Canadian COMPETITION LAW

Despite an effort by the Toronto Real Estate Board (“TREB”) several weeks back to launch a constitutional challenge, it appears that Canada’s first contested abuse of dominance case to go before the Competition Tribunal in five years (since the Canada Pipe case, proceedings for which went on from 2005 to 2007) is set to  go ahead with hearings scheduled next week in Toronto.

In this highly anticipated case, scheduled to be heard from September 10^th to October 8^th, the Bureau is challenging membership rules enacted by TREB, Canada’s largest real estate board, which it says have substantially lessened competition in the residential real estate services market in the Greater Toronto Area (“GTA”).

In particular, the Bureau is alleging that TREB is dominant in the residential real estate services market in the GTA, has engaged in a practice of anti-competitive acts (that it has enacted and enforced membership rules governing the use of its MLS® data that make it impossible for members to offer certain types of services over the Internet), which has prevented or lessened competition substantially in residential real estate services.  In this regard, the Bureau’s burden will be to establish all of the elements for abuse of dominance under section 79 of the Competition Act: dominance (which involves defining the relevant market(s) and showing market power); a practice of anti-competitive acts (some of which are listed in section 78 of the Act, while others have been established by the Tribunal in dominance case law since 1986); and that the conduct has prevented or lessened competition substantially.

The thrust of the dispute largely turns on whether TREB’s control of the MLS® data generated by its MLS® system is anti-competitive (all real estate boards in Canada administer member-driven and fed MLS® systems, which are rich sources of real estate related transaction data, which is largely, but not exclusively, available only to members; in Canada’s MLS systems, there is public and member only data).

Like its earlier abuse of dominance challenge against The Canadian Real Estate Association (“CREA”), which was settled in the fall of 2010, the Bureau’s challenge focuses on TREB’s ability to exclude and discipline non-compliant members by foreclosing access to its MLS® system.  In this regard, the Bureau has alleged that TREB has used this ability to restrict and prevent brokers from offering innovative services, such as giving customers access to a “virtual office website” (“VOWs”) which would allow prospective clients to do their own property searches on a broker’s password protected website without the assistance or direct intervention of the broker.  The national association for organized real estate in Canada (CREA) established rules and procedures for member real estate agents to operate such virtual office websites some years ago, and many (if not most) real estate boards in Canada permit the operation of VOWS.

According to the Bureau, TREB’s restrictions on the use of its MLS® data for such VOWs has prevented the development of more efficient and cost effective business models by forcing existing members to use a traditional broker model and preventing members from joining TREB and launching innovative business models.

TREB has defended its policies on several grounds, including that the terms of use for its MLS® system were a legitimate exercise of intellectual property rights, that its policies did not substantially prevent or lessen competition and that, since it does not itself supply any residential real estate brokerage services, it could not be dominant in the relevant market.  Over the past months since the Bureau filed its application, TREB has also made privacy based arguments pointing to the risk that confidential client information could be dispersed online if its MLS® data was used for certain types of online business models.

This case, if it goes ahead, promises to be interesting for raising market definition and intellectual property issues in the context of real estate services and real estate boards in Canada, being the first essential facilities case to be heard by the Tribunal (essential facilities cases in Canada have to date been settled) and as well for raising important questions in relation to association membership, access to association facilities and property rights.

For example, a question that I have frequently heard from members of organized real estate over the past months has been why real estate boards should be forced to grant access to proprietary data that has taken years (and in some instances decades) to collect and organize into a sophisticated cooperative selling network.  Of course, this question, and others like it, go to the heart of the essential facilities issue, namely whether (and under what circumstances) competitors should be ordered to share assets or access to assets.

It seems to me too that the TREB case also raises interesting governance issues, not unlike a small state, quite apart from the strict legal arguments being made – for example, whether and the extent to which some competitors may determine how collective association facilities or assets are used, when such decisions may adversely affect, in this case, other association members.

Voluntary trade associations are not, of course, states, but as corporate entities many similar issues regarding majority v. minority rights regularly emerge in associations.  This inevitable tension also raises difficult challenges and questions for associations’ leadership.

In this regard, perhaps as interesting, if not more so, than the abuse of dominance hearings set to begin next week before the Tribunal is the ongoing parallel civil action commenced by Realtysellers against TREB and CREA, a firm that claims that TREB’s allegedly restrictive MLS® data use policies drove it out of business.

Given that Realtysellers’ theories of harm in its civil suit include allegations that TREB, CREA and a number (a great number in fact – more than 40 as I recall) of their directors and officers conspired to drive Realtysellers out of business, that proceeding may if it goes to trial lead to some interesting new association law.  That may include not only new law under section 45 of the Competition Act (criminal conspiracy agreements) but also shed further light on some rather more interesting issues, including director and officer liability in the association context, which is a topic seldom considered by Canadian courts and an area in which there is little recent case law.

For more information about the scheduled hearing dates, pleadings and decisions in this case see: Commissioner of Competition v. Toronto Real Estate Board.

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