REGULATION OF COMPETITION SUMMARY
What are the Goals that Canadian Competition Policy is meant to serve?
From an economic/markets standpoint, competition is meant to ensure the efficient functioning of the market.
The most efficient and innovative of businesses will flourish in a competitive environment. In the end, the
final consumer will be blessed with lower prices and better choices.
As a matter of policy, the Competition Act also seeks to promote goals that aren’t related to market
efficiencies, such ensuring that small and medium size businesses have an equitable opportunity to participate
in the Canadian economy. This would result in consequences and policy implications that are fundamentally
different from those that would result if promotion of economic efficiency was the only goal pursued by
The Act also seeks to promote the goal of providing consumers with competitive prices and product choices.
Another component of Canadian competition policy to ensure that certain aspects of the economy remain in
Canadian hands. Thus, tariff walls and outright laws may proscribe “foreigners” from being involved in such
industries. This goes to the “Canadian populism” notion of competition policy. The question is the extent to
which this is still true in light of NAFTA and other multilateral regimes such as the WTO.
45. (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,
(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.
Conspiracy To lessen Unduly
WEIDMAN v. SCHRAGG
The case arose out of a private contract b/n the two major junk dealers in Western Canada. They had agreed to stop
the stiff competition they had been engaged in for some time. They decided to pay the same prices for the same
materials they bought and to sell those items for the same prices to their customers.
They were charged under the conspiracy section. They argued that their agreement may lesson competition, but as
long as it did not unduly lesson competition, the agreement did not violate the law. They argued that unduly has the
same meaning as unreasonable in the English common law of contracts. The SC held that:
Unduly doesn’t mean unreasonable restraining of trade as found in the English common law of contracts.
Unduly as found in the Act also includes the interests of the larger public.
If an agreement limits competition, thereby ripping off the public, then the agreement can’t stand, even if it
doesn’t unreasonably restrain trade.
The conspiracy statute was meant by Parliament to protect the public from price fixing and other forms of
anti-competitive behaviour. This is what determines whether an agreement can be judged to unduly restrict
CONTAINERS MATERIALS LTD. V. THE KING
All manufacturers of cardboard materials got together and set up the company called containers materials. All
producers of cardboard could only buy from this company whose shares they all purchased. The effect of this was the
creation of a virtual monopoly in the containers materials industry.
Counsel for containers materials argued that the creation of the company served many public policy goals such as
keeping Canadian jobs alive and maintaining an industrial base in Canada at the height of the depression. This, he
argued, meant that the criminal law provisions of the conspiracy section couldn’t be used since the Canadian public
wasn’t hurt by the actions of those who created containers materials. The SC rejected this argument. It held that:
The only public policy goal that the Act was meant to serve was to ensure that there wasn’t any undue
lessening of competition. No other public policy goal sufficed.
Counsel further argued that the undueness requirement meant that the Crown had to prove that there was an intention
to lessen competition. In this case, it was meant protect the industry from collapse.
The SC rejected this argument too, holding that the only intent necessary here is the intent to enter into the
agreement that results in unduly lessening competition.
THE FINE PAPERS CASE
There was a conspiracy among the manufacturers of fine papers and merchants who distributed the fine papers to
preserve the Canadian market for themselves. They created a virtual monopoly. The main goal was to keep out US
After the PC struck down the Board of Commerce Act, the govt passed the Combines Investigations Act. An agency
was created with the power investigate claims of conspiracy to unduly lessen competition. The agency was to issue a
report of its findings. The CIA’s conspiracy provisions were similar to those of the Board of Commerce Act, with the
one addition that the conspiracy must be “to the detriment of the Canadian public.”
The defendants in this case argued that on the basis the intention provisions of the CIA, the Crown had to prove
beyond a reasonable doubt that the agreement to conspire was detrimental to the public. It was also argued that it will
not be an offence if the acts that were subject to the charge were found to have been beneficial to the general public.
The majority of the SC still rejected this argument, holding as it did in the Containers case, that the only
public policy issue of relevance is the conspiracy to unduly lessen competition. Any other benefits that may
have flowed out of that does not in any way do away with the fact that the defendants engaged in a prohibited
Cartwright J, although he concurred with the majority, nevertheless added his own interpretation to the conspiracy
provision. These three “time bombs” were that:
1. The intent provisions of the section refer to intent to unduly lessen competition, not just intent to enter into the
2. It is necessary to b/c the public benefit and detriment that results from the agreement.
3. The only time that such a b/c of the merits and demerits of the agreement is not necessary is when the
agreement results in a virtual monopoly.
If one looks at the public benefit and detriment in the way the Cartwright formulates it it will be very difficult for the
Crown to ever prove its case bcos there is always some benefit resulting from an anti-competitive behaviour. This
made it difficult for the Crown to prove its case in subsequent cases beyond a reasonable doubt.
Under s. 1 of the Sherman Act, the courts of the US have come up with some instances in which the finding of a
practice or conspiracy will be seen as illegal per se. Under the per se rule certain limits on competition are
considered so damaging to competition that all that the state has to prove is that the parties entered into such an
agreement for them to be convicted. The law looks at the nature of the competitive restraint and the market share of
the parties. These include:
1. Price fixing agreements
2. Group boycott agreements aimed at boycotting a particular retailers, suppliers, or prevent others
from joining the group.
3. Horizontal market share agreements.
4. Limitations on production in order to force up prices. E.g. cartel-like practices like OPEC.
Everything else is measured according to the rule of reason. The rule of reason is the same as the undue lessening of
competition provisions of the Competition Act.
AETNA INSURANCE CO. v THE QUEEN (1977)
The defendants belonged to the NS Board of Underwriters. They got together and fixed the prices they would charge
for fire insurance and other insurance policies in the province. They were charged under s. 45(1)(c) of the Competition
The Crown wanted to attack the anti-competitive behaviour of the association. But it had to deal with the problem of
Cartwright J’s weird interpretation in the Fine Papers case. The Crown alleged that there had been a price-fixing
The trial judge held that the dominant intent of the insurers in fixing prices was to better serve their clients in
NS. Moreover, he accepted evidence that there hadn’t been undue lessening of competition as seen from the
fact that out of province insurers were coming into the province to offer their services.
The NS CA reversed the ruling, holding that the trial judge had misdirected himself on the question of intent.
It stayed with the jurisprudence as found in the Containers case which held that the only intent necessary to be
convicted under the section was the intention to enter into the agreement. The advantages of the agreement for
the public was not a necessary consideration.
The majority of the SC followed the Cartwright approach and accepted the trial judge’s public benefit
argument. CJC Laskin for the dissent held that the majority’s reliance on the public benefit argument wasn’t
necessary under the law. The only intent required was the intent to unduly lessen competition. Any other
benefit that might have come out of the conspiracy is beside the point.
THE ATLANTIC SUGAR CASE (1977)
The case involved a market division agreement among the major competitors for the refined sugar market in Canada.
They decided to maintain their respective share of the market for refined sugar. They weren’t going to compete in
order to expand their respective shares.
At the SC, Pigeon J came up with the double intention test. He held that the Crown had to prove that
1. The parties to the alleged agreement intended to enter into the agreement.
2. And that the parties intended to unduly lessen competition.
Pigeon J accepted the defendants’ argument that their intention was not to unduly lessen competition
but to avoid disastrous price wars. This however fails to take not of the fact that the SC had rejected
the same argument in Weidman v. Shragg. How could it then be acceptable right now?
This made it extremely difficult for the Crown to ever prove a conspiracy to engage in anti-
competitive behaviour claims. It was always possible for defendants to come up with alternative
public interest reasons as to why they entered into the agreement.
Pigeon J used the rules of contract to hold that in order to prove the existence of an agreement the
Crown had to prove that the parties had a entered to a contract-like agreement with all its binding
obligations b4 they could be said to have entered into an agreement. This was flatly rejected by Estey
J in his dissent.
The Conscious Parallelism Argument
The crown sought to point to conscious parallelism as an instance of conspiracy. However, it is hard to prove when
such a parallelism becomes an agreement or a conspiracy for the purposes of the Act.
In this case, there were just three major competitors for a period of 25 years, each with a relatively stable
share of the market over that period. The Crown argued that the parallelism which existed over the years be
treated as agreement to unduly lessen competition.
Pigeon J rejected this argument and instead stuck to the double intention test.
Note: Parliament added s. 45(2) to the Act to get around the requirement by Cartwright J that the agreement
virtually eliminate all competition and create a monopoly. But this amendment didn’t reverse the public
interest test. However, the s. 45(2.2) got rid of the double intention requirement postulated by Pigeon J. All
that had to be shown was the intent of the parties to enter into the agreement. There was no need to show the
intention of the parties when they entered the agreement.
NOVA SCOTIA PHARMACEUTICAL SOCEITY v. THE QUEEN
The appellants were charged with conspiracy to unduly lessen competition with respect to the sale and offering for
sale prescription drugs and pharmacists dispensing services. The society argued that the unduly lessening of
competition provision should be declared unconstitutional for vagueness and that it violated s. 7 of the charter by
reason of the mens rea required for the offence. For the majority, Gontheir J held:
The undueness connotes a level of seriousness that point the party involved to his level of risk b4 attracting
the penalties of the Act.
There need not be a virtual monopoly b4 in order to violate the Act. All that is required is a serious lessening
On the issue of mens rea for an agreement to unduly lessen competition, the court put in place the “modified
double intent test.” The Crown will have to prove that
1. the parties intended to enter into the agreement to unduly lessen competition.
2. As a reasonable business people, the parties knew or should have known that that the agreement
would unduly lessen competition.
The question that remains unresolved is this: does the Crown proving the 1st branch of the intent to enter into
the agreement to unduly lessen competition mean the 2nd branch is also proven? I would think yes. After all if
they had intent to enter into an agreement to unduly lessen competition, then they must have known that that
would be the result. Why then would they enter into such an agreement to begin with?
The whole idea of anti –trust law since the 1960s was to prevent oligopolies from forming. The govt sought to
undercut them to their minimum efficiency size. There was less competition b/n such oligopolies bcos they didn’t
compete and gave their customers very little inters of choice.
However, there was very little success in breaking up such oligopolies bcos of conscious parallelism. Such oligopolies
didn’t need any agreement or conspiracy. The govt there4 couldn’t prove that there had been any agreement or
To turn even the clearest case of conscious parallelism into a conspiracy to fix prices or restrain trade, you need a
form of communication b/n the parties. Of course such parties were never going to formally communicate in a way
that would make them liable under the Act. The courts held that such communication must be private and b/n the
parties. Because of this, newspaper adverts by price setters boldly and clearly telling the whole world their new prices,
a price trend that competitors were bound to follow, were held to not to constitute communication for the purposes of
The way the Act is phrased with respect to the agreement provisions there4 lead to four major problems for the Crown
to prove in a criminal trial.
A. Evidentiary problems: it is rarely ever possible to prove the existence of a collusive conduct by direct
evidence. The use of circumstantial evidence and hearsay is severely limited by the rules of evidence
in a criminal trial.
B. The alternative way in which s. 45(1) is phrased, condemning conspiracies, arrangements
combinations or agreements lead to the question of whether they all refer to the same thing to
different kinds of conduct.
C. Does a consciously parallel conduct, for instance price leadership, constitute conspiracy?
D. The problem of the requirement that there be more than one person charged with conspiracy.
EASTERN STATE RETAIL LUMBER DEALERS ASSN v THE UNITED STATES
The association had blacklisted a number of dealers it accused of selling directly to final consumers and thereby by
passing them. The list didn’t ask members not to deal with such wholesalers. No compulsion was involved.
The association argued that the list was for information purposes only. They argued that based on the common law
freedom of contract, the members were exercising their right not to deal with such wholesalers.
The USSC rejected this argument. It pointed out that the list amounted to a concerted refusal to deal. The
point of the list was for the whole association to boycott such retailers.
The govt need not directly prove a conspiracy to restrain trade. Such conspiracies are by their very nature hard
to prove. It may sometimes be inferred from the circumstances of the case when there is no direct evidence.
Here, an inference was drawn from the concerted action by the members of the association in reporting the
names of such wholesalers.
INTERSTATE CIRCUIT INC. v THE UNITED STATES
The exhibitors of “A” run films sought to get the distributors of the films from distributing “A” films to theatres that
showed “B” films at the same time that the “A” films were showing in their theatres. A letter with the letterhead of
Interstate and with the names of all the theatres targeted was sent to exhibitors of the “A” run films.
When new restrictions came out after negotiations with the distributors the restrictions on all the subsequent run
theatres were identical to what the “A” theatres had asked for in the letter.
The court held that it was not by mere coincidence that had all the distributors in such a plan.
It was enough that knowing that they were being asked to act concertedly the distributors agreed and
participated in the scheme.
Evidence of a full agreement for the imposition of the restrictions on the subsequent run theatres was held not
to be crucial in order to convict.
