Getting The Deal Through: Dominance 2014.

Author:Hutton, Susan
 
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QUESTION CATEGORY

1 Legislation

What is the legislation applying specifically to the behaviour of dominant firms?

The Competition Act, RSC 1985, c C-34 (the Act), a federal statute, is the primary legislation applicable to the behaviour of dominant firms. Section 79 permits the Competition Tribunal, a special-purpose federal tribunal (the Tribunal), on application from the Commissioner of Competition (the Commissioner) - who heads the enforcement agency, the Competition Bureau (the Bureau) - to issue an order where it finds that:

one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business;

that person or those persons have engaged in or are engaging in a practice of anti-competitive acts; and

the practice has had, is having or is likely to have the effect of substantially lessening or preventing competition in a market.

A non-exhaustive list of anti-competitive acts appears in section 78, paragraph 1:

squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the suppler, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market;

acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

freight equalization on the plant of a competitor for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

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

pre-emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market;

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

adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or to eliminate him from, a market;

requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor's entry into, or expansion in, a market; and

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

Other relevant provisions of the Act include section 75 (refusal to deal), section 76 (resale price maintenance), section 77 (exclusive dealing, tied selling and market restriction) and section 81 (delivered pricing).

2 Non-dominant to dominant firm

Does the law cover conduct through which a non-dominant company becomes dominant?

The Bureau has released enforcement guidelines on the abuse of dominance provisions (the Guidelines), which state that sections 78 and 79 are concerned not only with the enhancement, but also with the creation or entrenchment of market power by means of practising anti-competitive acts. The Bureau issued the current edition of the Guidelines in September 2012.

3 Object of legislation

Is the object of the legislation and the underlying standard a strictly economic one or does it protect other interests?

The Act contains a purpose clause in section 1.1, which includes several objects in addition to the encouragement of competition and promotion of efficiency. In particular, the Act is designed to expand opportunities for Canadian participation in world markets, recognise the role of foreign competition, ensure that small and medium-sized businesses can participate in the economy, and promote consumer welfare. Although the Bureau and the Tribunal had historically put the most emphasis on economic efficiency, in the merger case Canada (Commissioner of Competition) v Superior Propane Inc, the then-Commissioner argued that the other purposes must be given effect as well, and this argument was upheld at the Federal Court of Appeal. (Revisions to the Merger Enforcement Guidelines (MEGs) in 2004, maintained in the 2011 version, reflected this point of view.) As section 1.1 applies to the entire Act, these diverse purposes cover the abuse of dominance provisions as well. That said, the guidelines and the case law reflect a largely economic approach to Bureau enforcement, based on the need to prove that a substantial lessening or prevention of competition has been or is likely to be caused by the anti-competitive behaviour.

4 Non-dominant firms

Are there any rules applying to the unilateral conduct of non-dominant firms? Is your national law relating to the unilateral conduct of firms stricter than article 102 TFEU?

Generally speaking, the answer is no. Section 79 specifically requires a finding of dominance. More specific provisions related to unilateral conduct (eg, exclusive dealing, tied selling and market restriction (section 77), and delivered pricing (section 81)) do not use the word 'dominant', but apply to the activities of 'a major supplier'. This phrase has been interpreted by the Tribunal (in Canada (Director of Investigation and Research, Competition Act) v NutraSweet Co) in a substantially similar way to dominance, in that a 'major supplier' is one 'whose actions are taken to have an appreciable or significant impact on the markets where it sells'. Likewise, while the Act's refusal to deal provision (section 75) and price maintenance provision (section 76) do not mention dominance, their requirement that the conduct have or be likely to have an 'adverse effect on competition in a market' makes some form of market power a precondition to their application. The March 2009 amendments to the Competition Act, among other things, revoked the criminal pricing provisions (formerly, sections 50, 51 and 61), thus making the formerly per se criminal predatory pricing, price discrimination and resale price maintenance amenable to sanction only if undertaken by a firm with some form of market power. On 16 October 2013, the Governor General's Throne Speech announced the intention of the government to take measures to prevent the charging of higher prices in Canada than in the United States. Exactly how this would be accomplished, however, remains to be seen, although one possible approach would be to amend section 79 to declare exploitative pricing by a dominant firm to constitute an 'abuse' if its pricing is higher in Canada than in the United States.

Although not strictly matters of competition law, the Act also contains both criminal and civil provisions addressing unilateral conduct in the form of deceptive advertising and telemarketing practices, none of which is tied to dominance. In 2009, the Bureau confirmed its enforcement approach in new guidelines relating to cases of deceptive advertising for 'made in Canada' and 'product of Canada' claims.

5 Sector-specific control

Is dominance regulated according to sector?

Provisions seeking to control abusive behaviour by dominant domestic airlines were repealed in March 2009. Administrative monetary penalties (AMPs), which had previously applied solely to domestic airlines, specific provisions in respect of which have now been repealed (as discussed in further detail in question 34), now apply to all sectors of the economy.

Certain federal sectors with their own regulators and statutes are subject to unilateral conduct provisions under statutes other than the Competition Act. For instance, the Telecommunications Act forbids the granting of 'an undue or unreasonable preference' by a common carrier to any entity, including itself. The National Energy Board Act, meanwhile, proscribes pipeline companies' 'discrimination in tolls, service or facilities against any person or locality'. The Canada Transportation Act contains similar provisions with respect to certain transport services.

Certain business activities fall under the jurisdiction of the provinces where they occur, and these too often have regulating mechanisms for unilateral conduct. For instance, the various empowering laws of the Ontario Energy Board mandate that body to ensure fair competition and non-discriminatory access in the province's energy markets.

6 Status of sector-specific provisions

What is the relationship between the sector-specific provisions and the general abuse of dominance legislation?

The Bureau presumes the abuse of dominance provisions to apply to all businesses unless the activity in question is mandated or authorised pursuant to other valid legislation. The Bureau acknowledges the existence of a judge-made 'regulated conduct doctrine', which may serve as a justification for actions reviewable under the Act, and in 2010 released an updated technical bulletin on 'regulated' conduct. Among other things, this bulletin provides that when presented with two apparently conflicting laws, the Bureau would not pursue a matter where there was evidence of a legislative intention to substitute competition law enforcement with a different regulatory regime, replete with a regulator exercising sufficient authority to proceed contrary to the Act. In the absence of legislative conflict or permission, however, sector-specific legislation and the Act are complementary.

7 Enforcement record

How frequently is the legislation used in practice?

Abuse of dominance matters have come before the Tribunal infrequently: since the Act was enacted in 1986, only 14 cases have been brought before the Tribunal (of which five were contested proceedings (as described below, one of these, the TREB case, has been dismissed by the Tribunal, but is currently being appealed by the Commissioner), five resulted in consent orders, one was settled by consent order following an appeal after the Tribunal's ruling, one was settled after a partial decision, and two are ongoing contested proceedings). Nevertheless,...

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