Competition Bureau Appeals TREB decision

On April 16, 2013, we re-posted Steve Szentesi’s comment on the Competition Tribunal’s decision in the Toronto Real Estate Board abuse of dominance case.

Today, the Competition Bureau announced that it had filed an appeal of that decision with the Federal Court of Appeal. While noting that “most trade associations comply with the Competition Act,” John Pecman, Interim Commissioner of Competition,  expressed the concern that allowing the Tribunal’s decision to stand could result in trade associations being tempted “to develop rules aimed at preventing or eliminating potential new forms of competition.”

Proposed Wireless Services Legislation for Ontario

The Ontario provincial government has taken an interest in the wireless services sector: on April 29, 2013, Bill 60, An Act to strengthen consumer protection with respect to consumer agreements relating to wireless services accessed from a cellular phone, smart phone or any similar mobile device (the “Bill”), received first reading.

Other provinces already specifically regulate wireless services agreements (e.g., Nova Scotia and Manitoba). In addition, the CRTC has published a working paper in relation to a proposed mandatory code of conduct for wireless service providers.

Ontario’s Bill sets out specific requirements in respect of Ontario-based consumer agreements for wireless services.

Some of the key provisions include:

• if advertising includes information on the cost to the consumer, the information must set out an “all-inclusive” cost (other than HST), which must be the most prominent cost information on the advertising;
• that a supplier cannot charge a consumer more than the “all-inclusive” cost set out in any advertising in respect of the particular offer that a consumer accepts;
• a maximum cancellation fee (with provisions for calculating the fee in respect of goods supplied that have not yet been fully paid for by the consumer); and
• specific contractual disclosures, including in respect of: costs; maximum usage before additional fees are payable; any usage restrictions; available statutory warranties (where the supplier arranges for warranty coverage in addition to the manufacturer’s warranty); and technological or physical features restricting functioning in specified circumstances.

$30 Million Fine Ordered Against Yazaki Corporation

© CCH Canadian Limited

Further to our April 4, 2013, posting, in which we advised of the $5M fine against Furukawa Electric Co., Ltd. in connection with motor vehicle parts bid-rigging, the Competition Bureau today announced that a $30M fine was ordered by the Ontario Superior Court of Justice in respect of Yazaki Corporation.

Yazaki Corporation pleaded guilty to bid-rigging for its participation in an international cartel with other Japanese suppliers of motor vehicle components.

Additional detail is available here.

Competition Tribunal Releases Decision in TREB Abuse of Dominance Case

© Steve Szentesi, Canadian Competition and Regulatory Law, re-posted with permission.

Yesterday, the Competition Bureau announced that the Federal Competition Tribunal had dismissed its 2011 abuse of dominance application against The Toronto Real Estate Board (see: Competition Bureau to Review Competition Tribunal Ruling).  For an overview of the case see: here.

The Competition Tribunal has now issued its decision, which sheds light on the reasoning for its dismissal of the Bureau’s abuse case against Canada’s largest real estate board (see: The Commissioner of Competition v. The Toronto Real Estate Board).

In a brief seven page decision, the Tribunal has dismissed the Bureau’s application with costs to TREB concluding, rather bluntly, that “subsection 79(1) [the abuse of dominance provision of the Competition Act] does not apply on the facts of this case.”  Having come to that conclusion, the remainder of the issues and arguments made by the Bureau were not considered by the Tribunal.

In a significant and long running abuse of dominance application, which has been ongoing now some two years, this must have come as a bit of a shock to the Bureau, to say the least.

One of the things that first occurred to me as well was whether the earlier abuse challenge against The Canadian Real Estate Association (CREA), which was settled in late 2010, might have met with the same favorable result if it had been pressed forward to the Tribunal (given that that case, like the current TREB challenge, involved abuse theories of harm related to allegedly restrictive CREA MLS rules).

As a general matter, this decision also shows that it is not always clear whether allegedly anti-competitive conduct, whether in the trade or professional association context or otherwise, should be challenged under sections 79 (abuse of dominance), 45 (conspiracy agreements), the new civil agreements provision (section 90.1) or other provisions of the Competition Act.  Indeed, the same conduct can (and sometimes is) challenged under multiple provisions of the Act. To illustrate this point, the current TREB challenge included both a civil abuse of dominance challenge by the Bureau (under section 79 of the Competition Act) and a private civil action grounded, among other things, on criminal conspiracy theories under section 45 of the Act.

