January 22, 2014
Steve Szentesi
Kevin Wright (Davis LLP)
Extract from a chapter to be published in CLEBC
Annual Review of Law & Practice – 2014
The following are some of the key civil and criminal competition law developments in Canada in 2013 (late 2012 to early 2014) from our forthcoming chapter in CLEBC’s Annual Review of Law & Practice – 2014.
For the first two posts (misleading advertising and mergers and Investment Canada Act developments) see: here and here.
Over the rest of the week I’ll be posting developments from last year in other key areas: competition law private actions, trade and professional associations and new Competition Bureau guidelines.
********************CIVIL MATTERS
Commissioner of Competition v. Reliance Comfort LP;
Commissioner of Competition v. Direct Energy Marketing Limited
(Abuse of Dominance)
On December 20, 2012, the Bureau filed civil abuse of dominance applications with the Tribunal against two Ontario water heater suppliers: Direct Energy Marketing Limited (“Direct”) and Reliance Comfort Limited Partnership (“Reliance”) (see: Competition Bureau, Announcement, “Competition Bureau Takes Action to Support Competition in Ontario’s Residential Water Heater Market” (December 20, 2012)). The focus of the Bureau’s challenge against Direct and Reliance are allegations that they reduced competition and consumer choice through restrictive water heater return policies, which discouraged or prevented consumers from switching to competing suppliers. Some of the allegedly anti-competitive acts challenged by the Bureau include: requirements to call to obtain authorization to return water heaters; allegedly aggressive retention tactics during return calls; restrictions on when and where water heaters could be returned; and unwarranted fees and charges. Contracts under which a dominant firm requires or induces exclusive dealing with customers or suppliers can constitute anti-competitive acts for the purposes of the abuse of dominance provisions of the Act. In this case the Bureau is seeking AMPs of $15 million from Direct and $10 million from Reliance. The pleadings for both cases are available on the Tribunal’s website at http://www.ct-tc.gc.ca/Home.asp.
The Commissioner of Competition v. The Toronto Real Estate Board
(Abuse of Dominance)
On April 15, 2013, the Tribunal dismissed the Bureau’s abuse of dominance application against The Toronto Real Estate Board (“TREB”) (The Commissioner of Competition v. The Toronto Real Estate Board, 2013 Comp. Trib. 9). In this case, the Bureau alleged that TREB was abusing its dominance through membership rules restricting the use of its MLS® data for some Internet based real estate models such as “virtual office websites”. In dismissing the Bureau’s case, the Tribunal found that TREB, as a trade association, did not compete in the relevant market (real estate services in the Greater Toronto Area); that its rules could not therefore have a negative effect on a competitor that is “predatory, exclusionary or disciplinary” (the general test for anti-competitive acts for the abuse of dominance provisions of the Act); and that there cannot be abuse of dominance without harm to a competitor (following the Federal Court of Appeal in Canada’s leading abuse of dominance case, Canada Pipe (2006), 268 D.L.R. (4th) 193 (F.C.A.)). The Tribunal also strongly suggested that the relatively new civil agreements provision of the Act (section 90.1) was the more appropriate section under which to bring the challenge. The case is currently on appeal to the Federal Court. One of the most important issues to be decided is whether the abuse of dominance provisions of the Act apply to trade or professional associations that do not compete in markets in which they are allegedly dominant. If the Bureau is successful, it will retain broader powers to challenge trade associations under single or joint abuse theories, including access to administrative monetary penalties up to $10 million where successful.
The Commissioner of Competition v. Visa and MasterCard
(Price Maintenance)
On September 9, 2013, the Tribunal issued its public reasons dismissing the Bureau’s price maintenance challenge against Visa and MasterCard (The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 2013 Comp. Trib. 10). In this case, the Bureau’s first application under the amended civil price maintenance provisions of the Act (section 76), it argued that rules imposed on merchants by Visa and MasterCard requiring all Visa/MasterCard cards to be accepted and prohibiting merchants from charging customers surcharges influenced upward or discouraged the reduction of card fees paid by merchants. Section 76 of the Act applies, among other things, where a person influences upward or discourages the reduction of the price at which a customer or reseller offers to supply or advertises a product. The Tribunal dismissed the Bureau’s application primarily based on the Bureau’s failure to show the resale of any product, which the Tribunal held was required under section 76 (i.e., credit card acquirers provide different services than those supplied to them by Visa and MasterCard). According to the Tribunal, section 76 was intended to address adverse effects on the price of resale products not merely adverse effects on prices per se. Interestingly, the Tribunal also held that it would not have exercised its discretion to make an order under section 76 in any event finding that the challenged Visa/MasterCard conduct was more appropriate for regulation than Bureau enforcement. Overall, this decision is important as the first indication by the Tribunal of its approach to the new price maintenance sections of the Act and for confirming that section 76 is not intended to catch all conduct that may have an adverse effect on prices, but only certain specified vertical practices involving the resale of products. Following the decision, the Bureau announced that it would not appeal the Tribunal’s decision but would be “exploring other avenues to protect Canadians” (see: Competition Bureau, Announcement, “Competition Bureau Will Not Appeal Credit Cards Decision” (September 30, 2013)).
