I. THE ECONOMIC ANALYSIS OF COMPETITION LAW AND POLICY 4

A. KEY CONCEPTS 4B. GELHORN & KOVACIC, ANTI-TRUST ECONOMICS IN A NUTSHELL (1994). 4C. RICHARD POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE (1976). 6D. DUNLOP, MCQUEEN, & TREBILCOCK, CANADIAN COMPETITION POLICY (1987), AT CB. 34-45. 7

II. CRIMINAL CONSPIRACY 9

A. RELEVANT LEGISLATION (SECTIONS 45-45.1, 48, 49 COMPETITION ACT) 9B. GREEN, CANADIAN INDUSTRIAL ORGANIZATION AND POLICY (1990), CHAPTER 13: “CANADIAN POLICY: HORIZONTAL AND VERTICAL AGREEMENTS” (P.66 CSBK). 11C. JANDA & BELLEMARE, “CANADA’S PROHIBITION AGAINST ANTICOMPETITIVE COLLUSION: THE NEW RAPPROCHEMENT WITH U.S. LAW” (P.72 CSBK). 13D. WARNER & TREBILCOCK, “RETHINKING PRICE-FIXING LAW” (P.92 CSBK). 14E. R. V. NOVA SCOTIA PHARMACEUTICAL SOCIETY [1992] 2 S.C.R. 606 (S.C.C.) (P.121 CSBK). 15

1. An Agreement Entered into by the Accused 162. An ‘Undue’ Prevention or Lessening of Competition 163. The Structure of the Market 164. The Behaviour of the Parties 175. Mens Rea Element 17

F. R. V. NOVA SCOTIA PHARMACEUTICAL SOCIETY 1993 40 C.P.R. (3D) 289 (N.S.S.C.) (P.109 CSBK). 18G. R. V. CLARKE TRANSPORT CANADA INC. ET AL (1994) 64 C.P.R. (3D) 289 (ONT. CT. GEN. DIV.) (P.132 CSBK). 19

III. OTHER CRIMINAL CONDUCT 21

A. TYPES OF CONDUCT 211. Bid-rigging (S. 47) 212. Pricing practices (Ss. 50, 51, 61) 211. Discrimination against competitors of a purchaser – S. 50(1)(a) – 222. Geographic price discrimination – S. 50(1)(b) 233. “Deep pockets” predatory pricing – S. 50(1)(c) – Bristol Myers 244. Price maintenance (S. 61) 265. Less significant provisions: 27

B. K. KAY, “FUNDAMENTALS OF CRIMINAL ANTICOMPETITIVE CONDUCT” (CB 142) 28C. R.J. ROBERTS, “COMPETITION/ANTITRUST: CANADA AND THE U.S.” (CB 152) 28D. GREEN, “COLLUSIVE AND COMPETITIVE BEHAVIOUR IN CANADIAN INDUSTRY” (CB 165) 28E. R. V. LES MUST DE CARTIER CANADA (CB 175) 28F. REGINA V. SCHELEW (CB 181) 29G. REGINA V. SHELL CANADA PRODUCTS LTD. (CB 185) 29

IV. MERGERS AND ACQUISITIONS: THE LAW 30

A. PROVISIONS OF THE ACT, S. 91-97 30PROVISIONS OF THE ACT: NOTIFIABLE TRANSACTIONS: 30

1. Application 31B. NOTICE AND INFORMATION 32C. COMPLETION OF NOTIFIED TRANSACTIONS 32D. STEP BY STEP ANALYSIS OF MERGER REVIEW 33

1. Does the proposed transaction qualify as a merger within the meaning of s. 91? 332. Is the merger subject to pre-notification requirements under Part IX? 333. If the transaction is a joint venture does it fall within one of the exemptions listed in s. 112? 344. Does the transaction fall within on the exempted classes pursuant to the provision for general exemptions under s. 113: 34

E. MERGER REVIEW 35F. EFFICIENCY DEFENCE (S. 96) 41

1. There must be a gain in efficiency (production and dynamic) 422. The gain in efficiency must not merely constitute a redistribution of wealth 423. The gain in efficiency must be such as to not likely be obtained pursuant to an order that the Tribunal is empowered to make 424. The gain in efficiency is to be compared against any prevention of competition that will result or that is likely to result from the merger 425. The efficiency gain must be greater than and offset any prevention in competition that will result or is likely to result from the merger. 42

V. MERGERS AND ACQUISITIONS: THE APPLICATION OF THE LAW 43

A. SECTIONS 92, 99-107 43B. HILLSDOWN 44C. SOUTHAM: 45D. SUPERIOR PROPANE: GOOD FOR EFFICIENCY AND MARKET DEFINITION 45

VI. MERGERS AND ACQUISITIONS - THE INVESTMENT CANADA ACT 47

A. WHY THE INVESTMENT CANADA ACT MATTERS 47B. POWERS OF THE ACT 47C. NOTIFICATION (SECTION 11) 47D. REVIEWS (SECTION 14) 47E. REVIEWS TO THE MINISTER OF CANADIAN HERITAGE 47F. THRESHOLDS 48G. WTO INVESTORS 48H. “NET BENEFIT TO CANADA” 48I. UNDERTAKINGS 48J. TRADERS & FINANCIERS (SECTION 10) 48

VII. REVIEWABLE PRACTICES 49

A. SECTIONS 491. S. 77 – exclusive dealing, tied selling and market restriction 492. S. 77(2) – Special rules for ED and TS 493. S. 77(3) – Special rules for MR 504. S. 77(4) – exemptions 505. S. 78(1) – Catch-all Abuse of Dominance 50

B. ENFORCEMENT GUIDELINES ON ABUSE OF DOMINANCE: 501. 79(1)(a): 502. 1st step: What is market? 513. Throughout Canada or any area thereof – Geographic Market Definition 514. 2nd Step: Is there substantial control of market – i.e., market power? 525. 3rd Step: Was there (a) a practice of (b) an anti-competitive act? 526. 4th Step: Is there a SLC or PLC 53

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7. Economics of Anti-competitive Acts: 538. Remedies: 55

C. NUTRASWEET (1990) 55D. LAIDLAW (1992) 58E. D&B COMPANIES (“NIELSEN”) (1995) 59F. TELE-DIRECT (1997) – TS AND ABUSE OF DOMINANCE CASE 62

VIII. REVIEWABLE PRACTICES: DISTRIBUTION PRACTICES 66

A. THE COMPETITION ACT 66B. BLAKE ET AL. THE ECONOMICS OF VERTICAL RESTRAINTS. 67C. DIRECTOR OF INVESTIGATION V. BOMBARDIER LTD. (1980) 67D. BBM V. NIELSON (1981) 60 C.P.R. (2D) 26 68

1. Substantial control over a class or species of business (are they a dominant player?) 692. Anti-competitive acts 693. Had, is having, or is likely to substantially lessen or reduce competition. 69

E. DIRECTOR OF INVESTIGATION AND RESEARCH V. CHRYSLER CANADA LTD. TRIBUNAL, 1989. 70F. DIRECTOR OF INVESTIGATION AND RESEARCH V. XEROX CANADA, 1990 71G. REGULATED CONDUCT: STIKEMAN ELLIOT MEMORANDUM (2000) (OPTIONAL) 71H. ESSENTIAL FACILITIES DOCTRINE (SUBMISSION OF THE DIRECTOR OF INVESTIGATIONS AND RESEARCH TO THE CRTC), 1996.(OPTIONAL) 72

IX. COMPETITION LAW AND INTELLECTUAL PROPERTY 73

A. BODRUG, “INTELLECTUAL PROPERTY/ COMPETITION LAW INTERFACE IN CANADA,” 1998 (P. 565) 73B. IN RE INDEPENDENT SERVICES ORGANIZATIONS ANTITRUST LITIGATION, U.S. CT. OF APP. (FED.) (2000) (P. 568) 74C. GALLINI & TREBILCOCK, INTELLECTUAL PROPERTY RIGHTS AND COMPETITION POLICY: A FRAMEWORK FOR THE ANALYSIS OF ECONOMIC AND LEGAL ISSUES (SELECTED READING) (P. 571) 75D. COMPETITION BUREAU, INTELLECTUAL PROPERTY ENFORCEMENT GUIDELINES (2000) (P. 587) 77

Part 5: The Analytical Framework in the context of IP 79E. SELECTED HIGHLIGHTS FROM KURZON’S CLASS NOTES 80

1. No appropriate IP remedy 812. Impact on competition in a market that is different or significantly larger than the subject market. See 2 tests at p.591. Link with “essential facility” 813. If they issue remedy, will this negatively affect innovation? This is very discretionary. 81

X. PUBLIC AND PRIVATE ENFORCEMENT OF COMPETITION LAWS 82

A. THE COMPETITION ACT 821. Criminal Proceedings 822. Composition of the Tribunal 843. Private actions (see also legislation book at p.19) 854. Part VII – other offences (Ss. 64 – 73) 85

B. R.J. ROBERTS, ROBERTS ON COMPETITION/ANTITRUST: CANADA AND THE UNITED STATES (CB 598) 85C. Roach & Trebilcock, Private Enforcement of Competition Laws (CB 609) 86

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I. The Economic Analysis of Competition Law and Policy

A. Key Concepts

• Allocative efficiency-producing what it is that consumers want, as shown by their willingness to pay for it (Gellhorn, p.42)• Productive efficiency-producing at the lowest cost, thus using the fewest resources. (ibid).• Innovative efficiency- (mentioned in class) investing in research and development of newer products and superior production techniques.• Demand Curve- See Gellhorn piece.• Law of Diminishing Returns- That people are willing to pay less for each additional commodity purchased.• Perfect Competition- one where consumer preferences control the allocation of resources, and where the ideal outcome is allocative, productive and innovative efficiency.(Gellhorn, p.52)• Price Inelasticity-Changes in price don’t affect changes in sales/or “the proportional reduction in the quantity demanded as a result of the higher price is less than the proportional increase in price.” (Posner, p.10).

- Elastic: If you change price, quantity sold changes. If you have an elastic market, you can expect that price increases can be met with competition more easily.

- Inelastic: Quantity sold does not depend on price change. Concern over merger will be higher since it is easier to exercise market power.

• Cross-elasticity of demand-a measure of the degree of responsiveness of the demand for the demand of one good given change in the price of some other good. (Dictionary of Economics). “Cross-elasticity of demand between two products serves as a measure of the degree of substitutability between them.”• Monopoly model- See below.• Dead-weight welfare loss-The loss in value to consumers who at the competitive price would buy the product, but who at the monopoly price are deflected to “inferior” substitutes. It is deadweight because there is resources in the economy could be used more productively in the industry that restricts output than in the industry that makes inferior substitutes. Deadweight losses are inefficient by definition because but for the uncompetitive high price or the primary product, you would not be choosing the inferior substitute. Posner explains that this is not a loss on society (because the freed resources are after all spent in other markets) but rather a loss of value (allocative efficiency) (p.10 of his article).• Natural Monopoly- one in which it is always less costly for one firm to produce the desired goods or services than it is for two or more.• Principle of Substitution-• Marginal revenue-last unit of revenue/revenue earned from each additional unit sold• Marginal costs-last unit of cost (i.e. firms only produce to the extent that marginal revenue exceeds or equals marginal costs).• Price-taker-a seller who takes whatever price the market sets. The output of a price-taking seller is determined by its costs.• Structuralist Antitrust School- one whose chief tenet is that the structure of the industry determined its conduct and performance.• Chicago School Antitrust- An influential approach to economics that argued that larger profits and increased market concentration are the natural outcome of higher efficiencies, which is what healthy competition tends toward. It continues to exert great pressure on the interpretation of competition law.

B. Gelhorn & Kovacic, Anti-Trust Economics in a Nutshell (1994).

This article is a basic summary of the key economic theories that provide the rationale for competition laws.

Competition will cause manufacturers to satisfy consumer needs at lowest cost using fewest resources. This is the underlying belief of anti-trust theory.

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3 Efficiencies: Allocative, productive, innovation. The Demand Schedule (“demand curve”): A demand schedule is a statement of the different quantities of goods of services that would be purchased at different price levels. It is represented graphically on p.46. Two rules are said to govern the nature of the demand schedule. First, the more expensive a good, the lower the demand for it. Second, the less expensive the good, the higher the demand, subject to the law of diminishing marginal returns.

Profit Maximizing Behaviour of Firms: All firms aim to maximize profits. The rule is that the more competitive the market, the less significant are the departures from profit maximizing behaviour. In deciding upon production, the firm will adhere to the principle of substitution (i.e. that efficient production will substitute cheaper factors for more expensive ones). (p.49) Which factors are cheaper is their ability to produce higher output. The underlying value of this behaviour is that firms will organize their factors of production efficiently to achieve the highest value. However this only results under competitive market conditions. Not all anti-trust offences have profit maximization as its goal (i.e. predatory pricing). However, antitrust theory would say that this is still profit-maximization in the long term.

Economic Models

Perfect Competition: 5 conditions: 1. many buyers and sellers;2. the quantities of products bought and sold are so small that they do not affect market prices (e.g. no buying

cartels or other forms of price bullying);3. the product is homogeneous, and thus easily substitutable;4. all buyers and sellers have perfect information about prices and quality;5. Complete freedom to enter and exit the market.

Commodity markets are about as close as you can come to perfect competition.

When these factors are present, the individual firm is a mere quantity adjuster, and has no control over the price. The only way to maximise profits is to adjust output so that the cost of the final unit produced (marginal cost) is equal to the market price. (p57) This is both allocatively and productively efficient.

Monopoly: Three main elements:

1. one seller for entire market2. seller’s product is unique (i.e. no close substitutes);3. substantial barriers to entry (**this is the most significant factor).

Some monopolies are encouraged: i.e. patents

Negative effects: (1) unfair prices (‘wealth transfer’), (2) reduced output and (3) reduced incentives to be efficient and to innovate. Another major problem is deadweight welfare loss (see definitions above).

Positive effects: The ‘natural monopoly’ is one in which it is always less costly for one firm to produce the desired goods or services than it is for two or more.

Problem is with how you get to a monopoly, rather than with a monopoly per se. Antitrust law prevents monopolies from being realized by mergers and acquisitions, rather than efficient allocation of resources (i.e. better quality, etc.).

Monopolistic Competition: A market in which many firms sell products that are similar to each other, but are sufficiently differentiated by non-price factors. “The competitive significance is the size of the gaps between product brands that the consumer might view as substitutes (e.g. the gap would be larger between Coke and Orange Crush than between Coke and Pepsi). In such markets, firms are said to gain profits mainly from advertising and other forms of nonprice competition. The main idea with this form of competition is that the larger the gaps between products, the more insulated producers are from the effects of price changes, and thus it encourages

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monopolies. Also, it encourages spending on costly product differentiation areas such as advertising etc. Thus, it is argued, firms can maintain monopoly prices but do not retain large profits. (p.73). This theory has been roundly criticised for not being supported in practice, not taking into account the value of product differentiation. “Real and imagined product differences may benefit consumers through greater product variety.”

Oligopoly: The prices in such arrangements are usually between monopoly and competitive levels. The oligopolist’s strategies are determined not only by its own conduct, but those of its rivals. In the 1950s, Joe Bain completed a study in which he noted abnormally high profits in industries in which the top 8 firms had more than 7 percent market share. (77) This work supported what was called the structuralist school of antitrust, whose chief tenet is that the structure of the industry determined its conduct and performance. Later, Chicago School antitrust economists attacked this study for its simplicity. They argued that larger profits and increased market concentration are the natural outcome of higher efficiencies, which is what healthy competition tends toward. (78) In other words, the better and more competitive you are, the more competition you eliminate. The structuralist school continues to influence judicial practice, and continues to stress the importance of market concentration as an indicia of collaboration. But courts also use other factors, including (1) product homogeneity, (2) frequent sales, (3) similar cost structures between firms, and (4) high barriers to entry.

Oligopolies are usually found in established industries. Conscious parallelism: informally agreeing on price and focusing on other means of competition. In an oligopoly, you might have 3 firms holding 95% of the market.

Other Models

Non-cooperative oligopolies- markets featuring a small number of firms that act independently but nonetheless recognise that the actions of other industry participants can affect their profits. These were analysed through the conjectural variation models [not important or effective, see p.80 if curious].

Game Theory-[No effective definition provided in the article]. The use of mathematical techniques to anticipate the behaviour of rivals and to choose the least harmful option. Game theory is applied in situations in which the choice by one player affects the outcome of the other, as in a monopoly. Thus players must choose between different options that will yield different results, depending on what the opponents decide. The classic example is the Prisoner’s Dilemma, where two prisoners debate the merits of whether to snitch on the other, and anticipate what the other will do at the same time. Game theory is said to be increasingly useful in understanding the behaviour of firms, and is useful because it may be applied in repeated encounters to suggest trends, rather than single transaction models.

Transaction Cost Economics-Research that has identified efficiency reasons for permitting a limited form of interfirm cooperation.

Contestability Theory- The theory that a market with frictionless entry and exit will prevent even a single monopoly firm from raising its prices much above a competitive level.

The conclusion from these two theories is that competitive pricing can be obtained in a number of ways outside the model of perfect competition.

Concluding Observations

Since the late 1970s, research has focused mostly on game theory and strategic behaviour. Generally, the research supports more expansive antitrust regulation than the Chicago School recommends. However, the authors suggest that courts will be slow to adapt and apply the insights of game theory due to its complexity, and will rather continue to apply the Chicago School concepts of efficiency (89-90).

C. Richard Posner, Antitrust Law: An Economic Perspective (1976).

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The purpose of this Chapter in Posner’s book is twofold: first, he explains the theory of monopoly, and second, he argues that this theory is the only appropriate explanatory guide in interpreting present day antitrust laws.

Posner begins by explaining the theory of monopoly in similar terms to those used in the Gellner piece. He aims to show that there are serious social costs associated with monopolies. They are (1) reduced output, (p.12), (2) transfer of costs from consumer to monopolist (pp.12-13)and (3) inefficient allocation or resources(p.14). He thus concludes that antitrust laws offer substantial social gains (p.14).

He then considers and rejects economic studies that argue that the social costs of monopolies are in fact slight. He finds that (1) the studies measure the impact of monopolies with antitrust laws already in place, and (2) that many studies are based on firms’ profit margins, rather than on competitive/monopolistic price differentials, which yields misleading results. The second point is true because many firms recycle the extra revenue into new costs (product differentiation, advertising etc.), which stem from the competition to obtain or maintain a monopoly position (p.15). So the effect is that the rate of return is not much higher, even though the price is far higher than a competitive one.

He then continues to consider alternative arguments against monopolies, and rejects each as being insufficient. The main alternative argument is that monopolies have no incentive to minimize costs. He rejects this argument because (1) sometimes competition, rather than monopolies, can discourage innovation (i.e. patents); (2) profit maximization alone is considerable motivation; and (3) in cartel situations, firms are driven to compete on non-price factors, which drives innovation, diversification and service (17).

Lastly, he analyses and rejects three political arguments against monopolies. First, he argues that the wealth transfer from consumers to rich shareholders is not as great as suggested, due to the dissipation of these extra profits in the “purchase of inputs into the activity of becoming a monopoly.” (i.e. promotional items) Second, the argument that monopolies unduly influence political actors to obtain altered legislation is weak because in fact such monopolies or cartels are able to profit more through private collusive agreement than through state assistance [weak argument, ignores international markets, trade protectionism]. Also, the lack of empirical evidence. Third, the promotion of small business is not helped through antitrust laws because antitrust laws preserve a good climate for efficient competition between large firms, and small business is, generally speaking, not efficient.

He concludes the chapter by remarking that the legislative intent behind antitrust law was to maximize efficiency in the market place, and that therefore the economic theory as explained ought to serve as a guide for interpretation “…as well as revision of antitrust statutes.” This final points are an outright call for judicial reform of the antitrust doctrine, in line with the suggestions of economic theory.

Failing firm defence: merger and acquisition is allowed if one firm is failing. Social policy says that it is better to allow monopolist to at least hire some of the people. Economic theory says that if firm was failing anyway, it has no impact on competition.

Posner thinks competition reduces innovation and investment in efficiency. This is because when you profit margins are so lower in a competitive market, you cannot invest much into these aspects. He claims that even in monopolies, there is still competition, although not over price, but over other aspects. Thus, there is still innovation.

Posner still thinks monopolies are bad, but questions the usual argument that they reduce innovation and efficiency.

D. Dunlop, McQueen, & Trebilcock, Canadian Competition Policy (1987), at CB. 34-45.

Intro- The authors aim to explain monopoly and perfect competition as subsets of the more realistic market scenario of oligopoly. Underlying their approach is that there is no such thing as perfect competition (Hofley). They also argue that more than one ‘competitive process’ may be underway in a given economy at the same time.

Stretch Oligopoly Theory- Time is a critical factor in the authors’ modified theory of oligopoly, in the sense that the benefits of its approach must be considered over the long run. (35, right). At the same time, one cannot wait too long before intervening (36, left). Expert economists provide useful information as witnesses, and typically provide

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it in three ways: (a) theoretical deductive claims, (b) micro-level empirical observations of a few, horizontally related firms, and (c) empirical observations supported by “broad-horizon” cross-sectional studies. They often like to present all three in mutually supportive ways. (36, left, middle).

Perfect Competition Model- (36-39) The analysis here is familiar.

Monopoly- After explaining the model, the authors question the real-world applicability of the theory. First, there is virtually never a non-state sponsored monopoly in any field, and if one were ever to arise, the public would likely demand that it be regulated. This exerts real pressures that might affect pricing. (39, middle). Secondly, perfectly competitive markets do not usually form the departure points for monopolies. There is usually something new in the potential monopolist’s favour, such as a patent, a new production process etc. These factors usually disrupt the suggested finding that monopolies always result in lower output and higher prices (39 middle, right). Finally, we must accept the possible situation in which although prices stay perhaps artificially high, input costs are significantly decreased through efficiencies. This means real savings in terms of resources, which imports a social benefits calculation not reflected in the traditional ‘monopoly’model.

Balance Sheet on Perfect Competition Model (PCM)- The benefits include allocative, productive and consumptive efficiencies, and the fact that it has been broadly studied and refined. (40, left). The drawbacks of the theory include (a) it does not account well for economies of scale, (b) costs external to the immediate product market (e.g. pollution), (c) discouragement of benefits such as job training (due to numerous competitors), (d) inability to provide public goods, (e) inability to address inequality of wealth. (40, middle) An overarching criticism is that the model simply does not fit with the practice of many real markets (41, middle).

Supplementing the PCM- The authors examine the theories of imperfect competition, monopolistic competition, and modified oligopoly systems. (41, middle, right, 42). The problem with these approaches is that they allow in so many real world variables, that they greatly complicate the predictive success. Therefore economists have developed an organisational framework for industrial analysis: the Structure/Conduct/Performance paradigm. This paradigm invites analysts to categorise data into (a) basic conditions (e.g. price-elasticity, technology, growth), (b) market structure (e.g. concentration, barriers to entry), (c) conduct (e.g. actions concerning pricing, advertising, R&D) and (d) performance (norms and outcomes). This theory is a definite improvement, but has resulted in predictive problems itself concerning the relationships between different categories. (43, middle) It has thus come to be supplemented with the workable competition theory, which imposes competitive side constraints on permissible conduct, such as those found in the Competition Act. (43, right)

Adaptations to the PCM: These include dropping the assumption of zero-transactions costs, which is simply never true. (44, left, middle). It also gives previously ignored importance to non-price competition such as advertising. Such competition gives valuable services and product differentiation. (44, middle, right).

There is no conclusion to the chapter.

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II. Criminal Conspiracy

A. RELEVANT LEGISLATION (sections 45-45.1, 48, 49 Competition Act)Conspiracy45. (1) Every one who conspires, combines, agrees or arranges with another person

(a) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product,(b) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof,(c) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or

supply of a product, or in the price of insurance on persons or property, or(d) to otherwise restrain or injure competition unduly,

is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both.

Idem(2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it shall not be necessary to prove that the conspiracy, combination, agreement or arrangement, if carried into effect, would or would be likely to eliminate, completely or virtually, competition in the market to which it relates or that it was the object of any or all of the parties thereto to eliminate, completely or virtually, competition in that market.

Evidence of conspiracy(2.1) In a prosecution under subsection (1), the court may infer the existence of a conspiracy, combination, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties thereto, but, for greater certainty, the conspiracy, combination, agreement or arrangement must be proved beyond a reasonable doubt.

Proof of intent(2.2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it is necessary to prove that the parties thereto intended to and did enter into the conspiracy, combination, agreement or arrangement, but it is not necessary to prove that the parties intended that the conspiracy, combination, agreement or arrangement have an effect set out in subsection (1).

Defence(3) Subject to subsection (4), in a prosecution under subsection (1), the court shall not convict the accused if the conspiracy, combination, agreement or arrangement relates only to one or more of the following:

(a) the exchange of statistics;(b) the defining of product standards;(c) the exchange of credit information;(d) the definition of terminology used in a trade, industry or profession;(e) cooperation in research and development;(f) the restriction of advertising or promotion, other than a discriminatory restriction directed against a member of the mass media;(g) the sizes or shapes of the containers in which an article is packaged;(h) the adoption of the metric system of weights and measures; or(i) measures to protect the environment.

Exception(4) Subsection (3) does not apply if the conspiracy, combination, agreement or arrangement has lessened or is likely to lessen competition unduly in respect of one of the following:

(a) prices,(b) quantity or quality of production,(c) markets or customers, or(d) channels or methods of distribution,

or if the conspiracy, combination, agreement or arrangement has restricted or is likely to restrict any person from entering into or expanding a business in a trade, industry or profession.

Defence(5) Subject to subsection (6), in a prosecution under subsection (1) the court shall not convict the accused if the conspiracy, combination, agreement or arrangement relates only to the export of products from Canada.

Exception(6) Subsection (5) does not apply if the conspiracy, combination, agreement or arrangement

(a) has resulted in or is likely to result in a reduction or limitation of the real value of exports of a product;(b) has restricted or is likely to restrict any person from entering into or expanding the business of exporting products from Canada; or(c) has prevented or lessened or is likely to prevent or lessen competition unduly in the supply of services facilitating the export of

products from Canada.

Defences(7) In a prosecution under subsection (1), the court shall not convict the accused if it finds that the conspiracy, combination, agreement or arrangement relates only to a service and to standards of competence and integrity that are reasonably necessary for the protection of the public

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(a) in the practice of a trade or profession relating to the service; or(b) in the collection and dissemination of information relating to the service.

Exception(7.1) Subsection (1) does not apply in respect of an agreement or arrangement between federal financial institutions that is described in subsection 49(1).

Exception(8) Subsection (1) does not apply in respect of a conspiracy, combination, agreement or arrangement that is entered into only by companies each of which is, in respect of every one of the others, an affiliate.

Where application made under section 79 or 9245.1 No proceedings may be commenced under subsection 45(1) against a person against whom an order is sought under section 79 or 92 on the basis of the same or substantially the same facts as would be alleged in proceedings under that subsection.

Conspiracy relating to professional sport48. (1) Every one who conspires, combines, agrees or arranges with another person

(a) to limit unreasonably the opportunities for any other person to participate, as a player or competitor, in professional sport or to impose unreasonable terms or conditions on those persons who so participate, or

(b) to limit unreasonably the opportunity for any other person to negotiate with and, if agreement is reached, to play for the team or club of his choice in a professional league

is guilty of an indictable offence and liable on conviction to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both.

Matters to be considered(2) In determining whether or not an agreement or arrangement contravenes subsection (1), the court before which the contravention is alleged shall have regard to

(a) whether the sport in relation to which the contravention is alleged is organized on an international basis and, if so, whether any limitations, terms or conditions alleged should, for that reason, be accepted in Canada; and

(b) the desirability of maintaining a reasonable balance among the teams or clubs participating in the same league.

Application(3) This section applies, and section 45 does not apply, to agreements and arrangements and to provisions of agreements and arrangements between or among teams and clubs engaged in professional sport as members of the same league and between or among directors, officers or employees of those teams and clubs where the agreements, arrangements and provisions relate exclusively to matters described in subsection (1) or to the granting and operation of franchises in the league, and section 45 applies and this section does not apply to all other agreements, arrangements and provisions thereof between or among those teams, clubs and persons.

Agreements or arrangements of federal financial institutions49. (1) Subject to subsection (2), every federal financial institution that makes an agreement or arrangement with another federal financial institution with respect to

(a) the rate of interest on a deposit,(b) the rate of interest or the charges on a loan,(c) the amount or kind of any charge for a service provided to a customer,(d) the amount or kind of a loan to a customer,(e) the kind of service to be provided to a customer, or(f) the person or classes of persons to whom a loan or other service will be made or provided or from whom a loan or other service

will be withheld,and every director, officer or employee of the federal financial institution who knowingly makes such an agreement or arrangement on behalf of the federal financial institution is guilty of an indictable offence and liable to a fine not exceeding ten million dollars or to imprisonment for a term not exceeding five years or to both.

