Antimonopoly & Unilateral Conduct

Last verified on Tuesday 17th May 2016

Canada

Davit Akman, Ian Macdonald and François Baril
Gowling Lafleur Henderson LLP

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?

  2. The federal Competition Act (CA) is the principal competition law statute in Canada. The CA is administered and enforced by the Competition Bureau (Bureau), an independent government agency headed by the Commissioner of Competition (Commissioner).

    While there are other federal and provincial statutes aimed at preventing anti-competitive practices in Canada, the legal framework governing unilateral conduct by companies with market power is set out in Part VIII of the CA, as well as in case law and administrative enforcement guidelines in respect of certain of those provisions.

    The substantive provisions of the CA addressing unilateral conduct are found in Part VIII of the CA, titled ‘Matters Reviewable by Tribunal’, which consists of competitive practices that may be prohibited only where a competitive-effects based test is met. The CA also includes criminal offences in Part VI (titled ‘Offences in Relation to Competition’). Conspiracy (section 45), bid-rigging (section 47) and false or misleading representations (section 52) are per se criminal offences under Part VI.

    The unilateral conduct provisions in Part VIII include a general abuse of dominance provision in section 79, and a non-exhaustive list of anti-competitive acts for the purposes of that provision in section 78. Part VIII also includes several provisions addressing specific types of unilateral conduct, namely, refusals to deal (section 75), price maintenance (section 76), and exclusive dealing, tied selling and market restrictions (section 77) (collectively, Unilateral Conduct Provisions). When unilateral conduct by companies with market power is challenged, it can be, and occasionally is, challenged under the general abuse of dominance provision as well as under one of the specific provisions.

    There is little competition law jurisprudence in Canada dealing with the Unilateral Conduct Provisions. Only ten contested cases involving those provisions have been litigated to decision – six abuse of dominance cases, two cases under the exclusive dealing provision (both of which were also brought under the abuse of dominance provision), one tied selling case, and a single case under the price maintenance provision (which was enacted in 2009 following the repeal of the former criminal offence for resale price maintenance).

    The Bureau has issued administrative enforcement guidelines on the abuse of dominance provision, and separate enforcement guidelines on the price maintenance provision. See the Bureau’s Enforcement Guidelines on the Abuse of Dominance Provisions (Abuse Guidelines) and its Price Maintenance Enforcement Guidelines. The guidelines explain the Bureau’s general enforcement approach to these provisions. Despite the fact that they do not carry the force of law, the absence of a well-developed body of jurisprudence has magnified the importance of such administrative guidance for parties seeking to assess the competition law risk associated with certain kinds of unilateral conduct. The Bureau’s Merger Enforcement Guidelines and position statements issued by the Bureau explaining decisions not to challenge certain mergers may also provide guidance regarding the Bureau’s approach to assessing market power.

  3. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?

  4. The Bureau has the power to investigate alleged abuses of market power and to initiate proceedings under the Unilateral Conduct Provisions by way of applications by the Commissioner to the Competition Tribunal (Tribunal). The Tribunal is a specialised quasi-judicial body with exclusive jurisdiction to grant relief in respect of the Unilateral Conduct Provisions and other reviewable matters in Part VIII of the CA.

    Under the CA, private applications are available, with leave of the Tribunal, in respect of refusals to deal, price maintenance, exclusive dealing, tied selling and market restrictions (but not in respect of the abuse of dominance provision).

    Monopoly power

  5. 3.

    What role does market definition play in market power assessment?

  6. Market definition is a critical step in assessing market power, as a finding of market power may turn on whether the relevant market is defined narrowly or broadly. It is important to note, however, that market definition is not an end in itself and that it may defy precision in some cases. The goal of market definition is to conceptualise substitutability as accurately as possible. 

  7. 4.

    What is the approach to market definition?

  8. The market is defined from two perspectives: the product dimension and the geographic dimension.

    The product market is generally defined by some combination of the following factors: views, strategies, behaviours and identity of buyers as to substitutability; end-use and physical characteristics as to functional interchangeability; switching costs; and price relationships and relative price levels.

    The geographic market is generally defined by some combination of the following factors: views, strategies, behaviours and identity of buyers; switching costs; transportation costs and shipment patterns; and foreign competition as influenced by factors such as tariffs, quotas, regulatory requirements, and exchange rate fluctuations.

  9. 5.

    How is market power or monopoly power defined?

  10. The ability to profitably maintain prices above the competitive level, or other elements of competition such as quality, choice, service, or innovation, below the competitive level, for a significant period of time.

  11. 6.

    What is the test for finding of monopoly power?

  12. See the answers to questions 7 and 8. 

  13. 7.

    Is this test set out in statute or case law?

  14. Both. The statutory test is set out in the abuse of dominance provision in section 79(1)(a) of the CA, namely ‘one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business.’ This prong of the abuse of dominance provision has been interpreted as being synonymous with market power. See also the answer to question 8.

  15. 8.

    What role do market shares play in the assessment of monopoly power?

  16. Very important but not necessarily determinative. Both the Tribunal, in its decisions, and the Bureau, in its Abuse Guidelines, have commented on the role of market share.

