Competition Law – A Sword and a Shield – Part I

Does a competitor get a better deal from a supplier than do you for the same product?

Is your rival making false claims for his product or service?

Has a manufacturer required you to buy products or services you don’t want as a condition to being able to buy the products you do want?

Are you being shut out of a market by a supplier that refuses to sell to you?

Well, if one of these situations applies to you, you should definitely read this article! (or, you could view the excellent website of http://strategis.ic.gc.ca) Relief could be at hand!

The Competition Act (Canada) (the “Act”) contains a myriad of lethal legal weapons that can be used by, or against you in the trenches of your business wars. You may be surprised to learn how many aspects of this legislation are applicable to your daily business activities and those of your competitors. The Act affects manufacturers, distributors and agents, retailers and consumers, and it can be used as either a sword, or a shield.

Due to the broad scope of competition law, I will be dividing my overview into three parts:

1. the criminal offences under the Act; and

2. the civil anti-competitives acts subject to enforcement by the Competition Tribunal; and

3. a practical guide as to how to attack or defend under the Act.

The Competition Act (Canada) is a federal law which governs business conduct in all parts of Canada. Its objective is to promote and protect competition. Though the high profile competition cases invariably involve large corporations, the Act applies to all businesses, big and small. What matters is the effect upon the state of competition in the particular market for a product or service. The Competition Bureau administrates and enforces the Act. The Act has both civil and criminal provisions. Yes, I said “criminal”. This is serious stuff!

Let’s first look at the more exciting criminal offences and penalties under the Act:

A.       Price Fixing & Conspiracy Offences (S. 45) – two or more competitors agree amongst themselves as to what prices will be charged to customers. Or, they agree to stifle transporting, producing, manufacturing, storing or dealing with any product, in order to “unreasonably” increase the price, or to lessen competition “unduly”.

B.       Price Discrimination (S. 50) – where a party discriminates against competitors which are purchasers of articles from him by giving a discount, rebate, allowance or price concession or other advantage that is not available to other purchasers. Or, if a party sells products in one geographical area of Canada at a cheaper price which has the effect of eliminating a competitor or lessening competition in that area.

C.       Allowances not Proportional (S. 51) – an allowance given to one purchaser must be proportional to the allowances given to other purchasers.

D.       False or Misleading Representations (S. 52) – materially false or misleading representations (not just puffery) are made knowling or recklessly in any manner or media. Mere exaggeration is not an offence: the misrepresentation must be material to the product or service promoted.

E.       Deceptive Telemarketing (S. 52.1) – this is when telephone calls to sell products or services contain false or misleading statements.

F.       Multi-Level Marketing and Pyramid Schemes – these activities are defined in a complex manner, and are subject to various defences.

G.       Bid-Rigging (Section 47) – if one or more bidders agree not to bid in a tender, or two or more bidders pre-arrange their bids to ensure the outcome, that is bid-rigging.

Resale Price Maintenance (Section 61) – A party cannot coerce a retailer to sell at a minimum price, or refuse to sell to that retailer because it knows the retailer will sell the product at prices below those attempted to be maintained by the manufacturer/supplier. We all know one or two manufacturers who have, over years past, tried to prevent any retailer from discounting their products.

Double-Ticketing – this is when a retailer has two prices on a product, and attempts to charge the higher price.

The penalties for the foregoing offences range from less than $10,00 to unlimited fines in the discretion of the Court, and from one to five years imprisonment. Some are indictable offences, some are summary, and some are hybrids (either) at the discretion of the prosecutor. These are criminal proceedings!

You may feel skeptical that anyone is ever convicted of these offences. Well, there are in fact few proceedings and fewer convictions. First, enforcement is largely driven by complaints, not by active market surveillance. Second, the law is complex, the burden of proof, being criminal, is onerous. It is difficult to convict, as there are defences and safe harbours in the legislation to ensure that activities which do not really harm competition, though prohibited, are not punished. Third, like any other governmental regulatory agency, the resources of the Competition Bureau and Competition Tribunal are limited.

However, over the last several years, the law has been strengthened quite a bit, and in certain cases, a victim of anti-competitive acts can initiate an action or proceeding on its own, instead of hoping the Bureau will take an interest in its case.