Exceptions(2) Subsection (1) does not apply in respect of an agreement or arrangement

(a) with respect to a deposit or loan made or payable outside Canada;(b) applicable only in respect of the dealings of or the services rendered between federal financial institutions or by two or more

federal financial institutions as regards a customer of each of those federal financial institutions where the customer has knowledge of the agreement or by a federal financial institution as regards a customer thereof, on behalf of that customer's customers;

(c) with respect to a bid for or purchase, sale or underwriting of securities by federal financial institutions or a group including federal financial institutions;

(d) with respect to the exchange of statistics and credit information, the development and utilization of systems, forms, methods, procedures and standards, the utilization of common facilities and joint research and development in connection therewith, and the restriction of advertising;

(e) with respect to reasonable terms and conditions of participation in guaranteed or insured loan programs authorized pursuant to an Act of Parliament or of the legislature of a province;

(f) with respect to the amount of any charge for a service or with respect to the kind of service provided to a customer outside Canada, payable or performed outside Canada, or payable or performed in Canada on behalf of a person who is outside Canada;

(g) with respect to the persons or classes of persons to whom a loan or other service will be made or provided outside Canada;(h) in respect of which the Minister of Finance has certified to the Commissioner that Minister's request for or approval of the

agreement or arrangement for the purposes of financial policy and has certified the names of the parties to the agreement or

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arrangement; or(i) that is entered into only by financial institutions each of which is an affiliate of each of the others.

Definition of "federal financial institution"(3) In this section and section 45, "federal financial institution" means a bank or an authorized foreign bank within the meaning of section 2 of the Bank Act, a company to which the Trust and Loan Companies Act applies or a company or society t

B. Green, Canadian Industrial Organization and Policy (1990), Chapter 13: “Canadian Policy: Horizontal and Vertical Agreements” (p.66 CSBK).

Purpose: protect the public interest in free competition (see Weidman v. Shragge, Stinson-Reeb Builders Supply v. The King). - Most economists argue that competition is a means – not an end in itself – to achieving certain economic goals,

such as economic efficiency (see Interim Report on Competition Policy of the Economic Council of Canada). Nevertheless, Canadian courts have been more ambiguous about the role of competition, tending to accept that the legislative purpose of the original legislation, and its successor 45(1), is to protect competition either because competition is good in itself or it leads to a ‘good.’

To What does it Apply?:

The fundamental issue in s.45(1) is the meaning of “unduly.” In the early cases (R. v. Eliot; Weidman v. Shragge; Stinson-Reeb v. King; R v. Container Materials) the courts tended to clarify the meaning of undue by using synonyms such as improper, oppressive, excessive. As a matter of fact each of these cases had involved agreements among all or virtually all of the rival sellers in the industry or relevant market. It is not surprising that the term ‘unduly’ would be defined in quantitative terms relating to the extent of the market encompassed by the agreement.

Weidman v. Shragge: In 1912, the SCC held that an agreement between two junk dealers to fix the maximum prices of the used goods they purchased and to share the profits was illegal and unenforceable. Because Weidman and Shragge together accounted for 95% of the relevant market, the SCC concluded that the agreement suppressed competition and was thereby undue.

Container Materials: “Speaking broadly, the legislation is aimed at protecting the public interest in free competition. The lessening or prevention agreed upon will… be undue, within the meaning of the statute if, when carried into effect, it will prejudice the public interest in free competition to a degree that the tribunal of fact finds to be undue.”

R. v. Howard Smith Paper Mills: The defendants argued that their price-fixing activities were beneficial to the public since they stabilized the industry in the 1930s, had helped it grow, and had charged reasonable prices. The Court disagreed: “Conspiracy is a crime by itself, without the necessity of establishing an over act. The public is entitled to the benefit of free competition, and the prohibitions of the Act cannot be evaded by good motives. Whether they be innocent and even commendable, they cannot alter the true character of the combine which the law forbids, and the wish to accomplish desirable purposes constitutes no defence and will not condone the undue restraint, which is the elimination of the free domestic market. - From the same case, as per Cartwright J.: “an agreement to prevent or lessen competition in commercial

activities of the sort described in the section becomes criminal when the prevention or lessening agreed upon reaches the point at which the participants in the agreement become free to carry on those activities virtually unaffected by the influence of competition, which influence Parliament is taken to regard as an indispensable protection of the public interest; that it is the arrogation to the members of the combination of the power to carry on their activities without competition which is rendered unlawful.” “Once it is established that there is an agreement to carry the prevention or lessening of competition to the point mentioned, injury to the public interest is conclusively presumed, and the parties to the agreement are liable to be convicted.

- “Virtually unaffected by the influence of competition” have been interpreted as requiring that no important segment of the market is not a party to the agreement, which presumably means that the agreeing sellers must account for at least 80 to 90 % of industry output in the relevant market.

- But note Abitibi: “I conclude that it cannot be accepted as our law that only those conspiracies are illegal that completely eliminate or virtually eliminate all competition. To say that the prevention or lessening of

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competition must be carried to the point where there remains no competition, or virtually non, is tantamount to considering the words “prevent” or “lessen” as synonymous with “extinguish.”” In that case, the accused firms accounted for 70 to 75 % of domestic consumption and for 55-65% of total consumption. The Court found this degree of control an undue lessening of competition. His opinion rested in good part on the unequal bargaining power between the large pulp and paper firms and the small, independent pulpwood suppliers.

In R. v. Canadian Apron and Supply Ltd, defendants were in the business of supplying and cleaning towels and uniforms for restaurants and other renderers of personal services. The defendants admitted to price fixing, but argued that the commodity supplied was a service and not covered by the Combines Act, which, until 1976, only covered “articles.” The Court rejected the argument, arguing that the supply at issue were the linens, which are “articles.” Since the defendants had a virtual monopoly in the linen supply business, the Court found them guilty.- In this case, the Court attempted to distinguish between two classes of cases: those in which the facts indicate

virtual monopoly so that a per se rule applies (Canadian Apron: 85-90%, Howard Smith, Container Materials) and those where there is something less than a virtual monopoly and a ‘rule of reason’ must be applied (Canadian Import, Abitibi). In the former case the agreement is, without further discussion, undue. In the latter case, “unduly” must be resolved on a case-by-case basis, after evaluating the impact on the agreement.

- If any large fraction of industry supply is outside the agreement, price cutting by non-members will generally undermine the price structure erected by the conspirators before the prince fixing comes to public attention.

In Aetna Insurance, the SCC acquitted the defendants on the ground that “there is a substantial body of evidence to support the view of the trial judge that competition was not stifled.” This was despite the fact that based on earlier jurisprudence, particularly Howard Smith, the fact that the members knew that they were agreeing to virtually eliminate competition among themselves would have been sufficient for a guilty verdict. - The most interesting aspect of the Aetna decision was the implication that the Crown must prove that the

defendant intended to enter into a price-fixing agreement, and intended to lessen competition unduly.

In Atlantic Sugar Refineries, the issue was an agreement among three manufacturers who accounted for 95% of the relevant market.- The SCC’s decision is controversial in two respects. First, it implicitly accepted the ‘double intent’ requirement.

Second, the Court seemed to say that a tacit agreement to maintain market shares is not necessarily an undue agreement: “I cannot agree with the submission that this tacit agreement to maintain the market shares involved the elimination of competition. On the contrary, as we have just seen the evidence is clear that it involved only a lessening of competition.

If as a result of Aetna and Atlantic Sugar Refineries, the Crown had to prove double intent (intention to agree and intention to lessen competition) it is doubtful that the Crown could prosecute with relative effectiveness. It is perhaps for this reason that the Albany Felt case returned judicial opinion to earlier precedents. One might infer from the Albany Felt case that where the evidence of agreement is overwhelming, the intent and object of the agreement coalesce so that the problems posed by the ‘double-intent’ doctrine do not arise.

The uncertainty led to the introduction of sections 45(2.1) and 45(2.2). These amendments establish the relevance of circumstantial evidence and repudiate the double intent doctrine.

CONSCIOUS PARALLELISM

In R v. Canada Cement LaForge; R. v. Armco Canada; R. v. Atlantic Sugar Refineries; and R. v. Canadian General Electric, the contentious issue was whether there was sufficient evidence of agreement. Conscious parallelism is a term that represents the rational economic behaviour of oligopolists selling relatively homogeneous products: to wit, match competitor prices, make few price changes, and when you do, follow the leader. The basic reason for this parallel pricing behaviour is that non-established price differentials may induce retaliatory price cuts by the higher pricing firms that, if rematched by the lower pricing firm, is an invitation to a price war. The preferred strategy is, therefore, one of identical quoted prices or established, and accepted, differentials In each of the 4 cases, the government brought charges of violation of what is now s.45(1)(c): that the defendants had conspired or agreed or arranged to lessen competition unduly. The defendants argued that because of the

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oligopolistic nature of their industries, parallel pricing behaviour was inevitable, that the observed similarity in prices was the result of “conscious parallelism,” not an agreement among the firms. In the Cement case, the judge stated that “conscious parallelism, if conducted without collusion among the members of the industry, is not an offence.” The court found that because the similarity of prices was probably due to conscious parallelism, the government had insufficient evidence of an agreement. In the Armco and Canadian General Electric cases, the judges were willing to see the outline of an arrangement in the attempts by the firms in each industry to property up pricing systems that would otherwise have tended to collapse. In effect, an implicit conscious parallelism plus doctrine was adopted, with the Crown willing to infer from evidence of plus actions that the parallel behaviour was based on an explicit agreement. In the Atlantic Sugar Refineries case, however, the Court considered each type of behaviour in isolation. In each instance, the judge decided that the Crown had failed to prove beyond a reasonable doubt that the defendants had engaged in a conspiracy to stifle competition. Had the judge looked at the evidence as a whole, treating the various incidents as a related story, the outlines of an agreement to control the market and restrict entry would have been clear. The line between conscious parallelism and an agreement to limit competition is a thin one. The more complex the history of industry behaviour, the more likely is parallel behaviour the result of an arrangement of some kind.

C. Janda & Bellemare, “Canada’s Prohibition against Anticompetitive Collusion: The New Rapprochement with U.S. Law” (p.72 CSBK).

[The first part of the article repeats the historical approach of the Green article]

Focusing on the analogy between price-fixing and theft (the thief takes another’s property without consent; the participant in a cartel appropriates wealth from consumers with their consent, but the consent is vitiated by the elimination of choice), the authors argue that there is an element of moral blameworthiness that is appropriately addressed by criminal law. Going even further, price-fixing is likened to fraud: “The fixed price masquerades as a market price in 2 ways. First, there is no disclosure of the way in which it is set. Second, because there is a plurality of actors, there is an appearance of competition. In this sense, a fixed price is analogous to a fraudulent price.” Criminal prosecution should be sought first, leaving civil remedies (s.36) or administrative remedies (s.79) as the default regime.

The American Approach In the US, the judiciary has used 2 separate methods for assessing the competitive impact of a specific practice under s.1 of the Sherman Act.

1. The Rule of Reason: mandates a careful consideration of the objective and effect of the agreement before it is deemed unlawful. Thus, a court must consider whether the evidence shows an agreement whose effects are either pro- or anti-competitive. The rule of reason compels the Court to undertake an exhaustive investigation of the economic environment in which the agreement in restraint of trade took place. The application of a rule of reason will require introduction of evidence pertaining to the definition of the market (‘product’ and ‘geographic’ market), market structure, and anti-competitive consequences and may require proof of intention of the parties and their justification for entering into the agreement. Thus, a rule of reason analysis generally involves a significant burden of proof.

2. The Per Se Rule: Practices that are reviewed under a per se rule are: price fixing, market division, tying agreements and group boycott. This rule was introduced for administrative efficiency reasons. A strict per se rule is applied to price-fixing and market division. Such agreements are in violation of the Sherman Act if two evidentiary conditions are met: the agreement fixes prices (directly or indirectly) or divides markets, and the agreement affects interstate commerce. A qualified or partial per se rule applies to tying arrangements and group boycotts where some evidence regarding the defendant’s market power may be required. In tying arrangement cases, it must be established that the defendant has sufficient economic power in the tying product to compel purchase of the tied product. In a group boycott case, if the practice is deemed to be a conventional group boycott as defined in the case law and is proved to have affected prices, a strict per se rule applies. In all other situations, the Court will require evidence that the boycotting firms have market power.

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The Interpretation of Section 45 in Nova Scotia Pharmaceutical[since this case is studied further, only relevant comments will be mentioned here]

- The case introduced the “partial rule of reason”- The goal of this approach is:

1. To identify clearly for the accused what the issues are in the prosecution2. To avoid imposing a degree of complexity in economic analysis that would render the provision

unenforceable as criminal legislation; and 3. To focus the provision on significantly anti-competitive collusion and not extend it to innocent

agreements or those that have minimal anti-competitive effects.

Civil Enforcement of Section 45 through Section 36- This creates a civil remedy for any person who has suffered loss or injury as a result of conduct contrary to Part

VI of the Act.- One need only prove on the balance of probabilities that the agreement created minimal market power.- The section 36 remedy is potentially very important in adding to the effectiveness of the prohibition against

anti-competitive collusion, although it has to date been little explored.

D. Warner & Trebilcock, “Rethinking Price-Fixing Law” (p.92 CSBK).

The Economics of Horizontal Arrangements- Whether an arrangement ought to attract liability under competition laws depends on the

arrangement’s ultimate effects on economic welfare. Arrangements which ultimately reduce economic welfare should be prohibited.

- Not all horizontal arrangements reduce economic welfare. For example, it is generally accepted that horizontal arrangements effected by ownership, through mergers and acquisitions, are capable of producing net welfare increases.

- However, naked price-fixing cartels among competitors or potential competitors almost always reduce economic welfare. The cartel charges monopoly prices, but unlike some monopolies and many horizontal mergers, the cartel almost never generates offsetting efficiency gains from greater economies of scale, since the scale of the cartel members’ production units does note change when the cartel is formed. The cartel’s monopoly prices drive consumers from the market, and force consumers to allocate their resources to less preferred forms of competition.

- Two sorts of arrangements are per se illegal in Canada: (i) bid-rigging (provided that the parties seeking the bid have no knowledge of the bid rigging agreement); and (ii) agreements among banks to set interest rates on loans or deposits.

- The following arrangements have been held to be in the public interest, and are exempted from the prohibition against horizontal arrangements: (i) collective bargaining arrangements and fishing cooperatives; (ii) underwriting agreements; (iii) amateur sports leagues; (iv) specialization agreements; (v) joint ventures; and (vi) export agreements.

Disadvantages of the Current Regime- Two main disadvantages:

1. First, the criminal prohibition is both underinclusive and overinclusive. It is underinclusive because it can allow manifestly anti-competitive arrangements to escape condemnation. Some horizontal arrangements, such as naked price-fixing and market sharing arrangements, must be deterred with criminal sanctions. But the current prohibition, which requires the Crown to prove on a criminal burden of proof that an arrangement has lessened competition “unduly” can allow price-fixers to escape conviction with the kind of specious arguments that were advanced in Aetna Insurance. At the same time, the current prohibition is overinclusive because it subjects all horizontal agreements to criminal prohibitions and casts a shadow over many arrangements that may potentially increase welfare. Apart from the obvious price-fixing case, the

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welfare effects of many horizontal arrangements are ambiguous, and arrangements with ambiguous welfare effects should not be deterred and do not require criminal sanctions.

2. Second, forcing all-purpose criminal courts to undertake complex rule-of-reason inquiries (or partial rule-of-reason inquiries) runs contrary to our notions of the relative institutional competence of criminal courts as compared with a specialized administrative agency. Currently, all-purpose criminal courts evaluate the welfare effects of ambiguous arrangements through complex rule-of-reason inquiries on a criminal burden of proof. Rather, the Competition Tribunal is better equipped to analyse the welfare effects of ambiguous arrangements than criminal courts.

EC Law- The EC has established a de minimis threshold. Arrangements do not trigger the prohibition found in

a.85 of the Treaty of Rome unless they have an appreciable effect on competition. Arrangements will have “appreciable” effect on competition when they appreciably alter the market position or sales and supply opportunities of third parties. According to the Commission, arrangements will not have an appreciable effect on competition where: (i) the total goods or services affected by the agreement do not represent more than 5% of total supply; and (ii) where the aggregate annual turnover of the participating enterprises does not exceed 200 million ECU.

- There are 4 ways to secure relief from the article 85(1) prohibition. First, the arrangement may not meet the de minimis requirement of an ‘appreciable’ effect on competition. Second, the arrangement may qualify for one of the block exemptions the Commission has created for certain types of arrangements. Third, the arrangement may qualify for a negative clearance from the Commission. Fourth, the arrangement may qualify for a Commission exemption from article 85(1) under the criteria set out in article 85(3).

- While the European Regime avoids the American problem of characterization though an overinclusive non-criminal prohibition, the existing ex ante authorization regime is cumbersome for both parties and the Commission.

UK Competition Law- The UK regime creates a category of “registrable” arrangements. Arrangements which meet the

“registrable” criteria are unenforceable and subject to administrative cease and desist orders until they have been both registered and specifically authorised.

- This system is overinclusinve since it requires a large number of arrangements to be registered and evaluated even through many are clearly benign or have only minimal effects on competition.

German Competition Law- Like the UK, all arrangements trigger the prohibition, and there are no automatic de minimis or block

exemptions available. However, parties to so-called exempt arrangements may avoid penalties by filing notifications of their arrangements.

The comparative review discloses a striking commonality of approach towards naked price-fixing arrangements. In every jurisdiction they are subject to a per se prohibition, but greater diversity of practice exists in terms of both the substance of absolute and qualified exemptions with respect to other kinds of horizontal arrangements, and the procedures by which those absolute or qualified exemptions are established A per se criminal prohibition for naked price-fixing cannot be formulated with complete precision and will unavoidably target potentially pro-competitive arrangements. According to the authors, the solution is to redefine the focus of a criminal prohibition. A criminal prohibition should only target naked price-fixing arrangements. Characteristics of such an arrangements are that they lessen competition and are generally covert. They propose a criminal prohibition that focuses on the covertness of horizontal agreements. Criminal prohibition should target covert (as distinguished from overt) price-fixing arrangements.

Suggestions: 1. Criminal sanctions should be attached to covert arrangements; 2. Civil sanctions should be within the realm of the competition tribunal; 3. In over civil proceedings, efficiency defence should be allowed.

E. R. v. Nova Scotia Pharmaceutical Society [1992] 2 S.C.R. 606 (S.C.C.) (p.121 CSBK).

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Gonthier J. identified the three major elements in the inquiry of criminal conspiracy as expressed in s.45(1)(c):

1. An agreement entered into by the accused2. An undue prevention or lessening of competition flowing from this agreement (this requires as a

prerequisite, some degree of market power and some degree of anti-competitive behaviour).3. A mental element.

These will be examined in the following sections.

1. An Agreement Entered into by the Accused

This element does not require the finding of an alleged conspiracy in the tradition sense: as a planning of acting together secretly, as a plot, to do some criminal act. For obvious reasons, the planning of conspiracies is normally done in secret and it would no doubt be considered foolhardy for conspirators to reveal their criminal intentions. Thus, an agreement can be demonstrated by other agreements or arrangements, and with their dealings with the market.

However, an agreement requires that there be a “meeting of the minds” between two or more persons. As such, culpability cannot be found on the basis of strictly unilateral action because the requirement that there be a meeting of the minds makes communication an essential aspect of a conspiracy. Similarly, it is clear that mere discussions are not sufficient to bring persons within the scope of the s.45 prohibition.

Indeed, section 45(2.1) states:

In a prosecution under subsection (1), the court may infer the existence of a conspiracy, combination, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties thereto, but, for greater certainty, the conspiracy, combination, agreement or arrangement must be proved beyond a reasonable doubt.

Once the existence of a combination, agreement or arrangement has been established beyond a reasonable doubt, the Crown must establish that the effect of the agreement will be to prevent competition or to lessen it unduly.

2. An ‘Undue’ Prevention or Lessening of Competition

In R. v. Clarke Transport, the Court held that this second actus reus element was more accurately characterized as indicating that the Crown must prove beyond a reasonable doubt that the likely effect of the agreement, if implemented, would be to prevent competition or lessen it unduly. This inquiry involves, according to Gonthier J., two elements:

A. The structure of the marketB. The behaviour of the parties

3. The Structure of the Market

The purpose of the inquiry into the market structure is to determine the degree of market power of the parties to the agreement.

Further expanding on the notion of market power, Gonthier J. stated:

Market power is the ability to behave relatively independently of the market. This is precisely what s.32(1)(c) [now 45(1)(c)] of the Act seeks to prevent. […] The aim of the Act is to secure for

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the Canadian public the benefit of free competition. Excessive market powers runs against the objectives of the Act. […] The application of s.32(1)(c) of the Act does not presuppose such a degree of market power. […] What is more relevant is the capacity to behave independently of the market, in a passive way.

Gonthier J. goes on to assert that only “a moderate amount of market power” need be shown in order to find the existence of an undue lessening or prevention of competition.

To find this “moderate amount of market power” first requires the identification of the relevant product and geographic market. In this examination, the primary factor is market share. Furthermore, some evidence of minimal ability to act independently of the market must be adduced. To assist in this analysis, Gonthier J. provides a non-exhaustive list of factors that may be relevant:

- The number of competitors and the concentration of competition;- Barriers to entry;- Geographical distribution of buyers and sellers;- Differences in the degree of integration among competitors;- Product differentiation;- Countervailing power; and - Cross-elasticity of demand.

As useful approach, Gonthier J. suggested determining whether the defendant firm would be able to raise prices on a given product by 5 percent over a year without incurring losses.

4. The Behaviour of the Parties

In this regard, the court will look to the object of the agreement as the most important behavioural element in the inquiry. In this regard, the agreement is to be evaluated on its own terms and classified according to the sort of injurious consequences likely to flow from such an agreement. However, others factors may be relevant, such as the manner in which the agreement has been or will be carried out and, in general, any behaviour that tends to reduce competition of limit entry. The aim of this aspect of the inquiry is determine the likely effect of the agreement. As stated in R. v. Northern Electric:

In considering whether the agreement or conspiracy comes within the statute, one does not judge the unlawfulness by what was done pursuant to the agreement but […] one examines the nature and scope of the agreement as proved and decides whether that agreement, if carried into effect, would prejudice the public interest in free competition to a degree that in fact would be undue.

Overall, s.45(1)(c) requires, in addition to market power, some behaviour likely to injure competition. It is the combination of the two that makes a lessening of competition undue. Nevertheless, as stated in Clarke Transport, “no matter how nefarious the object of the agreement, absent a showing of some market power, there can be no violation of s.45(1)(c).”

However, the determination of whether an agreement unduly restricts competition is not a separate examination of market structure and firm behaviour, but an examination of the relationship between the two. In this sense, the focus of the inquiry will be whether the parties together, through the agreement, were likely to achieve a moderate degree of market power. Accordingly, this will depend on the presence of competition outside the agreement.

5. Mens Rea Element

In addition to the two actus reus elements described above, section 45(1)(c) also requires the proof of two fault elements: one subject, the other objective. These were described by Gonthier J.:

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To satisfy the subjective element, the Crown must prove that the accused had the intention to enter into the agreement and had knowledge of the terms of that agreement. Once that is established, it would ordinarily be reasonable to draw the inference that the accused intended to carry out the terms in the agreement, unless there was evidence that the accused did not intend to carry out the terms of the agreement.

In order to satisfy the objective element of the offence, the Crown must establish on an objective view of the evidence adduced the accused intended to lessen competition unduly. […] Once again, it would be a logical inference to draw that a reasonable business person who can be presumed to be familiar with the business in which he or she engages would or should have known that the likely effects of such an agreement would be to unduly lessen competition. Thus, in proving the actus reus that the agreement was likely to lessen competition unduly, the Crown could, in most cases, establish the objective fault element that the accused as a reasonable business person would or should have known that this was the likely effect of the agreement (at 130-1 CSBK).

In summary, pursuant to section 45(2.2), the Crown must establish the subjective fault elements that the accused had the intention to enter into the agreement and was aware of its term. Furthermore, the Crown must demonstrate that the proof, viewed objectively (measured in reference to a ‘reasonable business person’) establishes that the accused was aware or ought to have been aware that the effect of the agreement entered into by the accused would be to prevent or lessen competition unduly.

See defences at 45(3) & (4).

F. R. v. Nova Scotia Pharmaceutical Society 1993 40 C.P.R. (3d) 289 (N.S.S.C.) (p.109 CSBK).

Applying the test set out by Gonthier J., the Court found that the Crown had established the existence of a combination, agreement or arrangement beyond a reasonable doubt. Therefore, it is necessary to examine whether there is an undue prevention or lessening of competition flowing from this agreement.

After defining the product market as the entire third-party insurer direct-pay market, and the geographic market as the Province of Nova Scotia, the court examined the market power through an examination of the 7 factors identified by Gonthier J.:

1. Number of Competitors and Concentration of Competition: There was significant concentration and therefore, all the necessary elements of a competitive market appear present.

2. Barriers to Entry: There were no significant barriers to entry for new pharmacists, but in the short run, a significant change in the constituent members of the pharmacy operators in the province was unlikely because the pharmacists would have to be licensed provincially. Thus, competition from outside the province is not a factor.

3. Geographic Distribution of Buyers and Sellers: The geographic distribution was not a factor indicating market power on the side of the pharmacy operations. On the side of the third party insurers, there was a significant concentration.

4. Differences in the Degree of Integration among Competitors: This did not impact market power5. Product Differentiation: The product offered did not vary significantly from pharmacy to pharmacy.

Therefore, this did not influence market power.6. Countervailing Power: While some countervailing power was found, this was not considered as an

excuse for unlawful action.7. Cross-Elasticity of Demand: Court found a lower degree of cross-elasticity.

As a result of these factors, the Court found a moderate degree of market power, which, while not excessive, was sufficient to permit the accused to behave relatively independently of the market. Furthermore, the Court found that a combination or agreement between the accused association its various committees, and their collective pharmacy operator membership had the effect of an undue lessening of competition in the third party insurer direct-pay market. This arrangement had the effect of removing a significant number of competitive elements from the market, thus seriously lessening competition for the supply of prescription drugs and pharmacists’ dispensing services to insurers.

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Addressing the mental element, the Court stated that the subjective element had be established by showing the existence of the combination or agreement and that the accused had the intention to enter into that agreement being aware of its terms. As to the objective element, it does not require that the accused would or should have known that the likely effects of such an agreement would be to unduly lessen competition on the legal sense, but only that the effects were in fact as have been found by the court, which amount in law to an undue lessening of competition. By proving the actus reus that the agreement was likely to lessen competition unduly, the Crown can, in most cases, establish the object fault element that the accused would or should have known the likely effect of the agreement. However, this is not one of those cases where this can be inferred merely from proof of the actus reus. The mere finding that an arrangement amounted to an undue lessening of competition does not, by itself, mean that the accused would or should have known, that the effects of the arrangement would lead to the likely effects found to be an undue lessening of competition. The court was not satisfied beyond a reasonable doubt that the accused as reasonable business persons familiar with the pharmacy business, would or should have known all the intricate and complicated effects of the various dealings between the accused, the members and the insurers. [See list of factors considered by the Court at p.119-120 CSBK]

Therefore the Court found that the objective fault element was not established, and consequently, acquitted the defendants.

S.46: Foreign Directives;- makes it an offence to carry out in Canada any conspiracy, combination, agreement or arrangement that

originates outside of Canada and unduly prevents or lessens competition in Canada.

G. R. v. Clarke Transport Canada Inc. et al (1994) 64 C.P.R. (3d) 289 (Ont. Ct. Gen. Div.) (p.132 CSBK).

Crown alleges that the five accused, carrying on business as pool car operators, conspired amongst themselves and with others to unduly lessen competition. The main point at issue in this case was the undueness component. In terms of relevant market, the Court presented the following principles:

1. products can be said to be in the same market if they care close substitutes2. direct evidence of substitutability includes both statistical evidence of buyer price sensitivity and

anecdotal evidence, emanating from buyers on past or hypothetical responses to price changes3. indirect evidence of substitutability may be garnered from certain practical indicia, such as functional

interchangeability and industry view/behaviours4. statistical evidence of high-demand elasticity, if available, will be virtually conclusive that products are

in the same market.5. Anecdotal evidence of price sensitivity, while less conclusive, can nevertheless be persuasive in

tending to show that products are close substitutes6. The complete absence of either statistical or anecdotal evidence of high demand elasticity does not

show conclusively that products are not close substitutes7. Even in the face of evidence disclosing low demand elasticity, product substitutability may

nevertheless be shown to exist, based upon the indirect evidence such as functional interchangeability and industry views/behaviour

Reasonable interchangeability of use (functional interchangeability) emphasizes two factors: the product’s uses and its physical characteristics. While demand cross elasticity focuses on the sensitivity of buyers of one product to changes in the price of another, reasonable interchangeability focuses initially on the extent to which different products have similar qualities that allow them to be used for the same end use. In determining whether products are substitutes for one another, the qualities of the products are not to be viewed in the abstract. Products which seem similar may be found not to be substitutes while products that appear very different may serve the same end use and be considered in the same product market. At the same time, the fact that 2 products are found to be functionally interchangeable does not necessarily mean that they are in the same product market. If buyers do not regard the

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products as substitutes for each other if only to a marginal degree then a broad market definition may be rejected on the basis that effective end use competition does not exist. The Court concluded that during the requisite time frame, pool car operators, truckers and intermodal operators were equally capable of moving the identical kinds of freight. Substantial rivalry existed amongst these industries as they constantly vied with each other for the patronage of the customers. Thus, the relevant product market is the standard over-the-road trucking and intermodal rail service.