    In Canada (Director of Investigation & Research) v Laidlaw Waste Systems Ltd (1992), 40 CPR (3d) 289 (Comp Trib), the Tribunal held that ‘[a] prima facie determination as to whether a firm is likely to have market power can be made by considering the share of the relevant market held by that firm. If that share is very large, the firm will likely have market power. But other considerations must also be taken into account including: how many competitors there are in the relevant market and their respective shares; how much excess capacity the firms in the market have; how easily a new firm can establish itself as a new competitor.’ The Tribunal further held that if a respondent has a market share ‘below 50% [...] no prima facie finding of dominance would arise.’

    In Canada (Director of Investigation and Research) v Tele-Direct (Publications) Inc (1997) CPR (3d) 1 (Comp Trib), the Tribunal held that it would require evidence of ‘extenuating circumstances, in general, ease of entry’ to overcome a prima facie determination of control based on market shares of 80 per cent or higher.

    In a case brought under the price maintenance provision in section 76 of the CA, relating to various fees Visa and MasterCard impose on merchants, the Tribunal noted that while market shares under 35 per cent ‘do not normally raise unilateral market power concerns, this does not mean that they can never do so.’ Visa controlled approximately two-thirds of the relevant market, with MasterCard controlling the majority of the balance. Considering ‘MasterCard’s pricing discretion, its margins and the very high barriers to entry’, the Tribunal found that MasterCard (and also Visa) had market power. Commissioner of Competition v Visa Canada Corporation and MasterCard International Incorporated et al, 2013 Comp. Trib 10 (Comp Trib) (Visa/MasterCard).

    In its Abuse Guidelines, the Bureau explains that: a market share below 35 per cent will generally not prompt further examination; a market share between 35 and 50 per cent will generally prompt further examination only if it appears that the business is likely to increase its market share through the alleged anti-competitive conduct within a reasonable time; a market share above 50 per cent will generally prompt further examination, and; in a case of alleged joint abuse of dominance (see the answer to question 20), a combined market share of 65 per cent or more will generally prompt further examination by the Bureau.

    It is worth noting that all decided cases under the abuse of dominance provision to date have involved respondents that controlled more than 80 per cent of the relevant market.

  17. 9.

    Are there defined market share thresholds for a presumption of monopoly power?

  18. See the answer to question 8.

  19. 10.

    How easily are presumptions rebutted?

  20. See the answers to questions 8 and 13 to 18. 

  21. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?

  22. No. As noted above, in the answer to question 8, in the six decided abuse of dominance cases, all respondents each controlled more than 80 per cent of the relevant market. 

  23. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?

  24. See the answer to question 8.

  25. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?

  26. Critical. As noted in the cases referred to in the answer to question 8, the absence of barriers to entry can negate a finding of market power, even if the respondent has a very high market share. In addition, the Bureau explains in its Abuse Guidelines that ‘[a] firm’s attempt to exercise market power may be thwarted by expansion or entry of existing and/or potential competitors on a sufficient scale and scope if expansion and/or entry are expected to be profitable [...] to make the exercise of market power unsustainable.’

  27. 14.

    Can the lack of entry barriers negate a finding of monopoly power?

  28. Yes. See the answer to question 13.

  29. 15.

    What kind of barriers to entry are typically considered in the analysis?

  30. Sunk costs, regulatory barriers, economies of scale and scope, market maturity, network effects, access to scarce or non-duplicate inputs and existing long-term contracts. 

  31. 16.

    Can countervailing buyer power negate a finding of monopoly power?

  32. Yes. While this area has not been considered extensively in the case law, the Bureau explains in its Abuse Guidelines that if a customer has the ability and incentive to constrain a business’s attempt to exercise market power by vertically integrating its own operations, refusing to buy other products or in other geographic markets from the business, or encouraging expansion or entry of existing potential competitors, this may negate a finding of market power. 

  33. 17.

    What if consumers can easily switch between suppliers?

  34. This can also negate a finding of market power. See Canada (Commissioner of Competition) v Canada Pipe Co, 2006 FCA 233 (Canada Pipe), rev’g 2005 Comp Trib 3. 

  35. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?

  36. Yes. The Bureau has indicated in the Abuse Guidelines that ‘[e]vidence of a rapid pace of technological change and the prospect of firms being able to ‘innovate around’ or ‘leapfrog’ an apparently entrenched position of an incumbent firm could be an important consideration, along with change and innovation in relation to distribution, service, sales, marketing, packaging buyer tastes, purchase patterns, firm structure and the regulatory environment.’

  37. 19.

    Are any entities or sectors exempt from the antimonopoly regime?

  38. The CA does not explicitly exempt any specific entities or sectors from the unilateral conduct provisions. However, Canadian law recognises a regulated conduct defence (RCD) that provides a form of immunity to parties engaged in conduct that is authorised or required by other valid legislation. This is important because certain sectors of the Canadian economy are highly regulated (eg, agricultural marketing boards, and aspects of the telecommunications and electricity sectors).

    RCD case law is extremely limited in relation to the civilly reviewable provisions of the CA, including the Unilateral Conduct Provisions. Some guidance comes from a case involving lawyers and insurance services (Law Society of Upper Canada v Canada (1996), 67 CPR (3d) 48 (Ont Gen Div). In that case, a provincial regulation authorised a mandatory insurance scheme for lawyers and the Court concluded that it displaced the potential application of the CA’s general abuse of dominance provision. Due to the lack of case law, the Bureau has issued guidance stating that ‘absent further judicial guidance, the Bureau cannot responsibly limit its mandate by the general application of the RCD to the reviewable matters provisions of the Act’ and that ‘until RCD caselaw is further developed in respect of the reviewable matters provisions of the [CA], the Bureau will consider RCD caselaw in its examination of reviewable matters but will not consider RCD caselaw to be dispositive of such matters.’ (Competition Bureau, Bulletin on Regulated Conduct, September 2010). 