Key Points

The following are some key points from the Tribunal’s decision:

TREB does not compete in the relevant market.  Without expressing an opinion on TREB’s potential market power, the Tribunal found that even if market power were established in this case it could not meet the first branch of the test for an abuse of dominance (market power in a relevant market) because TREB did not compete in the relevant market (the provision of residential real estate services in the Greater Toronto Area).  This was one of the central arguments made by TREB (i.e., as a real estate board it did not compete with its members), and accepted by the Tribunal in dismissing this application.

TREB’s rules cannot have a negative effect on a competitor.  With respect to a practice of anti-competitive acts (the second of three necessary elements to establish an abuse of dominance under section 79), the Tribunal found that the Bureau’s application did not follow the Federal Court’s decision in Canada’s leading abuse of dominance case -Canada Pipe.  The Federal Court in Canada Pipe, and earlier Tribunal decisions, have held that it is necessary to show “an intended negative effect on a competitor that is predatory, exclusionary or disciplinary”.  In this regard, as the Tribunal put it,

since TREB admits and the Commissioner and CREA agree that TREB does not compete with its members, TREB’s Restrictions cannot have the negative effect on a competitor required by [Canada Pipe].

Interpreting the Competition Act’s examples of anti-competitive acts as consistent with the holding in Canada Pipe.  Also related to the second branch of the test (a practice of anti-competitive acts), the Tribunal rejected arguments made by the Bureau that there can be anti-competitive acts that do not involve harm to a competitor.  For example, one of the anti-competitive acts listed in section 78 of the Act (paragraph 78(1)(f)) does not specify that a competitor must be harmed.  In rejecting the Bureau’s argument, the Tribunal held:

It is our view, that section 78 of the Act is a powerful indicator that the Canada Pipe Rule is the correct approach. The section defines the term anti-competitive acts to include nine examples of conduct on the part of a dominant firm and in eight of the examples the harm is expressly described as experienced by a competitor. With regard to paragraph 78(1)(f), although the term ‘competitor’ is not used, it is possible to imagine a dominant firm buying product to prevent the erosion of existing price levels caused by a competitor’s lower or sale prices. In other words, paragraph 78(1)(f) is not necessarily inconsistent with the Canada Pipe Rule.

This is interesting, among other things, because in the Bureau’s recently amended Abuse of Dominance Guidelines it has taken the position that “certain acts not specifically directed at competitors could still be considered to have an anti-competitive purpose”.  This caused a fair amount of debate when the new guidelines were finalized and was thought controversial given both the Canada Pipe decision and previous Competition Tribunal jurisprudence.  That Bureau position now seems, subject to an appeal of this Tribunal decision, unsupportable.

The Bureau attempted to exceed existing authority and its own guidelines.  The Tribunal was also critical of the Bureau not only for, in the Tribunal’s view, endeavoring to depart from established authority (the Canada Pipe case) but also from its own recently amended Abuse of Dominance Guidelines, which expressly refer to the requirement for competing firms and do not state that a dominant firm does not need to compete in a relevant market.

Section 90.1 of the Act (the civil agreements provision) may support a Bureau challenge.  Finally, after kicking the feathers slightly out of the Bureau, the Tribunal “observed” that while the abuse of dominance provisions of the Act did not apply, the civil agreements provision (section 90.1) “might give the Commissioner a means to apply to the Tribunal”.  Under section 90.1, the Tribunal has the power, on applications by the Commissioner, to make remedial orders where it is established that an agreement between competitors prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.  The Tribunal cautioned, however, that its “observation” was not meant to suggest that a second challenge grounded under section 90.1 would necessarily succeed.

Also, and perhaps as some solace to trade associations facing future challenges, section 90.1 of the Competition Act does not allow for the now significant administrative monetary penalties (up to $10 million) available to the Bureau under the abuse of dominance sections.

Implications

It seems to me that some of the implications of this decision, if it stands, are that it may make abuse challenges against trade associations more difficult (including efforts to recover administrative monetary penalties) where conduct cannot squarely be said to involve competitors in the relevant market and seems to also indicate that concerted challenges of trade associations may also more appropriately be based in the civil not the criminal provisions of the Act (e.g., potentially under the civil section 90.1 rather than the criminal conspiracy provisions under section 45).