In terms of market power, the Court concluded that the relevant question was: In the context of the larger market, did the accused and their confederates have sufficient market power such that they could profitably raise prices and set service standards with relative impunity, absent much if any concern about the loss of significant portions of business to the trucking and/or intermodal rail industries?

- In making this determination, the Court said that it is very rare where the prosecution has succeeded in the absence of evidence showing that the accused had at least a substantial share of the business in the relevant market (no such evidence was presented by the Crown).

the Court was not satisfied that the accused had the requisite degree of market power needed to trigger the application of s.45(1)(c). The Crown did not demonstrate that the accused had sufficient market power to behave with relative impunity. While the Court considered Gonthier J.’s statement that “a particularly injurious behaviour may also trigger liability even if market power is not so considerable,” since the parties in this case were involved in real and pervasive competition, their behaviour was not “particularly injurious.”

Remedies: Pursuant to s.45, party is guilty of an indictable offence and liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding $10 million or both.

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III. Other Criminal Conduct

A. Types of Conduct

1. Bid-rigging (S. 47)

47. (1) In this section, "bid-rigging" means(a) an agreement or arrangement between or among two or more persons whereby one or more of those persons agrees or undertakes not to submit a bid in response to a call or request for bids or tenders, or(b) the submission, in response to a call or request for bids or tenders, of bids or tenders that are arrived at by agreement or arrangement between or among two or more bidders or tenderers,where the agreement or arrangement is not made known to the person calling for or requesting the bids or tenders at or before the time when any bid or tender is made by any person who is a party to the agreement or arrangement.Bid-rigging

(2) Every one who is a party to bid-rigging is guilty of an indictable offence and liable on conviction to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both.Exception(3) This section does not apply in respect of an agreement or arrangement that is entered into or a submission that is arrived at only by companies each of which is, in respect of every one of the others, an affiliate.

• Covers an agreement b/w two or more persons not affiliated with each other either that one or more will not submit bids, or setting the terms of bids amongst different parties. This is a per se offence (no intent element need be proven). Once the Crown proves that the defendants engaged in bid-rigging, a verdict of guilty automatically follows.• 4 elements to the actus reus: all must be proven for conviction.

1. There must be an agreement between two or more persons whereby one or more persons agrees not to submit a bid or to otherwise alter its bid; merely discussing pricing with other parties is not sufficient. In McLellan, it was held that it is not enough to prove that the parties involved knew that the others were submitting a bid or that the parties knew the contents of each others’ bid prior to their tender.

2. There must be a call made for bids; if not, there is no offence (see R. v. Coastal Glass & Aluminums).

3. That the parties intentionally and advertently entered into the agreement; and4. The arrangement cannot be known to the party calling for the bid. (To be made aware they must

be given express notice; circumstantial evidence is insufficient) (see R. v. Lorne Wilson Tpt. and R. v. Travelways Sch. Transit)

Conviction = liability to a fine in the discretion of the court or to imprisonment for a term not exceeding 5 years or both. Lesson: Since affiliated companies are not covered (s.47(3)), company asking for bids should ask for sufficient info in order to know whether companies are affiliated.

2. Pricing practices (Ss. 50, 51, 61)

50. (1) Every one engaged in a business who(a) is a party or privy to, or assists in, any sale that discriminates to his knowledge, directly or indirectly, against competitors of a purchaser of articles from him in that any discount, rebate, allowance, price concession or other advantage is granted to the purchaser over and above any discount, rebate, allowance, price concession or other advantage that, at the time the articles are sold to the purchaser, is available to the competitors in respect of a sale of articles of like quality and quantity,(b) engages in a policy of selling products in any area of Canada at prices lower than those exacted by him elsewhere in Canada, having the effect or tendency of substantially lessening competition or eliminating a competitor in that part of Canada, or designed to have that effect, or(c) engages in a policy of selling products at prices unreasonably low, having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect,is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

Defence(2) It is not an offence under paragraph (1)(a) to be a party or privy to, or assist in, any sale mentioned therein unless the discount, rebate, allowance, price concession or other advantage was granted as part of a practice of discriminating as described in that paragraph.

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Cooperative societies excepted(3) Paragraph (1)(a) shall not be construed to prohibit a cooperative association, credit union, caisse populaire or cooperative credit society from returning to its members, suppliers or customers the whole or any part of the net surplus made in its operations in proportion to the acquisition or supply of articles from or to its members, suppliers or customers.

For s.50 generally: Must be a “policy” or “practice.”

1. Discrimination against competitors of a purchaser – S. 50(1)(a) –

Price discrimination occurs when a person engaged in a business has a PRACTICE of discriminating to his KNOWLEDGE, directly or indirectly, against the competitor of one of his or her purchasers in that a discount, rebate, allowance, price concession or other advantage is granted to the purchaser over and above any discount, rebate, allowance, price concession or other advantage that, at the time the articles are sold to the purchaser, is AVAILABLE to the competitor in respect of a sale of like QUALITY AND QUANTITY.• This is not a per se offence; must also prove that the parties knowingly took part in the discriminatory pricing practice, or were wilfully blind (negligence is not good enough), and that the practice actually occurred. You do not need to show that there was an injury to competition. This provision distinguishes between justified and unjustified price differentials.

1. Type of transaction para.50(1)(a) only covers sales, not licenses, leasing or consignment

2. Products covered Price discrimination is illegal only with respect to the sale of articles, not the sale of service.

3. Discount, rebate, allowance, price concession or other advantage According to the Price Discrimination Enforcement Guidelines, impugned behaviour will include “monetary arrangements advanced by a seller which reduce the effective price paid by a purchaser to a level below that of the face or nominal transaction price.” Advantages such as the provision of technical assistance, the use of free equipment, [etc… see. P.42 Book] will not normally give rise to allegation of price discrimination.

See others at p.42ff.

Sale has to be at about or the same time. The Commission indicated that it interpreted s.50(1)(a) to require the same discount to be offered on the same day to all competing purchasers who might qualify for it, regardless of when each might accept the offer. Price discrimination must be a practice (in the US, you can only price discriminate to meet competition). • The “of like QUALITY” requirement can extend quite far; considerations such as physical appearance and manufacturer or brand can affect whether or not goods are of like quality. Look at interchangeability (but note that American jurisprudence has also looked at style, fashion attributes, and other bona fide distinctions between the product lines of individual sellers must be taken into account. I.e. different patterns on shower curtains: see Joseph Kaplan) and cost. Like QUANTITY: Unlike the provisions of the Clayton Act, the Competition Act does not require the supplier to justify quantity discounts on the basis of cost savings. So long as the seller is ready and willing to apply the same discount to all purchasers of like quantities, it’s ok. Thus, no need to be proportional.

- Despite the absence of any requirement to cost justify quantity discounts, s.51(2) requires that quantity discounts with respect to advertising or display allowances, which are collateral to a sale be given to all purchasers upon proportionate terms.

- Buying groups are ok provided that the buying group is the legal purchaser and not a sham. 3 part test: 1. The group should be a legal entity capable of acquiring property in the articles purchased; 2. The

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group should in fact acquire a property interest in the articles, though it need not take possession; and 3. The group should be liable and assume responsibility for payment of the goods purchased.

- Cumulative discounts (discounts based on quantities purchased over time) are ok as long as these discounts are available to competing purchasers.

- Conditional discounts: discounts that are based upon a related condition, such as exclusive dealing or the extent to which a customer’s purchases exceed his purchases in a past period. Historically, these were illegal since two customers purchasing the same quantity at the same time might not be given the same discount. Now, in recognition of the fact that in some circumstances price discrimination can promote efficiency and increased output, he has decided to allow such conditional discounts even though they are based upon a related condition rather than actual differences in the quality and quantity of the “articles” purchases “so long as the advantage is available to all purchases of like quantity and quality.”

• note that wholesalers and retailers are not in competition, so where both are purchasing from the manufacturer, different pricing is not an indication of a violation. Wholesalers assume some functions, such as storage and catalogue distribution, that justifies their being charged a lower price.• consignment selling, where the “purchaser” is in fact only an agent of the “seller,” was a loophole; it was closed with the insertion of S. 76 which creates functionally equivalent rules for consignment sellers.• Note that unlike in the US, which requires of injury to competition, 50(1)(a) may be satisfied by the mere showing that a competitor was subjected to a discriminatory price. • competitors are identified based on a “relevant geographic market” approach; the question to ask is, “would one alleged competing purchaser lose sales to the other if the discount enabled the latter to reduce resale prices to consumers?” Must be selling to competitors. Look at 1) if the 2 have contracts with the same buyer; 2) look at the market; 3) do they have a material effect on competition. Once you’ve proven these 3 things, you can have functional discounts (see p.156 CSBK). But cost justification of functional discounts will be required.• There is no actionable offence unless the price discrimination is to the knowledge of the seller. As this is a criminal offence, the “knowledge” standard is wilful blindness or higher; ordinary negligence in the sense of being unaware of differential pricing i.e. because of sloppy accounting practices is insufficient for a conviction. Can discount on the basis of volume (unlike US). No requirement to be proportionate. Buying groups are ok, unless the buyer is an agent for the buyers. But if it is a corporation with a separate staff, it is ok. Note that s.50(1)(a) is not a consumer protection statute. It protects competitors, not the ultimate consumer. Thus, the section solely prohibits discrimination “against competitors of a purchaser.”

Unlike the Clayton Act, which permits discriminatory deviation from normal pricing practice for solely one reason (good faith meeting of competition), the Canadian statute permits discriminatory deviations from normal pricing practice for any reason (meeting competition, breaking into market, expanding market share, etc.). The sole stipulation is that the discriminatory price cut or discount must be of a temporary nature. It must not become a practice. The requirement that a practice of price discrimination be established creates an evidentiary burden for the Crown. The main difficulty is to determine when a temporary expedient might mature into a practice. See Coutts for a narrow definition of ‘practice.’

Price discrimination is an indictable offence that carries a maximum penalty of an unlimited monetary find in the case of corps and in the case of individuals, a maximum prison term of 2 years, an unlimited fine, or both. Also can be the subject of a private claim for damages.

Difference between (b) and (c), and (a) is that the former focus on the primary line competition, i.e. competition between seller and its own competitors, rather than competition among purchasers from the seller. (b) and (c) both require that there be a policy of predatory pricing and that such policy have the effect of substantially lessening competition or eliminating a competitor, or designed to have that effect.

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2. Geographic price discrimination – S. 50(1)(b) • cannot sell at different prices in different areas of the country where effect, intent or tendency is to lessen competition or eliminate a competitor in the area of the country with the cheaper price.• Any of the motives other than predation that might underlie sales below cost also might underlie sales in one geographic area at prices less than in other geographic areas (promotional pricing, disposing of perishable inventory, etc). If any of these factors were to motivate a geographic price cut, there would be no offence. • But, despite the lack of any requirement to show below cost selling as an element of the geographic predatory pricing offence, it is advantageous to the Crown to demonstrate that such took place. The fact tat price fell below average variable cost constitutes strong evidence of design to eliminate a competitor or lessen competition. • here you don’t have to show below cost pricing; this is the main difference b/w geographic and deep pockets predation. As long as design to eliminate a competitor is present, it is sufficient to show that the price charged in one geographic area of Canada was lower than the price charged in another. Must be a practice, and that the effect is to substantially lessen competition or to eliminate a competitor, or that the policy be designed to have that effect.For penalty, see discriminatory pricing.

3. “Deep pockets” predatory pricing – S. 50(1)(c) – Bristol Myers• can’t sell products at unreasonably low prices with the effect or intent of substantially lessening competition or eliminating a competitor. Must be a practice, and that the effect is to substantially lessen competition or to eliminate a competitor, or that the policy be designed to have that effect.• 3 main actus reus elements here: pricing must be “unreasonably low,” constitute a policy, and have the effect of substantially lessening competition.• the essence of predation is that it results in driving competitors out of the market, allowing the predator to raise prices later and recoup losses.• for “deep pockets” predatory pricing you have to show below cost pricing.

- Prices above average total cost will never be predatory.- Prices below average variable costs are ‘unreasonable’ as they cannot lead to profit-maximization or

loss-minimization under any market circumstances. - sales below average total cost but above average variable cost are in a grey area: such sales might be

part of a program to expand sales to the point where profit is greater but where expansion in volume is not immediately realized, or the seller may only be minimizing its losses by selling below total cost but above average variable cost. here the intent is not to drive the latter out of business, but may have that effect. Determination will depend on other circumstances.

Factors relevant in deciding whether a price is unreasonably low:1. The actual difference between the production or accounting cost and the sale price of the product2. The length of time during which sales at the questionable prices take place3. The circumstances or context in which the sales take place4. Whether any external or long-term economic benefits will accrue to the seller by reducing its prices

below cost.

• Design: From Fairmont Plating: “we all know criminal law well enough that one cannot convict on suspicion. Suffice it to say, on all of the evidence, I have a reasonable doubt which I resolve in favour of the accused.” Design must usually be inferred from the circumstantial evidence presented to the courts. • Recent case law states that a price cannot be predatory, even if it is below cost, where the price reduction was made to meet lower prices already charged by a competitor.For penalty, see discriminatory pricing.

There is a two-stage test for predatory pricing: 1) there must be the potential for predatory pricing: whether the market is concentrated enough to give the alleged predator sufficient market power to engage in effective predation (two rules of thumb);- control of 35% of the relevant market; 65% for the largest 4 firms in the market- predator must be twice the size of its next largest competitor.

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2) Would the predation likely be effective in terms of recouping lost or foregone profits. The test here is whether it would take more than 18 months for a new competitor to enter the market. This is measured in accordance to the cumulative effect of a number of criteria, including the financial risk of entry, the need to engage in time-consuming plant construction, the need to achieve economies of scale or scope to compete effectively, the need to overcome brand loyalty, and other possible impediments to entry such as patents, tariffs, regulatory barriers, control by established competitors of raw materials, and the existence of established contractual arrangements benefiting those already in the market. In stage II of the analysis, i.e., considerations of whether the alleged predator charged “unreasonably low” prices designed to eliminate a competitor or lessen competition will only be triggered if Stage I indicates that effective predation is likely.

The pricing in question must constitute a practice (S. 50(2)); it cannot be an isolated incident or transaction, or take place over only a short period of time. In The British American Oil Inquiry (1961), a three month period was found to be short enough to escape the “practice” requirement. But in National Dairy Products v. FTC, the court found that a promotion lasting 2 months constituted unlawful predatory pricing between “competition was lessened drastically for at least 6 months or more.” No objective standard has been set out however, and this could be shortened depending on the facts. It is also a defence that price reduction was done to meet lower prices of a competitor; this is not predatory.

3. Allowances for advertising or display purposes (S. 51)

Definition of "allowance"51. (1) In this section, "allowance" means any discount, rebate, price concession or other advantage that is or purports to be offered or granted for advertising or display purposes and is collateral to a sale or sales of products but is not applied directly to the selling price.

Grant of allowance prohibited except on proportionate terms(2) Every one engaged in a business who is a party or privy to the granting of an allowance to any purchaser that is not offered on proportionate terms to other purchasers in competition with the first-mentioned purchaser, which other purchasers are in this section called "competing purchasers", is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

Definition of proportionate terms(3) For the purposes of this section, an allowance is offered on proportionate terms only if

(a) the allowance offered to a purchaser is in approximately the same proportion to the value of sales to him as the allowance offered to each competing purchaser is to the total value of sales to that competing purchaser;(b) in any case where advertising or other expenditures or services are exacted in return therefore, the cost thereof required to be incurred by a purchaser is in approximately the same proportion to the value of sales to him as the cost of the advertising or other expenditures or services required to be incurred by each competing purchaser is to the total value of sales to that competing purchaser; and

(c) in any case where services are exacted in return therefore, the requirements thereof have regard to the kinds of services that competing purchasers at the same or different levels of distribution are ordinarily able to perform or cause to be performed.

Where a seller gives a grant, rebate, etc for this to a purchaser he must offer proportionately the same terms to other purchasers. This section prohibits parties from granting an allowance to a purchaser for advertising or display purposes and is collateral to a sale that is not OFFERED on proportionate terms to competing purchasers. • this is a per se offence (see R. v. Koss); need only to show that the allowance was granted and that it was collateral to a sale (in other words, that allowance is in relation to a sale, i.e. calculated as 3% of sales); no effect on competition, potential or actual, needs to be shown.- Must also show that the other parties were “competing purchasers.”

Diffs between s.51 and s.50(1)(a)1. The use of the word “offer” implies a duty on the part of the seller to inform all customers of the

availability of the proportional allowance2. There is no requirement that the violation form part of a ‘practice’ of discriminating; a single

occurrence violates the Act. 3. S.51 covers allowances in respect of the promotion of any “product” which includes both articles and

services4. Promotional allowances must be granted in proportion to the total volume of sales to each competing

purchaser (the costs of required advertising must also be proportional). Other criteria for qualification

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such as minimum purchase volumes or rates of growth are illegal as applied to promotional allowances.

The key to steering clear of s.51 is to apply advertising and display allowances directly to the selling price of an article, or to ensure that they are strictly proportional to the value of purchases of the articles or services in question and offered to all competing customers.

4. Price maintenance (S. 61)

61. (1) No person who is engaged in the business of producing or supplying a product, who extends credit by way of credit cards or is otherwise engaged in a business that relates to credit cards, or who has the exclusive rights and privileges conferred by a patent, trade-mark, copyright, registered industrial design or registered integrated circuit topography, shall, directly or indirectly,

(a) by agreement, threat, promise or any like means, attempt to influence upward, or to discourage the reduction of, the price at which any other person engaged in business in Canada supplies or offers to supply or advertises a product within Canada; or(b) refuse to supply a product to or otherwise discriminate against any other person engaged in business in Canada because of the low pricing policy of that other person.

Exception(2) Subsection (1) does not apply where the person attempting to influence the conduct of another person and that other person are affiliated corporations or directors, agents, officers or employees of

(a) the same corporation, partnership or sole proprietorship, or(b) corporations, partnerships or sole proprietorships that are affiliated,

or where the person attempting to influence the conduct of another person and that other person are principal and agent.

Suggested retail price(3) For the purposes of this section, a suggestion by a producer or supplier of a product of a resale price or minimum resale price in respect thereof, however arrived at, is, in the absence of proof that the person making the suggestion, in so doing, also made it clear to the person to whom the suggestion was made that he was under no obligation to accept the suggestion and would in no way suffer in his business relations with the person making the suggestion or with any other person if he failed to accept the suggestion, proof of an attempt to influence the person to whom the suggestion is made in accordance with the suggestion.

Idem(4) For the purposes of this section, the publication by a supplier of a product, other than a retailer, of an advertisement that mentions a resale price for the product is an attempt to influence upward the selling price of any person into whose hands the product comes for resale unless the price is so expressed as to make it clear to any person to whose attention the advertisement comes that the product may be sold at a lower price.

Exception(5) Subsections (3) and (4) do not apply to a price that is affixed or applied to a product or its package or container.

Refusal to supply(6) No person shall, by threat, promise or any like means, attempt to induce a supplier, whether within or outside Canada, as a condition of his doing business with the supplier, to refuse to supply a product to a particular person or class of persons because of the low pricing policy of that person or class of persons.

(7) and (8) [Repealed, R.S., 1985, c. 19 (2nd Supp.), s. 36]

Offence and punishment(9) Every person who contravenes subsection (1) or (6) is guilty of an indictable offence and liable on conviction to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both.

Where no unfavourable inference to be drawn(10) Where, in a prosecution under paragraph (1)(b), it is proved that the person charged refused or counselled the refusal to supply a product to any other person, no inference unfavourable to the person charged shall be drawn from that evidence if he satisfies the court that he and any one on whose report he depended believed on reasonable grounds

(a) that the other person was making a practice of using products supplied by the person charged as loss-leaders, that is to say, not for the purpose of making a profit thereon but for purposes of advertising;(b) that the other person was making a practice of using products supplied by the person charged not for the purpose of selling the products at a profit but for the purpose of attracting customers to his store in the hope of selling them other products;(c) that the other person was making a practice of engaging in misleading advertising in respect of products supplied by the person charged; or(d) that the other person made a practice of not providing the level of servicing that purchasers of the products might reasonably expect from the other person.

• This section prohibits a seller from discriminating against a buyer based on buyer’s low pricing policy. 61(6) also prevents you from inducing other suppliers to refrain from dealing with the low price seller.

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Prohibits attempts by parties to influence the increase or decrease in the price of a product that another person supplies or advertises. In addition, this section prohibits a party from discriminating against another party engaged in business due to the second party’s low pricing policy. Subs.61(6) stipulates that any party who attempts to induce a supplier to refuse to supply a product to a second party due to the low pricing policy of the second party is also guilty of an indictable offence. Applies to articles and service covers horizontal and vertical prince maintenance.

Elements of S. 61 offence that must be proven:

Actus reus: must show an attempt to influence pricing by threat, agreement, promise or like means; or show that the party has refused to supply a product in order to influence pricing.

No requirement that competition be harmed, as the lack of a socially redeeming effect of price fixing is acknowledged. Persuasion and requests are ok. Only when there are accompanied by threat (explicit or implicit), promises of rewards for increasing prices (i.e. the provision of co-operative advertising monies only if minimum prices are respected), an explicit or implicit agreement regarding prices, or similar “carrot or stick” methods of persuasion. If a retailer or other person cannot be persuaded through logic alone that a price increase is good for business, to go further may be illegal

Agreement, threats, promises or any like means: see p.50 TEXT for examples

• As to the second heading of the offence: refusing to supply or otherwise discriminating against a customer because of its low pricing policy, can take may forms. See p.52 TEXT for examples

Mens rea: show that the accused knowingly committed the acts constituting the offence; don’t have to show an intent to commit the offence itself.

Exceptions: s.61(10): applies to attempts to refuse supply. Cannot draw inference on the basis of these 4 exceptions. There must be other evidence.

Defences: see p.52 text.• Cases: see Cartier, Schelew, and Shell

5. Less significant provisions:

- S. 48: conspiracy in relation to professional sport

- S. 49: federal financial institutions

- S. 52: false advertising: no person shall knowingly or recklessly make a representation to the public that is false or misleading in a material respect for the purpose of promoting a product. It is not necessary to prove that any one person was in fact deceived or misled by the advertisement. The Crown must also prove that the representation itself is misleading in a material aspect. The test to be applied is whether the average person that the ad is directed at would be misled. Remember that misleading advertising can be dealt with as a criminal matter or as a reviewable (civil) matter. The Commissioner has indicated that the civil track will be pursued unless there is clear and compelling evidence that the accused knowingly or recklessly made the false or misleading representation and the Bureau is satisfied that criminal prosecution would be in the public interest.

- S. 53: telemarketing offences

- S. 54: double ticketing: if you have 2 prices, you must charge lower price.

- S. 55/55.1: pyramid selling

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Main principle of penalties in deterrence (p.147 CSBK).

B. K. Kay, “Fundamentals of Criminal Anticompetitive Conduct” (CB 142)

This article first examines the criminal provisions in the Act, then discusses recent cases. Kay notes that criminal cases are few, individuals are being charged more frequently, and fines tend to loosely follow a 20% rule – the baseline appears to be approximately 20% of the volume of commerce involved, although factors can mitigate or aggravate this figure.She also discusses procedural issues in a criminal investigation (see Week 11) and disposition of cases. Corporations will generally, rather than fight through the suit, seek to settle, entering a guilty plea and signing a carefully negotiated document which sets out the precise offence and impugned conduct, being mindful of the possibility of subsequent civil suits for which the guilty plea may be used as evidence. Whistleblowers, who get immunity from criminal charges, may still be included in a civil suit and this fact should be borne in mind when negotiating pleas and coming forth.

C. R.J. Roberts, “Competition/Antitrust: Canada and the U.S.” (CB 152)

This article discusses in detail aspects of the price discrimination, predatory pricing and disproportionate advertising allowances criminal provisions, with respect to both Canada and the U.S.; most of the points in the discussion are covered in the notes above with respect to the sections of the Act.

D. Green, “Collusive and Competitive Behaviour in Canadian Industry” (CB 165)

This article reviews the history of collusion and competition law in Canada, briefly discusses some of the economic considerations, and finishes with several case studies in various industries.

Up until WWII, competition law was basically ineffective, and collusion was rampant in a broad range of industries. Various forms of oligopolistic cooperation, ranging from detailed contractual agreements complete with fine structures for violators, to conscious parallelism, where a small number of players cooperate tacitly on prices, were present. From an economic perspective, it is not clear that collusion benefits producers. When prices are fixed, Green argues, the natural tendency of firms is to compete on non-price variables, typically advertising. As this is ramped up, the profits of collusion can disappear, leaving higher costs to consumers with only regular profits for producers. Collusive agreements are also very fragile, as there is a natural tendency of producers to secretly increase production to benefit further from monopolistic profits, and the additional threat of new competitors attracted by the high levels of profits in the industry.Case studies include collusion agreements among shipping container manufacturers, light bulb manufacturers, and metal culvert manufacturers. There are also case studies of predatory pricing, including those of manufacturers of wooden matches and plastic coffee cup lids.

E. R. v. Les Must de Cartier Canada (CB 175)

Facts: Oliver Jewellers was experiencing financial difficulties and held a sale in which it advertised Cartier watches at 50% off. Cartier prevented Oliver from acquiring new inventory until the situation had been resolved and sought to discourage Oliver from advertising its watches in this manner by requiring Oliver to get all its advertising approved by Cartier. It was alleged that Cartier had both engaged in price maintenance contrary to what is now S. 61(1)(a) of the Act, and refusal to supply under what is now S. 61(1)(b).

Issue: Were Cartier’s actions in violation of the Act?

Held: No; the evidence showed that the refusal to supply had been based on sound financial reasons, and that while there had been encouragement by Cartier to sell the watches at higher prices and not use the Cartier name in sale advertising, this was not done in the manner proscribed in S. 61(1)(a), which requires “agreement, threat, promise or

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any like means.” It is not illegal to attempt to maintain prices by discussion, persuasion, complaints, suggestions, request or advice, provided that the attempt does not include the means prohibited by statute. The agreement signed related to advertising, not pricing, and was to protect the Cartier trademark.

F. Regina v. Schelew (CB 181)

Facts: Schelew was the driving force behind a Moncton landlords’ association. He tried to get landlords in the association, which represented only a fraction of landlords in the area, to raise rents, at meetings of the association and in a dramatic and exaggerated newsletter. The newsletter may have had as its real purpose to dissuade the government from continuing its taxation policies on rental properties.

Issue: Did Schelew’s actions violate S. 61(1) (then S. 38(1)), which prohibits attempts to influence upwards the price at which a product is supplied by “agreement, threat, promise or any like means?”

Held: No; LaForest JA: “He may well have wished and tried to influence upwards the price of rents, but I do not think the evidence conclusively establishes that he employed the means to do so prohibited by the statute.” Angeas JA: “Here there was no attempt to bind or restrict the right of other landlords to rent their premises at the price they chose.”

G. Regina v. Shell Canada Products Ltd. (CB 185)

Facts: Jet Car Wash was an independent dealer with a lucrative but easily terminated lease-back arrangement with Shell, the supplier of its gasoline. Shell switched pricing systems to a “rack pricing system,” which gave Jet the ability to set its own prices while guaranteeing a certain margin in the event of a price war. When Jet lowered its gas prices, a representative of Shell telephoned and in a rude and brash manner told an employee of Jet that the lower price was detrimental, that a price war could start, and to restore the regular price. This was done.

Issue: Was this a violation of (now) S. 61(1), attempting to influence upward or discourage the reduction of price by agreement, promise, threat or any other means?

Held: Yes; given the position of Shell vis-à-vis Jet and the manner of the calls, there was a threat.

Notes: Here “threat” is taken to mean “an urged course of action which carries with it some sanction or penalty if not carried out. It is a form of intimidation, fulmination, harassment or warning which carries with it some form of penalty.” Bargaining power of the parties counts. Note that Schelew was a horizontal relationship with no potential for intimidation. Shell was a vertical relationship: even though there was no evidence, they had the possibility of enforcing threats. This is the reason for the different results in the 2 cases.