  39. 20.

    Can companies be deemed to hold collective monopoly power?

  40. Yes. Both the general abuse of dominance provision and the Abuse Guidelines address ‘joint dominance’. There have been three joint abuse of dominance cases, all of which were resolved by consent agreement. In the most recent of those cases, Canada (Commissioner of Competition) v Canadian Waste Services Holdings Inc (16 June 2009), CT-2009-003, the Bureau took the position that joint dominance existed even in the absence of any explicit agreement, coordination or other arrangement between the parties. However, as set out in the Abuse Guidelines, similar or parallel conduct by firms, by itself, is insufficient to establish joint dominance. 

  41. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?

  42. Yes. See the answer to question 20. 

  43. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?

  44. Yes. See the Bureau’s Abuse Guidelines, as well as the Bureau’s Merger Enforcement Guidelines.

    Abuse of monopoly power

  45. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?

  46. Sections 78 and 79 of the CA together set out the general prohibition against abusive conduct. Generally speaking, there are three constituent elements to a finding of abusive conduct: (i) a dominant position; (ii) a practice of anti-competitive acts that targets competitors; and (iii) a substantial lessening or prevention of competition.

    Section 79 provides that an abuse of dominance occurs where one or more persons substantially or completely control a market (dominance) and engages in a practice of anti-competitive acts, with the effect of preventing or lessening competition substantially in a market. A ‘practice’ normally involves more than a single isolated act, although a single act could fulfil that statutory requirement if it is sustained and has wide systemic effect across the market. The Federal Court of Appeal (Canada (Commissioner of Competition) v Canada Pipe Co, 2006 FCA 233) has stated that with the exception of buying up product to prevent the erosion of existing price levels, the hallmark of an anti-competitive act is its intended purpose to have negative effect on a competitor that is predatory, exclusionary or disciplinary. Recently, the Court has clarified that the target of an allegedly dominant firm’s anti-competitive competitor need not be that firm’s own competitor and that an order can be made under the abuse provision against a person who controls a market otherwise than as a competitor if that person has committed an anti-competitive act against a competitor in that market (The Commissioner of Competition v The Toronto Real Estate Board, 2014 FCA 29).

    Section 78 provides a non exhaustive list of anti-competitive acts for the purposes of section 79; namely:

    (a) margin squeezing, by a vertically integrated supplier;

    (b) vertical integration through acquisition of a customer or a supplier the purpose of excluding a competitor from a market;

    (c) freight equalisation on the plant of a competitor;

    (d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;

    (e) pre-emption of scarce facilities or resources;

    (f) buying up of products to prevent the erosion of existing price levels;

    (g) adoption of product specifications that are incompatible with products produced by any other person and are designed to exclude competitors; 

    (h) requiring or inducing a supplier to agree to exclusivity with the object of preventing a competitor’s entry into, or expansion in, a market; and

    (i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.

    Section 79(5) of the CA removes from the definition of anti-competitive act (and immunises from review under section 79 and under the other general provisions of the CA, including those in Parts VI and VIII) any conduct that constitutes the mere exercise of a right under a federal intellectual property statute, such as the Patent Act or the Trade-marks Act. It has been held (see Director of Investigation and Research v Tele-Direct (Publications) Inc and Tele-Direct (Services) Inc (1997), 73 CPR (3d) 1 (Comp Trib)), that an alleged exclusionary effect or exclusionary intent on the part of an intellectual property (IP) rights owner is insufficient to transform the mere exercise of a statutory right under one of the federal IP statutes into something more, thereby depriving the IP owner of the protection of section 79(5).

  47. 24.

    What are the general conditions for finding an abuse?

  48. See the answer to question 23.

  49. 25.

    Is there a list of categories of abusive or anti-competitive conduct in the applicable legislation?

  50. See the answer to question 23.

    As noted in the answer to question 1, the CA also contains specific provisions dealing with refusals to deal, price maintenance, exclusive dealing, tied selling and market restrictions.

  51. 26.

    Is this list open or closed?

  52. The list is open ended. Section 78 is explicit that its list of anticompetitive acts is non-exhaustive. The Tribunal has often held that conduct that falls outside of the defined acts in section 78 constitutes an anticompetitive act. For example, the Tribunal has found spurious litigation against customers seeking early termination of supply agreements or spurious litigation against competitors to be anticompetitive acts. The acquisition of competitors could also be deemed to be an anticompetitive act, although such a scenario would more likely be dealt with pursuant to the merger control provisions of the CA, rather than through the abuse of dominance provision.

  53. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?

