bring a similar application against Dior and Givenchy.
B-Filer’s private application for an order that Scotiabank reinstate its bank accounts was dismissed in December 2006 after the Tribunal found that its business was not substantially affected, that the bank had valid business reasons for terminating its accounts, and that there was no adverse effect on competition. The adverse effect on competition requirement is less than “substantial lessening”, but requires a showing of increased market power. B-Filer is appealing.[2]
[2]B-Filer v. Bank of Nova Scotia, 2006 Comp. Trib. 42, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=219&CaseID=258#355
Taxi case dispatched
Taxi companies and individuals accused of conspiracy to lessen competition in bidding for taxi-service contracts in St. John’s, Newfoundland, were discharged after a preliminary inquiry. Almost every company eligible to bid on contracts to pick up passengers from St. John’s Airport and other institutions agreed to bid as a group on these contracts, and there was evidence of retaliation against a company that refused to join the agreement. But the court held that there was no evidence that the agreement lessened competition “unduly”. The Crown did not lead sufficient evidence about the definition and size of the market. For instance, the court noted that the airport contract was limited to the right to pick up passengers. Any taxi company could drop passengers off. The Crown is appealing.
MERGERS
In March 2007, the Tribunal dismissed the Commissioner’s application for an interim order preventing Labatt from acquiring Lakeport Brewing. Labatt provided an undertaking to hold Lakeport separate, but the Bureau’s general policy is not to agree to hold separate arrangements.[3]
The Bureau agreed to let Bell Globemedia buy CHUM subject to a hold separate arrangement in a consent agreement filed in September. The Bureau later approved the transaction. It is now before the CRTC.[4]
The Saskatchewan Wheat Pool will sell a port terminal at the Port of Vancouver and some grain elevators to obtain clearance of its proposed acquisition of Agricore United.[5] In 2001, United Grain Growers bought Agricore Cooperative, and, in 2002, agreed to sell a port terminal in Vancouver. Later, UGG applied to rescind this agreement, but withdrew the application in May 2006.[6]
The Tribunal dismissed Burns Lake Development’s challenge to a consent agreement between West Fraser Timber and the Bureau. To challenge a consent agreement, a third party must experience directly and concretely a significant impact, caused by the agreement, on a right or serious interest that relates to competition.
Whirlpool’s acquisition of Maytag will not substantially lessen or prevent competition in home appliances, the Bureau concluded in March. Retailers are able constrain possible price increases. New entrants, such as electronics manufacturers, can succeed.
Boston Scientific’s commitments to US and EU authorities to sell Guidant’s vascular intervention and endovascular businesses to Abbott Laboratories adequately resolve competition concerns in Canada, the Bureau said, in allowing the merger to proceed.
Mittal Steel’s acquisition of Arcelor will not lessen competition in cold-rolled steel, the Bureau concluded. There are enough suppliers with excess capacity.
GlaxoSmithKline’s acquisition of ID Biomedical would not substantially lessen competition in influenza vaccines, because there is no competition, the Bureau found. The federal government buys practically all of the influenza vaccine in Canada, and the next bidding process is years away.
The Bureau allowed BBM Canada and Nielsen Media Research to merge their TV audience measuring businesses after they agreed to commission third party audits if they intend to adopt new electronic TV audience measuring technology, and to treat all persons eligible for membership in the BBM alike. The transaction will likely reduce the cost of TV audience measuring and lead to a standard television audience measuring system in Canada, like standard systems in other countries, the Bureau concluded.[7]
In December, Johnson & Johnson agreed to divest zinc oxide diaper rash products it acquired as part of its purchase of the consumer health division of Pfizer.
[3]Commissioner of Competition v. Labatt Brewing Co. Ltd., 2007 Comp. Trib. 8.
[4]Commissioner of Competition v. Bell Globemedia, Consent Agreement filed September 1, 2006, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=219&CaseID=276#381
[5]Commissioner of Competition v. Saskatchewan Wheat Pool, Consent Agreement filed 28 March 2007, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=233&CaseID=283#388
[6]Commissioner of Competition v. United Grain Growers Ltd., http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=228&CaseID=174#227
[7]Commissioner of Competition v. BBM Canada and Nielsen Media Research Limited, Consent Agreement, filed 23 June 2006, http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=219&CaseID=274#379
CRIMINAL
Six Fort McMurray auto body repair shops agreed to an order requiring them not to set their price by agreement or even to communicate their prices to each other.[8]
In August 2006, Sotheby’s and Sotheby’s ( Canada) Inc. agreed to an order prohibiting them from participating in conspiracies to fix auction commission rates. They must also implement a compliance program and pay investigative costs of nearly $800,000.