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IV. Mergers and Acquisitions: The Law

A. Provisions of the Act, s. 91-97

s. 91: Definition of Merger acquisition of establishment, direct or indirect, by one or more persons, by purchase or lease of shares or assets by amalgamation or by combination or otherwise, of control over or significant interest in the whole or a part of a business of a competition, supplier, customer or other person.”

s. 92(1)(e) & (f) Tribunal can order…if lessening or prevention of competition substantially (LCS): dissolve merger, dispose assets or shares, not proceed with merger/part, prohibition order s 92(2): can’t find LC solely on evidence of concentration of market share. s. 93: Factors to consider for LCS

a. foreign competition likely be effective competition b. business of party to merger failed/likely to have failedc. availability of acceptable substitutesd. barriers to entry

(i) tariff/non-tariff barriers (ii) inter-provincial barriers to trade (iii) regulatory control re: entry; and effect of merger over barriers

e. effective competition remaining f. removal of vigorous and effective competition g. nature/extent of change and innovation h. any other factor relevant to competition in the market

Exceptions: ss. 94, 95, 96

s. 94: time, financial institutions, transportationa. merger substantially completed before coming into force of this section b. merger proposed under Bank Act, Trust and Loan Companies Act, Insurance Act, Minister of Finance

certify best interest of financial system of Canada; c. s. 56(2) Canada Transport Act, certified by Minister of Transport

s. 95(1): Exception for Joint Venture or Combination for Project/Research and Development ifa. couldn’t have taken place or reasonably have taken place otherwiseb. no change in controlc. agreement in writing imposing obligation, contribute assets/govern relationship between partiesd. agreement restricting range of activities, terminates upon completion of project e. does not lessen competition, except as reasonably required

s. 96: Efficiency Gains a. (I) greater than and offset effects of lessened competition

(ii) gains in efficiency not likely be attained if make an order b. Factors:

i. significant increase in value of exports ii. significant substitution of domestic products for imports

d. Restriction: no EG solely because of redistribution of wealth between two or more persons. s.96(2) promotes domestic economic production

efficiency is left to the Tribunal. Director will not make determination.s. 97: Limitation Period: 3 years Tribunal is not obliged to find least obstructive remedy.

Provisions of the Act: Notifiable Transactions:

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Interpretation: 108 (1) Definitions operating business: Business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work; person, prescribed, voting share

See p.74 TEXT

1. Application109 (1) General Limit Relating to Parties – not apply wrt proposed tx unless the parties, together with their affiliates,

a. have assets in Canada that exceed 400 million in aggregate value, determined as of such time and such manner as may be prescribed, or such greater amount as may be prescribed; or

b. gross revenue s from sales in, from, or into Canada, determined for such annual period and in such manner as may be prescribed, that exceed 400 million dollars in aggregate value , or such greater amount as may be prescribed.

(2) Parties to acquisition of shares – those who propose to acquire shares and corporation the shares of which are to be acquired. 110(1) application of Part – this part applies only wrt proposed txs described in this section.

(2) Acquisition of Assets – subject to 111 and 113, applies proposed acquisition of any assets in Canada of an operating business, aggregate value of those assets, or the gross revenues from sales in or from Canada generated from those assets, and in such manner…exceed 35 million or such greater amount as may be prescribed. (3) Acquisition of Shares – subject to 111 and 113, this part applies to acquisition of voting shares of a corporation that carries on an operating business or controls a corporation that carries on an operating business

a. where i. aggregate value of assets in Canada, owned by the corporation(s) controlled by the

corporation, other than assets that are shares of any of those corporations, would exceed 35 million dollars, or greater amount as may be prescribed,

ii. gross revenues from sales in or from Canada, determined for such annual period and in such manner as may be prescribed, generated from assets referred to in (I) would exceed 35 million, or such greater amount as may be prescribed, and

b. where, as result of proposed acquisition of voting shares, acquirer with affiliates, would own voting shares of the corporation that in aggregate carry more thani. 20% or, if the person(s) owns 20% or more before the tx, 50% of the votes attached to

all the outstanding voting shares of the corporation, in the case of acquisition of voting shares of a corporation any of the voting shares of which are publicly traded, or

ii. 35% or, if the person(s) own 35% or more before the proposed acquisition, 50% of the votes attached to all outstanding voting shares of the corporation, in the case of acquisition of voting shares of a corporation none of the voting shares of which are publicly traded.

(4) Amalgamation – subject to 113, this Part applies in respect of proposed amalgamation of2+ corporations where 1+ of these corporations carries on an operating business or controls corporation that carries on an operating business wherea. aggregate value of assets in Canada, of the continuing corporation that would result – would exceed 75

million dollars, or greater amount as may be prescribed, or b. gross revenues from sales in or from Canada…generated from assets would exceed 75 million, or

greater. (5) Combination – subject to 112 and 113, proposed combination carry on business otherwise than through a corporation, where one or more of persons propose to contribute to combination assets that form all or part of an operating business carried on by those persons, or corporations controlled by those persons, and where

a. aggregate value of assets in Canada, would exceed 35 million, or greater; b. gross revenue from sales, would exceed 35 million. Etc.etc.

This info is found in most recently audited financial statements (no more than 15 months old).

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Exemptions

Acquisition of voting shares, Assets, or Interestss. 111 Acquisitions: following classes are exempt from application,

a. acquisition of real property or goods in the OCB if acquirer would not as result hold all or substantially all assets of business (operating);

b. of voting shares or interest in a combination solely for purpose of underwriting shares or the interest within meaning of s. 5(2);

c. acquisition of voting shares, interest in a combination or assets result from gift, intestate succession etc.

d. collateral or receivables or from foreclosure or default or part of debt work-out;e. resource property, 66(15) of income tax act, pursuant to an agreement in writing that…f. voting shares, agreement….

s. 112 Combinations that are joint ventures a. all persons are parties to agreement in writing intended to be put in writing that imposes on one or

more of them an obligation to contribute assets and governs continuing relationship b/w parties. b. No change in control over any party to the combination would result from the combination; and c. Agreement (a) restricts range of activities that may be carried out wrt combination, and provisions

allowing for termination;

s. 113 General Exemptions following class of txs exempt: a. all parties to which are affiliates of each other b. min. of Finance c. certificate s. 102 d. tx wrt C’er waived obligation to notify b/c substantially similar information supplied in relation to

request for certificate under 102; and e. such other classes of tx as may be prescribed.

B. Notice and Information

s. 114 (1) Notice of Proposed Tx: a. assets – 110(2), shares 110(3), interest in combination 110(6); b. corporations – 110(4) or c. combination 110(5) (2) information required – short form or long form, if short c’er may within 14 days require long form;(3) Corporation whose shares are acquired – if C’er receives information (1) by party to tx, other than corporation whose shares are being acquired, before receiving such information from corporation, a. C’er shall immediately notify the corporation that the C’er has received from that the party the short

form or long form, b. Corp’n shall supply the C’er with prescribed short form information within 10 days after notified under

(a) or for long form within 20 days after notified; and c. Where corporation supplies short form info, may require corporation to supply the long form

information and the corporation has 20 days to do so; (4) notice and information

115 (1) prior notice of acquisitions116 (2) notice of future acquisition

C. Completion of Notified Transactions

123 (1) Time when tx may not proceed – proposed tx referred to 114 shall not be completed before the expiration of

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a. 14 days after the day on which information required under section 114 has been received by the C’er, where the information is prescribed short form information and the C’er has not, within that time, required prescribed long form information to be supplied under that section,

b. except as provided in para (c) days after the day on which information required under s. 114 has been received by the Commissioner, where the information is prescribed long form information, or

c. where the proposed tx is an acquisition of voting shares that is to be effected through the facilities of stock exchange in Canada and the information supplied is prescribed long form information, 21 trading days, or such longer period of time, not exceeding 42 days, as may be allowed by the rules of the stock exchange before shares must be taken up, after the day on which the information required under section 114 has been received by the Commissioner,

unless, the C’er, before the expiration of that time, notifies the persons required to give notice and supply information that the c’er does not, at that time, intend to make an application under section 92 in respect of the proposed tx. (2) Acquisition of Voting Shares – to which 114(3) applies, the periods of time referred to in s.s (1) shall be determined without reference to the day on which the information require under s. 114 is received by the C’er from the corporation whose shares are being acquired.

D. Step by Step Analysis of Merger Review

1. Does the proposed transaction qualify as a merger within the meaning of s. 91?

Control: For a merger to occur, there must be an acquisition of control or a significant interest in all or part of the business of another. Significant Interest: ability to materially influence the economic behaviour of a business (pricing, purchasing, distribution, marketing, or investment). Significant interest exists when one or more persons, directly or indirectly, hold enough voting shares to (i) obtain a sufficient level of representation on the Bd of directors of the corp to materially influence that board; or (ii) to block special or ordinary resolutions of the corp. Significant interest exists when owns more than 50% of voting shares of the Corporation (although 10-50 is a grey area). A much greater level of voting interest is ordinarily required to materially influence a private company than a widely held public company.

Can be vertical, conglomerate, or horizontal merger, but mostly horizontal. Can be overlap with conspiracy/abuse of dominance provisions of the Act, but no double jeopardy (s. 98). Merger provisions may apply if acquirer already holds a significant interest – but acquires greater ability to

influence economic behaviour of business. MEGS indicate that vertical mergers are considered to raise concerns only (1) where they raise objectionable

barrier to entry to a market; or (2) where they facilitate consciously parallel pricing practices in a downstream or upstream market for more than 2 years. Conglomerate mergers are said to raise concerns only where it can be demonstrated that one of the merging parties would have entered the other’s market in any event, and the likely effect of the merger will be to materially raise prices in that market for more than 2 years.

2. Is the merger subject to pre-notification requirements under Part IX?

a. Does the transaction meet threshold? (s. 109)Do the parties (and affiliates) have assets or gross revenues from sales in Canada that exceed 400 million in aggregate value?

b. What kind of transaction? (s. 110)

Asset Acquisition (s. 110(2): Does the acquisition of assets in Canada of an operating business, aggregate value of assets or gross revenues from sales in or from Canada exceed 35 million.

Share Acquisition (s. 110(3): Does the corporation carry on an operating business or control a corporation that carries on an operating business where the aggregate value of assets would exceed

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35 million dollars or gross revenues from sales in or from Canada exceeding 35 million (110(3)(a))? If the shares are publicly traded, will the party acquire 20% of the voting shares? If the company is a privately held corporation, will the party acquire 35% of voting shares (110(3)(b))?

Corporate Amalgamation: (s. 110(4) Do one or more of the corporations carry on or controls a corporation that carries on an operating business in Canada with assets would exceed 75 million in value (for continuing corporation) (110(4)(a)) or gross revenues would exceed 75 million (114(b)).

Business Combination (not corporation) (s. 110(5)) Does the aggregate value of assets exceed 35 million or do gross revenues from sales exceed 35 million (110(5)(a)(b)?

c. Do any exemptions apply?

1. Does the transaction fall within one of the exempted classes listed in s. 111? s. 111 (a): acquirer wouldn’t hold all or substantially all of the assets of the business – outsourcing, eg. sell real property to Property Management Corporation – Co. does not hold all or substantially of the assets of business of operating segment. (b): acquisition for underwriting purposes, (e): can resource property – make easier for people to invest.

3. If the transaction is a joint venture does it fall within one of the exemptions listed in s. 112? a. all parties, agreement in writing, imposes on one or more of them an obligation to contribute

assets and govern continuing relationship between parties: b. there is no change in control over any party to the combination? c. Agreement that restricts range of activities that may be carried out wrt combination and

provisions allowing for its termination?

4. Does the transaction fall within on the exempted classes pursuant to the provision for general exemptions under s. 113:

a. All parties are affiliates of each otherb. Minister of Finance – certifiedc. ARC issued (s. 102) d. Information already supplied in request for ARC, C’er waives obligation to notifye. Such other classes of tx as may be prescribed

c. If yes notification is required, should the parties file short form or long form (s. 114)? Filing fee is 25,000.

is the transaction non-complex, complex, or very complex transaction?

non-complex: 2 weeks complex: 10 weeks very complex: 5 months

d. Parties are recommended to apply for an ARC (s. 102).

Bureau may reject ARC. Bureau may send no-action letter: parties can proceed with proposed merger, may be subject to review.

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If receive ARC, provided merger substantially completed within one year of issuance of ARC, merger cannot be challenged (s. ??}

e. Waiting periods:

Short-Form: 14 days may be extended to long form, to another 42 days (on the ? day).Long-Form: 42 days

ARC:[ 1-3 weeks?]

f. If the parties don’t notify, may be fined up to 50,000, 2 year jail term, and ?? (65(2)).

E. Merger Review

Key Issue: Will the merger substantially lessen or prevent competition substantially (PLCS)?

Looking at anti-competitive effects: reflected primarily in price: Will the merger lead to higher prices than otherwise?

PLCS when parties to merger likely be in a position to exercise a materially greater degree of market power in a substantial part of a market for two years or more, than if the merger didn’t proceed.

Scenarios:Unilateral:

- price increase - they acquired increasingly vigorous competitor in a market or a potential entrant;- market leader pre-empts acquisition of acquiree by another competitor, - potential entrant acquires existing business instead of establishing new facilities

Interdependent:- price increase b/c of increased scope for independent behaviour; If the merged entity can sustain a significant and non-transitory price increase –

5% increase (varies re: industry) for 2 years (not likely be eliminated by new or increased competition from foreign or domestic sources (approximate)?

Can also PLCS wrt service, quality, variety, advertising or innovation (if important aspect of competition).

Steps:

1. Where and over what do parties compete – i.e. what are the relevant markets in which the merging parties operate?

Relevant Market: smallest group of products in the smallest geo area in relation to which sellers could impose and maintain and non-transitory price increase above levels that would likely exist in absence of the merger. (5%, one year)

a. Product Market : Over what product(s) do parties compete? Basically, in face of price increase, would customers buy a different product in its place?

If so, then the replacement product may be in the same product market as the original product.

From Hillsdown: In determining the product dimensions of the market, the first step is to identify the product or products with respect to which, prior to the merger, the 2 firms were competitors. The second step is to ask whether there are any close substitutes to that product to which consumers could easily switch if prices were raised (an indication of demand elasticity). If 2 products appear to be close substitutes when both are sold at marginal cost,

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then the 2 should be included in the same product market.

Is there any direct evidence such as stats on cross-elasticities of demand? (Rarely available.)

Look to indirect evidence:

What are the views, strategies, behaviour, and identity of buyers? - Will buyers likely switch to another product? Look to what buyers say they will likely

do, past practice? (To figure out whether price increase likely be imposed/sustained). What are trade views, strategies, and behaviour?

- Are there any industry surveys, experts? What is the end use of the product?

- Are there functionally interchangeable products in terms of end use? i.e will there be substitution between products?

- This is a necessary, not sufficient condition for 2 products to be in the same relevant market.

Less likely same product market.- Differences in price increases (premium and discount products, same end uses)? - End uses perceived as more unique?

Examine the physical/technical characteristics? - Functionally interchangeable products but separate market b/c of unique

physical/technical characteristics,- Greater value buyers place on these characteristics, more likely product distinct relevant

market. - Look to: product warranties, post-sales service, etc.

What are the switching costs?- Tx costs for buyers to retool, repackage, adapt marketing, breach supply K, learn new

procedures, etc.} likely sufficient - switching unlikely response to price increase. What is the price relationship between products?

- Is there a strong correlation in price movements b/w 2 products over significant period of time immediately prior to the merger? If not, unlikely same market.

- If high correlation in price movement, indicative of competition, but check to see if there are other reasons for this.

What is the cost of adapting or constructing production processes, distribution and marketing? - Are there sellers who don’t produce the product but have facilities that could?

If yes, and capacity to produce sufficient quantities to constrain a price increase, then usually included in relevant market. - Not included if likely difficulty in distributing or marketing the product, or

New production/distribution facilities are required to produce/sell on a significant scale. (considered s. 93(d))

Are other second hand, reconditioned, or leased products?

b. Geo Market : want to delineate the geo market within which parties compete.

From Hillsdown: An assessment of geographic boundaries requires an assessment as to whether a significant number of consumers within the alleged area are willing to turn to suppliers outside that area to obtain in this case, rendering services and whether they are suppliers outside the proposed boundary who could supply consumers within that area with rendering services, as effective competitors to the merged firm (indicators of demand elasticity and supply elasticity, respectively.)

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What would happen if merging party imposed price increase at the location where it sells the relevant product?

if buyers switch sufficient quantity of purchases to products sold at other locations, price increase not profitable

What are the views, strategies, behaviour, and identify of the buyers? - How important is convenience to buyers as compared to price? (particularly – service

industries – products can’t be arbitraged).

What are the trade views and strategies? - Historical, likely future developments, experts, suppliers of the sellers, - Industry surveys? - How do parties who sell the relevant product in one area respond to changes in price,

packaging, servicing etc. of the relevant product in the 2nd area? - To what extent was there account of distant sellers in business plans, marketing

strategies, and other documentation?

What are switching costs?

What are transportation costs? - This is central to delineation of geo scope of relevant markets. - If prices in distant area have historically exceeded in relevant geo area by more than

transportation costs, usually good indication that the two areas are separate geo areas for reasons beyond transportation costs, but not conclusive.

What are the local set-up costs? - What is the extent to which sellers of relevant product in 2nd area likely to respond to

price increase in relevant geo area – evaluate non-recoverable local set-up costs, ex.: warehouse requirements, delivery network, marketing costs, local regulatory approval, etc.

What are the particular characteristics of the product?- whether distant suppliers likely to divert relevant product to relevant geo area in response to

price increase – examine whether product likely to be transported into relevant market b/c of fragility, perishability etc.

What is the price relationship and relative price levels? - If there is no strong correlation in price movements of the relevant product in two distinct

geo areas over significant period of time prior to the merge suggests the two regions are not in the same relevant market.

- If there is high correlation in price movements of the relevant product in two different areas, often indicative of competition, but may be for other reasons (price changes in common outputs, pricing policies of multi-market farms, other variables).

- Information on price movements – undermined by difficulty of ascertaining price at which sales are actually transacted.

What are shipment patterns? - If there are significant shipments of the relevant product from the 2nd geo area to area of

price increase, suggests – the 2nd area is within relevant market.- But past trading patterns poor indicator of ability to constrain prices.

Is there foreign competition?

2. What are the competitive effects of the merger on competition?

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Will merger confer substantially greater market power (ability to raise prices and reduce consumer choice) than if merger didn’t proceed result in substantially lessening or preventing competition?

Determination of Market Power

From Hillsdown: Market power in the economic sense is the ability to maintain prices above the competitive level for a considerable period of time without such action being unprofitable. Market power can be viewed as the ability of a firm to deviate profitably from marginal cost pricing. A merger will lessen competition if it enhances the ability of the merging party to exercise “market power” by either preserving, adding to or creating the power to raise prices above competitive levels for a significant period of time.

a. What are the pre/post-merger market shares? Single most important factor, not sole consideration (s. 92(2)); no precise numerical threshold

(MEG)

i. nominal market share : Is it less than 35%; then unlikely market power. Usually nothing done if less than 50%

ii. CR4 : interdependent conductNo challenge if 4 largest firms post-merger collectively less than 65% of total market; or post-merger market share of merged firm less than 10%;

Conscious parallelism, difficult to prove; market transparency

iii. HHI

b. What are the relative non-market share factors s. 93, indicative of market power ? - non-exhaustive- one element not likely determinative; evaluation of combination of factors- more complex factors: failing firm (b); barriers to entry (d); market change and innovation (g)

93(a) Foreign Competition “extent foreign competition likely provide effective competition to the merged parties”

Can be non-existent to sufficient to ensure merger does not PLCS; most cases in between the two extremes.

93(b) Business Failure and Exit Insufficient in itself to concluded merger not PLCS, unlike US approach. Assess:

- whether acquisition of firm by 3rd party? - retrenchment by failing firm? Or- liquidation likely result in materially higher level of competition in the relevant market

than if merger proceeded? Anti-competitive effects in a market after acquisition of a failing firm can’t be attributed to

the merger where there are no likely alternatives that would result in maintaining a materially higher level of competition in the relevant market than if the merger proceeded.

Assess Failure Firm is failing if:

i. insolvent, or likely become insolvent,ii. initiated or likely to initiate bankruptcy proceedings, iii. has been or likely to be petitioned into bankruptcy/receivership

Information used: most recent audited financial statements, notes etc., projected cash flows, loans called/denied?, suppliers eliminated trade credit, operating losses or decline in net worth or in assets, erosion of market position, leasing, publicly trade debt of firm – value has dropped.

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a. Purchase by 3 rd Party: Competitively Preferable Purchaser (CPP) Assess: whether there is a 3rd party whose purchase of the firm would likely result in a materially higher level of

competition in a substantial part of the market, and price willing to pay, greater than proceeds which flow from liquidation:

“net price above liquidation” b. Retrenchment:

Assess: whether exiting firm would likely remain in the market in its actual state or in retrenched form if the merger doesn’t proceed; if so would this likely result in materially greater level of competition than if the proposed merger didn’t proceed. Unless such difference in competition is likely, the assessment of the alternatives to the

merge will weigh in favour of Director not to challenge merger. c. Liquidation :

Where no CPP and retrenchment not likely, Assess: whether liquidation of the firm likely result in materially higher level of competition in substantial part of the relevant market than if merger proceeded. Liquidation can facilitate entry into, or expansion in a market by enabling actual or

potential competitors to compete for exiting firm’s customers/assets to greater degree than if exiting firm merged.

Main factor is effect on customers.

93(c ) Availability of Acceptable Substitutes? 1. delineate relevant market:

is there an acceptable substitute within same relevant product market? The geo source of supply of the relevant product must be in the same relevant market as

the local source of supply to be an acceptable substitute. Generally all product/geo substitutes in the relevant market are “acceptable” within

meaning of s. 93(c ). 2. extent to which sellers of the acceptable substitute would likely make substitutes available in

increased quantities in response to price increase by merged entity? 3. whether buyers likely to switch sufficient quantity of purchases to acceptable substitutes to

ensure material price increase is not profitable.

93(d) Barriers to Entry? Assessment of potential competition is a fundamental/central aspect of merger review, most prominent in this

section. Assess: whether entry by potential competitors would likely occur on a sufficient scale in response to a material price increase or other change in the relevant market (from the merger), to ensure that price increase could not be sustained for more than 2 years.

Key issues: i. What must be done, what commitments must be made by potential competitors to enter on

sufficient scale to eliminate price increase in relevant market, ii. Are there factors likely to delay entry or prevent scale of entry from occurring within 2 years;

and iii. Potential competitors likely to enter, given commitments, time required, risks involved, likely

rewards, If no such entry not sufficient replacement for loss of competition from merger.

Examine potential entrants:i. From identified potential sources of production substitution not included within relevant

market, ii. From sources that can’t be identified (and thus can’t be assessed), eg. entry from unknown

potential competitors; and iii. Expansion of firms within the market,

Examine extent of entry:

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Firms with entry advantage: fringe firms in the market, sell relevant product in adjacent geo markets, produce products with similar machinery/technology, sell in related upstream or downstream markets, and sell through similar distribution channels or employ similar marketing/promotion methods.

What is the stage of growth in the market? New entry more likely when market in growth stage.

Time ? Will entry occur within 2 years on a sufficient scale (can vary according to industry). What are Cost Advantages for incumbents? S. 93(d)(I)(ii)(iii) (re: borders)3 sources of cost

advantages may be insurmountable barriers to entry: - Interprovincial barriers: local content rules, local ownership requirements, local

standards, environment/other laws impose costs on new entrants (not incumbents), licensing/other restrictions on transportation, packaging, advertising, other forms of promotion.

- Transportation costs, control over access to scarce resources, non-duplicable resources, (techno, natural resources, distribution channels).

Are there sunk costs? [can’t recover]Focus: whether likely rewards of entry, time required to become an effective competitor and risk that entry will not be ultimately successful, taken together, justify sunk investment that would be required to undertake entry. - market information (acquiring), developing/testing product designs, installing equipment,

new personnel, set up of distribution systems, - investment of market specific assets- overcome product differentiation-related advantages enjoyed by incumbent firms- overcome strategic behaviour of incumbent firms Will sunk costs of future entrant increase because of merger?

93(e) Effective Remaining Competition?Assess: extent to which competitor likely to remain as vigorous and effective as prior to merger?

if not reduced, this alone insufficient not to challenge merger. Broad: collective influences of all sources of competition: foreign competition, acceptable

substitutes, nature of innovation/change, can impact effectiveness of remaining competition. Effect of strategies of: discounting/aggressive pricing strategies, innovative distribution and

marketing methods, product/packaging innovation, and aggressive service offerings;

93(f) Removal of Rigorous/Effective Competitor? figure out, who is vigorous/effective competitor, look to:

- discounting/aggressive pricing practices, - disruptive force in market, - unique service/warranty benefits to market- recent impressive gains in market share, - recently acquired patents

insufficient to warrant enforcement action, must also establish: as result of removal, prices will be materially higher than in absence of merger; It is

from this point of view that the factors set forth in s.93 must be considered. Differentiate between “materially greater” and “substantially greater”

(1) MG: Must be shown that a materially greater price could be imposed over a substantial part of the market by unilateral action of the merged entity or consciously parallel conduct facilitated by the merger. The materially greater price must be capable of lasting for more than 2 years. Unlike the “substantially greater” threshold of 5%, the MEGS suggest that the threshold for a “materially greater” price will vary from industry to industry.

(2) SG: used in deciding who is included in a relevant market. The market had to include the smallest possible number of competitors who, acting in concert as if they were a single-firm monopoly, could impose a substantially greater price for more than one year.

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93(g) Change and Innovation fundamental role in analysis of: market definition, foreign competition, availability of

substitutes, future entry, effective remaining competition, here: further evaluation – of general nature and extent of change and innovation to determine

whether there are broader considerations? - technological change and innovation in products/processes- impact on competition of other forms of change/innovation:

- distribution, service, sales, marketing, packaging, buyer tastes, purchase patterns, firm structure, regulatory environment and economy as a whole.

Look to stage of market growth: dynamics of competition change more rapidly than in mature stage (stable) , less difficult/time consuming than in mature market,

Does merger impede process of change/innovation (and facilitate market power)? - ex: intro new product, processes- marketing approaches- aggressive R/D initiatives or business methods

93(h) Evaluative Criteria

Miscellaneous PointsMarket Transparency:Transaction Value and Frequency: Horizontal Mergers: covers all issuesVertical Mergers: Bureau rejects most of the factors for vertical mergers as irrelevant except for a few: does

it raise objectionable barriers to entry, typically supply channels, facilitate vertical conduct? Conglomerate Mergers

3. Does the merger qualify under any exemptions?

F. Efficiency Defence (s. 96)

Tribunal shall not make an order under section 92 if it finds that the merger or proposed merger…brings about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result…and that the gains in efficiency would not likely be attained if the order were made.

2 types:

1. Production Efficiencies : most common, when firm generates economies of scale (long run unit costs are reduced when firm increases volume or expands to optimal size); and economies of scope (cost of producing different product is reduced by producing products together);

2. Dynamic Efficiencies : gains through introduction of new products, development of more efficient production processes and improvement of product quality and service;

Quantifiable Efficiencies: net real basis: costs required to achieve anticipated efficiencies deducted from efficiency values, and future efficiencies discounted by estimate of costs of capital plus an estimate of the anticipated rate of inflation;

Non-Quantifiable Efficiencies: subjective evaluation by Director/Tribunal

Greater Than or Offset: Quantifiable EG must be greater than quantifiable anti-competitive effects.

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Qualitative EG must offset qualitative effects of anti-competitive effects.

Efficiency Gains: the Controversy Evaluation of EG involves a trade-off analysis: EG balanced against anti-competitive effects

likely to result from merger. Anti-Competitive Effects - part of total loss incurred by buyers and sellers in Canada, not

merely transfer from one party to another, but loss to economy as a whole (diversion of resources to lower valued uses) deadweight loss to the Cdn economy.

No order wrt merger where likely EG will be greater than, and offset effects of PLC.

EG Fail if (i.e.: claimed EG not considered in trade-off):

1. Gains otherwise attainable (through anti-competitive means) : - internal growth- merger with 3rd party- joint venture- specialization agreement- licensing- lease or other kual arrangement

2. Gain is redistributive (redistribution of income b/w two or more persons ): - 96(3) recognizes not all gains are savings in resources, ex. gains as result of increased

bargaining leverage that enables the merged entity to extract wage concessions or discounts from suppliers that are not cost justified represent mere redistribution of income to the merged entity from employees or supplier. Not saving in resources.

- Contrast: supplier offer better terms b/c larger orders from merged entity enable supplier to attain economies of scale, reduce tx costs or other savings.