  54. Yes. In 2012, the Bureau published its Abuse Guidelines which directly address what constitutes abusive conduct. Additionally, the Bureau has published: (i) Price Maintenance Enforcement Guidelines (2014) which set out its enforcement approach to this particular practice which could be the basis for an abuse of dominance claim; (ii) a Bulletin on Regulated Conduct (2010) that provides guidance on areas of commerce which may be immune from the application of the CA (see the answer to question 19); (iii) Merger Enforcement Guidelines (2011) wherein the Bureau set out its views on the assessment of market power for the purpose of merger review. Insofar as the test for merger review and for abuse of dominance share certain common elements (eg, both require a showing that competition has been, is being or is likely to be substantially prevented or lessened in a market), the Bureau’s approach in merger review can be informative in the context of abuse of dominance issues; and (iv) Predatory Pricing Enforcement Guidelines (2008) wherein it set out its view on predatory pricing under the general provision prohibiting abuse of dominance. See the answer to question 40.

  55. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?

  56. No. Effects must be proved in respect of each of the Unilateral Conduct Provisions. See the answer to question 29.

  57. 29.

    To the extent that anti-competitive effects need to be shown what is the standard to demonstrate these effects?

  58. Under the abuse provision in section 79, the Commissioner has the burden of establishing, on a balance of probabilities, that the challenged practice of anti-competitive acts has had, is having, or is likely to have the effect of preventing or lessening competition substantially in a market. In its Abuse Guidelines, the Bureau states that ‘[d]emonstrating a substantial lessening or prevention of competition does not entail an assessment of whether the absolute level of competition in a market is substantial or sufficient, but rather a relative assessment of the level of competitiveness in the presence and absence of the impugned practice. In carrying out this assessment, the Bureau’s general approach is to ask whether, but for the practice in question, there would likely be substantially greater competition in the market in the past, present, or future.’

    For refusals to deal and price maintenance, the Commissioner must show an adverse effect on competition from the impugned conduct, while for exclusive dealing, tied selling and market restrictions, the Commissioner is required to prove a substantial lessening of competition. 

  59. 30.

    Does the abusive conduct need to harm consumers?

  60. No. Actual harm to consumers need not be demonstrated. Rather, harm to competitors or an intention to harm, discipline or exclude competitors are the hallmarks of abusive practices under section 79. See the answer to question 23. However, a concern for harm to consumers is reflected in the requirement that, in order to be found to be abusive, the anti-competitive conduct in issue must be shown to have had, be having, or be likely to have the effect of preventing or lessening competition substantially in a market. 

  61. 31.

    What defences are there to allegations of abuses of monopoly power?

  62. Abuse of dominance allegations may be defended on the basis that the defendant is not dominant, that is, it does not substantially or completely control a class or species of business. Market definition is at the core of such a defence.

    A defendant may also argue that the impugned practice(s) is not having and is not likely to have the effect of preventing or substantially lessening competition in a market.

    A defendant may also argue that the purpose of the impugned practice was not to harm, exclude or otherwise discipline a competitor but rather was in furtherance of a legitimate business objective (eg, price matching, product integrity, recouping sunk costs or preventing free riding).

    Section 79(4) of the CA also provides that the lessening of competition that occurs simply as a result of a dominant firm’s superior competitive performance is not abusive. See the answer to question 23 regarding the statutory exception in section 79(5). 

  63. 32.

    Can abusive conduct be objectively justified?

  64. Yes. The Tribunal in Canada Pipe found that certain conduct that might otherwise be deemed anticompetitive can be justified on the basis of a ‘credible efficiency or pro-competitive rationale’ which ‘relates to an counterbalances the anti-competitive effects’. The availability of such business justification is acknowledged in the Bureau’s Abuse Guidelines. 

  65. 33.

    What objective justifications have been successful?

  66. The following have been recognised as valid justifications: meeting a competitor’s price, reducing the firm’s cost of production or operation, improving technology resulting in improved products or services, preventing free riding and preserving brand integrity.

  67. 34.

    How is the burden of proof distributed in an abuse analysis?

  68. The Commissioner has the burden of proving each of the constituent elements for an abuse of dominant position. See the answer to question 23. Once those elements have been established, the onus would shift to the respondent to advance any reasonable business justifications for the otherwise anti-competitive conduct.

  69. 35.

    What are the legal conditions to establish an abusive tie?

  70. In addition to the general prohibition against abuse of dominance, Part VIII of the CA includes civil reviewable provisions that specifically address tied selling.

    Section 77(2) of the CA defines tied selling as:

    (a) any practice whereby a supplier of a product, as a condition of supplying the product (the ‘tying’ product) to a customer, requires that customer to

       (i) acquire any other product from the supplier or the supplier’s nominee, or

       (ii) refrain from using or distributing, in conjunction with the tying product, another product that is not of a brand or manufacture designated by the supplier or the nominee, and

    (b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii) by offering to supply the tying product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out in either of those subparagraphs.

    Pursuant to that provision, the Tribunal may prohibit or curtail tied selling, where it finds that the practice, because it is engaged in by a major supplier, or because it is widespread in a market, is likely to:

    (a) impede entry into or expansion of a firm in a market,

    (b) impede introduction of a product into or expansion of sales of a product in a market, or

    (c) have any other exclusionary effect in a market,

    with the result that competition is or is likely to be lessened substantially.

    Of note, as with most provisions of the CA, these restrictions do not apply as between affiliates. In addition, the provisions would not apply where the products are being sold together solely because of technical compatibility or performance optimisation. A specific exception also applies to financial lenders who may legitimately tie certain other financial services to the loan in order to properly secure it.

    The Commissioner may initiate proceedings against a dominant firm engaged in tied selling on the basis of the specific section dealing with tied selling or under the general prohibition against abuse of dominance, or both. 