Conspiracy or collusion: Create a mutual expectation that all the parties will act in the same way. That
essentially what conscious parallelism is all about but bcos there’s no direct communication, such parties can’t
CREST THEATRE ENT. v PARAMOUNT
The appellant built a 1st run theatre in a suburban shopping mall. He sought to get 1st run movies from the distributors
but they refused on grounds that their contract with downtown theatres contained clearance clauses which meant that
without the consent of those downtown theatres, he couldn’t be supplied with 1st run films.
He argued that the distributors, together with the downtown theatres, were engaged in conscious parallelism and that
their actions amounted to a group boycott of his theatres.
Problem: there was no evidence of communication b/n these distributors and the downtown theatres to that effect.
The USSC held that conscious parallelism by itself doesn’t prove conspiracy. In order to convict, there need
to more evidence than just mere parallelism.
Such a consciously parallel behaviour is admissible as circumstantial evidence from which an inference of
agreement may be made, but that by itself doesn’t prove that the conspiracy provisions of the Sherman Act
have been violated.
ATLANTIC SUGAR REFINNERIES v. A-G (CANADA)
In this case, the Crown argued that a consciously parallel behaviour lasting for 25 years was so extraordinary that it
ought to be interpreted as there being communication b/n the parties. This amounted to there being a “tacit
agreement” to violate the Act. The SC held:
There wasn’t any agreement to conspire bcos there wasn’t any offer, acceptance, consideration. Intention to
create, and all the requirements of contract under the common law.
This is the point that Estey J disagreed with vehemently, saying that this had nothing to do with contract law.
If there was such a contract, it wouldn’t be enforceable bcos of its criminality.
Moreover, it isn’t just agreements alone that the section forbids. It also forbids an arrangement or a
conspiracy. These two doesn’t need the elements of contract that Pigeon J was talking about.
R v CANADA CEMENT LAFARGE LTD
The accused cement companies maintained a base point equalizing system which resulted in identical prices for all
sales. They were charged under s. 45(1). At their preliminary hearing the court held that:
Conscious parallelism in pricing without collusion is not an offence.
It also suggested that it would be very difficult to obtain a conviction under s. 45(1) when there is a conscious
parallelism in an oligopolistic market with homogenous products. Such market conditions may result in
identical prices without any collusion by the parties.
It constitutes a per se offence and it involves a concerted action by all the parties to rig-bids.
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.
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.
(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.
Under this definition, a conduct is bid-rigging only if
A. The accused arranged or agreed to have one or more of them refrain from making a bid, or
B. Two or more bidders made bids that were “arrived at” by agreement or arrangement b/n them.
R v. TRAVELWAYS SCHOOL TRANSIT LTD
The case revolved around the question of whether the person who called the bids knew that the bidders had gotten
together. The accused argued against their committal for trial bcos the caller of the tender knew that all the usual
bidders had gotten together. The law excepts bid-riggers that make their arrangement known to the caller of tender.
The court rejected this argument, holding that if parties intend to let the caller of bids know that the bid was
being rigged then they have an affirmative obligation to notify such persons in a manner other than the caller
being asked to make the inference that the bid had been rigged upon seeing all the identical bids.
Mens re: the court held that the only mental element called for by the offence is the intention to form the
agreement. There isn’t any requirement that there be another intention to either collude or defraud. In other
words, this is not a double intention offence.
A defence will be made out if the accused is able to prove that they took all reasonable care to ensure that the
caller of bids is made aware of the agreement or arrangement to rig.
This case was unusual in the sense that the caller of the bids had the habit of using the lowest bidder as a
negotiation tool in its dealings with the others. The lowest bidder was there4 never guaranteed the contract. This is
what they were trying to guard against, hence the agreement to submit similar bids. It is very easy to argue that this
wasn’t a tender exercise but rather a negotiation process, making the bid-rigging provisions not applicable.
The trial: the defence made several arguments.
A. It was argued that it was outside of the federal govt’s competency under the constitution to exclude from the
provisions tenders arrived at in contravention of the Act but in which notice is given to the caller of tenders.
The court rejected this argument holding that it was within the govt’s criminal law powers to make such a
B. It was further argued that the initial call for tenders by the caller of bids did not constitute a call for tenders as
understood by s. 47(1). It was asked that the entire exercise be interpreted as an invitation to commence
negotiation. Court found that in spite of the fact that negotiations usually followed the call for tenders, there
was in fact a call for tenders under the Act.
C. Defence contended that the submission of all the bidders of identical bids constituted compliance with the
requirement that the arrangement or agreement to submit rigged bids be made known to the call of bids. The
court held that what the provision requires is an affirmative obligation on the part of the riggers to make that
fact known to the caller other than through the submission of identical bids.
D. The court was urged to refer to the definition of rigging by considering sources other than the Act. The court
held that where an Act provides its own definition it is unnecessary to embark on such an exercise.
E. Defence argued that where, as in this case there is a provincial authority charged with approving whatever
rates that the parties charge their clients, the Crown can’t succeed unless it can show that the alleged rigging
worked so as to prevent the provincial body from effectively exercising the power it is granted for the
protection of the public interest. The court rejected this defence by reasoning that the provincial body in this
case does not know that rates submitted by the parties for approval is arrived at through rigging. A finding of
such rigging is evidence from which inference could be drawn that such conduct is likely to operate or did
operate to prevent the body from effectively exercising its power.
F. Mens rea: defence argued that it is not enough that the Crown show that the bid was arrived at by agreement
or arrangement. It must also show that there was an element of fraud or deception, i.e., that the accused
intentionally withheld knowledge of the existence of the agreement from the caller of bids. Court held that the
Crown has to prove two things with respect to mens rea: (1) that the accused intentionally entered into the
agreement or arrangement. (2) That the bid was in response to a call for tender and that the agreement was not
made known to the caller of tender at or b4 a party to the agreement handed in his bid. In other words, Crown
must prove the existence of the agreement, that the accused entered into the agreement advertently, and that
such agreement resulted in the alleged effect.
Is it possible that the new conspiracy requirements enunciated by Gonthier J in the PANS case could have saved
them? They could have made the reasonable business person argument. Here, every reasonable businessperson,
on the basis of the past practice of negotiation after the submission of tenders, would have felt that the entire
exercise could be interpreted as an invitation to commence negotiation as the parties argued. This may have
sufficed on mens rea on agreement.
R v YORK HANOVER HOTELS
The federal govt had a practice of calling for bids from hotels in the Ottawa-Hull area. The lowest bids were included
in the govt’s white pages which meant that federal employees could use those hotels whenever they were in the
Ottawa area on govt business. The next lowest bids were put in the yellow pages, meaning govt employees could
patronise those hotels only if the ones in the white pages did not have spaces. The govt used the lowest bids as a tool
to negotiate better deals with the other hotels. In order to stop this the parties agreed to submit a identical bid. They
were charged with bid-rigging and conspiracy.
On the bid-rigging charge, the court acquitted the parties, holding that the govt’s practice of using the lowest bid
to negotiate better deals with the other bidder took the entire exercise out of the realm of bidding into that of
negotiation. No violation was there4 found. This judgement is in contrast to tat in school bus case.
On the charge of unduly lessening competition the court looked at the nature of the restraint and the market power
of the parties. Because of the market share of the parties in the Ottawa area hotel business the court felt that a
credible case could be made for conspiracy to unduly lessen competition. They were there4 committed for trial.
R v COASTAL GLASS & ALUMINIUM (BC CA)
The defendants were subcontractors who worked with general contractors. They were in the habit of getting together
in order to determine which one amongst them would get a particular contract with a general contractor. The party
agreed to would then bid at a normal price whilst the others would bid at higher prices, thus ensuring that only the
agreed to party would get the contract.
Although in substance this practice resulted in uncompetitive bidding, it didn’t fit into the bid-rigging provisions of
the CIA. There weren’t any calls for such subcontractor bids by the general contractors. The subcontractors just made
general offers to the contractors in the industry.
McLachlin J.A. held that in order to bring the conduct of such sub-contractors under the provisions of the Act,
there has to be a direct relationship, or nexus, b/n the caller of bids and the bidder. In this case, the subcontractors
issued their price quotations, even though arrived at by agreement, to the general contractor who was responding
to the bid, not to the caller of the bids directly.
Note: but can’t you argue that their conduct indirectly resulted in the general contractors artificially and
unintentionally to increasing their bids, undermining the very purpose of the section?
On the 2nd count, the parties were accused of agreeing to which one of them would get a bid whenever a general
contractor solicited a bid from them. The party who was elected to get a bid, b4 submitting its bid to the general
contractor, would send copies to the other subcontractors. They there4 know what his bid was and never beat it but he
never knew what theirs was.
The problem for the Crown was that the Act speaks of tenders being arrived at in agreement or arrangement. In this
case, although the effect was the same, yet there was no agreement/arrangement simply bcos there was no
McLachlin J.A. held that where there is no mutual arrival at an understanding or an agreement the Act can’t be
said to have been violated.
Note: but their conduct violated the very purpose of the Ac, even if it didn’t fit neatly into it.
R v MCLELLAN SUPPLIES LTD
The case arose out of a contract for a chain fence for a gold course. Two parties, McLellan and S.F. Scott submitted
bids. McLellan was a wholesale distributor of chain link materials while S.F. Scott had an advantage of cheap labour
bcos it was non-unionized. S.F. Scott made it known to McLellan that if he got the contract, he will be procuring all
his supplies from McLellan.
Scott also relied on McLellan for an estimate of how much all the supplies and labour for the contract would cost.
McLellan, in effect, knew approximately how much Scott’s bid was going to be.
However, McLellan was never told what the final bid was going to be. But did he have to? After all, McLellan had
provided all the estimates, including the profit margins!! Can’t a case of conflict of interest even be made in such a
The court held that the Act provides that for there to be bid rigging the bids in question must be arrived at which
means bring to its final resting point. It was held that this didn’t happen here simply bcos they didn’t come to a
final agreement. (No handshake!!)
This ruling means that if the parties don’t agree or arrange to say exactly what they are going to do then almost
anything will pass under this statue.
PRICE DISCRIMINATION & PREDATORY PRICING
It originated from the anti-competitive feeling of depression era when the big chain stores were blamed for
driving out small businesses. It focuses on secondary line competition, whereby suppliers of goods to various
retailers were targeted for favouring one retailer over others.
Because of the scarcity of jurisprudence on the application of the price discrimination section of the Act, the only
way to find out what it entails is to look at the guidelines of the Competition Bureau or to look at how the US
courts have applied the similarly worded Robinson-Patman Act in the US.
The Robinson-Patman Act amended the Clayton Act to allow any party that feels discriminated against to launch a
civil suit for treble damages. In order to succeed however, the plaintiff will have to prove that there was
elimination or the lessening of competition as a result of the price discrimination. That is not a requirement in
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
(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
is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.
Some Questions and Comments on the Act
When it speaks of sale in sub (a) what constitutes sale?
Must knowledge on the part of the seller be actual or can it constructed?
What does it take to be a competitor? How much competition must there be b/n the two parties?
Does discounts include quantity discounts? Does it include cost justification? There seem to be no requirement of
cost justified quantity discount. What about vertical discounts in the case of companies that have retail divisions?
Are they allowed to sell cheaper to their own division retailers than to other retailers?
And what constitute things of like quantity? In the US things like style and fashion are allowed to result in price
discrimination. Is the same intended here? This may depend on the differentiation that the customer makes b/n
articles in question even though technically they may be of like quality.
Note that articles don’t not include services. It is restricted to products.
It is a primary line competition law bcos it is aimed at what one does to one’s competitors.
It is hard to find predatory pricing simply bcos of the fact that some companies may be very efficient and thus are
able to save cost and there4 offer lower prices. Thus, to really determine if a company is engaged in predatory
pricing, the Competition Bureau have to investigate such a company’s entire business operations to make a
Price competition, especially against a new entrant to the market, isn’t illegal unless it seeks to destroy the market
Economists see predatory pricing as irrational and a myth bcos there is no guarantee that once a competitor is
eliminated that the predator will be able to recoup all the profits it forgo in order to eliminate the competition.
But there is evidence that businesses are willing to be irrational all the time by introducing fighting brands to ward
of competition and by increasing capacity to the point of leaving no room for others.
According to the Bureau, predatory pricing will be found if (1) there is a potential for a successful predation in the
market. Will the predator will be successful i.e., ability to successfully recoup lost profits. (2) there is evidence
that the alleged predator charged unreasonably low prices during the competition campaign. This leads to the
question of what constitutes unreasonably low prices?
Geographic Predatory Pricing
Based on the practice of offering lower prices in one part of the country than is offered in other part.
The lower prices are usually offered in those markets where a competitor is trying to enter the market or is trying
to get foothold into the market.