- Tax gains are redistribution of income from taxpayers to merged entity, - Savings from reduction in output, service, quality, variety} represent transfer of wealth from

buyers to merged entity - Also increased revenues from price increase. - Sale of asset – is reallocation not saving of resources;- But sale of machinery, plant, or other assets facilitates reduction in ongoing expenditures

associated with operating the assets, or lower overall cost of capital to firm, this source of savings not excluded by reason of s. 96(3) (ordinarily).

Increased Exports and Import Substitution (s.96(2))i. significant increase in real value of exports; or ii. significant substitution of domestic product for imported products

does not expand class of EG considered in trade-off analysis; purpose: take account of output that will displace imports, and increased output sold abroad.

Summary:1. There must be a gain in efficiency (production and dynamic)2. The gain in efficiency must not merely constitute a redistribution of wealth3. The gain in efficiency must be such as to not likely be obtained pursuant to an order

that the Tribunal is empowered to make4. The gain in efficiency is to be compared against any prevention of competition that will

result or that is likely to result from the merger5. The efficiency gain must be greater than and offset any prevention in competition that

will result or is likely to result from the merger.

See p.79 TEXT

Remedies: 1. Behavioural remedies; 2. Divestitures (through an understanding or a consent order)

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1. Director may choose to monitor a merger after closing, reserving his right to take action if competition law concerns arise (least intrusive).

2. In circumstances where the competitive effects of a merger are unclear, but a closing date is imminent, the Director may permit a proposed transaction to be consummated on the basis of a hold separate undertaking, whereby the merging entities are not be integrated, pending completion of the investigation.

3. Two voluntary compliance mechanisms where competitive concerns are identified with a merger:i) merging parties can give contractual undertakings to the Directorii) Director may seek a consent order of the Tribunal (s.105)

- Common provisions in undertakings and consent orders include partial divestiture provisions, and various mechanisms aimed at offsetting the anti-competitive effects of the merger.

4. Under s.92, the Director may initiate formal proceedings before the Tribunal. In the case of a completed merger, the Director may apply to dissolve the merger or to dispose of certain assets or shares in such a manner as the Tribunal directs. Orders directing the dissolution of a merger or the disposal of assets may be made conditional on the occurrence of action removing the anti-competitive effects of the merger, pursuant to s.99. Where a conditional order is made, the party against whom the order was made has the burden of applying to the tribunal to demonstrate that the condition has been fulfilled. In the case of a proposed merger, the Tribunal may order the merger not to proceed in whole or in part.

Also note defences at s.94 (mergers that came into force prior 70 1986) and s.95 (joint ventures see. P.202 CSBK)

V. Mergers and Acquisitions: the application of the law

1. Sections 92, 99-107 2. Canada v. Hillsdown Holdings 1992 Tribunal [GCB: 226] 3. Canada v. Southam 1995 F.C.A [GCB: 240]4. Canada v. Superior Propane 2001 F.C.A. [GCB: 262]

A. Sections 92, 99-107

Bureau Proceeds by: 1. undertakings with party or 2. application to Tribunal for a consent order to divest particular asset:

- can be through a hold separate system whereby assets are held separately until after merger, or

- flip-over simultaneous divestiture with merger

s. 92 Order s. 99 Conditional Orders: Tribunal can issue order condition on actions by a party (or 3rd party), orders stays until event occurs.

s. 100 (1) Interim Order where no application under s. 92: procedural point, extension given for closing – 30 days but can be extended up to 60 days (100)(7)

s. 100 (2) Notice of Application s. 100 (3) Ex Parte Application s. 101 Right of Interventions. 102 ARC: best method s. 104-107: typical challenge – interim orders, or allows merger of 95%, but not 5% which raises competition law issues, no limit on duration:

s. 105 Consent Orders s. 106 Rescission or variation of order s. 107 Evidence

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B. Hillsdown Application under s. 92(1)(e)(ii): order Hillsdown to divest itself of the business operated by the respondent

Ontario Rendering Company; only reviewed a percentage of business1. Relevant Market :

a. Product Market: non-captive red meat market; focus on services (3rd party rendering services), not product,

b. Geo Market: Southern Ontario:Look to existing pattern of competition (pre-merger):

(1) Distance: how far do parties ship product?- normally focus on whether distance makes a difference – perishable, service

requirements (near/far), delivery times;(2) Borders:

- Did international or provincial borders make a difference? - International borders: costs, tariffs?- Provincial: regulatory treatment, transportation legislation

(3) Consumer Preferences: not issue here Geo markets are an approximation, not static.

2. Will the merger SLPC? look to Market Power SLPC: merger will lessen competition it enhances ability of the merging parties to exercise “market power” by either preserving, adding to or creating the power to raise prices above competitive levels for a significant period of time…consider degree of such likely increase, and whether…without action being unprofitable…it should be characterised as substantial”

1. Market Share: a. CR4: highb. HHI: high

2. Section 93: a. Plant Capacity: current competitor’s capacity to serve what otherwise would be merged firm’s

competitors? - does it exist? - Ability for capacity to come on stream (supply side elasticity), can increase capacity

when needed (easily), - “merged firm ins not capacity restrained”

b. Market Environment c. Barriers to Entry:

- environmental/regulatory constraints: refused argument, not sufficient (hit/miss argument);

- sufficient supply: test – whether entry does occur (not whether could occur);- sunk costs (regulatory approvals, special equipment, bldg)

d. Remaining Competitors: in adjacent/geo regions adjacent competitors needed excess capacity, would have been concerned if had EC.

Conclusion: on balance of probabilities, not convinced PLCS.

3.Efficiencies (obiter) Legal interpretation of s. 96, not EG vs. deadweight loss, rather EG vs. lessening of competition; Deadweight Loss: loss for society as a whole, when consumers choose alternate product b/c of high

price, misallocation of resource- allocative inefficiency – deadweight loss as opposed to increased prices – transfer of funds from consumer to producer, detrimental to consumer, not society as a whole.

C. Southam: Important wrt market definition, standard of review. Marketing business:

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Southam: relevant marketing not limited to print advertising, so seller of print ads would consider ads from all sources like internet.

F.C.A reviews trial court’s opinion of the market and five areas of analysis: 1. similarities and differences b/w dailies for product configuration: substitutability, do papers

really compete? 2. Views/behaviours of the parties; look to see if Southam viewed community papers as

competitors: i. Southam had incriminating documents, ii. Community papers thought Southam was a competitors, multi-regional advertising to

better compete with Southam, 3. views of retail advertisers

concluded: Tribunal concluded that were not price sensitive – which normally indicates that they aren’t competing, only marginal likelihood that Southam’s acquisition will result in higher advertising prices.

Standard of Review: - Iac took functional/pragmatic approach, looked at no. of factors; - creates spectrum of review- upheld Tribunal’s approach to product market;- upheld Tribunal’s remedy, same as F.C.A- Tribunal’s decision is the law.

D. Superior Propane: good for efficiency and market definition1. Relevant Market:

a. Product Market: - “retail propane”, sale to parties using propane – end users to industrial users; - national accounts- To succeed in front of the tribunal, substitutability must be interpreted within the bounds of

economic reality. Thus, must have good economic evidence that they are substitutable.b. Geo Market:

- local in nature, but some very large customers (ex. national accounts), - 100s of local geo markets, look at every market in theoretical sense, have to battle for every

market. 2. Market Power:

- market share: common sense test, market concentrations

3. Section 93 Factors: a. Barriers to Entry

1) ks: duration, exclusivity, termination provisions (automatic renewal), right of 1st refusal – Propane right to meet the competitors, tank ownership

2) switching costs: 3) Lack of Reputation of new entrants, difficult for new party to come in b/c service key issue4) Capital Requirements and Sunk Costs: capital requirements themselves not barrier to entry, more

sunk costs: can’t recover them if business fails. 5) History of entry into market

c. Removal of Vigorous/Effective Competitor: d. Foreign Competition e. Effective Remaining Competition (is there prevention of competition?)

Prevention of Competition: tougher case than lessening

From Megs: The acquisition of an increasingly vigorous competitor in the market or of a potential entrant would likely impede the development of greater competition in the relevant market. Situations where a market leader pre-empts the acquisition of the acquiree by another competitor, or where a potential entrant acquires an existing

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business instead of establishing new facilities, can yield to a similar result. Competition can also be prevented where a merger will inhibit the development of greater rivalry in a market already characterized by interdependent behaviour.. This can occur, for example, as a result of the acquisition of a future entrant or of an increasingly vigorous incumbent in a highly stable market.

Conclusion: Merger would substantially lessen AND prevent competition

Specific Performance: - voluntary undertakings to change Ks, not enforceable offer, not enough. - Tribunal not required to impose remedy that is least intrusive, not duty to make Ks voluntary

and need consent of partiesEfficiency Defence

Neutral Redistribution vs. Negative Resource Allocation on sum of producer + } deadweight lossConsumer surplus (total surplus) within Canada

Burden of Proof: Respondents, F.C.A: in case of efficiencies, parties establish level of efficiencies Achieved in merger, except that they weren’t required to establish the anti-competitive effects.

Debate: trade-off analysisMEG: look only to deadweight lossTribunal: followed MEGs (for reasons of predictability)F.C.A: negative effects?

1. effects limited to deadweight loss (ignore transfer); orTribunal can look at transfer of wealth to monopolists, FCA: The effects to be considered under s.96 should also include the other statutory objectives to be served by the encouragement of competition that an anti-competitive merger may frustrate, such as the ability of medium and small businesses to participate in the economy, and the availability to consumers of a choice of goods at competitive prices. Look for efficiency value & the fact that there is no other way to attain this efficiency. parties to the merger have the burden to prove that the benefits of the merger outweigh the costs. You cannot use the efficiency defence when the merger would result in a monopoly because you can never argue that a monopoly is more efficient than the alternative.

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VI. Mergers and Acquisitions - The Investment Canada Act

A. Why the Investment Canada Act MattersMultilateral mergers and acquisition transactions and unilateral purchases of equity in a company or its assets are within the jurisdiction of the Investment Canada Act. Often, filing requirements, reviews, investigations and decisions made under the Investment Canada Act and the Competition Act occur simultaneously, and can have diverging results if counsel, clients, and public officials do not communicate regularly and openly.

Hofley said there would be no questions regarding filing dates and thresholds as seen in the mid-term assignment.

B. Powers of the ActThe Investment Canada Act compels two things from non-Canadians investing in Canada:

1. Notification to the bureau of an investment (Section 11)

2. Application for review of an investment (Section 14)

C. Notification (Section 11)A non-Canadian who makes an investment:

1. to establish a new Canadian business

2. to obtain control of a Canadian company

must notify the Minister of Industry of the investment anytime before or thirty days after the transaction.

D. Reviews (Section 14)A non-Canadian must apply for permission, subject to a review, from the Minister of Industry, to make an investment for control of a Canadian business, subject to the transaction meeting specified thresholds.

Control is established by purchasing:

1. Majority of the voting shares or interests of the Canadian entity

2. More than one third of the voting shares of a Canadian corporation (de facto control – rebuttable presumption)

3. All or substantially all the assets of a Canadian Company

4. Voting interest in an entity that owns an entity in Canada (indirect control)

The Minister can declare control or non-control too.

Merely expanding an existing business, or establishing a “related” new business to an existing business does not require notification or application for review whatsoever.

E. Reviews to the Minister of Canadian HeritageSection On top of all of the above, if the company to be controlled is within a “cultural industry”, notwithstanding any thresholds, the investment is reviewable by the Minster of Canadian Heritage.

Cultural industries are:

1. books, magazines, periodicals, newspapers,

2. video and film

3. audio or video music recordings

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4. radio, television and other telecommunications for direct reception by the general public.

F. ThresholdsReviews are triggered when one:

1. purchases control of a Canadian company whose assets or assets acquired exceed 5 million dollars.

2. purchases control of a company that controls directly or indirectly other Canadian companies and the value of all those companies is greater that 50 million dollars (~209 million dollars for WTO investors).

G. WTO InvestorsNationals (governments, crown corporations, private corporations and individuals) of WTO member states are WTO investors. They are subject to different thresholds and some (obscure) rules.

H. “Net Benefit to Canada”Any investment reviews seek evidence that they will be a “net benefit” to Canada. The Minister of Industry (and the Minister of Canadian Heritage where relevant) will grant permission to a reviewable investment where they are satisfied that after all costs and benefits of an investment are calculated, the investment will leave Canada better off, even marginally.

The Minister of Heritage in its review seeks investments that:

1. Increase connectivity of Canadians to each other

2. Increase (technological) “capacity”

3. Improve Canadian talent

4. Market Canadian interests abroad

I. UndertakingsAn undertaking is offered by or requested of the investor to make an investment a “net benefit”. “Creating an independent rock station for new Canadian artists” is an undertaking relative to purchasing control of a commercial broadcasting company.

J. Traders & Financiers (Section 10)Traders in securities and Financiers are not subject to the Act

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VII. REVIEWABLE PRACTICES

A. Sections

Key in all of this is the word “practice”. These are not one-off acts. It has to be systemic conduct.

1. S. 77 – exclusive dealing, tied selling and market restriction

“exclusive dealing” (ED) is (1) any PRACTICE whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to (a) deal only or primarily in products supplied by supplier or its designee (b) refrain from dealing in a specified class or kind of product except as supplied by the supplier of the

nominee. (PROF highlighted this one, so be ready for a situation where a customer is refraining from dealing in another product other than the suppliers AND this is a condition)

(2) also ANY practice whereby a supplier of a product induces a customer to meet a condition in (a) or (b) by offering to supply product on more favourable terms. In Class, we were told these were most likely forms of ED. (PROF: a strong suggestion not enough; it has to be more than that)

PROF: inducement easiest part to prove (e.g., just offer a better price); it happens all the time. You need the other elements: (a) practice, (b) major supplier, (c) SLC effect, which requires product and market definition.

“market restriction” (MR) is any practice whereby a supplier of a product requires as a condition that customer supply the product to a defined market or exacts a penalty of any kind from the customer.

MR addresses arbitrage, whereby market imperfection gives one customer the incentive to sell a product intended for a more competitive market at a lower price in a neighbouring less competitive market at a higher price. Result of arbitrage results in reducing prices overall.

Again, product and geographical market have to be defined. MR is done by, for example, prohibiting distributors from selling into high price areas, which in effect

creates artificial boundaries.

“tied selling” (TS) is a practice and supplier makes the following a condition: to (i) acquire any other product from suppliers or its nominee, or (ii) refrain from using or distributing, in conjunction with the tying product, another product that is not a brand or manufacture designated by the supplier of the nominee.

Watch out: On exam, something that looks like ED and TS may involve criminal conspiracy.

2. S. 77(2) – Special rules for ED and TS

(a) For ED and TS, supplier has to be a “major supplier” or b/c ED or TS is wide-spread in the market. (b) AND practice is LIKELY to:

(i) impede entry into or expansion of a firm in a market, (ii) impede introduction of a product into or expansion of sales of a product in a market, OR (iii) have an exclusionary effect in the market.

(c) All this WITH the RESULT that competition is likely to SLC in relation to the product.

Remedy: Tribunal can make an order to restore competition in the product. Can make order to one or many suppliers. Any action in its opinion that is necessary to overcome the effects thereof in the market or to restore or stimulate competition in the market.

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3. S. 77(3) – Special rules for MR For MR, it just has to be a “major supplier” or b/c it is widespread in the market (i.e., it has become the industry

norm) and is likely to SLC. Very broad order powers.

4. S. 77(4) – exemptions No order where

(a) ED or MR is only for reasonable period of time to facilitate entry of a new supplier in a market or new product into a market,

(b) TS b/c there have products have technological relationship, (c) TS in money lending situations, AND (d) when companies are affiliated

5. S. 78(1) – Catch-all Abuse of Dominance

Turn to “Abuse of Dominant Position” (art. 78(1), which is NOT exhaustive). Of note are: (a) squeezing by vertical integrated supplier of margin by non-horizontal supplier for purpose of impeding

or preventing customer’s entry. This allows company to cut out middle-man but in the interim he will charge independent supplier big prices and internal supplier low prices.

(c) freight equalization: even if your transport costs are high b/c of being situated further away, you make them equal to those of closer competitor. This renders meaningless advantage of being closer to customer, but having to pay more for that proximity.

(d) fighting brands – rare (e) pre-emption of scarce facilities: you sell magic formula to some non-competitors but not to competitors. (h) another form of MR

S. 79(1): you need these following elements to nail someone on s. 78 charge:

(a) one or more parties with substantial or complete control of “a class of species of business” (same as market), [KEY: this is JOINT DOMINANCE]

(b) person or persons have engaged in or are engaging in a practice of anti-competitive acts, AND (c) the practice has had, is having or is likely to have the effect of preventing or lessening competition

substantially in a market. (SAME SLC test as in merger review) Guidelines say 35% control of market is good enough for 1st criterion for one company, whereas its 60%

for joint dominance. Although, in practice, you need much higher thresholds. BUT MEGs are not law.

What is a “practice”? It is a case-specific, but it is not an isolated act. Look at company’s manuals, etc.

B. Enforcement Guidelines on Abuse of Dominance:

Purpose: An abuse occurs when a dominant firm or group of firms engages in conduct that constitutes exclusionary, disciplinary or predatory behaviour, which the result that competition is PL or SL. This will preserve competition within markets. Don’t need equality among competitors, just to promote effective competition.

Anti-competitive behaviour by someone with low market share and in industry with low BtoE will not attract problem, but same acts will attract problems if firm has a lot of market share and industry has high BtoE.

1. 79(1)(a):

S. 79(1)(a) refers to “a class or species of business” but this is tantamount to “market” as cited in art. 3.2.1(a) of Guidelines. So you go into a market analysis first, by defining it and then you determine whether there is substantial control or not. Substantial control is defined by whether firm has market power or not.

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“market power is the ability to enhance and maintain prices above competitive levels for a significant period of time, normally one year.”

2. 1st step: What is market?

Ideally, we look at quantitative figures. For product market, “the analysis focuses on whether there are close substitutes for the product(s) in question, such that buyers would turn to these substitutes in the event the product price was above competitive levels by a significant amount for a non-transitory period of time.” A 5% increase above competitive levels lasting one year is considered a significant and non-transitory amount. Same quantitative approach used for geographical market. But price increases are not only way to define markets.

Focus on whether there are close substitutes for the product in question, so that buyers would turn to these substitutes in the event that the product price was raised above competitive levels by a significant amount for a non-transitory period of time. In general, a 5% real price increase above competitive levels lasting one year is considered a significant and non-transitory amount. From Laidlaw and Nielsen: Direct evidence of switching behaviour in response to small changes in relative price would provide proof of substitutability. Where price and quantity changes are not in evidence, as was true in the instant case, it is necessary to answer the question less directly by examining the evidence of both buyers and suppliers regarding the characteristics, the intended use and the price of the product market in question.

Bureau will also look at various qualitative features when determining the appropriate product market:

(a) views, strategies, behaviour and identity or buyers. Have they substituted b/w products in the past and can they do so in the future. This will be an indication of whether a price increase is sustainable.

(b) trade views, strategies and behaviour. 3rd party opinions who know industry can provide information on past and likely future developments

(c) end use: what is functional interchangeability? Usually, this is a necessity, but not a sufficient condition for 2 products to be included in same market.

(d) Physical and technical characteristics: in general the more value buyers place on the actual and perceived physical or technical characteristics of a product, the more likely the product will be in its own market

(e) switching costs: what are transaction costs that clients will have to incur in order to retool, repackage, adapt their marketing, breach a supply agreement, learn new procedures and so forth are relevant in evaluating switching costs?

(f) price relationships and relative price levels: absence of strong correlation in price movements b/w 2 products over a significant period of time suggests that products are not n the same market.

The Cellophane fallacy : The current price of may not be appropriate level to determine the relevant market in which a dominant firm competes. This is b/c prices are already set by a monopolist or oligopolist situation. Some products may appear to be in this market at those price levels when at competitive prices that would not be the case. “Recognizing that market power exists, the Bureau will define the parameters of the product and geographic market by first estimating what the appropriate price level for the product would be in the absence of the alleged anti-competitive practices.”

3. Throughout Canada or any area thereof – Geographic Market Definition

Look at

(a) The views, strategies, behaviour and identity of buyers(b) Trade Views, strategies and behaviour(c) Switching costs(d) Transportation costs

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(e) Price relationship and relative price levels: price relationships and relative price levels: absence of strong correlation in price movements b/w 2 products over a significant period of time suggests that products are not n the same market.(f) Shipment patterns(g) Foreign Competition

4. 2nd Step: Is there substantial control of market – i.e., market power? Once the universe of existing competitors is delineated, it is necessary to assess market power. A “considerable” period of time for the purposes of establishing market power is one year.

Look at (1) market share, including share stability and distribution, (2) barriers to entry, including the conduct allegedly engaged in by the dominant firm(s), and (3) other market characteristics, including the extent of technological change, extent of excess capacity, and customer or supplier countervailing power.

What about “substantially or complete control” of market? 35% for one company; 60% for joint dominance. BUT distribution of market shares of remaining competitors is relevant. 55% for one company versus 45% for another is not bad b/c other company has leverage. But 55% versus 4 companies with around 11% each is less competitive environment. SO over 35% or 60% will prompt further action. Market share is only one step to establishing market power.

The high barrier to entry of market share is not the only barrier. In Laidlaw, barriers to entry connotes a sense of “sustainability”. In Nutrasweet, it was held that high barriers to entry such as process patents associated with aspartame were high, significant economies of scale and sunk costs, and a long start-up time of about two years. In Laidlaw, Tribunal found that barriers to entry into commercial waste industry were not that high. BUT L’s contracting practices had effect of raising the barriers. In Tele-Direct, T held that BtoE were high in telephone directory market, given the requirement of big-time sunk costs and the reputation of the incumbent, as well as incumbents relationship to telephone companies.

As for JOINT dominance, this refers to situation where group of unaffiliated firms possesses market power. There is additional aspect of proof, namely that three sources of competition can defeat the profitability of a price increase. 3 ways to beat dominance by JD firms: (1) existing rivals, (2) new potential entrants, (3) competition from within the allegedly jointly dominant group.

Jurisprudence is limited as to additional evidence necessary to establish control by a group of firms. JD was taken as a given b/c thee was an explicit agreement.

“A group of firms that collectively possesses market power may be able to coordinate its actions in a manner that allows the market price to be profitably increased above the non-coordinated price levels WITHOUT the companies into an explicit agreement.” Firms in an oligopoly normally base their decisions on how rivals have behaved. Firms see these interactions over a long period of time and competitive response strategies become more complex. This is “conscious parallelism”. In conspiracy provisions, it is clear that CP is not illegal. Same for abuse provisions. Something more than CP must exist for conclusion that firms are participating in some form of coordinated activity.

Bureau will consider following to infer control of a group: (a) whether group collectively accounts for large share of market (b) evidence that alleged coordinated behaviour is intended to increase price or for purpose of

engaging in some anti-competitive act (c) any evidence of BtoE into the group, or BtoE into relevant market for entrants (d) evidence that members have acted to inhibit intra-group activity, AND (e) evidence that a significant number of customers cannot exercise countervailing power to offset

attempted abuse.

5. 3rd Step: Was there (a) a practice of (b) an anti-competitive act?

“engaging in PRACTICE of anti-competitive act”. So need (1) practice and (2) anti-competitive act.

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(1) Practice. In NutraSweet, t took a broad view of the term and said that different acts when taken together could constitute a practice. “While a practice is normally more than an isolated act, it may also constitute one occurrence that is sustained and systemic or that has had a lasting impact on the state of competition.” E.G., long-term contract is one episode of an anti-competitive act, but if it’s exclusionary, it may effectively prevent or lessen competition and may be a practice. For joint firms, you have to consider the pattern of business conduct by several firms. Look at s. 79(6): can go after future and past practices, but not practices that have ceased for 3

years or more.

(2) Anti-competitive effects: s. 78 list BUT remember it’s not exhaustive. The Tribunal tests for anti-competitive purpose by asking whether an act is done for a predatory, exclusionary or disciplinary reason. PURPOSE may be inferred by an inference drawn from the facts. Look at verbal and written statements of company officials. As T noted in Nutrasweet, the purpose of the act will be inferred by the act. In CLASS, prof said that objective intent is enough. Enough that reasonable person foresee the consequences of their acts. NOT SUBJECTIVE INTENT. NO efficiency defence for s. 79 as with s. 96 of the merger provisions.

6. 4th Step: Is there a SLC or PLC

SLC or PLC in market. Look at impact on competition and NOT on competitors. Normally, SLC test applies.

• The meaning of “lessening competition substantially” is established in the case law. The tribunal in Nutrasweet stated that “in essence, the question to be decided is whether the anti-competitive acts engaged in by Nutrasweet presence or add to Nutrasweet’s market power.

A firm can maintain or enhance market power by erecting or strengthening BtoE, thus inhibiting potential competitors from challenging market power of the dominant firm. Have to determine state of competition in the market.

“If it can be determined that, but for the anti-competitive act, an effective competitor or group of competitors would emerge in a reasonable amount of time to challenge the dominance of the firms, the Bureau will conclude that the acts in question constitute a SL or prevention of competition.”

Assessing the anti-competitive effects: Bureau will look at state of market in absence of these acts. Look at 2 year time frame for SLC – basically, if you remove acts, will there be entry within reasonable time, which is approximately 2 years.

7. Economics of Anti-competitive Acts:

Anti-competitive acts involve actions that are predatory, exclusionary or disciplinary (NutraSweet). T looks at whether acts fall into one of 3 categories: (1) acts raise rivals’ costs (or reduce their revenues) or that foreclose existing or potential rivals from key

inputs or facilities, (2) predatory conduct (acts targeted at competitors), (3) acts intended to facilitate coordinated behaviour among firms (facilitating factors). This one is popular.

Watch out in exam. Differences between JD and conspiracy is that (a) intent is objective vs. subjective and (b) for JD, conduct even if NO agreement exists. Class: these are BROAD.

(1) acts re: raising rivals’ costs, reducing revenues or foreclosing rivals from key things: e.g, vertical squeezing is premised on the ability of the dominant firm, operating at 2 levels of the

distribution firm, to raise the price of an output to a competitor operating only at the downstream level. This is a price squeeze.

e.g., (a) vertical squeezing, but the price squeeze is only an enforcement concern when it harms both competitors and competition. (b) and (e) re: pre-emption applies here.

Meet-or-release clauses can discourage a potential supplier from seeking to sell to a buyer MFN, which requires seller to give a buyer the best price it offers to any other customers, could also result

in exclusivity. These contractual measures aid dominant firm from excluding competitors.

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As for reducing rival’s revenues, there are all sorts of mechanisms to make it hard for customer to switch. “A dominant firm can implement technology, contracts or other practices that make it costly to switch to an alternative supplier.” Imposing switching costs can foreclose entry or limit the expansion of a competitor. E.g., 78(g) adoption of product specifications that are incompatible with products of other suppliers. Similarly, long-term contracts with automatic renewal provisions may create switching costs, thus foreclosing entry.

Abuse of judicial process may create switching costs, decreasing a rival’s demand. This was apparent in Laidlaw’s threats of litigation.

It is difficult to distinguish predatory pricing and competitive pricing since both involve lower prices. PP by a dominant firm normally involves the ability to raise prices once rivals have been disciplined or have exited the market. Therefore, key aspect is whether there are high barriers to entry.

PP is “selling at a price below some measure of cost in order to harm a customer.” Firms do this to recoup losses from the predatory campaign. This is achieved by eliminating a rival, if barriers would prevent a new company from entering.

Firms can also engage in predation in order to discipline competitors that have undertaken to challenge the market power of the dominant firm. Purpose is to get rival to cease an action, rather than eliminating them entirely.

“In the case of predatory behaviour by a dominant firm or group of firms, establishing dominance is sufficient to satisfy that market power exists and therefore recoupment is possible. The Bureau will also consider the extent to which the act of predation will deter entry through establishing a reputation for predation.”

Having established dominance, Bureau will then examine whether dominant firm is pricing below some measure of its costs. Price-cost comparison was stressed in NutraSweet.

S. 78(1)(i) refers to a predatory action – selling articles at below acquisition cost. This provision not applicable to selling at below manufacturing cost (NutraSweet). But PP could be an anti-competitive act for the purpose of s. 79.

A variant of PP is found in para. 78(1)©, which deals with freight equalization, which eliminates advantage of paying higher rents to be closer to clients and paying lower costs.

(3) Facilitating practices: these enhance the ability of firms to coordinate their behaviour in order to increase or maintain prices. Group of firms employ FP to ensure cooperation among members. “Typically, these PRACTICES assist firms in monitoring each other to ensure that no one ‘cheats’ on an arrangement, or allow firms to more effectively push such deviations.” Examples include:

(i) pre-announcing price increase and publicizing price lists,

(ii) delivered pricing can also be a FP. What’s this? DP involves uniform delivered prices, by which firms charge the same DP to customers regardless of location. Alternatively, firms can charge the same base points from which transportation costs are added. This DP simplifies price lists and result in customers facing same price lists, thus making pricing more transparent to other firms and facilitating coordinated behaviour.