  71. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?

  72. Section 75 of the CA specifically addresses refusals to deal. Under that provision, the Tribunal must find that:

    (a) a person is substantially affected in his business or is precluded from carrying on business due to his inability to obtain adequate supplies of a product anywhere in a market on usual trade terms;

    (b) the person is unable to obtain adequate supplies of the product because of insufficient competition among suppliers of the product in the market;

    (c) the person is willing and able to meet the usual trade terms of the supplier or suppliers of the product;

    (d) the product is in ample supply; and

    (e) the refusal to deal is having or is likely to have an adverse effect on competition in a market.

    Decisions from the Tribunal establish that a refusal to license cannot constitute a refusal to deal under section 75 or an anti-competitive act for the purpose of the abuse of dominance provision in section 79.

    The Commissioner or Applicant (see the answer to question 56) has the onus of establishing each of the elements of section 75. 

  73. 37.

    Do these abuses require an essential facility?

  74. The CA does not specifically refer to the concept of essential facility and there is no developed body of cases that establish a Canadian essential facilities doctrine. The CA places emphasis on the effect of a denial of service rather than on a definition or characterisation of ‘essential’. 

  75. 38.

    What is the test for an essential facility?

  76. See the answer to question 37. 

  77. 39.

    What is the test for exclusivity arrangements?

  78. The CA defines ‘exclusive dealing’ in section 77 as follows:

    (a) any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to

       (i) deal only or primarily in products supplied by or designated by the supplier or the supplier’s nominee, or

       (ii) refrain from dealing in a specified class or kind of product except as supplied by the supplier or the nominee, and

    (b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii) by offering to supply the product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out in either of those subparagraphs.

    Exclusivity arrangements will only be prohibited or curtailed where:

    • a major supplier is engaged in the practice;
    • the practice is widespread; and
    • the practice is likely to:
      • impede entry into or expansion of a firm in the market;
      • impede introduction of a product or expansion of sales; or
      • have any other exclusionary effect,

    with the result that competition is or is likely to be substantially lessened. 

  79. 40.

    What is the test for predatory pricing?

  80. Prior to amendments to the CA in March 2009, predatory pricing was a per se criminal offence. As a result of the 2009 amendments, predatory pricing may now only be addressed under the civil abuse of dominance provision.

    The Bureau’s Abuse Guidelines describe predatory conduct as: ‘deliberately setting the price of a product below an appropriate measure of costs to incur losses in the relevant market for a period of time sufficient to eliminate, discipline or deter entry or expansion of a competitor, in the expectation that the firm will thereafter recoup its losses by charging higher prices than would have prevailed in the absence of the impugned conduct.’

    The Abuse Guidelines also state that ‘average avoidable costs’ will be used as the appropriate measure of costs against which the Bureau will assess the reasonableness of price levels during the relevant period. Recognising the challenges associated with calculating ‘average avoidable costs’ and applying a price-cost test, the Abuse Guidelines state that the Bureau will apply various ‘screens’ before undertaking an avoidable cost analysis, including ‘whether the alleged predatory price can be matched by competitors without incurring losses (suggesting that discipline or exclusion, and subsequent recoupment, is unlikely to occur), as well as whether the alleged predatory price is in fact merely ‘meeting competition’ by reacting to match a competitor’s price.’

    In 2008, prior to the repeal of the criminal predatory pricing provision, the Bureau published Predatory Pricing Enforcement Guidelines which remain informative. Those guidelines set out the Bureau’s approach to assessing predatory pricing under the abuse of dominance provision and confirm that the Bureau views the ability to recoup losses as a necessary element of predatory pricing. The guidelines also acknowledge that a reasonable business justification for selling below costs such as, inter alia, price matching to meet competition or the selling off of perishable items to avoid spoilage will provide a defence to allegations of predation.

    As with the anticompetitive acts expressly listed at section 78, more than a single incident or occurrence of below cost pricing is typically required.

  81. 41.

    What is the test for a margin squeeze?

  82. Margin squeezing is specifically identified in the non exhaustive list of anticompetitive acts in section 78 of the CA. The practice is defined as ‘squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer’s entry into, or expansion in, a market’.

    As with all other acts listed at section 78 more than a single incident or occurrence is typically required. The squeezing can occur through the high prices to the independent distributors or through low prices to the affiliated distributors which leads to lower retail prices for the integrated/affiliated entity. The Commissioner has the burden of proving that this has had or is likely to prevent or substantially lessen competition in the market.

  83. 42.

    What is the test for exclusionary discounts?

  84. Discounts or rebates which in their totality bring the sale price bellow an appropriate measure of costs (ie, average avoidable costs) could be found to amount to predatory conduct under the general prohibition against abuse of dominance. See the answer to question 40. 

  85. 43.

    Are exploitative abuses also considered and what is the test for these abuses?

  86. Exploitative abuses are not specifically contemplated under the CA. In its Abuse Guidelines, the Bureau has indicated that ‘charging higher prices to customers or offering lower levels of service than would otherwise be expected in a more competitive market, will not alone constitute an abuse of dominance’. However, such practices are often strong indicators of market power and may be used as indirect evidence of market power and/or dominance. 

  87. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?

