Understanding the Canadian Federal Court’s dismissal of a $12 billion class action against Amazon

The Federal Court of Canada has refused to certify a CA$12 billion class action against Amazon (outlined by our previously published article). This decision provides new insight and guidance for plaintiffs on the pleadings requirements that they must meet when advancing proposed class actions under the conspiracy provisions (Sections 45 and 46) of the Competition Act.

Case background

The plaintiffs alleged that Amazon’s agreements with third parties who sold products on its platform breached Sections 45 and 46 of the Act. In particular, they took issue with Amazon’s Business Solutions Agreement (BSA) and its Fair Pricing Policy. From June 1, 2010 to March 2019, the BSA required third-party sellers to ensure that the prices of the products they sold on Amazon’s platform were at least as favourable as the selling prices of those same products on any other e-commerce website. Chief Justice Crampton analogised this to a most favoured nation clause. The Fair Pricing Policy allegedly allowed Amazon to penalise third-party sellers where they had engaged in harmful pricing practices, including pricing a product significantly higher than recent prices offered on or off Amazon.

The plaintiffs pled that the BSA and the Fair Pricing Policy effectively set a floor price for the products that third-party sellers sold on both Amazon and other websites. In particular, the plaintiffs argued that the agreements allowed Amazon to ensure that “the prices of products sold by third-party sellers on its platform and on competing e-commerce websites never drop below a particular level, namely, the sellers’ marginal cost, plus Amazon’s fees”.

Decision

The Federal Court dismissed the motion. Chief Justice Crampton found that the plaintiffs failed to disclose a cause of action, such that they had no reasonable prospect of success for two reasons. First, the plaintiffs did not plead sufficient material facts with respect to all of the constituent elements of Section 45. Second, neither the BSA nor the Fair Pricing Policy fall within the narrow scope of Section 45.

Section 46, which criminalises certain foreign directives, prohibits conduct that “if entered into in Canada, would have been in contravention of Section 45”. This was derivative of the Section 45 claims, and thus the plaintiffs’ Section 46 claims failed for the same reasons.

Insufficient material facts to support conspiracy claims under Section 45

There are three constituent elements of a conspiracy under Section 45 of the Act: a conspiracy, agreement or arrangement, with a competitor, to form the conspiracy or agreement with respect to specific subjects prescribed in Section 45. Namely:

• to fix, maintain, increase or control the price for the supply of a product;
• to allocate sales, territories, customers or markets for the production or supply of a product; or
• to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product).

The plaintiffs’ pleadings only disclosed sufficient material facts with respect to the first two elements. The court found that the plaintiffs pled sufficient materials to support their allegation that Amazon entered into an agreement with each third-party seller. However, Chief Justice Crampton found that no material facts supported an alleged agreement between the third-party sellers, making the pleadings insufficient to establish the wheel of a hub-and-spoke conspiracy.

The court was satisfied that Amazon was an actual competitor of some third-party sellers, where it supplied products that certain third-party sellers also supplied. Despite this, the plaintiffs made bald, unsupported allegations that Amazon and third-party sellers agreed to carry out activities prohibited under Section 45.

However, the plaintiffs then failed to provide the material facts required to demonstrate that Amazon and third-party sellers agreed to engage in the type of conduct sanctioned by Section 45. The court noted that the plaintiffs did not plead any particulars with respect to the price or range of prices that Amazon and third-party sellers allegedly agreed to fix, maintain or increase. Further, the pleadings had insufficient material facts to support a finding that the parties had the requisite intent to form the kind of agreement described in Section 45, but merely made assertions to this effect.

In light of this, the Federal Court of Canada concluded that the plaintiffs’ claims did not have a reasonable prospect of success.

Amazon’s Business Solutions Agreement and Fair Pricing Policy under Section 45

In light of the jurisprudence surrounding Section 45, as well as the broader scheme and purposes of the Act, the court confirmed that Section 45 is narrow in scope, applying only to agreements that have specific content. Such agreements are known as ‘hard-core’ or ‘naked’ cartel agreements (Difiderico v Amazon.com Inc, paragraphs 100 and 108).

Whether or not the BSA and Fair Pricing Policy might have indirectly set a price floor for Amazon products sold on non-Amazon websites was irrelevant to the question before the court. Instead, Chief Justice Crampton focused on the objects and purposes of the BSA and the Fair Pricing Policy. In particular, the court examined whether either agreement controlled the price of the relevant products sold on the Amazon platform.

The court made two principal conclusions with respect to this purpose. First, the actus reus of Section 45 requires an agreement to be made with a particular type of content. Both the BSA and Fair Pricing Policy were agreements to ensure low prices on Amazon’s platform, not agreements with respect to the prices charged elsewhere. As a result, the “actus reus was explicitly directed towards favouring customers who purchased Amazon products on Amazon’s platform” (Difiderico v Amazon.com Inc, paragraph 140). This made it plain that these were not the sort of unambiguously anti-competitive agreements intended to be captured by Section 45(1)(a).

Second, among other requirements, the mens rea for conspiracy includes an objective element that was not met here. Namely, conspiracy liability requires a reasonable business person who is familiar with the relevant business to conclude that the impugned agreement has, as its object, one of the prohibited types of conduct prescribed in Section 45. The court found that, from a plain reading of the BSA or Fair Pricing Policy, no such conclusion could follow.

As a result, the court held that, even if all the pleadings were taken to be true, they did not disclose a reasonable cause of action. The agreements in question did not amount to the ‘hard-core’ or ‘naked’ cartel agreements targeted by Section 45.

Key takeaways

• The court’s decision confirmed that Section 45 is concerned with the objects of the impugned agreement, rather than with its effects. An agreement that does not have one of the topics described in Section 45 as its object will not be criminalised just because it may have an adverse impact on prices. 
• On a certification motion, plaintiffs must plead sufficient material facts with respect to all of the constituent elements of Section 45. Bald assertions that simply track the language of the allegedly breached legislative provisions will not assist plaintiffs in filling the gaps in their theory of the case. 
• The decision reiterates that the application of Section 45 is confined to unambiguously harmful types of agreements between competitors. This kind of conduct must fulfill both the actus reus and the requisite objective mens rea requirement for conspiracy. Any agreements that fall short of this high bar should instead be reviewed under the civil regime established in Section 90.1 of the Competition Act.