(iii) K’ual arrangements can also enhance transparency. “Meet-or-release” clauses can alert firms to price-cutting by other firms, therefore detecting defectors. Or K’s promising to beat competitors by 10% deters rivals from offering lower prices. MFN clauses can also deter selective price cuts and stabilize interdependence among oligopolists.

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8. Remedies:

T has broad powers of remedy with respect to findings of abuse of dominance. If elements of s. 79 are met, it may pursuant to s. 79(1) make an order prohibiting a firm or firms from engaging in the practice. OR if an order won’t restore competition in affected market, T may, pursuant to s. 79(2), make an order directing that any such actions, including the divesture of assets or shares, as are reasonable and necessary to overcome the effects of the practice of anti-competitive acts.

If company can’t comply with this, person guilt of an offence and liable on conviction to a fine at discretion of the court or imprisonment up to 5 years or both. Or on summary conviction, it’s fine of up to $25,000 or prison for up to one year (s. 66)

S. 79(3) to (7) provides limitations on remedies:

(3) order is aimed at restoring competition. Order is remedial not punitive.

(4) compels T to consider whether lessening of competition is attributable to SLC. Need superior competitive performance like (a) having lower costs, (b) better distribution and production, (c) broader array of product selection. All these, when exploited, will lessen competition by beating inferior competitors. This is different than efficiency defence in merger review, which calls for a balancing of efficiency gains with any SLC or PLC resulting from the merger.

(5) exclusive rights b/c of patent does not by itself constitute an abuse of a dominant position. But abuse of these rights can result in violation.

(6) No action after 3 years practice has been ceased

(7) s. 79(7) requires that Commissioner choose b/w conspiracy (s. 45), the merger (s. 92) OR the abuse of dominance provisions when either electing to proceed with a recommendation to AG (alleging criminal conspiracy) or an application to the Tribunal (under the civil provisions). Not to be placed in double jeopardy for same cause.

C. NutraSweet (1990)

Market definition: N argued it was worldwide, but Commissioner argued it was Canadian. T looked at net-net prices which is really the cost to supplier. N-N prices are very different between regions. As long they move same way, that means there is a global market. BUT that’s not how the market moved. So BtoE high b/c of big R&D costs.

What conduct was abusive? (a) not declaring loss on Canadian tax forms. (b) ED with Coke and Pepsi – this was an inducement to exclusivity. (c) Meet-or-release provisions – Yes these were ED b/c they have an exclusionary purpose. From the new entrant perspective, all competitor has to do is meet the price. (d) use of US patent. (e) ED was found under s. 77(1)(b) not 77(1)(a). Remedy was a prohibition order from enforcing those parts of the contracts and N can’t enter into those K’s in future. BUT K not void.

More thorough reading:

Abuse of dominance determined b/c there was a practice of anti-competitive acts. They included the use in its supply contracts of exclusive supply and use clauses, logo display allowances; cooperative – marketing allowances, meet-or-release clauses; and MFNs.

The need to identify the relevant market arises in both s. 77(1) and para. 79(1)(a), which refer, respectively, to a supplier of a “product” and substantial or complete control of “a class or species of business.” S. 79(1)(c) also refers to a SLC or preventing of a “market”.

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Product Market definition: Consider to what degree aspartame is sufficiently distinct from other sweeteners. Are other sweeteners good substitutes for aspartame? Range of factors to consider:

(a) product substitutability: including physical characteristics to price differences to users’ responses to price changes.

(b) cross-elasticity: measuring c-e is a difficult thing to do b/c of the problems of isolating the effect of price changes from other factors affecting sale.

(c) evidence of “cannibalization”, how much have sales eaten into sales of possible substitutes.

Geographic Market: Canada is the market.

T looked at how easy it is to enter into the market. T is satisfied that there are very serious barriers to entry of new manufacturers of aspartame other than NSC. Significant economies of scale existed.

Then, T applied s. 79:

(1) Was there substantial or complete control a class of business? Control means market power, which is an ability to set prices above competitive levels for a considerable period. BUT will normally have to look at market share and entry barriers. ALSO, factors will vary from case to case. This finding is of little practical import b/c it is part of (3) in finding whether there is SLC or PLC. T looked at Coke and Pepsi and determined they are dependent to a large extent on NSC, so market power exists. “The evidence that NSC possesses appreciable market power given its market share (over 95% of sales in Canada), entry conditions and the constraints operating on its largest customers is sufficient to determine control.” It’s obvious that is SUBSTANTIAL. As for class or species, this is relevant product market.

(2) Was there a practice of anti-competitive acts? There are two elements to determine – (a) practice and (b) anti-competitive acts. One feature is common to all: all anti-competitive acts must be performed for a PURPOSE. “The purpose to all acts is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary.” As for practice, it is more important in civil remedies than in criminal remedies to limit meaning of practice, b/c the net can be cast so wide.

“The tribunal is of the view that practice may exist where there is more than an ‘isolated act or acts’. For the same reason, the T is also of the view that different individual anti-competitive acts taken together may constitute a practice.” BUT need anti-competitive purpose for each of these acts.

Examples of potential claims: (a) abuse of governmental reporting, (b) contractual exclusion of potential competitors (not all horizontal arrangements are excluded from s. 78 and 79 but doesn’t look like the T will use these for this provision), (c) anti-competitive pricing, (d) use of US patent to foreclose competition.

Contract terms with exclusivity: terms that provided all sorts of discounts like co-operative marketing arrangements, price reduction if trademark appears on can, also meet-or-release clauses. Exclusivity is not mentioned in s. 78. Logo was not a condition of supply but a discount was offered only. Yet distinction meaningless, but NSC could arrange its pricing no matter how it wanted. But inducement huge, so more or less a condition. Logo creates an “all or nothing choice” for consumers. Therefore, it is clear that the logo display and promotion allowances are essentially inducements to exclusivity.

What about meet-or-release clauses? Basically, they give NSC info on their competitors. Other suppliers are not interested of being used as a bargaining chip for negotiations against NSC. The T says that meet-or-release clauses are objectionable because “by making exclusivity more acceptable to customers it serves as an inducement for customers to enter into exclusive arrangements.”

What about MFN clauses, which ensure that customers that they will not be treated worse than their competitors? Are they inducements to ED? Yes, b/c they have an exclusionary purpose.

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What about selling below relevant cost standard? T asked if there was predatory pricing not specified in s. 78. T is satisfied that predatory pricing is broad enough to cover predatory pricing. T says it is not convincing that NSC is selling below cost.

Use of U.S. patent? T convinced this is an anti-competitive act. Rebate given to another Canadian company if they use patented product in U.S.

PLC and SLC?

In determining SLC, look at many of same elements in determining if there was market power in (1). Would a-c acts preserve or add to market power of NSC? Success or failure of an entrant depends on Coke and Pepsi contracts. T looked at effort of potential entrant and determined C and P were using it as a bargaining chip to get lower prices from NSC. Exclusivity inducements prevents toe-hold entry by new firms.

T looked at switching costs. Removing logo, etc.

T looked at customer reaction re: removal of logo. There is considerable uncertainty as to whether the logo MIGHT have some value. “The effect of the logo on entry conditions is relevant in evaluating whether exclusivity and the inducements thereto have the effect of substantially lessening competition.”

Conclusion: “NSC substantially controls through its market power a class or species of business, namely the sale of aspartame in Canada.” Further, NSC is engaging in anti-competitive acts (e.g., exclusive supply and use clauses, logo display allowances, co-operative marketing allowances, meet-or-release clauses, and MFN clauses.)

Checklist for Abuse of Dominance:

(1) substantial control in a class of business (market)?(2) practice of anti-competitive acts?(3) PLC or SLC?

T then turns to ED in s. 79:

Key in language of para. 77(1)(a) that the supplier must have refused to supply the product unless the buyer agrees to the terms in 77(1)(a)(i) or (ii). T agrees that there is no evidence of any refusal to supply aspartame or threats of such refusal unless customers agreed to purchase exclusively from NSC. No ED in this case. But what about the rebates? Financial incentives to amount to ED b/c the “customers clearly agreed to deal only or primarily in products of NSC and in return received various rebates whose existence depends on exclusive use of NutraSweet brand aspartame.” BUT other requirements have to be met…

Practice? Same approach as in 78-79.

Major supplier? Look to Bombardier: (a) market share, (b) financial strength, (c) record of innovator and (d) other factors relative to industry.

SLC? (a), (b) and (c) in s. 77(2) are logically considered as part of the overall question of whether ED results in a SLC in the market. They just refer to HOW you can get a SLC. SO there is a SLC; T borrows from analysis of 78-79.

Checklist for s. 79 – ED:

(1) supplier must have refused to supply unless buyer agrees to terms(2) customer agrees to deal ONLY or PRIMARILY with NSC(3) a practice exists

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(4) need major supplier or widespread in the market(5) likely to (i) impede entry into or expansion of a firm in the market, (ii) impede introduction of a product into or

expansion of sales of a product in the market, or (iii) have any other exclusionary effect in the market (BUT these are part of overall analysis of whether there was a SLC)

(6) AND all this is likely to lessen competition SUBSTANTIALLY.

Remedies: T permitted by s. 79(1) and s. 77(2) to make orders prohibiting party to engage in those acts. 79(2) and 77(2) also make orders to overcome the effect of such practices as may have already occurred. T basically prohibits use of all sorts of clauses that induce exclusivity.

D. Laidlaw (1992)

2 big issues in this case:

acquisition practices: not subject to merger review b/c T said that Commissioner had choice b/c of s. 79(7). BUT it has to be a practice, not an isolated merger.

(2) K’ual provisions: focused on standard-form K’s. Customers tied to L. T looked at whether there were valid business reasons for exclusive clauses. SO T has flexibility. GO extra-step to figure out if there are real BUSINESS PURPOSES.

Prof stressed we look at remedies: Different than merger review in that they (1) don’t have to be least intrusive and (2) behavioural remedies don’t require consent. BUT with abuse, T goes as far as it deems it necessary to restore competition to level where it does not restrict competition substantially, so it can T allows for some lessening of competition, so long as it is not substantial or it prevents competition.

Read pp. 374-75: remedies very behavioural. Run all new K’s by Bureau. But T was not willing to get involved in pricing. It wants to choose remedies that are easy to enforce.

More thorough reading:

It was held that L imposed restrictive terms in standard for agreements to maintain its dominant position in the market. The K’s provided for automatic price increases.

Subjective intent on the part of the respondent is not necessary to find that a practice of anti-competitive acts has occurred. Hofley confirms that objective intent is sufficient – reasonable person standard.

As for remedies, orders pursuant to s. 79 must only go as far as is necessary to restore competition in the relevant markets. It is not necessary to impose penalties or punitive measures. All sorts of measures taken like prohibiting certain clauses from contracts, provision of contracts in the future, but no pricing remedies

This is a s. 79 case. Product is waste collection and disposal service for commercial service, or “lift-on-board” service.

L’s K’ing practices: L imposed compete clauses – basically, requiring a customer to provide info about bids of other companies allowed L to know who was competing with it and on what terms before the competitor could succeed in obtaining a single customer from L. L could target price reductions to discourage price competition.

Also L imposed automatic price increases if landfill site dumping fees charged to L are increased. Also increases if increases in taxes, duties, levies, fuel costs, certain administrative fees, etc.

Looked at geographic market. This important b/c substantial or complete control has to be established. T determined that it was eastern portion of Vancouver Island. The general test for market definition is similar to product definition: “identification of the universe of effective competition.” “…what are the boundaries of the geographic area within which competitors must be based if they are to provide effective competition to L?”

Looked at: (a) hypothetical monopolist, (b) regulatory restraints on dump sites, (c) past and present behaviour of market participants (T relies heavily on this – 50km hubs). Don’t have to define geographic markets with precision.

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Turn to substantial or complete control: question to ask is whether firm has market power in economic sense. This means: “…power to maintain prices above the competitive level without losing so many sales that the higher price is not profitable.” In NutraSweet, market power is generally accepted to mean an ABILITY to set prices higher for a considerable period.” BUT this is hard to do, so look normally at market share and barriers to entry.

There are prima facie cases of market power (35% for individual firm or 60% for joint dominance). Most appropriate method is comparing revenues earned. However, sales may overstate a firm’s market share when there is an excess capacity. BUT remember that market share is only a prima facie indication of market power.

Barriers to entry: “how easy can a firm commence a business in the relevant market and establish itself there as a viable competitor.” In general, industry’s barriers to entry are low. Just need a truck and some containers. BUT high B to E when you consider all the negative contracting practices of Laidlaw.

T establishes that L has substantial control in relevant market.

Move to anti-competitive acts:

Practice of acquiring firms could be done as an anti-competitive act. Subjective intention is a consideration but not a necessary factor. T looked at whether L really had a business imperative behind its acquisitions. No pro forma statements were made, save of one case. Restrictive covenants in acquisition contracts show intent to monopolize markets. Can horizontal agreements be classified as anti-competitive acts? T has no problem putting these into anti-competitive acts.

Contracting practices : in most cases, long-term exclusive contracts do not raise significant anti-competitive issues. They can contribute to economic efficiency and thereby benefit consumers. But have to look at vendor’s and purchasers’ perspectives to see if they are anti-competitive. No efficiency rationale for these agreements from supplier’s perspective. They don’t protect L from any cost exposure on termination by a customer. Customer locked in and subject to price raises by L. So even if competitor comes in, there’s no opportunity to grab part of the market. From the buyer’s perspective, they only had window of 60 days to get out of contract every 3 years. These are contracts of adhesion which is also an issue. Dominant position reflected in these contracts.

Move to SLC:

Huge market share

Creation of artificial barriers to entry

Remedies: 79(1) allows T to issue orders preventing the future occurrence of anti-competitive act. S. 79(2) says if order in 79(1) is not good enough to restore competition to than market, T can take other action, including divestiture of assets, shares and anything that is reasonable to overcome the effects of the practice in the market. In this case, T (a) prohibited use of certain terms, (b) no acquisitions and no restrictive covenants, (c) L has to provide director with all future contracts, (d) no pricing requirements but door left open.

E. D&B Companies (“Nielsen”) (1995)

First step: defining relevant market

In determining product market, T referred to NutraSweet in which it established a test of product substitutability. T says there is no doubt words “class or species” in 79(1)(a) “is intended to narrow the word ‘business’.”

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T concludes that wording “class or species of business” was used in 79(1)(a) instead of “market” because “market” has geographical element to it and there is already a geographical element in 79(1)(a) where it refers to “throughout Canada or any area thereof”. Therefore “class or species of business” refers to product market, “control” means power, and “throughout Canada or any area thereof” refers to geographical market.

Conclusion: “class or species of business” is synonymous with relevant product market and “control” is synonymous with market power.

T turned to the relevant product market: it determined that a subset of “market tracking” services was product, which involves collecting data over time on product movement to produce an estimate of total market size and direction of growth for each product category being tracked and to indicate the relative performance or market share of a particular brand or item within the product category. The subset was determined to be scanner-based market tracking (SBMT), which gathered information based on scanning products at retain check-out counter instead of being processed by manual entry into the cash register.

T looks at substitutability of SBMT, including an examination of close substitutes or switching behaviour in response to price changes. Scanner-data in its own market because its performance is superior to other types of market tracking.

The cellophane fallacy was debated: “[3 experts argues that] at monopoly prices the appearance of apparent substitutes is likely to be misleading since the appropriate level to measure whether products are in the same market is at competitive prices. The logic behind this so-called ‘cellophane fallacy’ is the well-known proposition in economics that in order to maximize profits a firm with market power will price at a level where the demand for its product is elastic, that is, where higher prices would cause revenue to decline as a result of the diversion of purchases to other products.” T says it doesn’t apply in this case.

T concludes that scanner data is a market of its own. Other types of data just not the same quality.

As for geographic market, T accepts Canada which is not disputed.

Market Power: As stated in Laidlaw, a prima facie determination of whether a firm has MP can be made by considering its market share. If the share is very large, the firm will likely have MP although other considerations must be taken into account. In the Laidlaw case, these included the number of competitors in the market and their market shares, any excess capacity and how easily a new firm could establish itself as a competitor. In this case, Nielsen is the sole supplier in the relevant market and thus has a 100% market share. We are prepared to find that prima facia, Nielsen has market power, or control on the relevant market, absent some evidence that there are no barriers to entry.

Second Step: Is there substantial control?

There is a prima facie market power if market share very large (Laidlaw), although other considerations have to be looked at. Nielsen sole supplier. It has market power/control. Purchasers’ survey confirmed this concern was on their mind, so T looked at purchasers’ views as well.

3rd Step: Was there (a) practice of (b) anti-competitive acts?

Nielsen did not contest that its acts constituted a practice.

With respect to anti-competitive act, T has to determine the nature and purpose of the acts and the effect that they had on the relevant market. “The required analysis will take into account the commercial interests of both parties to the conduct in question and the resulting restriction on competition.” BUT it is not necessary for subjective intent to restrict competition be proven. The respondent will be deemed to intend the effects of its actions.

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N had exclusive contracts with its major grocery stores. Essentially, clauses ensure that grocery stores undertake not to provide data to any other company but Nielsen. One level of payments if N is the “preferred supplier” and another level payments if the grocer provides info to another data collector at the same time. Basically, any would be entrant would have to match N’s reduction of payments if grocer chose to supply information to a new entrant. Contracts were for 5 years.

T looks at s. 78 and does not find an appropriate category, but says act may still be anti-competitive if “the purpose of those acts is to withhold scarce resources from the market, to prevent a competitor’s entry into the market or to achieve some other exclusionary purpose.”

(1) exclusive retailer contracts: goal is to exclude potential competitors.

(2) preferred supplier clauses: gives N the ability to control the level of payments that a would-be entrant would have to make to get into market. This achieves exclusivity through more indirect route.

T says there is no credible evidence that exclusives were justified b/c of the time, energy and resources that had to be expended to exploit a new technology.

T concludes that “N intended its long-term manufacturer contracts, along with the exclusive and inducements to exclusivity, to exclude potential competitors generally and IR I specifically. All three actions constitute anti-competitive behaviour.”

Practice: In Nutrasweet, the Tribunal state that “a practice may exist where there is more than an “isolated act or acts.”

Previous cases have established that in evaluating whether allegedly anti-competitive acts fall within s.78, the Tribunal must determine the “nature and purpose of the acts which are alleged to be anti-competitive and the effect that they have or may have on the relevant market.” The required analysis will take into account the commercial interests of both parties to the conduct in question and the resulting restriction on competition. The decision in Laidlaw makes it clear that, although such proof may be possible in a particular case, it is not necessary for the Director to prove subjective intent to restrict competition in the relevant market on the part of a respondent. The respondent will be deemed to intend the effects of its actions.

Anti-competitive Acts: To determine if Nielsen’s actions are anti-competitive acts, we must look to whether the purpose of those acts is to withhold scarce resources from the market, to prevent a competitor’s entry into the market or to achieve some other exclusionary purpose.

Court Looked at:

1. Exclusive retail contracts: N might have had a valid business justification for exclusive agreements. However, it did not accept that there was any credible efficiency or pro-competitive business justification for the exclusives. Obtaining or retaining a dominant position in order to defend against another firm potentially becoming dominant is not an acceptable business justification.

2. Inducements to Exclusivity Court concludes that the nature and purpose of N’s Actions regarding the manufacturer contracts cannot

be assessed independently of N’s other anti-competitive acts. The alleged anti-competitive acts must be considered in their full context. Thus, N intended its long-term manufacturer contracts along with the exclusives and inducements to exclusivity, to exclude potential competitors generally and IRI specifically. These three actions constitute anti-competitive acts under s.78

Final Step: SLC or PLC?

T proved N intended to engage in anti-competitive actions. NOW it has to prove those actions had the effect of a SLC or PLC. “The central issue…is the effect of the exclusives with retailers and the long-term contracts with customers on the conditions of entry into the market.” Or using NutraSweet, did N’s actions preserve or add to N’s market power?

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T’s approach is two-fold: What would have been conditions of entry without entry? Then, determine how the anti-competitive acts altered the prospects for economically feasible entry.

Need certain inputs like technology and know-how to put together data. A second input is a dictionary that translates info into useful descriptions of market data. Third input: a field force to collect data. Last element: the scanner data. Potential competitor, IRI missing ¾ inputs.

Exclusives create prima facie barrier to entry. Without exclusives, grocers could sell their information to whoever they wanted. Entry has to be sustainable viable entry (Laidlaw and Southam Inc.) T examined IRI’s unsuccessful attempt to sign Loblaws as proof entry was pas mal difficile.

T also looked at Australian model put forth by N as proof. T dismisses comparison b/c differences exist between Canada and Australian markets. T cites U.S. example where IRI and N acquire data on a non-exclusive basis and compete vigorously in the provision of scanner-based market tracking services.

Conclusion: SLC is established. Hofley: Totality of anti-competitive acts, not necessary each act independently, resulted in a SLC.

Substantial Lessening or prevention of Competition: The central issue to be decided in determining whether the Director has satisfied this third element is the effect of the exclusives with retailers and the long-term contracts with customers on the conditions of entry into the market. In NutraSweet, the court stated that the question to be decided is whether the anti-competitive acts engaged by Nielsen preserve or add to Nielsen’s market power.

First, we must establish what the conditions of entry would be without the exclusives and, then, determine how the anti-competitive acts altered the prospects for economically feasible entry. Court looked at the inputs that were necessary to produce a scanner-based market tracking service. The exclusives removed access to these inputs.

• N’s exclusive contracts and the inducements that led to them have resulted in the prevention or lessening of competition substantially. It’s long-term contracts with its customers also prevent competition by significantly reducing the business available to would be entrant. The latter consideration, however, assumes importance only in a context where the barriers resulting from the exclusive contracts with retailers have been eliminated.

Remedies

Hofley: s. 79 remedies are broad and both retroactive and prospective.

Stop practices pursuant to 79(1). In addition, T uses its residual discretion in 79(2). T redrafts contracts, changed length of contracts and ordered N to provide historical data to INI.

1. Prevents future contracts of this type2. Prevents enforcement of certain provisions (both retailer and manufacturer contracts)3. Forced to provide historical scanner data4. forces to provide this order to its customers and sources of data5. must allow Director to look at future contracts for the next 2 years.

F. Tele-Direct (1997) – TS and Abuse of Dominance case

Director made two claims: (1) Tele-Direct (TD) was engaging in tied selling (TS) by requiring customers seeking ad space in telephone directors to acquire another product, telephone directory advertising services, and (2) TD engaged in anti-competitive acts through its substantial control of provision of ad space and the provision of advertising services. Specific acts were (a) refusal to deal with certain service suppliers as agents and consultants, (b) providing space to independent suppliers on less favourable terms, (c) squeezing the return available to independent services providers by restricting availability of commission, and (d) refusing to license the Yellow Pages trade marks to competing service providers.

Held: application granted in part

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T determined that not licensing a trade mark is not an anti-competitive act, based on s. 79(5).

For both 77 and 79, T has to define market. TD says the Yellow Pages are part of a broader local advertising market, which the T disagrees with. Telephone advertising market is its own beast, says T. No functional interchangeability or sufficient substitutability between other forms of advertising and Yellow Pages. There is a distinction between creative and directional advertising. T also considered other indicia such as physical and technical characteristics, the views, strategies, behaviour and identity of buyers, and the trade views and strategies and behaviour of industry competitors. Price relationships and switching costs were also considered.

s.79(5) stipulates that acts engaged in pursuant to the exercise of rights under the Trade-marks Act is not an anti-competitive act. This is so even where selective use of licensing occurs. The motivation for the decision to refuse to license a competitor is irrelevant.

For both abuse of dominance (s.79) and tied selling (s.77), it is necessary to determine the product market. TD argued that Yellow pages directories are only part of a broader market comprised of all local advertising media. This was rejected since other advertising media were not close substitutes for telephone directory advertising and did not provide competitive discipline for the respondents.

• The court found that both direct and indirect evidence of substitutability may be considered, but in the absence of the former, reference must be made to indirect indicia such as functional interchangeability. A distinction was drawn between directional vs. creative ads. Accordingly, telephone directory advertising was a distinct advertising medium without close substitutes. In addition to functional interchangeability, other relative indicia were considered, such as physical and technical characteristics, the views, strategies, behaviour and identity of buyers, and the trade views and strategies and behaviour of industry competitors. Price relationships and relative price levels, as well as switching costs, were also considered. These indicia also supported the conclusion that telephone directory advertising was a relevant product market.

Geographic Market: Found to be local, corresponding to the scope of each directory. TD was found to have an overwhelming share of the product market in all relevant local geographic markets.

Market Power: Refers tot he ability to set prices above competitive levels, and maintain them at that level for a significant period of time, without erosion by new entry or expansion of existing firms. The respondents were found to have control or market power based on its market share and the barriers to entry. There is a presumption of MP arising from an extremely large market share. The respondents failed to overcome the presumption by establishing easy entry into the market. Rather, there were substantial barriers to entry. Also, direct indicators of market power, such as the level of profits and methods of pricing, reinforced the conclusion.

S. 79(1) – Abuse of Dominance:

T determined if there was control or market power. TD had control based on market share and barriers to entry. Remember there is a presumption of market power when market share is extremely large. TD failed to overcome this presumption. TD ability to practice price discrimination was considered evidence of market power.

T then examined the anti-competitive nature of the conduct to find if the acts were performed for the purpose of an intended negative effect on a competitor that is predatory, exclusionary or disciplinary. The overall character of the acts have to be considered. A business justification must be credible re: efficiencies or pro-competition.

Of the Director’s claims, anti-competitive acts found against acts versus consultants b/c consultants had lost their competitive effectiveness due to anti-competitive acts.

T says that the larger your market power is, the small your acts can be and still be qualified as anti-competitive.

Remedy: T ordered that customers using consultants must be treated no differently that those who do not use them are.

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- The provision is concerned with acts performed for the purpose of an intended negative effect on a competitor that is predatory, exclusionary or disciplinary. The overall character of the act must be considered. A business justification must be a credible efficiency or a pro-competitive justification, and must be weighed in light of any anti-competitive effects. This is done on a case-by-case basis. The allegation that the respondents engaged in a practice of discriminatory anti-competitive acts against consultants was accepted.

- With respect to those acts, it was determined that the competitive effectiveness of consultants had been reduced as a result of the respondents’ discriminatory acts and that, therefore, there was a resulting substantial lessening of competition. Where a firm has a high degree of MP, and is also found to have engaged in anti-competitive conduct, smaller impacts on competition will meet the test of SLC than where the market situation was less uncompetitive to begin with. Therefore, due to the overwhelming MP of the respondents, even a small impact on the volume of business of consultants must be considered substantial

- Remedy: Tribunal recognized that the interests of the respondents were antithetical to those of the consultants and that the respondents should not be forced to assist them. However, the consultants must be able to compete and MP cannot be used to inhibit that. The tribunal ordered that customers using consultants must be treated no differently than customers who do not. The respondents were prohibited from rejecting orders submitted though consultants. The respondents were also prohibited from not processing or unduly delaying orders. The agents of the respondents were not to disparage the services of consultants, and comments must be restricted to the merits of the advertising.

S. 77 – TS:

Fact that TD had market power was enough to satisfy that TS was a major supplier.

T found that telephone directory space and telephone directory advertising space were two distinct markets, not just one market, although for small advertisers the two products were considered the same market.

As for the tying relationship, there was no need for tying relationship be expressly mentioned in the contract. Tying generally involves leveraging from the tying product market to the tied product market. Therefore, it made sense to assess the effects of the practice, or the SLC, in the target or tied product market. T determined that the TD had tied the supply of advertising space to the advertising space of the acquisition of ad space for larger customers.

Remedy: unbundling of tying product, ad space, from the tied product, ad services.

- Requirement that the respondent be a major supplier was satisfied by the finding that they had MP.

- Proposition that telephone directory space and telephone directory advertising services naturally formed a single product was rejected.

- Tribunal found no reason to conclude that the condition need to be embodied in an explicit contractual document. The conditions of coercion referred to in the tied selling provision mean more than contractual terms, and may be economic conditions which have the effect of precluding the choice of supplier.

- Effects of the practice or the substantial lessening of competition were assessed in the target or tied product market.

- Remedy: Tribunal ordered the unbundling of the trying product, advertising space, from the tied product, advertising services, in certain markets.

Hofley says T made three important findings in Tele-Direct:

(1) Refusal to license trademark is not anti-competitive.

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(2) T rejected argument that you need a contractual agreement to inducement in TS. T should look at overall context, business relationship, lunches, all indicia of relationship.

T says: “we see no reason to conclude that the references in the section to ‘conditions’ or even ‘terms and conditions’ require that these be embodied in an explicit contractual document.” (p. 488 casebook) Inducements can occur when there is a discount or other advantage.