  88. Prior to 2009, unjustified price discrimination amongst competitors purchasing the same volume and quality of products was a per se criminal offence under the CA. Like predatory pricing, price discrimination may now only be addressed under the general abuse of dominance provision. However, in contrast to predatory pricing which may by itself constitute an anti-competitive act, price discrimination will not constitute an anti-competitive act unless the discriminatory discounts or price concessions are being granted to facilitate or make some other anti-competitive act (more) effective. For example, in seeking to foreclose access by a rival to key resellers, a supplier may engage in price discrimination in order to make exclusive dealing arrangements with those resellers more palatable and therefore more effective. 

  89. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?

  90. No. In addition to the general prohibition against abuse of dominant position which specifically requires substantial or complete control of a ‘class or species of business’, the CA also has provisions that deal with specific types of unilateral conduct; namely, refusals to deal, price maintenance, and tied selling, exclusive dealing and market restrictions.

    These provisions targeting specific unilateral conduct do not have a requirement that the company whose conduct is in issue substantially or completely control a class or species of business; in other words, that they be dominant or have monopoly power. However, each does require that the conduct in issue have an adverse effect on competition or substantially lessen competition which is only likely to arise if the company engaging in the practice has significant market power (or the conduct in issue is widespread in the market). Although a non-dominant company could in theory face sanctions for unilateral conduct under these specific provisions, in practice, only companies with significant market power are likely to be subject to additional scrutiny and potential limitations. 

  91. 46.

    Must the monopoly power exist in the same market where the effects of the anti-competitive conduct are felt?

  92. There is debate on this issue. The CA does not specify that the anti-competitive effect of a practice of anti-competitive acts must be felt in the same market that is controlled by the dominant firm. However, the Tribunal in Canada (Director of Investigation & Research v NutraSweet Co (1990), 32 CPR (3d) 1 (Comp Trib) does suggest that the impact of the anti-competitive practice should be assessed in terms of the market in which the company is dominant. 

    Sanctions and remedies

  93. 47.

    What sanctions can the competition authority impose or recommend?

  94. The Bureau cannot impose or recommend sanctions. The Commissioner may initiate proceedings under the Unilateral Conduct Provisions before the Tribunal, which may grant a remedy.

    Under the abuse of dominance provision in section 79, the Tribunal has the authority to grant an order prohibiting the dominant firm(s) from continuing to engage in the abusive conduct in issue or, where a prohibition order is not likely to restore competition in the affected market, may (either in addition or the in the alternative to a prohibition order) direct the dominant firm(s) to take any actions reasonably necessary to overcome the anti-competitive effects of the practice. In addition, the Tribunal may also impose an administrative monetary penalty (AMP) of up to C$10 million for an initial violation of the abuse of dominance provision and of up to C$15 million for a subsequent breach of that provision by the same company. The provisions allowing the Tribunal to order payment of an administrative monetary penalty are fairly new, having been added to the CA as part of amendments in March 2009.

    For refusals to deal under section 75, the Tribunal may order a supplier to accept the affected person as a customer on usual trade terms. For price maintenance (which is defined in section 76 as including a refusal to supply, or discriminating against, a person because of their low pricing policy), a prohibition order or an order requiring a supplier to accept the affected person on the usual trade terms maybe granted. Under the exclusive dealing, tied selling and market restriction provisions in section 77, the Tribunal may issue a prohibition order which includes ‘any other requirement that, in its opinion, is necessary to overcome the effects in the market or to restore or stimulate competition in the market’. AMPs are not available under sections 75, 76 or 77. 

  95. 48.

    How are fines calculated for abuses of monopoly power?

  96. Section 79(3.2) prescribes the aggravating and mitigating factors to be taken into account by the Tribunal in determining the amount of an AMP; specifically:

    • the effect on competition in the relevant market;
    • the gross revenue from sales affected by the practice;
    • any actual or anticipated profits affected by the practice;
    • the financial position of the person against whom the order is made;
    • the history of compliance with the CA by the person against whom the order is made; and
    • any other relevant factor. 
  97. 49.

    What is the highest fine imposed for an abuse of monopoly power?

  98. The highest AMP imposed for abuse of dominance was the result of a consent agreement between Reliance Comfort Limited Partnership and the Commissioner. The Commissioner alleged that Reliance had systematically adopted policies to increase switching costs for residential water heater customers. Reliance agreed to pay an AMP of C$5 million, in addition to C$500,000 in investigative costs to the Bureau. 

  99. 50.

    What is the average fine imposed over the past five years?

  100. There has been only one AMP imposed over the last five years. See the answer to question 49. 

  101. 51.

    Can the competition authority impose behavioural remedies?

  102. See the answer to question 47. The Tribunal may prohibit an abusive practice and make additional or alternative orders directing the dominant firm to take such actions as are necessary to overcome the anti-competitive effects of the impugned practice on the market.

  103. 52.

    Can it impose both negative and positive behavioural obligations?

  104. See the answers to questions 47 and 51.

  105. 53.

    Can the competition authority impose structural remedies?

  106. See the answer to question 47. Circumstances warranting, the Tribunal could compel a dominant firm to divest assets or shares. 

  107. 54.

    Can companies offer commitments or informal undertakings to settle concerns?

  108. Yes. However, depending on the circumstances of the case, the Bureau may insist that the parties enter into a formal consent order. A consent agreement must be based on terms that could have been the subject of an order by the Tribunal. Once registered with the Tribunal, a consent agreement has the force of an order of the Tribunal. 