R v HOFFMAN LA ROCHE
The accused company was charged with predatory pricing with the intent of trying to eliminate its main competitor
from the valium and librium markets in Canada, in violation of s. 50(1) of the Competition Act. The court held that to
succeed, the Crown must:
A. Prove that the defendant was engaged in business. The accused must be involved in the conduct of a business b4 it
can be subject to the offence.
B. The accused must engage in a policy of selling articles at unreasonably low prices. It is not enough that the
accused accidentally sold some articles at unreasonably low prices. The sales in question must not be on a one-
time basis, it must be continued or repeated sales. The word policy contemplates something more than the
adoption of temporary expedient to meet an aggressive, competitive move aimed directly at an important
customer. Policy however doesn’t require that there be a corporate a corporate bye-law. All that is required is a
planned and a deliberate conduct by responsible employees of the company.
Price reduction as a temporary defensive measure against price reduction by a competitor may not be illegal,
depending on the length of time that the reduction goes on. If the accused act in self-defence is a factor to be
considered when deciding whether the prices were unreasonably low and whether intent of the accused was to
substantially lessen competition.
On what constitutes sale, it is possible for there to be sale at “zero price”, provided that it can be proven that the
motivation behind them was commercial., that is, if the gift is motivated by the hope of long-term profits. In this
case, if free drugs to the hospitals were not a sale, why did the company always send an invoice whenever there
was a shipment?
C. For the Crown to succeed the accused must be proven to have sold at unreasonably low prices. Whether a price is
low or not is an objective, rather than a subjective matter. It need not be proven that the accused meant to sell at
an unreasonably low price so long as he did so in fact.
In determining whether a price is unreasonably low, the court must take into a/c all the economic costs that
include direct production costs as well as any potential future savings or benefits. Thus, if sales in a related market
will be facilitated or future market sales will be gleaned by sale below direct production cost, this should all be
taken in a/c.
The court must examine all the facts of each case on an ad hoc basis to determine whether a sale is unreasonably
To violate the predatory pricing provisions of the Act it is not necessary to attack all segments of the market at the
same time; it is enough to concentrate on one segment of the market.
The problem with Linden J’s analysis is that he uses one segment of the market, hospitals, to define a sale in this
case but refuses to use the same market to determine whether the accused company was selling at an unreasonably
low price. Here he includes other segments of the market such as pharmacies, doctors’ offices, etc. The question
that this leaves unanswered is if you use one market to define sale why then don’t you use the same market to
determine if a price being charged is unreasonably?
The list of factors to be considered by a court in determining whether a price is unreasonably low includes:
The actual difference b/n the production cost or accounting cost and the sale price. The greater the reduction
below cost price, the more likely it is that the price is unreasonably low.
The length of time during which the sales at questionable prices takes place.
The circumstances of the sale must be taken into a/c. Is it a defensive or an offensive price cutting? Usually,
defensive price cutting is viewed more sympathetically than offensive price-cutting. One need not wait for a
competitor to attack first, one can attack if one has reason to anticipate that a competitor is about to reduce prices.
Does any external or long-term economic benefits accrue to the to the seller by reducing prices below costs? All
these factors must be balanced against each other to determine if a sale is at an unreasonably low price.
D. In addition, two elements dealing with the accused person’s state of mind must be proven. The Crown must either
prove that the accused engaged in a policy of selling at unreasonably low prices the effect or tendency of which
was to substantially lessen competition or eliminate a competitor. The accused will also be convicted if the Crown
proves that he/she designed a policy to have the effect of substantially lessening competition or eliminating a
competitor by selling at unreasonably low prices, even if that actual effect is not attained. This is a mens rea
Both elements are not required to convict. One of them will always suffice.
BOEHRINGER INGELHEIM INC v BRISTOL-MYERS SQUIBB
BMS dominated the cancer treatment market in Canada prior to Boehringer entering the market with its generic
treatment drugs. As soon as it entered, BMS started to reduce its high prices and give hospitals and other clients
certain deals if they stayed with BMS. One of the reduced price contracts it signed with CCO also stipulated that
should Boehringer leave the market the price might go up. Boerhringer brought this civil action seeking an injunction
against BMS and its pricing policies.
The court reiterated that price-cutting to meet competition is not illegal. The problem for Boehringer in this case
was that BMS wasn’t selling below its cost by very much..
The court also held that the fact that a competitor lowers its prices so as to take businesses from a rival to the
point where the rival might be forced to exit the market can’t, by itself, determine whether predatory pricing was
It shows how exorbitant its prices in fact were prior to Boehringer’s arrival. They had deep pockets and they
could recoup their lost profits later on when the competition was gone. This is evident from the contract with
Is meeting competition defence a good defence? Yes, as long as that’s all that a party is doing. It disciplines a new
entrant on the market. Ultimately, the consumer wins by getting lower prices. The problem with this argument is
that the consumer can’t win when the party claiming to be meeting competition is a monopolist like BMS.
THE CONSUMERS GLASS CASE
The Classic instance of predatory pricing:
I. The predator deliberately sacrifices present returns by lowering the selling price for the purpose of driving out
the rivals from the market.
II. The rivals, having less financial staying power than the predator, are driven out of the market n due course.
III. In the absence of competition, the predator raises its prices so as to recover the sacrificed returns and higher
The fact that a competitor lowers its prices so as to take businesses from a rival to the point where the rival might
be forced to exit the market can’t, by itself, determine whether predatory pricing was involved.
Where the accused instituted and pursued a policy of selling at less than the total cost of producing, knowing that
such a policy will make it difficult for its competitors to stay in business, and may even force them out, is not
illegal so long as the intention was not drive out the competition from the market.
Where there is no evidence that the accused was not profit maximizing or loss minimising, and where chronic
excess capacity exists, the accused can’t be said to have sold at unreasonably low prices, regardless of intent, if at
all times it sold at prices above it’s AVC, there being no suggestion that such a price is not also above its AMC.
S. 50(1) wasn’t intended to prevent a company from profit maximizing or loss minimising. A company that sells
at a price that gives it the best return is not sacrificing present earnings in the hope of making up its loses later.
Where two competitors exist each more than capable of supplying the entire market, and the market is inelastic,
short of collusion b/n them, sooner or later one of them will have to leave the market. This means that any attempt
by one competitor to cut prices to either gain or retain a portion of that market has a tendency to drive out the
NOTE: THE ONLY REASON WHY ANYONE WILL SELL BELOW AVC IS TO BE PREDATOR. WHEN DETERMINING
WHETHER A COMPANY IS ENGAGED IN PREDATORY PRICING EITHER USE THE FACTORS LISTED BY LINDIN J
IN HOFFMAN LA ROCHE OR ECONOMIC FACTORS SUCH AS AVC USED IN CONSUMERS GLASS.
How do you determine if someone is selling at an unreasonably low price? Do you sue Linden J’s analysis of
factors or do you rely solely on economic indicators such as AVC? According to Prof. Roberts it is much better to
use economic indicators in addition to other factors. Thus, not only will you have to determine whether the person
is pricing below average total cost but you will also have to take into a/c whether there is substantial evidence of
predatory intent. This in effect constitutes the Greer formula that O’Leary J referred to in Consumers Glass.
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.
(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 .
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 therefor, 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 therefor, 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
REGINA v KOSS
Koss supplied electronic appliances to departmental chain stores and other specialized electronic stores. It offered the
large chain stores a 3% advertising allowance on the basis of sale. When the specialized stores asked for the same deal
it refused, claiming that Koss didn’t have an advertising allowance policy. It was charged with violating s. 51 of the
At trial, Koss argued that the large chain stores aren’t in competition with the specialized stores. Since the Act
states that the beneficiaries of such an allowance must be in competition with those denied, it claimed that it
hadn’t done anything illegal. The court rejected this argument, noting that the executives of the big stores
themselves claimed that the specialized stores were their competitors.
Koss also argued that the benefits given to the chain stores weren’t an advertising allowance. The court held
that since Koss itself in its communications with those stores called it advertising allowance that is what is
Finally, Koss’ claim that the allowance was meant for national advertising campaign was rejected. The court
noted that the big chain stores that benefited were all regionally based, belying the claim that the allowance
was for a national campaign.
HORIZONTAL PRICE MAINTENANACE
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
(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.
Horizontal price fixing is considered more harmful than vertical price maintenance. It is considered a per se
offence in that the Crown need not prove undue lessening of competition in order for the accused to be
It has traditionally been targeted at big retailers that put pressure on their suppliers to either force up the prices
of their competitors or that they will stop procuring from such suppliers.
But by its wording it is broader in that it applies to almost any business conduct hence the attempt by the
courts to cut down its scope and reach in price maintenance cases.
It extends to anyone, whether supplier, competing seller or other, who attempts directly or indirectly to affect
the price of another.
In the US, the courts use the broader term “price-fixing.” As a result, it any agreements that interferes with the
freedom of traders to set price in accordance with their own judgement constitutes price-fixing and is illegal
S. 61(1)(a) has the potential to be both broad and narrow and narrow. For instance, under the US price-fixing
provisions, there must be a conspiracy or an agreement in order to convict. s. 61(1)(a) is broader in the sense
that it includes agreement, threats, promise, or like means. On the other hand, it is narrower than the US
provision in that in the US horizontal agreements with the effect of fixing-prices are deemed illegal per se,
without proof that the agreement constituted an attempt to restrict price competition. However, s. 61(1)(a) is
restricted to practices that have a direct relationship on price.
Unlike its US counterpart, s. 61(1)(a) is restricted to practices that influence prices upward. As a result, it is
not an offence for competitors to engage in a practice of setting maximum prices for their products.
Under ss. 61(1)(b) and (6) it must be shown that the refusal to deal or an attempt to have another refuse to
deal with a 3rd party was motivated by the “low pricing policy” of that 3rd party.
REGINA v. CAMPBELL
The accused had a car rental business. He and his competitors had been engaged in a relentless price war for some
time that had begun to eat into their profits. To put an end to this practice, Campbell engaged in a number of
First, he told his competitors that they should all stop the senseless price war or they will all go out of
Next, he tried to be a price leader by distributing the prices he charges to his competitors.
When none of this worked, he told them that he had another rental company, Sears Rental that he could use as
a “club” against them if they didn’t stop the price war.
The court found that while his previous action may not have been motivated by illegal motives, his threat to
use Sears Rentals as a “club” was in clear violation of the Act.
In the absence of an agreement, a promise, threat or a conspiracy, the court won’t find anything to qualify as the
like means that the Act refers to. That is the courts’ way of restricting the reach of the provision.
REGINA v SHELEW
The accused was charged with attempting to influence the price of rental apartment accommodation upward contrary
to the Act. The accused was an officer and the solicitor of Moncton District Landlords Association. They were
suffering from rent control legislation and an increase in their property tax. At a meeting of the association, the
accused in his capacity as solicitor recommended that the association’s member’s increase their rent by $25 three
times over the next year. A letter was sent to all members of this new agreement. He was therefore charged under the
provisions of s. 61. The found acquitted him, finding that:
The threat by the association was just a smoke screen to force political leaders to do something about their
financial plight. Besides, the agreement wasn’t enforceable in that the members had no obligation to comply
Shelew was the solicitor, there4 his advice didn’t come under the Act.
All the companies were affiliated and were there4 not caught by the Act.
It wasn’t clear whether Parliament intended to include landlord-tenant relationship in the category of services
under the section.
The Crown appealed to the NB court of appeal which affirmed the acquittal.
It held that to convict, the Crown must show that attempt to increase price upward was done by “agreement
threat, promise or like means.” None was found in this case.
It went on to hold that an agreement b/n horizontal entities must be on such a magnitude as to be capable of
affecting prices in such a way as to restrict the freedom of trade of suppliers who are not party to the
agreement b4 there will be a conviction.
What is the court implying above?
On the one hand it may simply be trying to restrict the reach and impact of the section. Such a limitation
is felt warranted bcos of the broad manner in which the section was drafted.
On the other hand, it may be resorting to a purely economic argument here. If the whole point of the
section is to ensure that no agreement, threat or promise is used to adversely affect the operation of the
market to the detriment of consumers, then such an agreement can’t be said to be detrimental to the
market and to consumers when there are other sellers out there who are still operating in a way which
suggests that the agreement to hike prices hasn’t affected them in any way.
If that is the case, then market logic suggests that ultimately, such a seller will end up taking the
customers of the parties to the agreement by simply charging the lower price.
Prof. Roberts believes that the court was just trying to restrict the reach of the section. It wasn’t thinking in such
an economically rational fashion.
RESALE PRICE MAINTENANCE
The section does not prevent retailers from conditioning doing business with suppliers upon refusal to supply
to competitors, if there is reason for such a requirement other than the low pricing policy of the competitors.
As a result it is permissible for a retailer to condition doing business with a supplier upon an undertaking by
the manufacturer not to supply other retailers in order to give the sole retailer an “exclusive” in a particular
61(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.