Quebec LED traffic light suppliers Electromega Ltd., Tassimco Technologies Canada Inc. and two individuals were charged with bid rigging in connection with a contract to replace incandescent with LED traffic lights in Quebec City.
In April 2006, the Bureau found no evidence of anti-competitive gasoline pricing in the wake of Hurricane Katrina, but in June, was investigating alleged retail gas price fixing in Quebec.
[8]http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2280&lg=e
MARKETING PRACTICES
The Competition Act’s criminal false advertising provisions only apply to representations to the Canadian public, the Ontario Superior Court held in acquitting David Stucky in November. The charges concerned Stucky’s direct mail publications, all of which were sent out of Canada.
The Ontario Court of Appeal upheld three-year sentences and a $400,000 fine for two brothers who were found guilty of criminal misleading advertising. Jail time for white-collar criminals is an effective deterrent and necessary tool, the court said.[9]
The owner of two Toronto companies was sentenced to an 18 month conditional sentence and a $50,000 fine after pleading guilty to fraudulently telemarketing office toner. The companies were fined $1.5m.[10]
Grafton-Fraser agreed to pay a $1.2m amp for inflating the regular price of certain garments, overstating savings when the items were on sale.
In November 2006, three major cigarette manufacturers, Imperial Tobacco Canada, Rothmans Benson & Hedges and JTI-Mcdonald agreed to stop calling 79 brands of cigarettes “light” or “mild”.
In September 2006, the Tribunal ordered a Montreal company and its owner to stop misrepresentations about weight loss from their Cellotherm apparatus, and to pay amps of $50,000 and $20,000 respectively.
Strategic Ecomm Inc. and owner Matthew Hovila agreed to pay a $100,000 amp for two internet job scams.
Many CIBC Visa customers will receive refunds because promotional offers on binoculars and blood pressure monitors included with Visa statements overstated the products’ regular prices.
Fabutan agreed to stop claiming that indoor tanning has health benefits.
Claims that the Supersweep Chimney Cleaning Log cleans chimneys are not based on adequate tests, the Bureau alleges in an application filed against Imperial Brush Co. and Kel Kem Ltd. in September.[11]
Businesses need to be wary of people marketing office product to them, and should not pay invoices for product they did not order, the Bureau warned in March 2007.[12] The latest scam is a directory called Canadian Companies Directory for Industry, Commerce and Trade, which purports to be a government publication, but is not. [13]
[9] R. v. Benlolo (2006), 81 O.R. (3d) 440
[10]http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2295&lg=e
[11] See Commissioner of Competition v. Imperial Brush Co. Ltd., http://www.ct-tc.gc.ca/english/CaseDetails.asp?x=219&CaseID=278#383
[12]http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2289&lg=e
[13]http://www.competitionbureau.gc.ca/internet/index.cfm?itemID=2288&lg=e
PRIVATE ENFORCEMENT
Who’s the fastest, clearest of them all? In early 2006, Telus and Bell forced each other to pull advertisements claiming to have the fastest wireless network; they share the same EV-DO network.[14] In June, Telus was refused an injunction to stop Rogers’s ads claiming it had “ Canada’s clearest wireless network”.[15] In November, the BC court refused Bell an injunction stopping Telus’ “Flexible Share Plan only from Telus” ads.[16]
The Saskatchewan Court of Queen’s Bench refused to certify a proposed class action against cellphone service providers, including Bell, Telus, and Rogers, over the “system access fees” they charge. Contemporaneous billing of the system access fee does not amount to a conspiracy, the court said.
The BC Court of Appeal dismissed an action by Skybridge Investments against Ford and one of its dealers alleging that contracts forbidding grey marketing offend the conspiracy, price maintenance, or price discrimination provisions of the Competition Act.[17]
The Toronto Port Authority ended Air Canada’s regional airline, Jazz’s, lease at the Toronto Island Airport to make room for Porter Airlines. Jazz sought an injunction, alleging the Port Authority and Porter conspired. In refusing the injunction, the Ontario Superior Court held that a breach of conspiracy provisions of the Competition Act was unlikely. Jazz’s lease likely was terminable on one month’s notice. Jazz then applied for judicial review in Federal Court. In June 2006, the court converted the application to an action, ending Jazz’ hopes of grounding Porter.
When will they learn? Twice in 2006, courts reaffirmed that parties cannot sue for conduct that comes under abuse of dominance and other reviewable matters provisions or raise it as a defence. The BC court struck a claim by Pro-Sys Consultants against Microsoft alleging abuse of dominance as the unlawful element of the tort of interference with economic interests.[18] The Federal Court refused to allow Crosslee Trading to raise abuse of dominance and misuse of intellectual property as a defence to Unilever Canada’s trademark infringement action.[19]
Orders suspending the applicability of the Competition Act made under the Canada Transport Act can have effect beyond their 90-day lifespan, the Federal Court ruled, dismissing Pro-West Transport’s application for judicial review. After a strike by truckers, the government ordered trucking companies serving the Port of Vancouver to sign agreements fixing rates paid to truckers as a condition of obtaining a licence from the Port. The Port continued to insist on the agreement as a condition of licensing even after the order expired.[20]
“Passing-on” is no defence to repayment of unconstitutionally collected taxes, the Supreme Court held. The same would likely also apply to conspiracy cases.