Safa Enterprises Inc. v. Imperial Tobacco
(Price Maintenance)
On December 9, 2013, the Tribunal issued its reasons denying a Vancouver tobacco retailer’s price maintenance leave application against supplier Imperial Tobacco (“Imperial”) (Safa Enterprises Inc. v. Imperial Tobacco Company Limited, 2013 Comp. Trib. 19, File No. CT-2013-007). The retailer, Safa Enterprises (“Safa”), argued that Imperial had been engaging in civil price maintenance under section 76 of the Act – in particular, that Imperial was discriminating against it in the supply of tobacco products contrary to section 76(1)(ii) of the Act while supplying its competitor New Hasty Market at better wholesale prices. In denying Safa’s leave application, the Tribunal concluded that the self-represented retailer had failed to establish that one of the essential elements of the subsection may be proven on an ultimate application, namely that Imperial’s refusal to supply or alleged discriminatory treatment of Safa was based on the tobacco retailer’s low pricing policy. In this regard, the relevant civil price maintenance provisions of the Act do not offer remedies for mere refusals to supply or suppliers that simply treat distributors or retailers differently. Instead, they allow the Tribunal to make remedial orders where a refusal to deal or discriminatory treatment is based on a re-sellers low pricing policy. In denying the tobacco retailer’s leave application, the Tribunal also confirmed several other points related to “private access” leave applications to the Tribunal including: the appropriate test on leave; that some preliminary evidence must be adduced showing an adverse effect on competition in the relevant market; that each of the relevant elements of the civil matter being applied under must be considered by the Tribunal; and that the evidentiary threshold on a private leave application is low (i.e., “sufficient credible evidence for a bona fide belief by the Tribunal” rather than, for example, on balance of probabilities, as required on civil matters on the merits under the Act).
CRIMINAL MATTERS
Conditional Sentences Eliminated for
Conspiracy and Bid-rigging Offences
In November 2012, Criminal Code amendments came into force eliminating conditional sentences for some serious crimes, including conspiracy (e.g., price-fixing agreements between competitors) and bid-rigging under the Act (see: Department of Justice, News Release, “New Law Eliminating House Arrest for Serious and Violent Crimes Comes Into Force” (November 20, 2012)). These amendments will impact sentencing in criminal competition law cases – i.e., mean some accused may serve actual prison time – and may also influence whether criminal competition law cases go to trial (or settle) and whether immunity is sought under the Bureau’s Immunity and Leniency Programs (the Bureau’s Leniency Program requiring a guilty plea as a condition of participation). One issue that remains to be determined is whether these changes will affect conduct prior to their coming into force (i.e., before November, 2012).
Auto Parts Investigation
(Bid-rigging and Price Fixing)
In April and July 2013, the Bureau achieved three record Canadian bid-rigging fines in the ongoing global auto parts investigation (see: Competition Bureau Announcements, “$5M Fine for a Japanese Supplier of Motor Vehicle Components” (April 4, 2013); “Record $30M Fine Obtained by Competition Bureau Against Japanese Auto Parts Supplier” (April 18, 2013); and “Japanese Bearings Manufacturer Fined $5 Million” (July 12, 2013)). Japanese motor vehicle component suppliers Furukawa Electric Co. Ltd., Yazaki Corporation and JTEKT Corporation pleaded guilty and were fined $5 million, $30 million and $5 million respectively by the Ontario and Quebec Superior Courts for bid-rigging in connection with the supply of auto parts to Honda and Toyota. In this case, the largest bid-rigging investigation in the Bureau’s history, the Bureau relied on its Immunity and Leniency Programs, with the companies fined receiving reductions for cooperating with the Bureau. For a brief summary of the Bureau’s Immunity and Leniency Programs, see below – New Competition Bureau Guidelines.