REGINA v. CAMPBELL (Ontario CA)
The Crown was appealing the acquittal of the accused on charges of aiding and abetting Bard-Parker, a US based
surgical equipment manufacturer, to force its dealers to sell surgical blades at prices not less than the minimum prices
specified by Bard-Parker. Campbell was the company’s sole Canadian representative. It was Campbell’s duty to go to
hospitals to pick up their orders and distribute those orders among Parker’s Canadian dealers. The dealers were
supposed to sell at prices specified by Parker in its price list. Those who complied with the price list restrictions were
to be given discounts, provided they sent their invoice of sale to Parker’s HQ in the US. The Crown argued that this
was a way of ensuring that the dealers complied with the price list restrictions; it was a way of keeping the dealer’s
The court rejected the argument of defence that s. 61(6) constituted an independent set of offences on its own
and that it can’t be combined with any provisions of the criminal code such as aiding and abetting. It held that
s. 61(6) must be construed on a footing that the provisions of the criminal code apply to it. The provisions of
the Competition Act were not to operate in such a manner as to exclude the general provisions of the criminal
On the question of intent, the court found that mens rea is established once the Crown proves that the accused
advertently entered an agreement which had the effect of inducing another party to resell the accused party’s
products at a price not less than the price specified by the accused.
The precise intention of the accused is irrelevant provided he entered into the agreement advertently.
The fact that accused party’s attempt to maintain a price maintenance scheme wasn’t successful is irrelevant.
The defence had argued that Campbell was not a “dealer” within the meaning of the section but the court
found that by being the sole representative of Parker in Canada and charged with negotiating with hospitals
all of the sales in question, he was in fact a dealer as stipulated by the section.
Parker could have gotten around the re-sale price maintenance provisions of the Act by consigning the blades
to the Canadian dealers, instead of selling it to them. If they were consignees, then Parker could have dictated
to them the prices at which to sell without running afoul of the Act.
Cooperative advertising isn’t an offence in the US but it is in Canada. Why? Simply bcos if prices are
advertised in that way, what will be the incentive on the part of individual retailers to reduce prices?
REGINA v SHELL PRODUCTS LTD
Shell changed the status of some of its dealers, including Jet Car Wash from consignees to that of independent
dealers. Jet was to buy from Shell and sell at its own price. Shell promised to cover Jet’s profit margins should there
be a price war by providing price support in such situations. This made it very much in Shell’s interest to prevent a
price war. Jet Car Wash later lowered its price in order to attract more customers in a slow period.
Shell’s representative called Jet and told them to raise the price to the regular level or else they will face the
consequence. It should be noted that the contract b/n the two parties permitted Shell to terminate the contract without
much cause by giving Jet a few days notice. Shell was charged under the re-sale price maintenance provisions of the
Act but it claimed in defence that its suggestion that if jet didn’t raise its price it will face the consequence was a
business advice, not a threat. The court found that:
Influencing prices only become an offence if it is done by one of the means set out in the section: threat,
promise or any like means.
Threat is an urged course of action, which carries some sanction or penalty if not carried out. It is a form of
intimidation, fulmination, harassment or warning, which carries with it some penalty.
In order to determine whether there has been a threat contrary to the section, it is important to look at the
factual context and take that into a/c to determine whether there’s been threats or not.
61 (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.
(5) Subsections (3) and (4) do not apply to a price that is affixed or applied to a product or its package or container.
R. v. ROLEX WATCH COMPANY OF CANADA (Ont. CA, 1978)
Rolex claimed they didn’t know this was offence and that they wouldn’t do it anymore. But they continued doing it
underground i.e. by getting Birk’s to go around and spy on other retailers. Therefore, Birk’s was charged as co-
Birk’s wasn’t convicted b/c the Court couldn’t find that there was an agreement between Birk’s and Rolex.
Rolex, however, was convicted on two counts and fined only a measly $30,000. Prof. Roberts argues that this is
only a slap on the wrist.
Note: Fines are now much higher in order to have a more deterring effect.
R. v. MUST de CARTIER CANADA INC. (Ont. District Court, 1989)
Retailer puts discount signs in the window and the next day Cartier cuts them off. This is OK. in the U.S. but not in
The jeweller (retailer) argues that Cartier met with them and told them if they toe the line and change their price, they
would supply them again. Cartier argued that the jeweller was in arrears with respect to their payments and that is
why they were cut off.
Court didn’t believe jeweller even though when the jeweller began selling at Cartier’s suggested retail price, they
began getting supplied again, even though they hadn’t yet paid their bills.
Prof. Roberts can’t believe what the Court did in this case. He can’t believe that they didn’t see through what
REGINA v PHILLIPS ELECTRONICS (ONTARIO CA)
Phillips advertised the prices at which its converter boxes were going for. It however failed to add the caveat that
dealers could sell for less. The Court held that:
The Crown must not only prove that there was attempt to influence price upward or to discourage the
reduction of prices, but also the attempt was made in a manner set out in the section.
Adverts by manufactures showing retail price for a product do not violate the prohibition of price
maintenance unless an attempt to influence the price upward by agreement, threat or promise is also proven.
In this case, the court adopted a restrictive as opposed to an expansive interpretation of the section by refusing
to hold that Parliament intended to forbid such adverts. The court felt that if that was the intention of
Parliament then it would have stated that advertising prices was illegal, period. By providing the ground that
make such an advert illegal, the court construed that Parliament intended to restrict illegality to those
US Approach to Re-sale Price Maintenance – Michael Denger
Suppliers favour minimum resale price maintenance in order to attract distributors and provide sufficient margins
to permit them to provide advertising. Promotion, and service at desired levels, which may be discouraged by
Minimum price maintenance may also be favoured by suppliers in order to promote an upscale image by
attracting prestigious outlets in need of higher profit margins.
Maximum resale price maintenance on the other hand may be favoured by suppliers as a way of preventing
distributors from exploiting their market power by charging higher resale prices, which tend to diminish the
Elements: to be convicted under the US resale price maintenance provisions, the State must prove the following three
(a) The first is contract, conspiracy or combination – the plurality of action. This can be satisfied by an express
agreement b/n the supplier and the retailer.
(b) By an implied coerced agreement b/n the supplier and the retailer/distributor.
(c) By termination of one distributor in furtherance of an agreement b/n the supplier and other distributors to maintain
(d) By termination of one distributor to coerce other distributors to maintain resale prices, and, in some
(e) By an agreement b/n the supplier and 3rd parties.
The absence of agreement underlies the Colgate Doctrine that a supplier can announce its resale prices in advance
and refuse to deal with those who fail to comply. There4, to convict, it must be proven that there was “meeting of
minds” b/n the supplier and the distributor.
It means more than showing that the distributor conformed to the suggested resale price of the supplier.
It means that the evidence must establish that the distributor communicated his agreement to the supplier, and that
the supplier sought such an agreement.
2. Resale must be involved in the impugned transaction.
(a) If the supplier merely consigns the products and doesn’t transfer title, it can establish the prices at which the
consignee sells the products.
(b) The consignment must be genuine; it can’t be a sham designed to allow for price fixing or price maintenance.
3. The agreement involving resale price maintenance must specifically involve resale prices or price levels.
(a) Agreements which merely have an effect on prices are not per se unlawful
CIVIL RIGHT OF ACTION
36. (1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part VI, or
(b) the failure of any person to comply with an order of the Tribunal or another court under this Act,
may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply
with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount
that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings
under this section.
General Notes on the section:
It permits the party to sue for single damage plus the full cost of pursuing the matter. This is sharp contrast to
the US provisions which allow for treble damages.
To qualify, the plaintiff must have suffered a loss or damage that resulted from the defendant’s failure to
comply with the criminal provisions of the Act.
The court record of the criminal provisions may be used in the civil action. However, it has been held that not
all evidence in the criminal trial are admissible in the civil action. Only that necessary to the criminal court’s
determination of the offence are admissible.
The section has no injunctive provisions, unlike the US law.
However, a party may use the rules of civil procedure in his province to ask for an injunction.
An action may be brought under the section only by those who suffer direct damage or loss as a result of the
conduct of the defendant. It makes no room for indirect loss or damage.
Statute of limitations: no action may be brought after two years from the day the conduct was engaged in;
and, second, no action may be brought after years from the day the criminal proceedings were finally
Problems with s 36(1)
It makes the right to bring an action contingent upon proof of loss or damage resulting from the anti-combines
violation but in reality it is it very difficult to prove such a connection.
It makes no express provision for private parties to get injunctive relief.
By making the right to relief contingent upon proof of violation of the criminal provisions, the section places
upon plaintiffs huge evidentiary obstacles that are difficult to overcome.
It is not clear the extent to which remoteness theory may work to prevent recovery.
It is not clear if those who suffered indirect loss or damage are precluded from recovery.
It is not clear whether the two-year limitations period was intended not only to limit the time during which a
suit might commence but also the quantum of recovery where the injury resulting from the anti-competitive
behaviour is of a continuing nature.
It doesn’t extend to the reviewable transactions such as abuse of dominant position and mergers. That is why
Boehringer couldn’t sue BMS.
NON-PRICE VERTICAL RESTRAINTS
A. Unilateral Refusal to Deal
The unilateral refusal to deal by monopolies extends their power to another level of the market- retailing.
The section was intended for Canada’s previously insulated market. It is not needed for its original purpose
bcos of free trade and economic liberalization but it is still very effective in tackling abuse of dominant
position, e.g. franchises, especially where the previous franchisee has been able to attain a high degree of
goodwill. The provision works to prevent the franchisor in such situations from cutting of the franchisee and
establish its own outlet store.
The section practically abrogates the common law right to deal with whomever you choose.
The section is not focused on the maintenance of a competitive state in the market. Rather, it is primarily
focused on the ability of small dealers/businesses to survive in the market, whether that enhances competition
75. (1) Where, on application by the Commissioner, the Tribunal finds that
(a) a person is substantially affected in his business or is precluded from carrying on business due to his inability to
obtain adequate supplies of a product anywhere in a market on usual trade terms,
(b) the person referred to in paragraph (a) is unable to obtain adequate supplies of the product because of insufficient
competition among suppliers of the product in the market,
(c) the person referred to in paragraph (a) is willing and able to meet the usual trade terms of the supplier or suppliers of
the product, and
(d) the product is in ample supply,
the Tribunal may order that one or more suppliers of the product in the market accept the person as a customer within a
specified time on usual trade terms unless, within the specified time, in the case of an article, any customs duties on the
article are removed, reduced or remitted and the effect of the removal, reduction or remission is to place the person on an
equal footing with other persons who are able to obtain adequate supplies of the article in Canada.
Note that if the only difference b/n your product and others in its class is your trademark then you can’t say that
your product is different. However, if you can find another source of differentiation then you product can be said
to be different.
Analysis of Refusal to Deal
The following questions conveniently expresses the main components of refusal to deal.
(a) Is the complainant unable to obtain adequate supplies of the product anywhere in a market?
(b) Is the business of the complainant substantially affected by his or her inability to obtain adequate supply.
(c) Is the complainant’s inability to obtain supply bcos of insufficient competition among competitors?
If the answer to all the above questions is yes, then there exists a refusal to deal contrary to s. 75(1).
The Termination of a Franchise
The section insulates a supplier from being ordered to supply to the complainant where the only thing that
distinguishes the supplier’s product from those on the market is trademark.
However, where it can be shown that there is something else in addition to the trade mark, such as the substantial
goodwill that franchisee has earned through years of selling the supplier’s products, then the supplier may be
forced to supply to such a franchisee.
In such a case the franchisor would have to attempt to show that the refusal to deal didn’t spring from any anti-
competitive motive but rather from unsuitability of the franchisee or his inability to “meet the usual trade terms”
of the franchisor according to s. 75(1)(c).
Exclusive Dealing Arrangements
It is possible to use s. 75 to require a supplier to supply an individual complainant in spite of the existence of an
exclusive dealing arrangement, and even though that arrangement would not have been subject to order under the
exclusive dealing provisions.
Supply of Repair Parts
It is also possible to use the section to force suppliers to supply repair parts for their brand of products to
independent dealer(s) holding franchises for the sale of competing brands.
Such an application would depend on defining the relevant product market as repair parts that are available solely
from the supplier against whom the order is sought.
The fact that such brand parts may be too complex for other manufacturers to manufacture them economically,
that they may be subject to patents, trade secrets and industrial design protection rules would work to negate the
application of 75(2) to insulate such a supplier.
These would make the supplier’s trade mark not the only thing that that differentiates such repair parts from other
parts on the market.
DIRECTOR OF INVESTIGATION & RESEARCH v CHRYSLER CANADA
Brunet was in the business of exporting auto-parts. Chrysler Canada was one of his major suppliers. The prices that
were charged by Chrysler Canada were much lower than those charged by Chrysler USA for the same part which
meant that Brunet was highly competitive against Chrysler USA itself and those exporters who were supplied by
Chrysler USA in the export market.