[14]Tele-Mobile Company v. Bell Mobility Inc. (2006), 46 C.P.R. (4 th) 146 (B.C.S.C.), futher reasons, [2006] B.C.J. NO. 2640, further reasons, [2006] B.C.J. No. 2641.
[15]Telus Communications Co. v. Rogers Wireless Inc., [2006] O.J. No. 1865 (S.C.J.)
[16]Bell Mobility Inc. v. Telus Communications Co., [2006] B.C.J. No. 3359, 2006 BCSC 1954, affirmed, [2006]B.C.J. No. 3333, 2006 BCCA 578.
[17] Skybridge Investments Ltd. v. Metro Motors Ltd. , [2006] B.C.J. No. 2892 ( C.A.)
[18]Pro-Sys Consultants Ltd. v. Microsoft Corp., [2006] B.C.J. No. 1564 (B.C.S.C.)
[19]Unilever Canada Inc. v. Crosslee Trading Co. [get QL or Fed CT cite]
[20]Pro-West Transport Ltd. v. Canada (Attorney General), [2006] F.C.J. No. 1129. See also Ready or Not: Controversial VanPort licence scheme still in effect, http://www.todaystrucking.com/news.cfm?intDocID=16131&CFID=934&CFTOKEN=67,
and SPECIAL REPORT: Peace at the Port?,
http://www.todaystrucking.com/newscenter.cfm?pageaction=story&intNewsCenterID=7
&intDocID=16236&CFID=934&CFTOKEN=67.
THE LONG ARM OF US ANTITRUST LAW
Imports of prescription drugs purchased from Canadian pharmacies are unlawful under US federal law, a federal appeal court held, dismissing claims alleging that pharmaceutical companies conspired to suppress these imports.[21]
The US Supreme Court has issued four important antitrust decisions recently. P ricing activities of an economically integrated joint venture are not per se illegal, but should be analyzed under the rules of reason, the court held in Texaco Inc. v. Dagher . Texaco and Shell sell gasoline in the western US through a joint venture that had previously been approved by US antitrust authorities.[22]
Restrictions on price discrimination only apply where a seller discriminates between purchases that compete with one another. Volvo can offer different discounts to dealers responding to tenders, if the dealers were not competing against each other in the same tender, the court held in Volvo Trucks North America Inc. v. Reeder-Simco GMC Inc.
Patents do not necessarily confer market power, the court held in Illinois Tool Works Inc. v. Independent Ink, Inc. , eliminating a presumption of long standing. Thus tying arrangements involving patented products are not per se unlawful.[23]
Allegations of predatory bidding, that is, bidding up prices of critical inputs to put rivals out of business, must be analyzed in the same way as predatory pricing, the court said in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc . Thus it must result in below cost pricing by the predator, and there must be a dangerous probability of recoupment.[24]
[21]In re: Canadian Import Antitrust Litig.[cite][no 05-3873] (2006, 8 th Cir)
[22]Texaco Inc. v. Dagher, 547 U.S. 1 (2006)
[23]Illinois Tool Works Inc. v. Independent Ink. Inc. , [cite]
[24]Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc . [cite]
ACROSS THE POND
In July, the European Commission fined Microsoft €280.5m for its continuing failure to disclose complete and accurate interoperability information to developers of work group server operating systems as required by an earlier Commission ruling that Microsoft had abused its dominant position.
In a discussion paper, the Commission proposed an effects-based approach to analyzing abuse of dominance cases. In new guidelines, the Commission also raised fines for conspiracy and abuse of dominance to increase the deterrence.
DOWN UNDER
Australia ’s new merger review process allows three types of reviews: informal and formal clearance from the Australian Competition and Consumer Commission, and merger authorization from the Australian Competition Tribunal. The ACCC can only grant formal clearance if it is satisfied that the merger will not substantially lessen competition. Formal clearance immunizes the merger from challenge, unlike informal clearance. To obtain merger authorization from the Tribunal, parties must demonstrate that the merger benefits the public. Pre-notification is not obligatory, but parties to anti-competitive mergers can be fined up to A$10m.[25]
[25] See Overview of mergers regulation, http://www.accc.gov.au/content/index.phtml/itemId/268261/fromItemId/6204; Trade Practices Act 1974, Act No. 51 of 1974, s. 50, 76.
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. .