  109. 55.

    What proportion of cases have been settled in the past five years?

  110. There have been only three litigated abuse of dominance cases in the last five years. Two have settled and one is ongoing. 

  111. 56.

    Have there been any successful actions by private claimants?

  112. No. Under the CA, private claimants have a statutory right of action for damages only for violations of the criminal provisions in Part IV and for breaches of orders made by the Tribunal. Private claimants do not have standing under the CA to sue for loss or damage resulting from a breach of the abuse of dominance provision or of any of the other Unilateral Conduct Provisions, unless conduct in issue also constitutes a breach of an order previously made by the Tribunal. An alleged breach of one of the Unilateral Conduct Provisions also cannot be the basis for a common law damages claim.

    As noted above, under the CA, private applications are available, with leave of the Tribunal, in respect of refusals to deal, price maintenance, exclusive dealing, tied selling and market restrictions (but not in respect of the abuse of dominance provision). However, no damages may be awarded by the Tribunal on a private application. 

    Appeals

  113. 57.

    Can a company appeal a finding of abuse?

  114. Yes. An order made by the Tribunal may be appealed to the Federal Court of Appeal as if it were a judgment of the Federal Court. However, if the appeal relates to a question of fact, the respondent must first obtain leave to appeal from the Federal Court of Appeal. 

  115. 58.

    Which fora have jurisdiction to hear challenges?

  116. See the answer to question 57. 

  117. 59.

    What are the grounds for challenge?

  118. There is no restriction on the grounds for which an appeal may be sought. But as noted in the answer to question 57, leave to appeal must be obtained where the appeal is on a question of fact. 

  119. 60.

    How likely are appeals to succeed?

  120. The standard of appellate review for decisions of the Tribunal is correctness on questions of law, and reasonableness on questions of fact and mixed fact and law. Regardless of the standard, the Federal Court of Appeal and Supreme Court of Canada (to which appeals from the decisions of the Federal Court of Appeal are taken with leave) have shown a repeated willingness to reverse decisions of the Tribunal. 

    Topical issues

  121. 61.

    Summarise the main abuse cases of the last year in your jurisdiction.

  122. No new abuse cases were filed in the last year.

    On 3 November 2014, Reliance Comfort Limited Partnership and the Commissioner entered into a consent agreement. The Commissioner had alleged that Reliance had implemented water heater return policies and procedures that prevented consumers from switching to competitors. Reliance agreed to pay an AMP of C$5 million, in addition to C$500,000 in investigative costs to the Bureau. Reliance also agreed to take certain steps to make it easier for consumers to terminate their rental agreements.

    On 27 March 2015, the Tribunal dismissed a motion by Direct Energy Marketing Limited (Direct Energy) for an order summarily dismissing a separate but related application alleging that Direct Energy had, like Reliance, adopted water heater return policies and procedures that prevented its customers from switching to competitors. Direct Energy had argued that, the case against it should be dismissed because it had exited the residential water heater market approximately two years after the Commissioner’s application was filed. The Tribunal rejected Direct Energy’s argument and concluded that firms which substantially lessened or prevented competition in the market for a number of years should not be allowed to avoid antitrust liability simply by selling their business to another firm. 

  123. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?

  124. The Bureau recently issued for public consultation a draft update (Draft Update) of its Intellectual Property Enforcement Guidelines (originally issued in September 2000) which focuses on how Canadian competition law could be applied by the Bureau in several areas, including those relating to conduct by owners of standard essential patents (SEPs) (ie, a patent that claims an invention that must be used in order to conform to a standard adopted by a standard setting organisation) and the activities of patent assertion entities (PAEs) (ie, companies whose business model is asserting patents although they do not manufacture or sell products or services related to such patents). Among other issues, the Draft Update addresses the potential application of the CA to representations made by PAEs in the context of asserting patents, as well as the circumstances in which the conduct of an owner of an SEP subject to a commitment to license on fair, reasonable and non-discriminatory (FRAND) terms may trigger liability under the abuse of dominance provision in section 79. 

  125. 63.

    Are there any sectors that the competition authority is keeping a close eye on?

  126. The Bureau has recently been scrutinising the grocery industry. In March 2015, the Bureau commenced an inquiry into certain pricing-related practices of Loblaws Companies Limited, Canada’s largest grocer.

    In May 2014, the Bureau discontinued its first investigation into so-called ‘product switching’ by innovator pharmaceutical companies (ie, when an innovator manufacture seeks to switch demand in a market from a drug (Product A) for which the underlying patent(s) will soon expire to a new or improved product (Product B) which enjoys ongoing patent protection), after the party being investigated agreed to resume supply of the older product. Senior Bureau officials have confirmed that pharmaceutical industry remains a priority sector. 

  127. 64.

    What future developments can we expect?

  128. In December 2014, the Canadian government introduced legislation (Bill C-49) which would have amended the CA to target ‘geographic price discrimination’. The proposed amendments followed the government’s announcement in last February’s budget that it would be introducing measures to prohibit ‘unjustified’ gaps between Canadian and American prices for the same consumer goods. The amendments would have authorised the Bureau to investigate, and name in a public report, international suppliers and retailers that sell products in Canada at higher prices than in the US where the price difference is ‘unjustified’. To assist the Bureau in this regard, the amendments also would have expanded the coercive investigative tools at the Bureau’s disposal, not only in respect of allegedly ‘unjustified’ geographic pricing differences but in respect of alleged contraventions of any of the substantive enforcement provisions of the CA. Bill C-49 was terminated when a federal election was called on 2 August 2015. It remains to be seen whether these or similar amendments to the CA will be re-introduced following the election on 19 October 2015.