To undercut this unfair competitive advantage, Chrysler Canada decided to cease supplying him. He was to send all
his orders to Chrysler USA and pay the high US prices.
The Director of Investigation brought this action on his behalf to the Competition Tribunal, arguing that Chrysler
Canada was in breach of s. 75(1) and must be compelled to supply Brunet.
The Tribunal held that Brunet’s business was substantially affected by the refusal of Chrysler Canada to supply
him. Although he made more money after he was cut off, the tribunal found that he was substantially affected by
being cut-off bcos he could have made more money.
It held that in order to determine whether a business has been substantially affected by a refusal to deal, we must
look at the whole business of the person, not just a particular segment of the market the person may deal in.
Because of the price differential b/n Canada and the US and other differences in the way that the two Chryslers
served their clients, the tribunal found that the relevant market to use in determining whether there been in fact a
refusal to deal is the Canadian market, not the US market. It rejected Chrysler’s argument that it treat the entire
North American market as one.
A product is defined from the complainant and the complainant’s client’s point of view. It is thus a very narrow
analysis. The important question to ask is whether there is a product interchangeable with the product in dispute
from the point of view of the client. The answer to that question is determinative.
Since the tribunal still has the discretion to decide if it should force the defendant to supply, the following were
some of the factors the tribunal thought must be taken into a/c:
(a) The respondent’s market position. How strong a player in the market is the respondent?
(b) What is the nature of the history b/n the two parties? Is there a long history or not?
(c) What was the manner in which the relationship was brought to an end?
DIRECTOR OF INVESTIGATION v XEROS CANADA
Xerox sued to supply the part of some of its copiers to ISOs that serviced and repaired old used copiers. It later
changed its policy and decided not to supply such ISOs with parts. It claimed that it was vertically integrating its
service/part business. Xerox argued that such an integration was more efficient and in a the competitive copiers
market, it was good for consumers bcos whatever costs it saved bcos of the integration would be passed on to the
consumers in the form of cheap prices.
On the basis of the vertical integration and efficiency argument, it can be argued that when a franchisor cuts-off a
franchisee and sets up its own outlet, the competition law should permit such a move simply bcos the reduced
savings would theoretically be passed on to final consumers in the form of cheaper prices.
Xerox argued that the relevant market is the final product – copiers and not the proprietary parts that were the subject
of this dispute.
This argument that the relevant market be broadened to include the copier market in which Xerox competed was
rejected by the tribunal. It held that the purpose of the section is to allow small businesses and dealers to thrive in
the economy. It is there4 from the perspective of such businesses and their clients that the relevant market is
defined. This is a reiteration of what the tribunal held in the Chrysler case.
In this case, the relevant market was defined to include only the market fro Xerox parts bcos that is what the
dealers and their clients wanted – Xerox parts, not Xerox copiers.
Xerox further argued that the tribunal should exercise its discretion and not force it to supply having found its to be in
violation of s. 75. It reasoned that some of the factors that the tribunal said go to the issue of whether or not it should
exercise its discretion in the Chrysler case such as Xerox’s market position and the effect of the refusal to supply on
its overall efficiency all called for a favourable exercise of discretion.
The tribunal rejected this argument bcos Xerox had failed to adduce evidence showing that efficiency
consideration was the reason for the cut-off. It was a theoretical argument with no basis in reality. This can be
contrasted to the US approach where s. 2 of the Sherman Act provides that any measure that is efficiency
enhancing can’t be said to be anti-competitive.
When a supplier like Xerox creates a market and people build their business around that market then the builder
of the market can’t cut-off such people without cause.
If the supplier “bundles” the parts with the product then competition issue can be said to arise. It is only when the
“bundle” is broken and the parts are sold separately that failure to deal may become problematic under the
Note that this is different from the case where a vertically integrated company that never supplied to a dealer to
start with is asked to supply to such a dealer. In such a case, it will be difficult to argue for forcible supply bcos
the dealer didn’t build his business on the basis of a, old relationship b/n it and the company that is now refusing
However, there is the problem that the section may be used to force a company to stick with its existing
distribution network. For instance, it can’t vertically integrate without running afoul to the section. The only
option left to such a company will be for it to ask the tribunal not to exercise its discretion to force it to supply.
But what if a company refuses to supply a new product/part to a dealer? On the basis of the order given by the
tribunal in this Xerox case (that Xerox supply the dealer parts for its old copiers but not the newer copiers bcos
there has never been such a supply relationship for the new versions) it is possible to argue that if no supply
relationship has existed b/n the two parties b4 then the company may be able to get off, as long as there is no prior
Once the relevant market is defined narrowly to include only Xerox parts then the sections provision that the
inability of the dealer to get supplies bcos of insufficient competition among suppliers becomes irrelevant. By the
narrow definition, the supplier becomes a monopolist.
This practice may sometimes be aimed by suppliers at disfavoured dealers. Such dealers would be put on consignment
while the favoured dealers are put on sale for re-sale at extremely good and competitive prices. It makes difficult for
the disfavoured consignee to compete with the favoured dealer who on re-sale.
76. Where, on application by the Commissioner, the Tribunal finds that the practice of consignment selling has been
introduced by a supplier of a product who ordinarily sells the product for resale, for the purpose of
(a) controlling the price at which a dealer in the product supplies the product, or
(b) discriminating between consignees or between dealers to whom he sells the product for resale and consignees,
the Tribunal may order the supplier to cease to carry on the practice of consignment selling of the product.
The section forbids a supplier from introducing consignment selling for the purpose of controlling the price of a
retailer for instance.
The distinguishing feature consignment selling is that the title of the goods does not pass to the retailer. The
retailer merely acts as the supplier’s agent. Whenever there is sale, the title passes from the supplier directly to the
Limitations of s. 76(a)
a) The supplier must have ordinarily sold the product for re-sale. Bcos of this, consignment arrangements that
are designed to control the price at which the retailer sells new products is beyond the control of the section.
This leaves open the question of whether a new model of an old product that was sold for re-sale can be made
subject of consignment arrangement simply bcos of the new changes made to it.
b) There is a requirement that a practice of consignment selling must be shown. It may be intended to allow
suppliers to place retailers on consignment for short periods of time in order to assist them during price war
The provision is designed to prevent suppliers from using consignment arrangement to get around the price
discrimination provisions of the Act. Otherwise, a supplier who wished to discriminate could place some
dealers on consignment and others on a more favourable sale for re-sale terms.
The only remedy that the competition tribunal can order if it finds that the section has been breached is to
issue a cease and desist order. It is not empowered to penalize the anti-competitive use of consignment prior
to the issuing of the order.
77(2) Where, on application by the Commissioner, the Tribunal finds that exclusive dealing or tied selling, because it is
engaged in by a major supplier of a product in a market or because it is widespread in a market, is likely to
(a) impede entry into or expansion of a firm in a market,
(b) impede introduction of a product into or expansion of sales of a product in a market, or
(c) have any other exclusionary effect in a market,
with the result that competition is or is likely to be lessened substantially, the Tribunal may make an order directed to all or
any of the suppliers against whom an order is sought prohibiting them from continuing to engage in that exclusive dealing or
tied selling and containing any other requirement that, in its opinion, is necessary to overcome the effects thereof in the
market or to restore or stimulate competition in the market.
The section essentially provides that the major suppliers of a product or suppliers in a market where such
practices are pervasive can inter alia, be prohibited by the tribunal from engaging in tied selling or exclusive
dealing if such practices are likely to the exclusionary effect with the result that competition is or is likely to
be lessened substantially.
Note that in tying arrangements the tribunal doesn’t look for substantial lessening of competition. It only
looks at the monetary value involved simply bcos tying arrangements serve no other competition purpose.
The tier is usually a major supplier of the tying product and tries to tie another product to it.
Note that tied selling is defined as a practice. Practice is defined in the same way that policy was defined in
Hoffman La Roche.
A look at the provision indicates that the main issues that need to be addressed in any dispute are
a) Who qualifies as a major supplier;
b) When is exclusive dealing or tied selling “widespread in the market”; and
c) What does the Commissioner need to prove in order to convince the tribunal that competition is “likely to be
lessened substantially” as a result of the exclusionary effect of the tied selling or exclusive dealing
COMMISSIONER OF COMPETITION v BBM
BBM was in a monopoly position in the TV/radio date market. Nielson tried to enter the market but couldn’t bcos
BBM tied the sale of TV and radio data together through its pricing policy. It charged 6,945 for either one of them and
7,620 for both. Nielson was just into the TV data market so this made it uneconomical for TV and radio stations to but
just the radio data from BBM and come to Nielson for their TV data.
BBM argued that the definition of tied selling in the Act didn’t apply to it bcos it had no customers. Rather it was a
not for profit association with members. This argument was rejected by the court, which held that:
The purpose BBM was to produce products and to supply them at a price. While BBM did have members and
was organizationally structured as an association, it also had customers to whom it sold products like any
other commercial firm. (Take note of the purpose approach that the court adopts in this case.)
The intention of the statute is to free the market so that any producer of any one product has the opportunity
to enter and compete on a fair basis.
The tribunal ordered BBM not to price its TV and radio data below its This gave a huge competitive
advantage to Nielson bcos it could still sell below its AVC and draw customers away from BBM
Note that you can’t bring a civilly reviewable case b4 the courts no matter how damaging the effects of the
conduct that is alleged. It is only upon the failure of the defendant to comply with the order of the tribunal that a
complainant could then pursue remedies in a court of law. The only exception to this rule is the “plainest case
possible” – Harbord Insurances Services v Insurance Corp of BC
COMMISSIONER OF COMPETITION v TELE-DIRECT
Tele-Direct charged advertisers to advertise in its yellow pages. The charge not only included the ad but also any art
form used by the advertiser. For some period of time it charged one price for the ad and the artwork, except for big
advertisers who advertised in 8 regions or more. Tele-Direct’s employees were paid on commission on the basis of the
number of ads they sold. This gave them an incentive to sell more ads.
There developed a practice whereby consultants helped companies cut the cost of their ads in the yellow pages. The
consultants were paid part of the savings that the advertisers obtained through the help of the consultants. Tele-Direct
naturally did not like the consultants bcos their work ate into its earnings.
Or high-end advertisers advertising in 8 or more regions Tele-Direct gave them a 15% discount. This discount was
restricted to just 10% of all advertisers. Bells bundled together the space for the ads and the services that it provided,
i.e., the artistic of the ad. This the commissioner saw as tying together two separate products. The effect of this was to
eliminate the consultants whom Bell hated.
Why not provide the same deal to the low-end advertisers? Maybe at the low end the ads were just the name
of the business and its phone number. It can be argued that in those cases the space and the design were just
However, at the high-end where there is a great deal of artistic content in addition to the provision of the
space, the question becomes whether you are dealing with one or two products.
An analysis of whether it is one or two products depend on (1) whether there is a separate market for each
product; and (2) whether it is efficient for the customer for the product he wants to be put together by one
company or by separate entities. This is a question of efficiency. If efficiency is proven to be the reason for
the bundling then there is one product. If not then there is one product.
Whether it is better to sell a product separately or tied together can be conceptualized as a continuum. At the
lower end, it will be a single product but as you move along the continuum you move away from a single
product to separate products.
The tribunal held that where an advertiser advertises in 6 or more regions the service and space are separate
products making any tying arrangement unlawful.
In order to satisfy all the requirements of the provision, the tribunal had to find out if there’s been a substantial
lessening of competition as a result of the tying arrangement.
However, the way that the tribunal approached this question suggests that the tying arrangement itself is a per
se evidence of a substantial lessening of competition. The very purpose of the tying arrangement is to lessen
competition so long as the defendant is a major supplier of the product on the market and has engaged in the
This per se approach to tying arrangements does not apply to exclusive dealings bcos there may be legitimate
reasons for the exclusive dealing apart from trying to lessen.
Note: if you have two products that are consumed in fixed proportions and the defendant is a monopolist supplier
in the one of the products, then he wouldn’t have to tie the two products in order to maintain his monopolist
profits. It is there4 arguable that a monopolist that ties two products that are consumed in fixed proportion can
ever be found to have violated the section.
However, this may not take in a/c situations such as those b/n a franchisor and a franchisee in which the
monopolist (trademark) does not become a monopolist until the franchisee is brought on board.
A. Exemptions from the Prohibition of Tying Arrangements
Section 77(2) exempts tying arrangements that fall short of practices.
B. Exemptions for Tying Technologically Related Products
77(4) The Tribunal shall not make an order under this section where, in its opinion,
(b) tied selling that is engaged in is reasonable having regard to the technological relationship between or among the products to
which it applies, or
This section also appears to permit the tying a service to the sale of an article where there is a reasonable
US v. JERROLD ELECTRONIC
Jerrold was pioneer in cable TV instituted a practice of tying the sale of its cable TV equipment with service. It argued
that since the technology was new, there was the risk that customers, if allowed to service it themselves, fail to do it
properly and thereby jeopardize Jerrold’s substantial investment in the technology.