(3) For abuse of dominance, if there is no pricing evidence, you look at market share, barriers to entry and profit levels to determine market power, as these are tied to pricing power. Profit margins from other markets like in New York were used.

Hofley also highlights behavioural remedies, specially the order preventing agents from disparaging competitors. T, therefore, goes so far to censure individuals.

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VIII. Reviewable Practices: Distribution Practices

A. The Competition Act

s.75-Refusal to Deal- Reviewable on the basis of four cumulative grounds. The provision does not apply if a change in customs duties makes the article available on similar trade terms. The two leading (only) cases are Chrysler and Xerox. See p.66 text

s.76-Consignment Selling - see p.66 text

s.77(2)-Exclusive Dealing (see Bombardier)-requiring or inducing a customer to deal in your products only.

see p.68 text

s.77(2)-Tied Selling (see Nielsen)-supplying one product on the condition that another is acquired from the same supplier OR that another product not produced by the supplier is not used in conjunction with the first product. Inducement to do this is also reviewable. Requires proof that the firm is a ‘major supplier’ and that the practice results in a SLC.

see p.68 text

s.77(3)-Market Restriction-Requiring that a customer not sell the supplied products outside a defined market area, by pain of penalty.

see p.70 text

s.77(4)-Special Defences to s.77 practices- (a) facilitating market entry, (b) technological relationship, (c) loan security.

s.80-81 Delivered Pricing

see p.70 text

s.82-Foreign Judgments and Laws -Empowers the Tribunal to halt or vary the implementation of foreign judgments, decrees, orders or processes where they are anti-competitive within the given terms.

s.83-Foreign Laws and Directives-Empowers the Tribunal to halt or vary the implementation of foreign laws and directives when anti-competitive within the terms stipulated in s.82(b).

s.84-Refusal to Supply by a Foreign Supplier- Where a foreign supplier refuses to sell to A, by reason of the exercise of buying power outside Canada, but does sell to B (in Canada), and B benefits from this arrangement, the Tribunal may order (s.84(a)) B to sell those products to A or (s.84(b)) order B not to deal with the foreign supplier.

see p.71 text

s.85-Specialisation Agreements-Specialisation agreements are those whereby different producers previously making competitive products enter into reciprocal arrangements to focus (specialise) production exclusively on certain products.

s.86-Registration of Specialisation Agreementss.87-Modifications to SA’s.s.88-Right of Attorney General to intervene in Registration proceedings

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s.89-Register of Special Agreementss.90-Non-Application of sections 45 and 77. see p.71 text

B. Blake et al. The Economics of Vertical Restraints.

Vertical price fixing is the attempt by manufacturers to control the price or limit the distribution of certain products through techniques such as resale price maintenance, market allocation and exclusive dealing. This article in fact states many positions in the form of questions, which have been rephrased in propositions for the purpose of this summary.

Incentives-Critics argue that laws are unnecessary because the market will discipline manufacturers to not have incentives to set prices too high, granted that its sale to the dealer is final and other competition exists. Proponents reply that manufacturers with high market share might not respond to competition, or may form cartels with other suppliers.

Attracting Dealers-Resale price maintenance may assure substantial distributor profits and thus induce dealers to stock and promote the brand. Against this is the claim that there are other, less anti-competitive ways of achieving the same goal.

Inducing Desired Services- In some cases, the extra services needed to sell items are not provided by some distributors in fear that other distributors won’t provide these services, and will charge lower prices. This is the “free rider” problem. The proposed remedy is price maintenance. The reply is again that the response may not be proportionate to the problem. First, the market could create two separate markets for the products: one with services and one without. Second, the manufacturer could provide these services itself, if it is necessary to promote profits in this way.

Product Image and Loss Leaders- Critics argue that companies simply do not want their products branded as loss leaders, while proponents question whether there is in fact any harm to product image through such practices.

Preservation of Small Business-Associations of small businesses have actively advocated resale price maintenance as a way to prevent the equivalent of predatory pricing, or sales below cost. Critics of such a defence believe it to be a non-efficiency based justification.

C. Director of Investigation v. Bombardier Ltd. (1980)

Facts: The Director applied for an order against Bombardier to discontinue its exclusive dealing practices regarding its Ski-Doo line of snowmobiles. Bombardier admitted to using the clauses in its agreements with several retailers. Bombardier pleads in response that (a) it is not a major supplier and (b) its exclusive dealing clauses do not have the effect of substantially lessening competition.

Issues: (1) Is Bombardier a “major” supplier within the meaning of the Act? (2) Do the exclusive dealing practices lessen competition substantially?

Held:

(1) Bombardier is a major supplier. Major does not mean dominant, or holder of majority share.

“A major or important supplier is one whose actions are taken to have an appreciable or significant impact on the markets where it sells.” Factors to consider include (1) market share, (2) financial strength and (3) record of innovation. “However, the characteristics which are most relevant vary from industry to industry.” (CB.519, middle)

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Market share is calculated at three levels: (1) Manufacturing, (2) distribution and (3) retail. Each market share level is assessed along different geographic lines (in this case). The manufacturing market included all of North America, whereas the distribution and retail levels were provincial and regional. (519, middle)

(2) The Tribunal goes through the threat of SLC in each market share. Regarding manufacturing, it was determined that the market areas covered by the exclusive dealing policy were 20% of the total (i.e. North America), and of that area Bombardier held only %10 of the total. This was too insignificant. At the level of distribution and retail (provincial/regional) Bombardier was clearly a major supplier. The essence of the decision is that evidence relating to (1) easy market entry and (2) expansion of sales and dealerships by Bombardier’s competitors “…does not show a substantial lessening of competition nor a likelihood thereof.” (CB521, 3rd col.)

Hofley: One reason for pursuing the “exclusive dealing” argument rather than “abuse of dominance” is that the former may be easier to prove. Abuse of dominance requires you to prove ‘market power’ and exercise thereof.

D. BBM v. Nielson (1981) 60 C.P.R. (2d) 26

Facts: The Director applied to the Restrictive Trade Practices Commission for an order prohibiting BBM (Bureau of Measurement) from continuing its practice of tied selling. The Respondent sold radio and television data about viewer habits and preferences, primarily to advertisers. It was the only seller in the radio field, and had one competitor in the television field (Nielson). BBM requested an exorbitant up front fee for ‘membership’ in the organisation ($17,785), and then sold both forms of data for small sums ($625 each). Effectively, the costs of data collection were hidden in the up front fee. Since most advertisers wanted both radio and television data, and BBM had a monopoly over the former, it was extremely difficult to any competitor to sell television data alone.

Issue: (1) Was there a sufficient technological relationship between the two forms of data to engage the exemption of what is now ss.77(4)(b)?(2) Was there a substantial lessening of competition?

Held: Application granted.

establish product and geographic market.

(1) No. The relationship was administrative, not technical, and the statute requires a clear technical relationship, not one of production. “In effect, the section provides a defence or justification of a tied sale on the basis that the reputation of the tying product might be injured or destroyed in the supplier cannot insist on a purchaser using only the tied product in conjunction with it.” (CB.524, middle c.)

(2) Major supplier because of market share(3) Yes. Two primary grounds: (a) The Tribunal accepts the testimonies of Nielson witnesses that claim direct loss

as a result of the practices, particularly because of the fact that nearly all advertisers (its customers) seek both forms of data; (b) since the tied selling arrangement makes entry into the radio market equally difficult, the barriers to entry in either market are “insurmountable” for newcomers (525, right c.)

Order: Prohibition on tied selling of both products.

Notes: The defendant argued that it didn’t cause Nielson’s losses, because BBM was Canadian, non-profit and managed by the industry. Hofley notes that the issue of causation is usually one of the first to arise, and lack of it is always a wise ground to plead. In this case, the Tribunal does not give arguments on the issue of causation. It merely mentions the testimonies and concludes with “there can be little doubt that an important, if not the most important, factor in Nielson’s failure to expand in the market ….has been BBM’s tying…” (525 middle)

3 criteria for abuse of dominance:

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1. Substantial control over a class or species of business (are they a dominant player?)

2. Anti-competitive acts

3. Had, is having, or is likely to substantially lessen or reduce competition.Have to establish that alleged abuser has market power. This requires definition of market (geo & product). This is the same as in the merger review.

Product Market: Looked at various factors by focused on the superiority of the scanner market date to the other. Court looks at functional substitutability.

- Price question: would a 5% increase of a year bring about competition? Court decided no. Customers would not switch and therefore no discipline.

- Court looked at indirect evidence of market power: barrier to entry, etc.- Court relied on experts.- Recall cellophane fallacy. Don’t assume market price is the competitive price. - Court referred to countervailing power: the argument is that retailers exercised countervailing

strength in terms of access and prices, with the result that Nielsen had little market power. Court did not find this to be the case. Distinguished between the data and the service that Nielsen does with the data. Retailers in this case cannot do it themselves. Keep this in mind as a factor.

- Customers of Nielsen were concerned about Nielsen being the sole supplier. This was an important .

Basis test: nature and purpose of practice- exclusive Contracts with retailers: “preferred supplier:” right of first refusal in cases where

they are not the exclusive dealer. This is an indirect way to achieve exclusivity. Court found no subjective intent, but knowledge that this would prevent competition. This is an inducement to exclusivity.

Do these anti-competitive actions substantially lessen competition?- Test: do they reserve or enhance market power? If either, then substantial lessening. - Response by Nielsen: anybody can bid when the contracts come up for renewal. This is a

common argument in industries where business is done by bids. (i.e. construction). Court said that there was no evidence showing competition and considered this a non-factor.

- Nielsen argued that competition could have entered since a few contracts opened up every year. Court looked at other geographic markets abroad. In Aus and NZ, there was an increasing concentration. In the US, where there were no such contractual clauses, vigorous competition existed.

Powers of tribunal are wide: p.421-424: very detailed prohibition order. Rewrote existing retail contracts and new ones (retrospective and prospective). Manufacture Contracts were also redrawn. Court ordered Nielsen to provide competitor with historical data (an important element in this industry).

Hofley: Note the high fixed costs. Note also that BBM attempted to plead that it is an association rather than a firm, and thus exempted from the application of the Act. This failed, [but the reasoning on this point is questionable (see 524, left-middle c.)].

Bristol Myers (predatory pricing)- There was a complete absence of evidence to suggest that the defendant ever did anything

more than meet the plaintiff’s prices. - The term ‘unreasonable low’ in s.50 is a flexible provision to permit the court to assess all the

circumstances. Selling below cost may be justified to meet a low price of a competitor. A price cannot be predatory, even if it is below cost, when the price reduction in issue was made to meet lower prices already being charged by a competitor. The defendant’s reductions were not out of line with those of the attacker.

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Tele-Direct: allegation of tied selling and anti-competitive acts. - Court looked at functional substitutability- It also looked at profits. Need reference point (i.e. competitive market in NYC).- Argument that contractual conditions are required for inducement is rejected.- Remedies: broad and behavioural: agents of TD were not to disparage advertising consultants.

This shows how far remedies can go.

E. Director of Investigation and Research v. Chrysler Canada Ltd. Tribunal, 1989.

Facts: Chrysler Canada was challenged by the Director for refusing to deal with a Canadian automotive parts exporter, Brunet. Brunet exported several kinds (but primarily Chrysler) of auto-parts to countries such as Peru and Sweden at prices below those at which Chrysler US could compete. Chrysler Canada Ltd. first cut off Brunet, who subsequently began to purchase from other Canadian dealers who obtained the same parts from Chrysler. Chrysler then initiated a series of measures to force Canadian dealers not to supply any parts for the purposes of export. Brunet’s sales dipped dramatically.

Held: Application granted, Chrysler Canada Ltd. ordered to deal.

The tribunal is satisfied that a broad consideration of Chrysler’s market power is not required in determining whether the specific elements of s.75 have been satisfied, although they may be relevant in the Tribunal’s exercise of its discretion.

(1) Product Market- In refusal cases, the customer’s preferences are the paramount consideration.(537, middle). Chrysler argued that the correct product should be viewed as auto parts in general, whereas the Director argued that the proper market was Chrysler auto parts in particular. The Tribunal held that “Products and markets can only be meaningfully defined in a particular context and for a particular purpose….In the case of [a refusal to deal] the ultimate test concerns the effect on the business of the person refused supplies.” (this passage is also cited in Xerox). In this case, Brunet’s customers treated the Chrysler auto parts as distinct products, and did not want substitutes. That was determinative. For the same reasons, the distinction between “captive” and “competitive” parts made no practical difference because customers took no recognition of the difference, and insisted on Chrysler parts across the board. LOOK AT FUCNTIONAL SUBSTITUTABILITY.

(2) Geographic Market- Canada, due to separate price lists. Chrysler argued that the correct geographic market is all of North America. By doing so, it argued that it simply placed Brunet on equal terms of trade with the rest of exporters in North America, all of which resided in the US and bought directly from Chrysler US. The Director argued that the correct geographic market for the affected business was Canada, based on the existence of separate pricing lists for the two countries. The Tribunal adopted the latter, and added the Brunet’s business was premised on the separate market conditions holding in Canada.

(3) Business Substantially Affected- ‘Substantial’ means more than de minimis. ‘Important’ is an acceptable synonym.(541, middle) First, the buyer’s entire business activity, and not just the refused products, is the context for assessing ‘affected’. Second, sales and profit figures are an important but not exclusive consideration. Third, it is necessary to consider the following factors as well: (539, right)(a) Does the product in issue account for a large percentage of over-all business? (b) Is it easily replaced by other products sold by the same business?(c) Does the sale of the products use up capacity that could be devoted to other activities?(d) Is the product integral to other products or services offered, thus being of greater importance than the

purchase volume might indicate? [This list is not verbatim].

Order: Tribunal orders Chrysler Canada to supply Brunet parts under usual trade terms (s.75(1)), with no order as to costs.

Once the tribunal is satisfied that the Director has proven all the elements of s.75, it has the discretion to issue an order requiring Chrysler to resume supplying Brunet with Chrysler parts within a specified time on usual trade terms.

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Hofley:

The Tribunal ‘fudged’ the analysis a bit here. After market definition, there are two major thresholds: (1) whether business was substantially affected and (2) whether the effect was a result of inadequate competition. In the case, the Tribunal devoted two sentences to the latter question (541, middle).

refusal to deal is a one-off situation; there is no need to establish it as a practice. Commentators have written negatively about the Tribunal’s finding that customer preference is the deciding

factor in defining a product market. Nevertheless, it is upheld in Xerox. The Tribunal notes on 542 that a finding under s.75 does not require showing a lessening of competition, and

only the satisfaction of the elements of the section are satisfied. Lessening of competition may however influence the exercise of discretion.

F. Director of Investigation and Research v. Xerox Canada, 1990

Facts: Xerox Canada supplied parts to Exdos Co., which used them to carry on a business of brokering/selling, refurbishing and servicing used Xerox copiers. After some years of this practice, Xerox decided to expand its servicing market and viewed Exdos and other Independent Service Organisations as threats to such expansion. It therefore refused to continue to supply them with parts. It was an important finding that Xerox initially encouraged the development of this secondary market of used copiers. The expansion of Exdos into newer models not covered by the initial agreement was held to be tacitly accepted by Xerox (546, right).

Main Issues: (1) What was the product market? (2) Was the inadequate supply caused by insufficient competition in the market?

Held: Application granted, Xerox ordered to continue dealing with Exdos.

Court held that 3 sources of parts ((1) from Xerox, to the extent that Exdos is recognized as an end user of any given machine, (2) from the ‘cannibalization’ of used machines; and (3) from independent manufacturers of Xerox parts) are insufficient supply. (refer to 75(1)(a)). Business substantially affected (refer to s.75(1)(a)): This was found to be the case because of Exdos’ business and need for parts.

(1) Product Market: The Tribunal analyses this issue under four sub-headings: (a) whether the product market is parts; (b) whether vertical integration is the industry norm; (c) the significance of the Exdos’ conduct to the identification of the market; and (d) the relevance of market power to s.75. Its findings were as follows. The product market must be defined flexibly and contextually, in reference to customer preferences (citing Chrysler, (551, left)). Another key factor is cross-elasticity of demand (551, middle). Concerning vertical integration, it was clear that Xerox had itself sold parts freely and openly to persons other than end users (and thus actually created a market (555, right)). Also, there is no evidence to support the claim that vertical integration is the industry norm. (554) [Hofley adds here that he does not see why this argument was not also dismissed on theoretical grounds]. Exdos’ conduct was challenged as dishonest (“subterfuge”),but the Tribunal dismisses the allegations as unsupported. Finally, “…market power is not an element which need be proven for the purposes of obtaining a s.75 order” (citing Chrysler, (554-55)).

(2) Insufficient Competition among suppliers of the product: The Director contended that the only question under this heading is whether Exdos can get the product (Xerox parts) from any other source. The answer was no, and thus the market is characterised by insufficient competition. (555, left) The Tribunal accepted this analysis after dismissing Xerox’s theory-based objections.

G. Regulated Conduct: Stikeman Elliot Memorandum (2000) (Optional)

Government regulated conduct is exempted from the application of the Competition Act. The exemption applies to persons or corporations engaged in activities pursuant to a federal or provincial legislative scheme. The leading case

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is Jabour v. Law Society of British Columbia (1982), where the Law Society prohibited advertising by its members and was challenged under s.45. “The regulated conduct exemption is based on the judicial recognition that federal and provincial legislative powers are exercised in the public interest.” It is not necessary that persons claiming the defence establish that they are acting in the public interest. Rather, when they act within the statutory mandate, they are deemed to do so. (560)

H. Essential Facilities Doctrine (Submission of the Director of Investigations and Research to the CRTC), 1996.(Optional)

“An essential facility is a physical facility or input controlled by the incumbent firm which gives it the power to eliminate competition in a relevant downstream product or service market. The important elements highlighted are (i) market or monopoly power by an incumbent in a downstream market directly as a result of (ii) control over an essential facility.” The doctrine was developed in the US, and has been implicitly adopted but never applied in Canada. Where four specific conditions are present, it engages a duty to make a facility reasonably available to others on non-discriminatory terms. The four conditions are listed on p.564, middle column.

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IX. Competition Law and Intellectual Property

Historically, people have said that IP rights and competition law re polar opposites. This view has been rejected. They are not in conflict because they have the same objective: promote sound economy but from different areas. They conflict because they have different short-term objectives: Competition has a short term static view. IP has dynamic effects and long-term view.

A. Bodrug, “Intellectual Property/ Competition Law Interface in Canada,” 1998 (P. 565)

This is from a conference, and it goes over the relevant provisions of the Competition Act that deal with IP. s. 79 (abuse of dominance): If you are a dominant company (control a class or species of business) that has a practice of hurting competition (“likely to prevent or lessen competition substantially in a market”) you can get sanctioned, or your assets may be divested. The tribunal must consider whether it is a result of superior competitive performance, and there is also the specific defence discussed in class (s. 79(5)), which says that if you have an IP right and you are just exercising your right unilaterally then the tribunal cant touch you.o Cases that deal with this include:

Tele-direct : Here the Yellow-Pages information (a TM) was refused to an interested party. This was ok, but the tribunal said there could be instances where a TM may be misused, e.g. with tied-selling.

NutraSweet : Can’t abuse your US patent and TM to force exclusive arrangements in Canada Interac : The fucking Canadian banks tried to screw people by not letting others be members. There

was a consent order that loosened membership requirements. Nb Tel : Telephone wires have to be shared (for a reasonable fee).

S. 77 (Tied selling and exclusive dealing): May be prohibited if:1. Done by a major supplier2. is likely to impede entry to market or have any other exclusionary effect that is likely to lessen

competition substantially.3. Defence: under s. 77(4) In technology relationships there may be a good and reasonable reason for the

tied sellingo Cases that deal with this include:

Tele-direct : Dealt with advertising spaces in phone directories; found to be a separate product from the directory (something to do with efficiencies?)

NutraSweet : The TM could be a tying product, but it was not persuaded in this case. Digital Equipment : They tied servicing of the hardware to the software. This lessened competition in

the servicing of hardware, so Digital had to offer them separately, and setting the software and hardware prices to levels equal to the sum of the integrated service price.

It has been noted by the Director of the Bureau that hardware software relationships may be protected by s. 77(4)

S. 75 (Refusal to Deal): Will be applied if:1. Refusal substantially effects a person’s business2. Person is unable to obtain adequate supplies because of insufficient competition3. Person is willing and able to meet usual trade terms4. and product is in ample supply (no competitive effects test).o Cases that deal with this include:

Warner : Tribunal lost in an attempt to force Warner (+50% of Market) to deal with competitor. S. 75 does not compel sharing IP rights.

What does this case mean? Is s. 75 being applied narrowly, or is just the facts of this case? Note that s. 75 does not require showing that competition was unduly effected.

S. 61 (price maintenance): You cannot use your IP right in any way to try to influence the upward price of another person’s prices by agreement, threat, promise or like means:o This is criminal, and has implications for licensing agreements. S. 61 may be stricter in Canada than in the U.S. S. 32 (a power of the federal A.G.) to examine IP right use that unduly lessen competition: Never a decided case, but Union Carbide once came under attack for this

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o Important from notes: This section will not be used if there is an appropriate remedy under the IP Act. The action must have an impact on competition in a market that is bigger than simply the IP question, and then the test becomes:

A. The IP holder is dominant in the relevant market B. The IP participant is preventing access

The A.G. has a lot of discretion here, because the section says something about the remedy being issued should not adversely effect incentives to innovate

Lastly, Other considerations:o Only s. 61 gives a private right of actiono Only the director can bring proceedings under s.77 and 79; only the A-G can bring proceedings under s.32.o “In general, Canadian approach may be more cautious or restrained than US or EU authorities in applying

competition law to the exercise of IP rights.”

p. 566What seems key is that if you are just exercising your IP right, there should be no problem. This comes from Tele-Direct. You can refuse to license a TM if you want. Just watch out if you tie the license to something else. From Warner, “The right granted by Parliament to exclude others is fundamental to IP rights and cannot be considered to be anti-competitive.”

From NutraSweet: Tribunal agreed that NS had engaged in a practice of anti-competitive acts through the use of its TM and its US patent to foreclose competition in the Canadian market by inducing customers to enter into exclusive supply arrangements with NS. Neither the Tribunal’s decision nor its order prohibiting NS from continuing these anti-competitive practices or even referred to s.79(5). In Tele-Direct, the Tribunal rejected the allegations that TD’s refusal to license its “yellow pages” trade-marks to certain competitors constituted a practice of anti-competitive acts. “The selective refusal to license a tm is not an anti-competitive act.” Something more than the mere exercise of statutory rights, even if exclusionary in effect, must be present before there can be a finding of misuse of a tm. However, the tribunal acknowledged that tying a tm product to another product may be a misuse. TD’s refusal to licence its TM falls squarely within its prerogative. Inherent in the very nature of the right to license a tm is the right for its owner of the tm to determine whether or not, and to whom, to grant a license. Selectivity in licensing is fundamental to the rationale behind protecting tms. TD’s motivation for its decision to refuse to license a competitor is irrelevant. Thus, refusals to license tms will not, in themselves, be considered anti-competitive acts, even if the refusals are motivated by competitive considerations. s.32 empowers to issue orders to deal with situations in which the use of exclusive IP rights prevents or lessens unduly competition in the manufacture or sale of an article. In contrast to s.75, s.79 does include a competition impact test although it uses different terminology (and possibly adopts a higher threshold) than the undueness test in s.32.

B. In Re Independent Services Organizations Antitrust Litigation, U.S. Ct. of App. (Fed.) (2000) (P. 568)

Facts: On appeal from the trial court. CSU’s claim got dismissed on a summary judgment. CSU claimed that Xerox’s refusal to sell patented parts violated antitrust law. Xerox had a policy that it implemented in 1989 of not supplying parts unless the end product (a high-volume copier) was used. CSU’s competitors entered into a deal with Xerox to license its product, but CSU wanted to sue under the Sherman act. Xerox counterclaimed for patent infringement, and said its refusal to deal was lawful. The trial court held that Xerox could refuse to deal, even if the refusal impacted competition in one or more markets. The trial court also held that the patent (or copyright) holder’s intent in refusing to deal is irrelevant to competition law.Issue: Did the trial mistakenly dismiss CSU’s claim that Xerox violated anti-trust law?Held: [Mayer, C.J.]: Appeal dismissed. Judgment for Xerox affirmed.Reasons: “Intellectual property rights do not confer a privilege to violate anti-trust laws.” However, antitrust laws do not negate the IP holder’s rights. You are not a monopolist if you have an IP right that excludes others.

A patent alone does not demonstrate market power. Patent holders have a right to refuse to deal. This right, however, is limited. If the patent was obtained by fraud then this will not apply.

The patent holder (per Eastman Kodak), is not allowed to use hi patented part and statutory right to gain market power in a market beyond the scope of the patent.

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The court overruled another trial court decision such that the law now is that the court shall not examine the patent holder’s subjective intent for refusing to deal.

With respect to copyrights, the right holder is only allowed the rights that Congress intended. The right holder cannot use his right to gain monopoly power beyond his exclusive right. The Plaintiff must show that this is the case, otherwise the court will not examine the subjective intent of the IP right holder. The purpose of IP law is to create a system of incentives that promotes consumer welfare in the long run by encouraging people to create.

C. Gallini & Trebilcock, Intellectual Property Rights and Competition Policy: A Framework for the Analysis of Economic and Legal Issues (selected reading) (P. 571)

(Alternative Title: Blah, blah, blah, we are U. of T. professors who think we are so great)

IntroductionLaws need to be examined now more than ever because of all the high-tech. IP law and Competition law

appear to be in prima facie conflict. This conflict, however, is resolved if the long-run view replaces the short-run view. The two sets of laws can work together to achieve economic efficiency (through innovation and eventually competition in the long-run).

The Economics of The Intellectual Property/Competition Interface

The goal is the efficient allocation of resources through innovation and competition.Economic literature on the intellectual property/competition interfaceThe incentive to conduct research depends on patent policy and the cooperation (i.e. with licensing) after

the patent has been issued. Most authors discuss the trade-off between the length of the patent and the scope (which is the extent to which the product may or may not be imitated with slight variation). The authors seem concerned most with the level of patent profits that will induce the firm to make lots of R & D investment.

Alternative Approaches for Competition Treatment of IPRsCompetition policy (normatively):

1. provides ex ante incentives to innovate2. affects ex post incentives to transfer new technologies and products; and3. promotes price competition in product markets that use the new products and processes.

A Framework for Competition Policy in IPRs

The following principles should be followed:P1: There should not be a presumption that an IPR creates market powerP2: Competition Policy should acknowledge the basic rights granted under patent lawP3: A licensing restriction should be permitted if it is not anticompetitive relative to the outcome that would result if the license were proscribed; otherwise, and evaluation of the potential efficiency effects of the restriction on the pricing and diffusion of the IP should be made.-most patents (around 75%) have substitutable products-market power obtained by “superior skill, foresight and industry” should be rewarded-refusing to license is the most basic right of IP, but does not include much else that will escape antitrust review

An important question is how important should R & D considerations be in competition cases? There are three answers (approaches):Approach 1: Competition policy should intervene to correct perceived excesses or deficiencies in the IP protection provided under patent policyApproach 2: Competition policy should determine whether a license reduces competition in innovation marketsApproach 3: Competition policy should determine whether a license reduces potential competition in product and/or technology markets

Comparisons of ApproachesAll three approaches may be appropriate, but the authors adopt the third policy as the best because even

though it affects the incentives to innovate by reducing returns, the incentives affected are the ex post ones and not the ex ante (more important) ones. Competition policy should only give limited attention to the R & D effects of

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licensing restrictions. You cannot predict the harm to R & D through competition policy. Also, it is important to remember that IP is different from tangible property in that the transfer of it involves no costs, and it is socially efficient for access to be free. Whether the relationship is horizontal or vertical should also be taken into consideration.

Competition Law Towards Intellectual Property

The law in CanadaThe general gist is that the Patent Act and the Competition Act seek to prevent abuses or IPR and provide for remedies. In the 1980’s Canada paid more attention for the need to develop this area of the law so as to allow Canadians to be in a better position to compete in world markets.

If you want a summary of all the sections of the Competition Act in relation to IP you should simply read pp. 574-5 of the casebook. It basically adds little to section of A of this summary.

The Law in the United StatesThere a relevant section of the Sherman Act and the Clayton Act, but the acts do not specifically mention IPRs. However, case law has developed two general principles:

1. The patentee is not obliged to use or license its innovation2. The patentee may grant exclusive licenses for particular territories in the U.S.

The DOJ and the FTC have issued guidelines, which say that the patentee may take advantage of its market power, but not beyond what is inherent in the IPR itself. More important points include:

1. IP is comparable to other forms of property2. IPRs do not necessarily imply market power3. the licensing of IP may have pro-competitive effects, particularly when combined with other factors of

productionThe guidelines declare a “safety zone,” within which IP challenges will not be challenged: If the arrangement is not per se illegal, and if the parties to the contract do not collectively exceed 20% of the relevant markets (product, technology, innovation). A rule of reason approach will be used. Agreements that fall outside of the “safety zone” that produce no efficiency benefits will be challenged under the per se rule (e.g. sham agreements).