One major defect, however, in the Tribunal’s decision that I see is that this decision may somewhat artificially and technically insulate large incumbents or some competitors merely because they elect to use a trade or professional association as a vehicle for exclusionary or other potentially anti-competitive conduct.  This was a point that the Bureau made throughout its submissions (and I think a valid one) – i.e., that while the association did not technically participate in the relevant market, some of the decision makers (i.e., broker and agent members of TREB) certainly did/do and, as such, an overly artificial approach to the relevant market should not be taken by the Tribunal.

In any event, it will be very interesting indeed to see whether the Bureau has an appetite to recast and re-file its application under section 90.1 or appeal the Tribunal’s important holding.

Significant Penalty for Bid-Rigging

Last month, we noted that two individuals had been sentenced to pay fines totalling $8,000 in a gasoline price-fixing conspiracy.

Today, the Competition Bureau announced that Furukawa Electric Co., Ltd. has been fined $5 million for its role in bid-rigging in the automobile manufacturing sector.

Additional detail on the Furukawa penalty is available here.

 

Price-fixing Sentences

The Competition Bureau announced today that two individuals involved in a gasoline price-fixing conspiracy have been sentenced to pay fines totalling $8,000. The two individuals, Sylvie Fréchette and Valérie Houde, had pleaded guilty on January 8, 2013.

A table of sentences handed down in the price-fixing cartel is available here.

 

The Litigator Competition Law Review Top Stories

© Affleck Greene McMurtry Competition Law Team. Reproduced with permission.

For more information on Affleck Greene McMurtry LLP, see www.agmlawyers.com.

Top Stories

Maple Monopoly

Increased regulatory oversight from the Ontario Securities Commission led the Competition Bureau to allow Maple Group to acquire TMX Group and its main competitor, Alpha Trading Systems Inc. Maple also acquired CDS Clearing and Depository Services Inc. Alpha had recently become a full-fledged stock exchange and was competing vigorously with the TMX. The transaction leaves Canada with only one major stock exchange. [See Financial Post comment]

Harsher sentences for price fixing

Price fixing is like fraud and theft and ought to be treated at least as severely, if not more severely, the Federal Court ruled. The Competition Bureau’s leniency bulletin is consistent with sentencing principles in the Criminal Code, but plea bargains with proposed sentences based on a multiple of affected commerce are not sufficient to express society’s abhorrence of these crimes, nor to deter others from price fixing. In order to determine whether the plea bargain is not contrary to public interest, the court needs evidence of aggravating and mitigating factors, such as how much the offender profited from the conspiracy, how it carried out the price fixing, whether it was the ring leader, and its size and market share. As well, there needs to be a serious and very realistic threat of imprisonment in order to deter executives from price fixing.

Despite this, Crampton C.J. reluctantly accepted the $1.5 million fine that Maxzone Auto Parts (Canada) Corp. had agreed to pay for its involvement in an international price-fixing conspiracy of aftermarket replacement automotive lights. His decision heralds a tougher approach to sentencing.

Landfill merger trashed

CCS Corporation’s purchase of Babkirk Land Services Inc. would prevent competition substantially for landfill services for solid hazardous waste from oil and gas producers, the Competition Tribunal concluded. CCS was ordered to sell the shares or assets of Babkirk.

CCS bought Babkirk in 2009. At the time, CCS operated several secure landfills. Babkirk did not. Babkirk had permits to treat and store hazardous waste, and had applied for a permit to build a secure landfill. It received this permit in 2010. The Tribunal found that Babkirk would have entered the market for secure landfill services in competition with CCS, had CCS not acquired it. The merger prevented this competition.

CCS is appealing and has obtained a stay. [See Tribunal decision; Federal Court of Appeal decision]

Tim Hortons lawsuit goes stale

Tim Hortons franchisees lost their challenge to Tim Hortons’ “Always Fresh” model that allegedly reduced the profitability of various food items. The plaintiffs alleged that Tim Hortons violated the Competition Act’s conspiracy and criminal price maintenance provisions by agreeing with its distributor to raise prices for Always Fresh baked goods. These claims were rejected. [See article]

Hot water

The Commissioner filed abuse of dominance applications against water heater suppliers Direct Energy Marketing Ltd. and Reliance Home Comfort LP. The day after a 2002 consent agreement expired, Direct implemented restrictive return policies and unfair charges to consumers, to make it difficult for consumers to switch to another provider, the Commissioner alleges. Reliance implemented similar policies. The Commissioner is seeking AMPs of $15 million from Direct and $10 million from Reliance. [See Bureau press release; Tribunal filings]