The court found this reason to be acceptable and the practice not in violation of anti-trust law when they were
However, the court went on to hold that Jerrold’s insistence on tying when the cable industry grew and after
the “industry took root and grew” did constitute an illegal tying arrangement.
C. The exemption for Tying Arrangements Securing Loans
77(4) The Tribunal shall not make an order under this section where, in its opinion,
(c) tied selling that is engaged in by a person in the business of lending money is for the purpose of better securing loans made by
that person and is reasonably necessary for that purpose,
This provision applies solely to persons in the business of lending money. The purpose of the tying
arrangement must be to better secure the loan. Further, it must be shown that it is reasonably necessary to do
While it is possible characterize credit sales a two product transaction, US jurisprudence suggests that in most
cases credit sales should be viewed as a single transaction , for instance, the sale of a car, with the extension
of credit merely incidental thereof.
D. Exemption for Affiliated Companies Partnerships & Sole Proprietorships
s. 77(4) exempts tied selling b/n companies, partnerships and sole proprietorships that are affiliated. In s. 77(5),
affiliated is defined as:
77 (5) For the purposes of subsection (4),
(a) one company is affiliated with another company if one of them is the subsidiary of the other or both are the subsidiaries of
the same company or each of them is controlled by the same person;
(b) if two companies are affiliated with the same company at the same time, they are deemed to be affiliated with each other;
(d) a partnership or sole proprietorship is affiliated with another partnership, sole proprietorship or a company if both are
controlled by the same person; and
E. The Canadian Tire Exemption
s. 77(5)(d) provides:
(d) a company, partnership or sole proprietorship is affiliated with another company, partnership or sole proprietorship in
respect of any agreement between them whereby one party grants to the other party the right to use a trade-mark or trade-
name to identify the business of the grantee, if
(i) the business is related to the sale or distribution, pursuant to a marketing plan or system prescribed substantially by the
grantor, of a multiplicity of products obtained from competing sources of supply and a multiplicity of suppliers, and
(ii) no one product dominates the business.
This exemption is said to be very limited to cases where the trademark has been granted for the specific
purpose of identifying the business of the grantee. In most of trademark licence cases the trademark is used to
identify only the product and not the business as such.
What the Commissioner of Competition need to prove in a tying allegation:
The accused is a major supplier of the tying product.
That the accused has engaged in either one of the practices outlined in s. 77(2) a-c.
That the tying arrangement has an exclusionary effect.
That there is a substantial lessening of competition as a result of the tying.
EXCLUSIVE DEALING ARRANGEMENTS
s. 77(1) "exclusive dealing" means
(a) any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that
(i) deal only or primarily in products supplied by or designated by the supplier or the supplier's nominee, or
(ii) refrain from dealing in a specified class or kind of product except as supplied by the supplier or the nominee, and
(b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii)
by offering to supply the product to the customer on more favourable terms or conditions if the customer agrees to meet the
condition set out in either of those subparagraphs;
It remains unclear as to whether the definition will be interpreted to cover indirect means of securing
exclusive dealing, i.e., by setting dealer quota that prevent the customer from carrying other lines of products.
There has to be a determination of whether the exclusive dealing had an exclusionary effect which resulted in
a substantial lessoning of competition; whether it was engaged in by a major supplier of a product; whether
the exclusive dealing was widespread in the market.
The definition requires that the supplier expressly set a requirement of exclusive dealing as a condition of
supplying a product to the customer. There4, it is unclear as to how a practice which effectively secures
exclusive dealing without such an express condition can fall within the definition.
Why Exclusive Dealing?
Protects the consumer against sudden price increases.
It makes it possible to sign long-term contracts.
It minimizes the risks of storage costs for the customer
It reduces transaction costs and allows the passage of such savings on to the consumer. E.g. advertising.
It protects the supplier against free riding by other inter-brand competitors.
It protects trade secrets. Absent an exclusive dealing arrangement a distributor could sue the market strategies
of one supplier to the benefit of another.
Exclusive dealing can work to help a supplier gain a “toe-hold” entry into the market.
If an exclusive dealer has a large market share is able to tie its customers for a period of time it may make it
difficult for a new entrant into the market to gain a “toe-hold.”
Widespread exclusive dealing may lead to the division of the market b/n and among suppliers.
Note: exclusive dealing can also be characterized as a group boycott and there4 a violation of the conspiracy
provision of s. 45.
Note: You can characterize a particular action as a number of violations of the Act. Don’t be restrain yourself to
just one characterization, especially in an exam.
DIRECTOR OF INVESTIGATION v. BOMBADIER LTD
The relevant product market can vary depending on the level at which you look at it. Here the tribunal looked at
Bombardier’s position in the snowmobile manufacturing, distribution ( does transportation allow for the distribution
of the product across a wide geographical area of the market?) and retail market.
Manufacturing Market (North American Level): Bombardier enforced its exclusive dealing arrangement
in Ontario, Quebec, and the Maritimes. Those markets constituted 20% of the entire North American
snowmobile market. However, within those markets, the exclusive dealing gave Bombardier 50% of the
market. In effect, Bombardier had an exclusive dealing arrangement that closed 10% of the entire North
American market to its competitors. The tribunal held this share not large enough to constitute lessening of
The Distribution Market (Regional Level): 50% of the distribution dealers in Ontario, Quebec, and the
Maritimes was foreclosed to Bombardier’s competitors bcos of the exclusive dealing arrangements. In effect,
this foreclosed half of the entire market in those regions to the competition.
The Commissioner argued that this arrangement resulted in a substantial lessening of competition and there4
violated the Act
The question that needed answering was whether the exclusive dealing arrangement by Bombardier led to the
prevented the dealers in question from dealing with other manufacturers. This is what competition law seeks
The tribunal held in favour of Bombardier bcos (1) there was evidence that it easy to recruit dealers even in
the midst of the exclusive dealing arrangement. (2) The high rate of dealer turnover made recruitment
necessary for all manufactures, including Bombardier. (3) There was evidence that some of the competitors
had been able to increase their market share, notwithstanding the exclusive dealing arrangements. The
arrangement there4 did not have an exclusionary effect on the market.
Retail Market (Local level): In small town if there is an exclusive arrangement and the dealer is not allowed
to dual, then it won’t make economic sense for Bombardier’s competitors to open another dealership in such a
small market. This may result in a total lack of competition in such a small market, not just lessening.
Here, Bombardier was found not guilty bcos the Commissioner failed to adduce evidence of foreclosure of the
local market to the competition as a result of the exclusive dealing arrangements.
Other Important Points to Note
A major supplier is one whose actions are taken to have an appreciable or an important impact on the market
where it sells. Where available, market share is a good indicator of a firm’s important in the market since it
summarizes the firm’s capabilities in a number of dimensions. Financial strength and innovation record are
also important considerations.
What constitutes a major supplier under the section: in this case the tribunal relied on the fact that
Bombardier’s 30% share of the market in addition to its historical position in the industry and its strong
innovation record and brand image qualified it as a major supplier.
Changes in sales share may be a helpful guide in determining whether an exclusive arrangement is having an
anti-competitive impact on the market. The extent to which competitors are able to increase their share of the
market is an indirect evidence of the effectiveness of the exclusive dealing as an entry barrier.
Exemptions from the Prohibition of Exclusive Dealing
The Practice Requirement: s. 77(1) provides that there be a practice of exclusive dealing engaged in by the
supplier. This means that the tribunal has the choice of either broadly or narrowly defining what constitutes a practice.
Exclusive dealing to facilitate entry into the market: s. 77(4) of the Act provides:
The Tribunal shall not make an order under this section where, in its opinion,
(a) exclusive dealing or market restriction is or will be engaged in only for a reasonable period of time to facilitate entry of a new
supplier of a product into a market or of a new product into a market,
This provision means that if in the subjective opinion of the tribunal a new supplier engages in exclusive
dealing for a reasonable period of time to facilitate its entry into the market or if an established supplier does
likewise regarding the introduction of a new product, then the prohibitions of s. 77(2) won’t apply.
Exclusive dealing between affiliated companies: s. 77(4) exempts exclusive dealing b/n companies,
partnerships and sole proprietorships that are affiliated. In s. 77(5), affiliated is defined as:
77 (5) For the purposes of subsection (4),
(a) one company is affiliated with another company if one of them is the subsidiary of the other or both are the subsidiaries of the
same company or each of them is controlled by the same person;
(b) if two companies are affiliated with the same company at the same time, they are deemed to be affiliated with each other;
(e) a partnership or sole proprietorship is affiliated with another partnership, sole proprietorship or a company if both are
controlled by the same person; and
The Canadian Tire Exemption: s. 77(5)(d) provides:
(d) a company, partnership or sole proprietorship is affiliated with another company, partnership or sole proprietorship in respect
of any agreement between them whereby one party grants to the other party the right to use a trade-mark or trade-name to identify
the business of the grantee, if
(i) the business is related to the sale or distribution, pursuant to a marketing plan or system prescribed substantially by the grantor,
of a multiplicity of products obtained from competing sources of supply and a multiplicity of suppliers, and
(ii) no one product dominates the business.
s. 77(1) defines market restriction as
any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to
supply any product only in a defined market, or exacts a penalty of any kind from the customer if he supplies any product outside
a defined market
(3) Where, on application by the Commissioner, the Tribunal finds that market restriction, because it is engaged in by a major
supplier of a product or because it is widespread in relation to a product, is likely to substantially lessen competition in relation to
the product, the Tribunal may make an order directed to all or any of the suppliers against whom an order is sought prohibiting
them from continuing to engage in market restriction and containing any other requirement that, in its opinion, is necessary to
restore or stimulate competition in relation to the product.
Market restriction refers to the practices under which the customer is prohibited by the supplier from competing in all
but a defined product or a geographic market.
The customer may be prohibited from dealing with customers in al but a defined geographic area.
He may also be restricted from selling the products of the supplier from all but a certain specified location.
The definition is not broad enough to encompass “area of primary responsibility clause” that is found in most
franchise agreements in Canada.
However, if an area of primary responsibility clause is combined with a penalty for not respecting the clause
then the restriction section may be violated.
Note that the section is designed to prevent and punish vertical territorial allocation and geographic area
confinement through (1) location clauses (2) geographic boundaries with penalties for violation, and (3) by
product lines restricting a dealer to a particular product.
The tribunal is required to find the likelihood of substantial lessening of competition as a result of market
restriction by a major supplier or widespread market restriction in the product market b4 an order can be
ABUSE OF DOMINANT POSITION
78. (1) For the purposes of section 79, "anti-competitive act", without restricting the generality of the term, includes any of the
(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the
supplier, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market;
(b) 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;
(c) 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;
(d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;
(e) pre-emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of
withholding the facilities or resources from a market;
(f) buying up of products to prevent the erosion of existing price levels;
(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to
prevent his entry into, or to eliminate him from, a market;
(h) 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;
(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor;
ss. (a) is targeted at bottleneck monopolies. Such monopolies are in a position to squeeze the bottleneck available
to their unintegrated competitors in order to drive them out of the market.
ss. (b) is targeted at attempts at vertical integration by suppliers for anti-competitive purposes. Note that there is a
purpose requirement, which means that anti-competitive goals must be the reason for the integration b4 the
supplier can be said to have offended the section.
ss. (c) This subsection is aimed at preventing and punishing punitive delivered pricing policies of suppliers. Note
that there is a purpose requirement, which means that anti-competitive goals must be the reason for the freight
equalization policies b4 the supplier can be said to have offended the section.
ss. (d) This is similar to predatory pricing practices. Note that there is a purpose requirement, which means that
anti-competitive goals must be the reason for the introduction of the fighting brands b4 the supplier can be said to
have offended the section.
ss. (e) The provision is targeted at suppliers who integrate vertically for the sole purpose of excluding a competitor
from the market. Note that there is a purpose requirement, which means that anti-competitive goals must be the
reason for the vertical integration b4 the supplier can be said to have offended the section.
ss. (g) Note that there is a purpose requirement, which means that anti-competitive goals must be the reason for the
supplier buying up products b4 the supplier can be said to have offended the section.
ss. (h) The provision is aimed at tying arrangements through the adoption of specifications, e.g., video games discs
and machines. There is a purpose requirement, which means that anti-competitive goals must be the reason for the
adoption of the specifications b4 the supplier can be said to have offended the section.
ss. (i) is targeted at group boycotts or exclusive dealing arrangements. Anti-competitive goals must be the reason
for the inducement of a supplier not to sell to a particular customer b4 the supplier can be said to have offended the
79. (1) Where, on application by the Commissioner, the Tribunal finds that
(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,
(b) that person or those 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,
the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.