Quebec Gasoline Investigation
(Price-fixing)
In 2013, the Bureau continued its ongoing retail gasoline price-fixing investigation in Quebec, first announced in 2008. 2013 developments in this case, one of the largest in the Bureau’s history, included 3 individuals and 1 company being found guilty at trial of price-fixing before the Quebec Superior Court and five individuals sentenced to pay $53,000 in fines. At the time of writing, 39 individuals and 15 companies have been charged with criminal price-fixing in this case. Of these, 33 individuals and 7 companies have pleaded or were found guilty with fines totaling over $3 million and 6 individuals have been sentenced to 54 months imprisonment.
Chocolate Investigation
(Price-fixing)
In September 2013, four of Canada’s largest producers of chocolate settled a price-fixing class action for $23.2 million in a case ongoing for about six years (see: http://www.chocolateclassaction.com). Settlements were reached with Cadbury Adams Canada Inc., Hershey Canada Inc., Nestlé Canada Inc. and Mars Canada Inc. (approved by British Columbia, Ontario and Quebec courts). At the time of writing, however, the Bureau’s criminal case against several chocolate manufacturers remained ongoing. Nestle, Hershey, Mars and distributor ITWAL were first searched by the Bureau in 2007, which led to investigations and class actions in Canada, the U.S. and Europe. In this regard, on June 21, 2013, Hershey pleaded guilty before the Ontario Superior Court for its role in the price-fixing case and was fined $4 million (see: Competition Bureau, Announcement, “Hershey Pleads Guilty in Price-fixing Cartel” (June 21, 2013)). Hershey also admitted that senior employees exchanged competitively sensitive pricing information with competing chocolate manufacturers. Criminal price-fixing charges have also been laid against Nestlé and two of its former executives, Mars and ITWAL and its CEO (see: Competition Bureau, Announcement, “Charges Laid in a Price-fixing Cartel in the Chocolate Industry” (June 6, 2013)).
Air cargo Guilty Plea
On August 23, 2013, the Bureau announced that LATAM Airlines Group S.A. (“LATAM”), the parent company of LAN Cargo S.A., pleaded guilty to a criminal conspiracy relating to fuel surcharges that it imposed on international air cargo shipments from Canada to South America and elsewhere between March 17, 2003 and February 14, 2006. The Ontario Superior Court of Justice fined LATAM $975,000. This marked the ninth conviction in Canada in the air cargo investigation, where aggregate fines of over $25 million have been imposed.
Bid-rigging Charges
In June 2013, the Bureau announced that Louis Facchini, carrying on business as First Porter Consultancy, was charged with one count of fraud under the Criminal Code for allegedly submitting a false invoice to Public Works and Government Services Canada as part of a scheme to rig bids for real estate advisory services. This follows on the bid-rigging conviction in July 2012 of Corporate Research Group Ltd. as part of the same investigation.
LIBOR Investigation Discontinued
On May 31, 2013, the Bureau announced that a Canadian affiliate of The Royal Bank of Scotland Group had abandoned its challenge before the Ontario Superior Court of a subpoena issued under section 11 of the Act requiring it to produce records in the possession of European affiliates who were targets in the Bureau’s investigation of alleged collusive activity in the setting of Yen LIBOR rates and their use in pricing interest rate derivative products. Had that challenge proceeded, the Court would have had the opportunity to address important lingering issues about the use of section 11 in criminal investigations generally and specifically its use to compel production of information from foreign affiliates of entities with a Canadian presence. However, in a somewhat surprising development, on January 3, 2014, the Bureau announced that it was discontinuing its investigation of the Yen LIBOR rates cartel in spite of the fact that competition authorities in the United States and Europe had already secured significant fines against certain implicated organizations. Since the conduct under investigation took place before the implementation of the March 2010 amendments to the Act, the old criminal conspiracy provision applied. Under that law, the prosecutor has to demonstrate significant anti-competitive effects, i.e., that the cartel prevented or lessened competition “unduly”. The Bureau was of the view that the evidence collected was insufficient to justify prosecution.
Bureau launches Whistleblowing Initiative
Commissioner Pecman announced in May 2013 the Criminal Cartel Whistleblowing Initiative. Under the program, anyone who has reasonable grounds to believe that a person has committed, or intends to commit, a criminal offence under the Act, may notify the Bureau of the particulars of the matter and may request that his or her identity be kept confidential. For more information, see the Bureau’s website: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02819.html. While described as an initiative, this program in essence confirms the Bureau’s existing policies and whistleblower provisions of the Act with respect to the thousands of complaints it receives each year in respect of its mandate to administer the Act.
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