New Commissioner emphasizes building trust

John Pecman took over as interim Commissioner of Competition after Melanie Aitken left mid-way through her term. His “priority for the Bureau in the coming months is – building trust through collaboration between the Bureau and all its stakeholders”. But he is getting tough too, announcing recently that the Bureau will use formal production orders instead of asking parties to produce information voluntarily. [See Vancouver speech; Montreal speech]

Criminal

Fill ‘er up: several more gasoline retailers, including Suncor Energy Products Inc., Canadian Tire Corporation, Mr. Gas, and Pioneer Energy LP pleaded guilty to fixing the price of gas in certain Quebec and eastern Ontario towns. So far over $3 million in fines have been imposed on 28 individuals and 7 companies. [See Bureau press releases: Suncor; Canadian Tire, Mr. Gas, and Pioneer]

Couche-Tard Inc. escaped price fixing charges after a judge found that the Crown’s repudiation of a settlement agreement irreparably prejudiced the fairness of the proceeding. [See article]

Korean Air pleaded guilty to fixing air cargo prices and was fined $5.5 million. [See Bureau press release]

Three construction companies, Construction G.T.R.L. (1990) Inc., Acoustique JCG Inc., and Entreprises de Construction OPC Inc., pleaded guilty to rigging bids for a hospital expansion in Chicoutimi. [See Bureau press release]

The Bureau’s ongoing clean-up of municipal sewer pipe contracts in Montreal resulted in 23 more bid rigging charges against Kelly Sani-Vac Inc. and two individuals. [See Bureau press release] Colmatec Inc., and Canalisation Nord Américaine Ltée pleaded guilty to bid rigging and were fined $50,000 and $15,000. A Colmatec executive was sentenced to 100 hours of community service and two years’ probation. [See Bureau press releases: June 22, 2012; November 22, 2011; November 22, 2011 backgrounder; August 31, 2012]

A former Ventilex Inc. vice-president faces charges that he rigged bids for residential high-rise building ventilation in Montreal. [See Bureau press release]

Corporate Research Group Ltd. pleaded guilty to rigging bids for federal government real estate advisory contracts and was fined $125,000. [See Bureau press release]

Charges that Progressive Waste Solutions Ltd. and its subsidiary, BFI Canada Inc. violated a July 2010 consent agreement were dropped after the Bureau discovered that its investigators had seen privileged material. [See Bureau press release]

Conditional sentences are no longer available for conspiracy, bid-rigging, and misleading advertising offences following Criminal Code amendments. Nearly all jail sentences to date under these provisions have been conditional sentences. [See Safe Streets and Communities Act]

Class Actions and Private Applications

Five groups of defendants agreed to pay over $29 million to settle allegations that they fixed prices for DRAM memory chips. Plaintiffs allege that Micron, NEC, Hitachi, Samsung, Mitsubishi, and Toshiba conspired to fix prices for DRAM. [See article]

Micron also agreed to pay $300,000 to settle a claim that it participated in a conspiracy to fix prices for SRAM memory chips. Alleged conspirators include Samsung, IBM, and Sony. [See article]

A proposed class action against Whirlpool Canada LP was a “product liability claim for pure economic losses for an allegedly negligently designed non-dangerous product” that disclosed no plain and obvious cause of action, an Ontario court ruled.

Discoverability may apply to the two-year limitation period for private actions under the Competition Act, but does not apply to the effects of a conspiracy, as they are not a part of the offence, the Federal Court of Appeal held. [See article]

Keyless entry: waiver of tort is not available for breaches of BC consumer protection legislation, the BC Court of Appeal ruled. The plaintiffs alleged that locks on Mazda3 cars were defective. [See article]

Mercedes-Benz Canada and BMW stopped consumers from buying their vehicles in the US by convincing Transport Canada to block imports. The regulated conduct defence could not be used to block the proposed class action for conspiracy, a court held. [See decision]

Mergers

Soft landing: Air Canada and United Continental settled the Bureau’s application to unwind their joint venture by agreeing not to coordinate on 14 routes between Canada and the United States. [See transborder routes and consent agreement]