    In May of 2011, the Commissioner commenced an application against the Toronto Real Estate Board (TREB) under the abuse of dominance provision seeking to prohibit what she alleged to be anti-competitive practices. TREB is a not-for-profit corporation and the largest real estate board in Canada. It owns and operates the Toronto Multiple Listing Service (MLS) system. The Commissioner asserted, among other things, that (i) TREB substantially or completely controlled the supply of real estate brokerage services in the market and had discriminated against its members by restricting their access to the services provided by the MLS and (ii) TREB’s control of MLS and MLS data was alleged to have been exercised in such a way that it was having an exclusionary and restrictive effect on real estate brokers’ access and use of the MLS. The Tribunal dismissed the application on the ground that section 79 could not apply to TREB because that provision requires that ‘the dominant firm must compete with the firm(s) harmed by the dominant firm's practice of anti-competitive acts’. On appeal, the Federal Court of Appeal disagreed and found that section 79 may apply to a person who controls a market otherwise than as a competitor if that person has committed an anti-competitive act against a competitor in that market. The Court of Appeal remanded the case back to the Tribunal. The re-hearing of the TREB case is scheduled to begin in late September 2015.

    Direct Energy has appealed the decision of the Tribunal rejecting its motion to dismiss (see the answer to question 62) to the Federal Court of Appeal. That appeal will likely be heard in the autumn.

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Questions

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?


  2. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?


  3. Monopoly power

  4. 3.

    What role does market definition play in market power assessment?


  5. 4.

    What is the approach to market definition?


  6. 5.

    How is market power or monopoly power defined?


  7. 6.

    What is the test for finding of monopoly power?


  8. 7.

    Is this test set out in statute or case law?


  9. 8.

    What role do market shares play in the assessment of monopoly power?


  10. 9.

    Are there defined market share thresholds for a presumption of monopoly power?


  11. 10.

    How easily are presumptions rebutted?


  12. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?


  13. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?


  14. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?


  15. 14.

    Can the lack of entry barriers negate a finding of monopoly power?


  16. 15.

    What kind of barriers to entry are typically considered in the analysis?


  17. 16.

    Can countervailing buyer power negate a finding of monopoly power?


  18. 17.

    What if consumers can easily switch between suppliers?


  19. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?


  20. 19.

    Are any entities or sectors exempt from the antimonopoly regime?


  21. 20.

    Can companies be deemed to hold collective monopoly power?


  22. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?


  23. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?


  24. Abuse of monopoly power

  25. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?


  26. 24.

    What are the general conditions for finding an abuse?


  27. 25.

    Is there a list of categories of abusive or anti-competitive conduct in the applicable legislation?


  28. 26.

    Is this list open or closed?


  29. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?


  30. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?


  31. 29.

    To the extent that anti-competitive effects need to be shown what is the standard to demonstrate these effects?


  32. 30.

    Does the abusive conduct need to harm consumers?


  33. 31.

    What defences are there to allegations of abuses of monopoly power?


  34. 32.

    Can abusive conduct be objectively justified?


  35. 33.

    What objective justifications have been successful?


  36. 34.

    How is the burden of proof distributed in an abuse analysis?


  37. 35.

    What are the legal conditions to establish an abusive tie?


  38. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?


  39. 37.

    Do these abuses require an essential facility?


  40. 38.

    What is the test for an essential facility?


  41. 39.

    What is the test for exclusivity arrangements?


  42. 40.

    What is the test for predatory pricing?


  43. 41.

    What is the test for a margin squeeze?


  44. 42.

    What is the test for exclusionary discounts?


  45. 43.

    Are exploitative abuses also considered and what is the test for these abuses?


  46. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?


  47. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?


  48. 46.

    Must the monopoly power exist in the same market where the effects of the anti-competitive conduct are felt?


  49. Sanctions and remedies

  50. 47.

    What sanctions can the competition authority impose or recommend?


  51. 48.

    How are fines calculated for abuses of monopoly power?


  52. 49.

    What is the highest fine imposed for an abuse of monopoly power?


  53. 50.

    What is the average fine imposed over the past five years?


  54. 51.

    Can the competition authority impose behavioural remedies?


  55. 52.

    Can it impose both negative and positive behavioural obligations?


  56. 53.

    Can the competition authority impose structural remedies?


  57. 54.

    Can companies offer commitments or informal undertakings to settle concerns?


  58. 55.

    What proportion of cases have been settled in the past five years?


  59. 56.

    Have there been any successful actions by private claimants?


  60. Appeals

  61. 57.

    Can a company appeal a finding of abuse?


  62. 58.

    Which fora have jurisdiction to hear challenges?


  63. 59.

    What are the grounds for challenge?


  64. 60.

    How likely are appeals to succeed?


  65. Topical issues

  66. 61.

    Summarise the main abuse cases of the last year in your jurisdiction.


  67. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?


  68. 63.

    Are there any sectors that the competition authority is keeping a close eye on?


  69. 64.

    What future developments can we expect?