(2) Where, on an application under subsection (1), the Tribunal finds that a practice of anti-competitive acts has had or is having
the effect of preventing or lessening competition substantially in a market and that an order under subsection (1) is not likely to
restore competition in that market, the Tribunal may, in addition to or in lieu of making an order under subsection (1), make an
order directing any or all the persons against whom an order is sought to take such actions, including the divestiture of assets or
shares, as are reasonable and as are necessary to overcome the effects of the practice in that market.
3) In making an order under subsection (2), the Tribunal shall make the order in such terms as will in its opinion interfere with the
rights of any person to whom the order is directed or any other person affected by it only to the extent necessary to achieve the
purpose of the order.
4) In determining, for the purposes of subsection (1), whether a practice has had, is having or is likely to have the effect of
preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of
superior competitive performance.
(5) For the purpose of this section, an act engaged in pursuant only to the exercise of any right or enjoyment of any interest
derived under the Copyright Act, Industrial Design Act, Integrated Circuit Topography Act, Patent Act, Trade-marks Act or any
other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act.
6) No application may be made under this section in respect of a practice of anti-competitive acts more than three years after the
practice has ceased
(7) No application may be made under this section against a person
(a) against whom proceedings have been commenced under section 45, or
(b) against whom an order is sought under section 92
on the basis of the same or substantially the same facts as would be alleged in the proceedings under section 45 or 92, as the case
NUTRESWEET v COMMISSIONER OF COMPETITION
The Commissioner brought this action against NSC for a violation of s. 79 of the Act for abusing the dominant
position it occupied in the aspartame market in Canada. It was alleged that its actions made it impossible for its main
competitor in the market, Torso to compete. The following are some of the relevant facts.
1. In this case, Pepsi and Coke constituted 85% of the aspartame market in Canada and NSC had them. The issues
then was if one company had 85% of the total customers for a product, then how can a new company get a “toe
hold” in that market?
2. Initially, NSC’s main competitor, Torso, couldn’t compete bcos NSC had patent protection for aspartame, making
it impossible for any competitor to enter the market. By the time its patent run out, NSC had bottomed up the
market by attaching conditions of supply through its branded ingredient strategy. This strategy meant that Coke
and Pepsi, by agreeing to put the NSC logo on diet drinks, were given a 40% branded discount on all their
3. Even when the patent ended, the branded 40% discount continued, as long as the NSC logo was put on the drink
containers. This made it uneconomical for the customers to change aspartame companies bcos it would have
meant not only loosing the discount but also changing manufacturing design in order to eliminate the logo.
4. Moreover, NSC made sure in included a “Most Favoured Nation” clause in its contracts with both Pepsi and
Coke. This meant that whatever deal NSC gave one of the giant customers, it had to give the same deal to the
5. In addition, NSC made sure it always included a “meet or release” clause in its contract with Coke and Pepsi. This
stipulated that whenever any competitor gave either one of the customers a better deal, NSC had to be given the
opportunity by the customer to meet or beat that deal b4 the customer could ditch NSC.
In defining the relevant product market, include all the sellers in that market, including your target. The
question is whether all the sellers, acting together, could sustain a 5% increase in price for at least one
year. Use this conception of relevant market in any discussion of relevant market in the exams.
Issue 1: What Constituted The Relevant Product Market
The tribunal refused to hold that the relevant product market was either the high intensity sweetness market or all
sweetness market. Instead, it restricted the relevant product market to the aspartame market bcos
I. Producers such as coke and Pepsi didn’t consider the other sweeteners as substitutes for aspartame bcos there
was evidence that the others posed difficulties for the producers in the course of the production process.
II. Bocs of fears about the health risks associated with some of those other sweeteners, consumers didn’t
consider them to be substitutionable with aspartame.
In this case of both Pepsi and Coke were not prepared to switch to the other sweeteners bcos they were worried
about consider reaction, the increased costs that such a change will engender bcos it will mean a 40% increase in
costs (the discount given by NSC) and the risks and challenges that the other sweeteners posed during production.
The consumers of diet coke and Pepsi in which aspartame is found are insensitive to a 5% increase in price bcos
they buy diet drinks not bcos its cheaper but bcos they consider it to be a healthier choice. They don’t like the
excess sugar in regular coke or Pepsi.
Issue 2: What Constituted the Relevant Geographic Market?
The Tribunal found the relevant geographic market is Canada bcos the relevant provisions of the Act are restricted in
their application to Canada. Moreover, NSC itself treated Canada as a separate market. In addition, the price in the US
market was 50% less than it was in Canada. That was interpreted to indicate the existence of two different markets.
Issue 3: Did NSC have Market Power?
Market power is defined by economists as the ability of a seller/supplier to maintain a material increase in price for at
least 2 years. Material increase in price is a 5% increase. The relevant question then becomes whether a producer can
sustain a 5% increase in price for 2 year alone. If it can, then it has a dominant position in the market.
In this case, NSC argued that it couldn’t sustain such an increase bcos
1. Pepsi and Coke had countervailing power – they had the money and the assets to set up a rival aspartame
company if they felt the need to.
2. If there is ever such an increase, competitors such as Torso will increase their plant capacity and take away Pepsi
and Coke. All that they have to do in such a case is to ask to be released from their contract so that they may sign
The Tribunal rejected this submission bcos
(a) It failed to take into a/c the tremendous sunk cost that anyone who enters the market will have to deal with. In the
Tribunal’s opinion, not even Pepsi and Coke with their deep pockets could lightly deal with that.
(b) It failed to factor in the reality that NSC continued to enjoy some patent protection for some technologies involved in the
production of aspartame which made it impossible for anyone to use those technologies.
(c) The regulatory environment prevalent in the country meant that it would take a long time for anyone to get the necessary
approvals needed b4 production of aspartame could begin.
Issue 4: Did NSC Engage in Anti-Competitive Practices
s. 79 says that an anti-competitive act is one engaged in for an exclusionary purpose and with a likelihood of substantially
lessening competition. The Commissioner of Competition had to prove that NSC entered into all these arrangements with
Pepsi and Coke for an exclusionary purpose, which had the likelihood of substantially lessening competition.
The tribunal looked at the Meet or release Clause, the Most Favoured clause, and at the fidelity discount given to
Pepsi and Coke for having the NSC logo on their can and concluded that they constituted an anti-competitive
Note that practice/policy is much more liberally construed here. This is bcos these provisions are have civil, no
criminal sanctions attached to them and bcos abuse of dominance is the most extreme form of anti-competitive
Issue 5: the Purpose Requirement
The Commissioner had to prove that the purpose of the anti-competitive act was to eliminate competition.
NSC argued that the goal of the MFN clause, the “Meet or Release” clause, and the branded ingredient arrangement was
ensure and maintain efficiency
However, the Tribunal found that the purpose of the branded ingredient strategy for instance was to prolong NSC’s patent,
which had run out. It was held to have engaged in anti-competitive acts for an exclusionary purpose.
Had this been a criminal trial, it is possible NSC wouldn’t have been found guilty under this heading. This is bcos in criminal
trials there is a higher standard of proof in criminal trials, compared to civil trial.
NOTE: under the civil provisions of the Act, a party is taken to assume the natural consequences of his or her
actions. Knowledge of the consequences of a party’s actions is imputed to the person or party. Thus, proof of
subjective intention on the part of the respondent is not necessary in order to find that a practice of anti-
competitive act has occurred. Such intention is almost impossible of proof in cases involving corporate actors.
Corporate actors are there4 deemed to intend the effects of their acts. See THE LAIDLAW WASTE
In this case Bell reduced its yellow pages advertising prices and gave additional deals to advertisers in local
communities in which competitors were trying to establish rival yellow pages businesses. No such deals or reduced
prices were offered advertisers in communities in which there was no competition. The Commissioner argued that
Bell was abusing its dominant position by engaging in geographic predatory pricing. The Tribunal refused to find Bell
guilty of violating s. 79 bcos
There was no evidence that Bell was selling at loss in those areas it was giving deals to local advertisers.
The customers in those areas benefited by getting cheaper advertising costs.
There was no evidence that the conditions Bell created in those markets made it impossible for its competitors to
either enter or stay in those markets. Hard competition is good for the market and for consumers who end up
The Tribunal adopted a purely economic approach to predatory pricing. So long as it is economically justifiable, then
predatory pricing won’t be found. It is consumer focused.
91. In sections 92 to 100, "merger" means the acquisition or establishment, direct or indirect, by one or more persons,
whether 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 competitor, supplier, customer or other person.
For a merger to occur under the Act, there must be an acquisition of control or a significant interest in all or
part of the business of another.
It doesn’t matter whether the person whose business is acquired is a competitor, supplier or a customer. All
mergers are there4 embraced regardless of whether they are horizontal, vertical or conglomerate.
However, the bureau emphasizes that its primary concern is with horizontal mergers b/n competitors
According to the MEGS, vertical mergers raise concerns only in two situations:
a. Where they raise objectionable barriers to entry to a market, or
b. Where they facilitate consciously parallel pricing practices in a downstream or an upstream market
for more than two years.
Conglomerate mergers raise concerns only in one instance: 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 the market for more than two years.
Significant inertest in whole or in part is said to exist when one or more persons have the ability to materially
influence the economic behaviour (e.g. decisions relating to pricing, purchasing, distribution, marketing or
investment) of another business or part of that business.
Determination of whether significant interests exist can be made only on a case-by-case basis.
It doesn’t matter the means that is used to obtain a significant interest in another business, and whether the
interest is indirect or indirect.
The Joint Ventures Exemption from the Prohibition of Merger
112. A combination is exempt from the application of this Part if
(a) all the persons who propose to form the combination are parties to an agreement in writing or intended to be put in writing that
imposes on one or more of them an obligation to contribute assets and governs a continuing relationship between those parties;
(b) no change in control over any party to the combination would result from the combination; and
(c) the agreement referred to in paragraph (a) restricts the range of activities that may be carried on pursuant to the combination,
and contains provisions that would allow for its orderly termination.
92(1) Where, on application by the Commissioner, the Tribunal finds that a merger or proposed merger prevents or
lessens, or is likely to prevent or lessen, competition substantially
(a) in a trade, industry or profession,
(b) among the sources from which a trade, industry or profession obtains a product,
(c) among the outlets through which a trade, industry or profession disposes of a product, or
(d) otherwise than as described in paragraphs (a) to (c),
The applicable standard of review is whether the merger or proposed merger is or is likely to prevent or lessen
competition substantially at any level in the distribution chain or otherwise.
s. 92(2) provides that market share alone can’t be used as the sole reason for rejecting a proposed merger.
This can be contrasted with US law, which permits the DOJ to use market share alone as the basis for a
rejecting a proposed merger.
The MEGS indicate that the most important dimension of competition for merger purposes is price
competition. The main question is whether a proposed merger will lead to higher prices than will otherwise be
the case if there were no merger.
This is determined by considering whether the merger will result in substantial lessening of competition by
looking at whether the post-merger price is likely to be materially greater in a substantial part of the relevant
market for more than two years.
MEGS define the relevant market in terms of the smallest group of products and the smallest geographic area in
relation to which sellers, if acting as a monopoly, could profitably impose and sustain a significant and a non-
transitory price increases above levels that would likely exist absent the merger. A 5-year increase is considered
significant and a one-year period is considered non-transitory.
Determining the Geographic Market
With respect to geographic market, it is important to determine the extent to which firms in progressively distant areas
could be able to constrain the ability of the merged parties to raise prices, reduce output or otherwise behave
Note that the geographic market will be expanded to include the sales location of a foreign seller, so long as the area
b/n the foreign seller and the Canadian border clearly belong to the geographic market. This is determined by looking
to see id there are any foreign sellers in the intervening geographic area who would unlikely constrain the price
increase. There are, then the geographic market stops at the Canadian border.
Key elements in this analysis include
1. The impact of transportation costs on the alleged competitors ability to compete.
2. The extent to which the alleged competitor will face non-recoverable set-up costs to enable them to compete.
3. The geographic limitations imposed by the fragility or perishability of the product.
4. To some extent, the existence of a significant pattern of shipments b/n the alleged areas to be a part of the
same geographic market.
5. Correlation or non-correlation in price movements in the geographic area alleged to be a part of the same
Determining the Relevant Product Market
The MEGS list the following as the most important factors in determining the relevant product market:
1. The views, behaviour, strategies, and identity of buyers. What will the buyers do? Will they switch for that
product to another that is a close substitute?
2. The views of knowledgeable 3rd parties such as suppliers to the industry and the past response of the merging
parties and others in the industry to past moves of alleged competitors. Did consumers or did producers
substitute? Will they be drawn to something else?
3. The existence of functional interchangeability in the end use b/n the products of the merging parties and those
of their alleged competitors.