Despite concerns about increasing concentration and vertical integration in the broadcasting industry, the Bureau allowed media and communications giants BCE Inc. and Rogers Communications Inc. to buy a majority interest in Maple Leaf Sports & Entertainment, Maple Leafs Network Ltd., and Toronto Raptors Network Ltd. [See Bureau press release]

BCE Inc.’s proposed acquisition of Astral was blocked by the CRTC before the Bureau concluded its own review. [See CRTC decision]

Two major distributors of electrical products, WESCO Distribution Inc. and EECOL Electric Corp., got a green light to merge. Manufacturers had bargaining power that would prevent them from exercising market power. [See Bureau press release]

Meat processors Olymel L.P. and Maple Leaf Foods would gain enough market power to foreclose competitors as a result of each buying a pork producer, but this strategy would be unprofitable, the Bureau concluded in allowing the mergers. [See article]

Other mergers for which the Bureau issued No Action Letters include: Transcontinental, Inc.’s acquisition of Quad/Graphics Canada, Inc.; Chartwell Seniors Housing REIT and Health Care REIT Inc.’s acquisition of Maestro Retirement Residences Portfolio; Cardinal Health Canada Inc.’s acquisition of Futuremed Healthcare Products Corporation; and United Technology Corporation’s acquisition of Goodrich Corporation.

The pre-merger notification transaction size threshold was increased to $77 million for 2012 and $80 million for 2013. The party size threshold remains set at $400 million. In a busy year, the Bureau published revised Merger Review Process Guidelines, released Merger Interpretation Guidelines for consultation, published a Merger Review Performance Report in April, and began releasing monthly reports of merger reviews. [See Merger Interpretation Guidelines: #12 and #15; Merger Review Performance Report; Monthly Reports of Merger Reviews]

Reviewable Matters

The Competition Tribunal heard the Commissioner’s applications against the Toronto Real Estate Board and Visa and Mastercard. Decisions are expected in 2013. [See Tribunal filings]

The Insurance Bureau of Canada was ordered to keep supplying the Used Car Dealers Association of Ontario with claims data, pending the hearing of UCDA’s refusal to deal application. [See article] The case settled later. [See article]

The chickens come home to roost: chicken producer Westco cannot collect on an undertaking in damages from an interim order because it deliberately and flagrantly breached that order, the Tribunal decided. [See Tribunal decision]

Marketing Practices

The Bureau accused Bell, Rogers, TELUS, and CWTA of misleading consumers about the cost of “premium texting services”, and sought $31 million in fines. [See Bureau press release]

Four companies operating a business directory scam were fined $8 million. [See article]

National Energy Corporation was ordered to stop making false and misleading statements about its competitor, Direct Energy Marketing Limited. [See article]

Telus was denied an injunction against Mobilicity’s comparative TV ads. [See article]

Bradley O’Neil lost his appeal from his conviction for fraud, theft, and misleading advertising. O’Neil’s company processed tourist tax refunds, but did not remit the refunds to its clients. [See Court of Appeal decision and Court of Queen’s Bench trial decision]

Related developments

The plain view doctrine applies to computer searches where the files evincing another crime are immediately recognizable, but it does not permit a further search for additional files that are not in plain view. [See article]

Shocking: There are no defined limits on administrative monetary penalties, the Ontario Court of Appeal said in a case involving penalties for breach of securities laws. The case suggests that even higher AMPs under the Competition Act would be constitutional. [See article]

The Long Arm of US Antitrust

Don’t be evil: the FTC concluded that Google’s “Universal Search” was innovative, not anticompetitive. Google agreed to license standard-essential patents that its competitors need to make mobile phones, tablets, and gaming consoles. Google also agreed to remove restrictions in its AdWords service that discouraged advertisers from using other platforms. [See FTC press release]

Alberta internet marketer Jesse Willms agreed to pay the US Federal Trade commission $359 million to settle allegations that he charged consumers for products and services without their explicit consent. The Bureau helped with the investigation. [See settlement order]

Across the pond

E-book inquiry closed: Apple and four publishers, HarperCollins, Hachette Livre, Simon & Schuster and Macmillan, resolved price fixing allegations by agreeing that retailers, not publishers, would determine e-book prices. [Read the EC press release]

AstraZeneca’s upset stomach: AstraZeneca delayed entry of generic competitors of its anti-ulcer drug and prevented parallel trade by abusing patents and marketing procedures, the European Court of Justice held in reducing AstraZeneca’s fine slightly, to €52.5 million from €60 million. [See decision]