What follows is a detailed analysis of different types of practices, e.g. Tying, grantbacks, refusal to license, resale price restrictions, exclusivity restrictions, and multi-lateral agreements. This is from pp. 576-577. This would probably be useful on the exam for an analysis of a situation in which the US has case law (discussed a bit) and where Canada does not.

The Law in the European UnionThe Treaty of Rome does not allow agreements that have as their object lessening of competition within the common market. Patents fall under a block exemption. The European commission is concerned with the free movement of goods and exclusivity in contracts. From pp. 577-578 the same type of analysis occurs, which will be useful to review for the exam.

Conclusion: There are sharp differences between the three jurisdictions. The U.S. has broad legislative language for the courts to interpret, where Canada has specific provisions in the Competition Act that apply to IPRs.

Economic Analysis Of Specific Contractual Provisions

Refusal to License

If IP right holders were forced to license then courts would be determining prices. Licensing can be economically desirable if there is abuse of dominant position, and has been used a remedy under the “misuse doctrine” in the U.S.

Price Restrictions

GE was allowed to include price restrictions to Westinghouse to the degree that it would have benefited had it marketed the product exclusively. This is better than not licensing at all, which may have been the case if GE could not influence prices in its favor. The patentee is entitled to his “reasonable reward,” whatever that means. The authors are upset that no P3 analysis was undertaken by the court concerning the benefits and costs of diffusion.

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Exclusivity in Contracts

Exclusive ContractsIf the IP right eliminates competition then a merger review should take place! Without the IP, it would fall under conspiracy review! Vertical integration is an alternative to exclusive licensing, which is what would happen if exclusive licenses were not allowed.

Exclusive TerritoriesAllowed in the US and Canada, but not in the EU, where the courts do not want the markets to be compartmentalized.

Exclusive DealingThis is allowed because under patent law a vertically integrated licensor and licensee could sell its product exclusively. The rationale for this policy is not clear and may discriminate against smaller innovators.

Tying and Extension of IPRs

This occurs when the IP product gets ties to a non-IP product. The IP holder has incentives to do this, especially with new technology products. Market power should be an important consideration. Hazeltine is an example where one company got to tie a bunch of patents together, as it was reasonable to do and done at a reasonable price. It was an efficient way of doing it.

Horizontal Agreements

Here if two firms share patents through cross-licensing the behaviour may border cartel like-behaviour. In Hartford Emplire the court did not break up the patent pool, but one author believes they should have because the anticompetitive effects of the arrangement most likely overwhelmed the efficiency considerations.

ConclusionThis paper tried to reconcile that IPRs are free to transfer, but without them there would be no incentive to

innovate. The authors argue that the important focus should be on the licensing agreements, while maintaining the rights inherent in IP.

In some cases where the exclusive dealing would be per se illegal without an IP right involved, such as with price maintenance, it is allowed because it is better than if the firms were vertically integrated and doing the same things.

Patent rights under P3 promote competition; and competition policy and patent policy should commingle to create allocative and dynamic efficiencies.

Comment by Richard Gilbert (p. 585-6)Canada and U.S. are similar in that their policies weigh economic costs and benefits. The EU is concerned

with the free movement of goods between member states, and thus oppose territorial licensing restrictions. There is also the procedural difference that in Europe any agreement that affects competition is illegal unless it is exempted. Whereas in the US and Canada everything is legal until the court says it is not.

The main points from the article are summarized and critiqued:“There should not be a presumption that an IPR creates market power.” No dispute here.“The exclusive rights explicitly stated in the patent law should be respected by competition law.” The author here questions whether the IP should be treated from different forms of property.“Competition authorities should not base their policy on whether innovators have received a sufficient reward for their efforts, but should evaluate licensing contracts on their own merits.” “Licensing restrictions that do not reduce competition relative to a ‘no-licensing’ situation should be allowed.”

D. Competition Bureau, Intellectual Property Enforcement Guidelines (2000) (P. 587)http://strategis.ic.gc.ca/SSG/ct01992e.html

Key Principles from introduction (part 1)

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IP and comp law are complimentary instruments of government policy Licensing should be encouraged; competition law does not want to intervene There is the same analytical approach; The same steps are done in the analysis, e.g. defining market . . . If you are doing more than a mere exercise of an IP right than the competition act will apply (note: licensing is

not unilateral, so there is no blanket protection) S. 32 will be used to examine a mere exercise of an IP right and nothing else

The Other Sections

Part 2 describes general IP and competition lawPart 3 discusses the interface between IP law and competition lawPart 4 goes over s. 32Part 5 describes the analytical framework with special concerns sensitive to the characteristics of IPPart 6 discusses the bureau’s mandate to promote competition in relation to IP, e.g. it can be an amicus curiae if it wantsPart 7 is a series of hypothetical situations (a few were gone over in class)Part 3IP law makes IP more like real property, in that it prevents others from using it when normally it would be very easy for others to use. The goal of it is to create innovative incentives. Competition law is consistent with IP law in that it promotes the efficient distribution of goods in society. Competition law will interfere with IP rights when they are being abused, and therefore will help stop anti-competitive conduct.Part 4: Applying the Competition Act to Conduct Involving IPThere are five steps involved

1. Identifying the transaction or conduct2. Defining the relevant markets3. Determining the level or market power of the firm(s), by e.g. examining the barriers to entry, look to

“network effects” (is it better to have more people using the same system? MS Word? This is an indicia or market power), look to innovating or leapfrogging.

4. Determining whether the behaviour in question would unduly or substantially lessen competition5. Considering, where relevant, if there are any efficiency rationales that would justify the behaviour in

question (s.79(5), 96, 77)-Mere exercises of an IP right will not draw attention by the competition act because otherwise the effect would be to nullify the IP right-This section goes over Warner and Tele-Direct, in which the Tribunal held that the mere exercise of the IP right to refuse to license a complainant was not an anti-competitive act. In its decision in Tele-Direct, the Tribunal indicated that competitive harm must stem from something more than just the mere refusal to license, and then s. 32, which is an exception to the point made just above

s.32: The Bureau will seek a remedy for the unilateral exercise of the IP right to exclude under section 32 only if the circumstances specified in that section are met and the alleged competitive harm stems directly from the refusal and nothing else. Such circumstances require the Federal Court to balance the interests of the system of protection for IP (and the incentives created by it) against the public interest in greater competition in the particular market under consideration. Generally, the Bureau would recommend to the Attorney General that an application be made to the Federal Court under section 32 when, in the Bureau's view, no appropriate remedy is available under the relevant IP statute.Enforcement under section 32 requires proof of undue restraint of trade or lessened competition. The Bureau expects such enforcement action would be required only in certain narrowly defined circumstances. The Bureau determines whether the exercise of an IP right meets this threshold by analyzing the situation in two steps. In the first step, the Bureau establishes that the mere refusal (typically the refusal to license IP) has adversely affected competition to a degree that would be considered substantial in a relevant market that is different or significantly larger than the subject matter of the IP or the products or services which result directly from the exercise of the IP. This step is satisfied only by the combination of the following factors:

i) the holder of the IP is dominant in the relevant market; and,

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ii) the IP is an essential input or resource for firms participating in the relevant market C that is, the refusal to allow others to use the IP prevents other firms from effectively competing in the relevant market.

In the second step, the Bureau establishes that invoking a special remedy against the IP right holder would not adversely alter the incentives to invest in research and development in the economy. This step is satisfied if the refusal to license the IP is stifling further innovation.If factors i) and ii) are present then the IP is the source of dominance in a relevant market and other competitors would be able to participate in the relevant market only by having access to that IP. If the refusal is stifling further innovation then the Bureau would conclude that incentives to invest in research and development have been harmed by the refusal and a special remedy would help realign these incentives with the public interest in greater competition. The Bureau recognizes that only in very rare circumstances would all three factors be satisfied.

Part 5: The Analytical Framework in the context of IP

5.1 Relevant MarketsRelevant markets provide a tool for assessing market power. For prospective anti-competitive concerns the “hypothetical monopolist test” is used (see s. 3.2 and 3.3 of the MEG’s). When the anti-competitive concern is retrospective the bureau will analyze market definition and competitive effects concurrently. Defining a market will be important with a merger, when for example, two firms license IP products that are close substitutes of each other merger. The bureau will not define relevant market when there is simple licensing of an IP right, but will rather look to the content of the IP right.Market Power There are a number of factors to consider that will vary on the conduct under which the bureau investigates a violation of the act, including the level of concentration, entry conditions, the rate of technological change, the ability of firms to "leap-frog over" seemingly entrenched positions and the horizontal effects, if any, on the market

5.1.1 Market concentration: This gives the bureau a general indication of the competitiveness of the market. What are the firms with demand and supply substitutes? Less than 35% of the market share will generally not be investigated.

In general, the more firms there are in the relevant market, the less likely it is that any one firm acting unilaterally, or any group of firms acting cooperatively, could enhance or maintain market power through the transaction or conduct being examined. However, a high degree of concentration is not enough to justify the conclusion that the transaction or conduct will create, enhance or maintain market power. This is particularly true of industries with low barriers to entry, a high rate of technological change and a pattern of firms "innovating around" or "leap-frogging over" technologies that had previously controlled a dominant share of a market

The Bureau generally does not challenge the conduct of a firm (or a group of firms acting together) that possesses less than a 35 percent market share. (Market shares of more than 35 percent are not considered evidence of market power or anti-competitive effect, but merely of circumstances that may warrant further review.) Market share may be calculated based on the firms' entire actual output, total sales (dollars or units) or total capacity (used and unused). However, some of these factors may be difficult to assess in cases involving IP. Accordingly, the Bureau's assessment of market power is likely to focus on qualitative factors such as conditions of entry into the relevant market, whether IP development is resulting in a rapid pace of technological change, the views of buyers and market participants, and industry and technology experts.

5.1.2 Ease of Entry: This is important: “leap-frogging” or innovating around the technology will be an important consideration; barriers to entry will be examined

The Bureau also examines how easily firms can enter the relevant market to determine whether new entrants have the ability to restrain any creation, enhancement or maintenance of market power that may result from a transaction or conduct involving IP. When assessing effects in markets involving IP, conditions of entry are often more important than market concentration. For instance, evidence of a rapid pace of technological change and of the prospect of firms being able to "innovate around" or "leap-frog over" an apparently entrenched position is an important consideration that may, in many cases, fully address potential competition law concerns.

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The Bureau also considers the extent to which the transaction or conduct itself erects or has erected barriers to entry or, alternatively, induces or has induced competitors to exit the market (see Examples 3.2 and 4). Entry into markets in which IP is important may be difficult because of the sunk costs associated with developing assets that comprise specialized knowledge. Additionally, IP rights can serve to increase barriers to entry independent of any conduct.

5.1.3 Horizontal Effects: The bureau is not concerned unless there is a horizontal effect on competition, and in vertical arrangements will look for horizontal effects

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5.2 Anti-competitive Effects There must be horizontal effects. Does the activity/conduct facilitate a firm’s ability to exercise market power? May arise if increases competitors costs, e.g. restricting inputs for a competitor

5.3 Efficiency ConsiderationsThis often happens where the arrangement is vertical and two firms are combining complimentary factors. Also, there can be efficiencies associated with increases in market power. The bureau will look at both short-term and long-term efficiencies. This principle is recognized in s. 96 in the context of mergers, as well as ss. 77 and 79. The test is whether the efficiencies gain offset the anti-competitive effects (see the merger review analysis). The bureau will look at business justifications for other types of behaviour, and also examine the alternatives available to the firm when it made its decision.

Section 7: Hypothetical ExamplesAgain, I suggest you read these as they test your knowledge of this material, and will definitely be a

source to draw from in the exam! There are 8 short examples.

E. Selected Highlights from Kurzon’s Class Notes

Guest lecturer: Jeffrey Brown. He discussed three broad themes:1. IP theory v. Competition law theory2. Application of an IP problem with the competition act3. hypotheticals based on the discussion

Theory

IP and Competition share the same long term objectives but do it through different means. Competition law: static means; you take a snapshot of the world and make sure there is no dominant position. IP: focus on dynamic effects; incentive to innovate.

He explained the Trebilcock article better than I did. Competition law can intervene with IP at three points:1. ex ante incentives (R & D)2. ex post incentives to transfer tech (licensing)3. promotion of price competition in products that use the IP

The least controversial points of intersection are 2 and 3. 1 should be pure IP domain.

Application

There are three types of provisions1. Criminal 2. Civilly reviewable offences3. s. 32 of the Comp. Act

IP mentioned in s. 79 (5), and s. 61 (not a defence with resale price maintenance to say you have an IP right)

Portions of Act that are most relevant to IP: Criminal: s. 45 (conspiracy), s. 61 (RPM), s. 50 (1) (A-C) (price discrimination and predatory pricing)

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Civil: Tied selling, refusal to deal, merger provisions

Exam Note: Oftentimes if one section of the act is triggered, it will almost always trigger another section. e.g. tied selling always goes with abuse of dominance

If act extends beyond “mere exercise of IP rights” go to general provisions. Go to s.32 only if it involves only the exercise of IP rights.

Bureau will apply s.32 only when;

1. No appropriate IP remedy

2. Impact on competition in a market that is different or significantly larger than the subject market. See 2 tests at p.591. Link with “essential facility”

3. If they issue remedy, will this negatively affect innovation? This is very discretionary.

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X. Public and Private Enforcement of Competition Laws

A. The Competition Act

Part II of the Act sets out its administrative structure.

The Commissioner is the boss. His responsibilities are in S.7; he administers several other acts, although the Competition Act is the most significant. In overseeing the CA he is the investigator and prosecutes civil violations. Competition Bureau administers and enforces the Act. Criminal violations are prosecuted by the A.G. or the Minister of Justice. In practice, in criminal cases, the Bureau and the A.G’s office work closely together. The merger branch of the Bureau is the largest branch, followed by criminal and civil.

See also Legislation book at p.12ff

1. Criminal Proceedings

a. Commencement of Inquiries

While the Commissioner has the power to commence a formal inquiry under the Act, the Bureau may proceed by way of an informal inquiry as a preliminary fact-finding mission in order to determine whether to commence a formal inquiry or take other steps. The Commissioner does not have available to him as many compulsory fact gathering powers if he proceeds by way of an informal inquiry.

Generally, there are three ways of commencing proceedings leading to criminal prosecution:

i) application by any 6 persons to the Director (S.9) who are of the opinion that an offence has been or is about to be committed. It has to be accompanied by a statement in the form of a solemn or statutory declaration setting out the evidence in support of that opinion.- S. 10(1)(a): upon receipt of such an application, the Director must institute an inquiry;- S.10(2): requires the Commissioner, on the written request of any person whose conduct is being inquired

into, or any person who applies for an inquiry under s.9, to “inform that person or cause that person to be informed as to the progress of the inquiry.” The amount of info provided pursuant to this provision tends to be minimal.

- S. 22(3): if the inquiry is discontinued, the Director must give applicants grounds for discontinuing;- S. 22(4): applicants may request the Minister of Consumer and Corporate Affairs to review the decision to

discontinue and “instruct the Director to make further inquiry.”ii) an inquiry started at the discretion of the Director (S. 10(1)(b)), where he believes on reasonable grounds that an offence contrary to the Act has been or is about to be committed..iii) the Minister of Industry can also direct the initiation of an inquiry, and under S. 10(1)(c) the Commissioner is bound to inquire.

The Commissioner’s obligation under s.10 is to “Cause an inquiry to be made into all such matters as he considers necessary to inquire into with the view of determining the facts.” In practice, unless the Commissioner has received a section 9 application, he will often conduct a significant amount of investigatory work before causing a formal inquiry to be commenced under s.10.

- The Commissioner can discontinue an inquiry if the evidence indicates no viable case (S. 22). The Commissioner is required to provide a written report to the Minister showing the reasons for discontinuing the inquiry.- Where there is evidence, the director may refer the matter at any stage to the A.G. of Canada (S. 23(1)).- Generally Ss. 23 – 28 direct what happens next and the role of the A.G.- Under S. 29 information received during an inquiry is protected, although “or for the purposes of the administration or enforcement of this Act” gives leeway; you’re never sure how the information you disclose will be used. The Commissioner’s interpretation of s.29 is that it does not preclude disclosure of info to potential witnesses

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or others, including other governmental authorities, so long as such disclosure is for the purposes of advancing a specific investigation being carried out pursuant to the Act.

Note that privacy in s.10(3) relates only to an inquiry. However, commissioner applies s.10(3) informal investigations.

b. Powers of the Director in making inquiries (generally, Ss. 11 – 15)

S. 11 sets out 3 things the court (federal or provincial Superior Court) can order:

1) appear and be examined in front of a presiding officer;- here you have right of representation- testimony here is under compulsion and cannot be used against you in

criminal proceedings. - S.11(c) and 7 of the Charter, which guarantee the right against self-

incrimination, do not apply to corps. Accordingly, on the present state of the law, the testimony obtained under a s.11 order can be use against a corp even where the individual who testified is the “directing mind and will of the corp.”

2) produce records;

3) produce written returns.

To obtain s.11 order, Commissioner need only demonstrate that an inquiry (under s.10) has been commenced and that the person against whom the order is sought is likely to have info relevant to the inquiry.

- Generally, you will only be asked for 2) and 3). Only then go to 1). - Although the Bureau is increasingly using these powers, it is in the interest of a potential defendant to negotiate with the Bureau to avoid a S. 11 order. Why? If it’s a voluntary request for information you have leeway to negotiate out unreasonable or difficult requests. Subpoenas are being used more often now.- This is not binding so you can’t be punished for non-compliance.- S. 11 subpoenas come from Federal or Superior court judges on an ex parte application (only the Bureau is represented, which means you aren’t in a position to negotiate the contents of the order).

• There is a power of entry under which warrants may be obtained (S. 15). Judge must be satisfied that reasonable grounds exist to believe that an offence contrary to the Act has been or is about to be committed, and that there are reasonable grounds to believe that there is relevant evidence on the premises to be searched. - these again are typically issued in response to an ex parte application, although in exigent circumstances a search may be conducted with no warrant (ie where they have grounds to believe evidence will be destroyed etc.) (s.15(7)); Computers are addressed at s.16-7. Court recognizes that people can screw-up computers and wants to continue business. This is the reason for s.16(3).- s.17: obligation to preserve records seized. 60 days for commissioner to return the records unless owner agrees for them to be kept longer, a judge agrees for them to be kept longer, or proceedings are instituted. - s.22: power of Commissioner to discontinue inquiry: can do so through a single-sentence letter. If commenced by himself, that is not required. If through the 6-person deal, then need to provide reasons. Minister can force investigation to continue.- the judge has to have reasonable grounds to believe that an offence has been committed and that there are relevant records on the premises.- unlike a subpoena, you can’t move to have a search warrant quashed.- this power isn’t used very often.- refusal to allow entry is punishable by a fine of up to $5,000 and/or imprisonment for two years (S. 65(1)) and destruction or alteration of records is punishable by up to $50,000/5 years (S. 65(3)). Solicitor-client privilege is protected under S. 19.- Claim of privilege should be made quickly, when they are searching. The officers of the Bureau have to give you a reasonable opportunity to claim privilege.

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- The documents should be sealed before they can be looked at, and they are then taken in front of a judge who determines whether they are legitimately privileged or not. If this opportunity is missed, in practice you can go back and demand that certain documents be sealed, although this is not as good for your position obviously.

c. Criminal prosecution

- S. 23(2): only the A.G. can conduct a criminal prosecution.- S. 67(1): individual accused may elect trial by jury- S. 67(4): corporations must be tried without jury.- S. 73: A.G. can proceed in federal court or superior court of criminal jurisdiction.- S. 28(1), (2): statistical compilations may be used as evidence

d. Criminal sanctions

- S. 45: liability for conspiracy up to 5 years/$10 million- Lesser fines, up to 5 years for violations under: s. 47(bid rigging); s. 61 (price maintenance); s. 74 (violation of tribunal order where prosecution by indictment)- Still lesser penalties (2 years): s. 50 (price discrimination, predatory pricing); s. 51 (advertising allowances)- imprisonment has not been used;- fines have been creeping upwards;There are also special remedies outlined in Ss. 31 – 34:- ability to get interim and permanent injunctions (prohibition orders)- to get this you have to convince the court that irreparable harm is likely

to happen (see S.33 for interim, S. 34 for permanent).- The criteria that most courts refer to in deciding whether to issue a

permanent prohibition order include:1. the scope of the anti-competitive behaviour (how

widespread the behaviour was)2. the duration of the behaviour3. the deliberateness of the violation of the Act4. The tightness of control exercised by the accused5. The probability of further anti-competitive behaviour

on the part of the accused.- BoP is very high for Interim injunctions. There must be a serious issue to be tried, irreparable harm to competition will result from an act directed toward the commission of a criminal offence under the Act or that irreparable injury which is substantially greater than the likelihood of injury from the issuance of interim injunction is likely to result to any person, and the balance of convenience favours the issuing (see Telemarketing provision)- S. 34(2): prohibition orders permitted both up to 3 years after, and without, conviction; applies to Part VI offences- In the Telemarketing case, it was decided that the test was too stringent; S. 33 has a less difficult test to meet.- almost always issued when there is a convictionFactors considered in determining the fine include: income/ability to pay; size of defendant’s operation; market share; time during which anticompetitive behaviour existed; influence of the defendant in the anticompetitive behaviour; geographic area affected/ market impact; previous convictions; mitigating factors such as opinions of counsel that behaviour was not anticompetitive (this will often get them off; there’s no intent), whistleblowing.

e. Removal of tariffs

- S. 31: Governor in Council can lower tariffs to mitigate against anti-competitive behaviour where it is satisfied that competition has been lessened substantially.

2. Composition of the Tribunal

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- Governed by the Competition Tribunal Act- S. 3(2): up to four members are appointed from judges of the Federal Court – Trial Division; up to eight lay members (experts on economics etc) appointed by GIC.- applications are heard before 3-5 members, including at least one judge and one lay member.

3. Private actions (see also legislation book at p.19)- S. 36 provides a private right of action for persons who have suffered loss or damage as a result of conduct contrary to Part VI (conspiracy (s.45), bid rigging (s.47), predatory pricing and price discrimination (ss.50 and 51), misleading advertising (s.52), deceptive marketing (s.52.1) and price maintenance and resale price maintenance (s.61) – the criminal provisions) or failure to comply with orders of Court or Tribunal under the Act.- There is no private right of action for damage resulting from violation

of the civil review provisions.- Plaintiff must have suffered actual loss as a result of the defendant’s

conduct. It is not enough (as it may be in order to establish the criminal offence) for a plaintiff to recover damages by pointing to an agreement to fix prices made by a group of defendants but never implemented; quantifiable harm must be incurred and this must be proven at trial.

- Pursuant to s.26(1), these recoverable costs can include the costs of investigating the matter.

Limitation of actions (S. 36(4)) – no action may be brought more than two years after either the conduct was engaged in or criminal proceedings were finally disposed of, whichever is later.- this raises the interesting possibility that your right of action could expire two years after the behaviour ceases, then be reactivated when the Bureau brings a case.Very few private actions have been brought and succeeded; the evidentiary burden is very high, almost impossible to meet without a conviction. Private actions also don’t have the benefit of the investigatory powers available to the Bureau.- quaere: what is the standard of proof you have to meet in a private action in establishing criminal conduct? The criminal law calls for “beyond a reasonable doubt,” but the civil standard is only the balance of probabilities.- the civil standard applies, although there is a debate. Commentary states that BoP is somewhat higher than the usual civil standard (balance of probabilities) but lower than the criminal standard (beyond a reasonable doubt).- note: the rationale behind the criminal evidentiary burden stems from the sanctions imposed; as no criminal sanctions are contemplated in a private action, it is not necessary to impose the higher burden of proof.

Several difficulties arise regarding the private right of action:1. s.36(1) appears to make the right to bring a private action contingent upon proof

of loss or damage having resulted from the anti-combines violation, while in reality such a connection is difficult to make

2. The statute makes no express provision for private parties to obtain injunctive relief

3. Confining the bulk of the private right of action to injury from conduct contrary to the criminal prohibitions places upon the private litigant an enormous evidentiary burden in most cases

4. The extent to which remoteness theories will prevent recovery of damage is unclear

5. It is unclear whether those who have suffered indirect injury will be precluded from recovery

6. It is unclear whether the 2-year statute of limitations of s.36(4) was intended to limit the time during which suit might be commenced but also the quantum of recovery where the injury resulting from the anti-competitive conduct is of a continuing nature.

4. Part VII – other offences (Ss. 64 – 73)

Here the most important sections are:- Whistleblowing (S. 66.1 – recent addition) – protects confidentiality of a person who comes forth to point a finger at an offender, upon granting of this by the Commissioner. (The policy of leniency against whistleblowers can also lead to lighter sanctions for persons, including corporations, who come forth with information and are

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themselves violators; sets up an incentive to come forth; can undermine effectiveness of cartels etc. In an information bulletin of February 2000, the Bureau outlined its approach to immunity. Generally, immunity will be granted where the party is the first to disclose it or the Bureau is aware of the offence but the party comes forward with sufficient evidence to warrant referral to the A.G. A whistleblower who is not “first in” but nevertheless contributes valuable evidence may be accorded favourable treatment falling short of immunity.)- Admissibility of statistics as evidence (Ss. 70 – 71); since many offences under the Act are not per se offences, it will be necessary to show effects on market. Admissibility of statistics makes this possible, although this evidence can be subject to cross-examination.

B. R.J. Roberts, Roberts on Competition/Antitrust: Canada and the United States (CB 598)

This article generally walks through the provisions outlined above. At the end he brings up six difficulties with the private right of action:

1. S. 36(1) appears to make the right to a private action contingent upon proof of loss or damage from violation of the legislation, while such a connection is difficult to make.- violation of the provisions can happen where there is only the likelihood of injury; ie S. 45 condemns conspiracies that are likely to create undue lessening of competition; don’t need to prove damage for the criminal charge to stick.- also have to prove that the damage was the result of the act.

2. There is no express provision for private parties to obtain injunctive relief

3. Confining the right of action to the criminal prohibitions places a heavy evidentiary burden on the plaintiff;

- seems likely that a conviction will be necessary for a litigant to bring a private suit; therefore, defendants are more likely to plea bargain so they are not convicted

4. Unclear how remote damage can be;

- Roberts seems to think it is limited to “direct” damage – ie employees etc can’t sue.

5. “It is unclear whether those who have suffered indirect injury will be precluded from recovery.” (Same as 4?)

6. Unclear whether the two-year limit refers to damage in ongoing violation or only time in which suit can be brought.- He thinks it refers also to the quantum of damages. This would accord with general treatment of statutes of limitation and reflects a policy decision to protect the defendant’s (1) interest in security – “knowledge that at some … time his or her business … will not be disrupted by the assertion of legal action; and (2) the interest in finality – the knowledge that at some point in time, evidence … need not be preserved or sought.”- In US there is a four year limitation to the private right of actionFinally, Roberts notes the possibility of class actions being used in civil suits against firms exhibiting anti-competitive behaviour. Provisions to this end were considered but have not been added to the legislation; however, it is increasingly easy under provincial class-action legislation to bring a suit. Class actions are more broadly used in the U.S.

C. Roach & Trebilcock, Private Enforcement of Competition Laws (CB 609) Thesis: A compelling case can be made for private enforcement in addition to public enforcement.

This article reviews the comparative experience with private antitrust enforcement, evaluates the arguments for and against the private enforcement of public laws, and reviews theoretical debates over the role of private enforcement of antitrust laws on deterrence and compensation grounds.

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- In the US and Australia, private enforcement has been a major component of enforcement of competition laws. Canada’s experience has been the opposite, perhaps because of the limited right of action and the accompanying high burden of proof.- The Canadian private right of action was only adopted in the 1970s.- The policy concern behind Canada’s reluctance to provide a broad power is a disinclination to allow private individuals to enforce public laws. It is felt that this opens the door to biased or frivolous claims, as well as the possibility of over-enforcement.- The countervailing argument is that private parties could be more effective enforcers of the Act, given their vested interest. Private enforcement also shifts some of the burden of litigation costs away from the government and onto those who seek to benefit from the legislation.- Hofley’s, and Trebilcock & Roach’s reply is that the answer is in the details – rules concerning summary judgement, for example, can mitigate against the threat of frivolous lawsuits, and that generally private enforcement, extending to some right to initiate criminal proceedings or force the regulatory body to do so, can be an effective complement to government enforcement.- Bill C-23, currently before Parliament, currently includes a right for private actors to go before the Tribunal, with leave, to raise issues on market restriction, refusal to deal, exclusive dealing and market division… (the basic four criminal charges), without extending the right to an abuse of dominance situation (perhaps this situation is too broad/undefined).- This is expected to become law.

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