4. The costs to buyers retooling to switch to allegedly competing products. Will it take more than a year to
5. The degree of competition provided by 2nd hand or reconditioned products.
6. The cost to potential competitors to adapting, retooling and obtaining distribution preparatory to entering the
7. The existence in the products of the merging parties of unique technical or physical characteristics such as
product warranties, services facilities, etc.
8. Correlation or non-correlation in price movements b/n the products of the merging parties and those of
alleged competitors in a significant period immediately preceding the merger.
Determination of Market Shares
Where all firms are operating at full capacity and produce differentiated product, such as cement, the market share
of any particular company is calculated as the proportion of capacity to total market capacity.
The only time unused capacity is not taken into a/c occurs when, bcos of high costs, ineffective marketing, a
firm’s excess capacity does not exert any constraining influence in the market.
When products in the relevant market are differentiated by style, brand name, warranties, etc., market shares
aren’t necessarily based on the total used and unused capacity of each firm. A material increase in the price of one
brand may not directly translate into a corresponding increase in the sales- hence in the use of excess capacity- of
another brand. In such a case, sales is used as the best indicator of market share.
Determination of Substantial Lessening of Competition
s. 93 provide that the concentration of market share alone will not be used as the basis of refusing a merger bcos
of fears of lessening of competition. There4, the bureau also relies on qualitative measurements as well.
Market shares is used to simply screen out mergers that are unlikely to raise any competition concerns.
According to the MEGS, the following thresholds are used to screen out such mergers:
(a) Unilateral Power Threshold: no challenge will be made on ground that the merging parties will be able to
unilaterally exercise market power than b4 where their combined post merger market share is less than
(b) Four-Firm Ratio Threshold: no challenge will be made on grounds that the merger will facilitate
consciously parallel conduct raising prices where the merged parties’ post-merger market share is less than
(c) Independent Power Threshold: no challenge will be made on grounds that the merger will facilitate
consciously parallel conduct raising prices where the merged parties’ post-merger market share is less
93. In determining, for the purpose of section 92, whether or not a merger or proposed merger prevents or lessens, or is
likely to prevent or lessen, competition substantially, the Tribunal may have regard to the following factors:
(a) the extent to which foreign products or foreign competitors provide or are likely to provide effective competition to
the businesses of the parties to the merger or proposed merger;
(b) whether the business, or a part of the business, of a party to the merger or proposed merger has failed or is likely to
(c) the extent to which acceptable substitutes for products supplied by the parties to the merger or proposed merger are or
are likely to be available;
(d) any barriers to entry into a market, including
(i) tariff and non-tariff barriers to international trade,
(ii) interprovincial barriers to trade, and
(iii) regulatory control over entry,
and any effect of the merger or proposed merger on such barriers;
(e) the extent to which effective competition remains or would remain in a market that is or would be affected by the
merger or proposed merger;
(f) any likelihood that the merger or proposed merger will or would result in the removal of a vigorous and effective
(g) the nature and extent of change and innovation in a relevant market; and
(h) any other factor that is relevant to competition in a market that is or would be affected by the merger or proposed
These factors listed under s. 93 are considered when deciding the relevant market anyway. They there4 add very
little to the merger. They have no unifying concept.
According to the MEGS, the main consideration in determining the likelihood that a merger will substantially
lessen competition is whether it is likely to lead to a “materially greater” price in substantial part of the relevant
market that is sustainable for more than two years. It is from this point of view that the s. 93 factors must be
It is not enough to show that a materially greater price could be imposed by all the competitors acting in concert
as if they were a monopoly. It 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 lasting for more than
Application of the s. 93 Factors to Determining the Likelihood of Materially Greater Prices
A. Section 93(a): Foreign Competition
The MEGS states that the constraining influence of foreign firms on competition in Canada can range from non-
existent to sufficient to ensure that a merger of the last two Canadian firms in a market would be permitted.
The bureau considers the limiting effects of tariffs, import quotas, voluntary restraint agreements, and
international transaction disincentives such as unfamiliarity with the Canadian market, reluctance of domestic
intermediaries to buy foreign products,, and exchange rate fluctuations.
Other potential impediments to foreign competition are also evaluated. These may include domestic ownership
restrictions, exchange rate fluctuation, initiatives to buy local, intellectual property laws, govt procurement
policies, conditions in the home market of the foreign competition, and uncertainties regarding shipping delays.
B. Section 93(b): Acquisition of a Failing Company
The bureau considers whether the potential for a material increase in prices could have been avoided or decreased if the
failing company had been acquired by a 3rd party, retrenchment by the failing company, or liquidation.
The MEGS define a failing company as one that is insolvent or is likely to become insolvent; it has initiated or is
likely to initiate voluntary bankruptcy proceedings or, it has been or is likely to be petitioned into bankruptcy or
C. Section 93(c ): Availability of Acceptable Substitutes
According to the MEGS the question of availability of acceptable substitutes relates primarily to the
determination of the relevant market.
The availability of acceptable substitutes will only become germane to the determination of potential material
increase in prices if suppliers of substitutes would not increase production to a constraining level within two years
of a material price increase
Another problem will be if consumers wouldn’t switch to substitutes in sufficient numbers to constrain the
potential for material price increase.
D. Section 93(d): Barriers to Entry
If it will take a firm more than one year to surmount a barrier to entry, then such a firm will not be included in the
relevant market. It ability to constrain the merging parties will be non-existent.
The potential competition offered by such a firm might still play a role in the merger evaluation process. All that
need to be shown in such a case is that the firm could surmount the barrier to entry within two years, and would
be induced to do so by the material price increase in a substantial part of the relevant market.
In such a case, the potential competition offered by such a firm may ensure that a material price increase could not
be sustained for more than two years in the relevant market.
Some entry barriers exist in all market. The analysis there4 focuses not on whether there are barriers, but on:
(a) What must be done and what commitments must be made by potential competitors in order to enter on a
scale that would be sufficient to eliminate a material price increase in the market;
(b) What factors are likely to delay entry, and are they collectively likely to prevent the scale of entry
described above from occurring within two years; and,
(c) Are potential competitors likely to enter, given the commitments that must be made, the time required to
become an effective competitor, the risks involved, and the likely rewards.
Unless such an entry is likely to occurs, it will not generally be considered to provide sufficient replacement for
the loss of actual competition that would result from the merger.
Assessment of firms that are likely to enter begins by looking at firms that have entry advantage such as fringe
firms already in the market, firms that sell in adjacent geographic markets, firms with similar products and
E. Section 93(e) Extent to Which Effective Competition Remains
According to the MEGS, a merger that that is not likely to reduce the level of competition will not be challenged
even though the level of effective competition prior to the merger was low.
F. Section 93(f): Removal of a Vigorous and an Effective Competition
The removal of vigorous and effective competition in and of itself is not enough to warrant enforcement action
under the Act.
The main consideration is whether the merger will likely result in material price increase, which is sustainable for
more than two years.
G. Section 93(g): Nature and Extent of Change and Innovation
H. Section 93(h): Other Relevant Factors
Relevant factors include market transparency and the transaction value and frequency. Market transparency is the
degree to which information is available to competitors in the market. The greater the degree of transparency, the
greater the potential for conscious parallelism.
The expression transaction value and frequency relates to the value and the frequency and regularity of sales of a
product. As the value of each sales increases the incentive to discount goes up. This makes consciously parallel
conduct more difficult to sustain.
The Efficiency Gains Defence
96. (1) The Tribunal shall not make an order under section 92 if it finds that the merger or proposed merger in respect of
which the application is made has brought about or is likely to bring about gains in efficiency that will be greater than, and
will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the merger or
proposed merger and that the gains in efficiency would not likely be attained if the order were made.
(2) In considering whether a merger or proposed merger is likely to bring about gains in efficiency described in subsection
(1), the Tribunal shall consider whether such gains will result in
(a) a significant increase in the real value of exports; or
(b) a significant substitution of domestic products for imported products.
(3) For the purposes of this section, the Tribunal shall not find that a merger or proposed merger has brought about or is
likely to bring about gains in efficiency by reason only of a redistribution of income between two or more persons.
The problem with the section is that is seems to be comparing apples and oranges. How do you compare the
efficiency gains of a merger and the anti-competitive effects it engenders?
The section was added bcos it was felt in some quarters that in certain industries it was better to have monopolies
in order for those companies to effectively compete on the world market.
Under the s. 96(1), the efficiency gains must (1) offset and be greater than the lessening of competition, and (2)
not be attainable other than by letting the merger proceed.
Under 96(2) the tribunal is essentially directed to regard a “good” efficiency gains those which (1) significantly
increase exports, or (2) result in the significant substitution of domestic products for imports.
Section. 93(3) provides that if the only efficiency gain brought about by the merger is a redistribution of income
b/n two or more persons then it can’t be treated as an offsetting efficiency gain which is capable of saving a
merger that is otherwise prohibited under the section.
According to the MEGS, the ability of the merged entity to operate more efficiently must derive from savings in
resources such as economies of scale or reduced operation costs.
For quantitative measurement, gain in efficiency is defined as the dollar value in reduction in per unit costs of
production or distribution. This includes economies of scale, economies of scope: when it more efficient to produce
two or more products together to produce them separately; transaction costs economies: when there are savings
associated production within the firm as opposed to external purchases.
Evaluation of qualitative factors is done under the heading dynamic efficiencies which recognizes that improvements
in product quality, introduction of new products and innovation, and increased product choice and service may
embody elements of socio-economic benefit arising from the merger.
According to the commissioner:
In evaluating efficiency gains, the gains in question need not be unique to the parties that in intend to merge.
The claims of a proposed merger may however be disallowed in certain circumstances if an alternative less
restrictive merger, which has been proposed or contemplated by one of the parties, will give rise to similar
94. The Tribunal shall not make an order under section 92 in respect of
(a) a merger substantially completed before the coming into force of this section;
(b) a merger or proposed merger under the Bank Act, the Trust and Loan Companies Act or the Insurance Companies Act in
respect of which the Minister of Finance has certified to the Commissioner the names of the parties thereto and that the merger is
in the best interest of the financial system in Canada; or
Advance Ruling Certificates
They are certificates issued under ss. 102 and 103 certifying that the commissioner is satisfied that the
information on the information provided by the merging parties on the merger, he will have no grounds to apply
to the tribunal for a review of the merger.
If the merger is substantially completed within one year of the issuance of the ARC, then the Commissioner is
bound by it. He is forbidden from challenging the merger on substantially the same grounds as the information
provided by the parties and which formed the basis of the ARC. Obtaining the ARC also exempts the parties from
complying with the prenotification provisions of the Act, if applicable.
The Remedial Powers of the Tribunal
s. (92): the Tribunal may, subject to sections 94 to 96,
(e) in the case of a completed merger, order any party to the merger or any other person
(i) to dissolve the merger in such manner as the Tribunal directs,
(ii) to dispose of assets or shares designated by the Tribunal in such manner as the Tribunal directs, or
(iii) in addition to or in lieu of the action referred to in subparagraph (i) or (ii), with the consent of the person against
whom the order is directed and the Commissioner, to take any other action, or
(f) in the case of a proposed merger, make an order directed against any party to the proposed merger or any other person
(i) ordering the person against whom the order is directed not to proceed with the merger,
(ii) ordering the person against whom the order is directed not to proceed with a part of the merger, or
(iii) in addition to or in lieu of the order referred to in subparagraph (ii), either or both
Application of the Statute of Limitation
97. No application may be made under section 92 in respect of a merger more than three years after the merger has been
Double Jeopardy Provisions
98. No application may be made under section 92 against a person
(a) against whom proceedings have been commenced under section 45, or
(b) against whom an order is sought under section 79
However, s. 107 provides that the Commissioner is not to exclude evidence just bcos it might disclose other
breaches of the Act. Note that it is a mandatory provision it uses a “shall” which leaves no room for discretion
THE COMMISSIONER OF COMPETITION v SUPERIOR PROPANE
Superior Propane and ICG Propane decided to merge but the Commissioner alleged that the merger will create a
dominant national propane marketer and in several markets, a dominant local propane marketer. Both Superior and
ICG compete against each against other in the same geographic and products markets through their operation of
propane distribution systems and wholesale supply of propane to agents and dealers. The Federal Competition
Tribunal held that:
The relevant product market was retail supply of propane, contrary to Superiors argument that the market be
expanded to include the entire energy market bcos any attempt on their part to exercise power over retail propane
could not be successful bcos consumers could easily switch to alternative energy sources.
The tribunal found that as a result of the merger, competition will be lessened substantially, thereby violating
section 92(1) of the Act.
However, Superior argued under s. 96 that even if the merger will lessen competition, it ought to be allowed to
proceed bcos of the efficiency gains that will result from it.
The tribunal found by using the total surplus standard that there would be a deadweight loss of 3 million a year,
compared to the 29 million in efficiency savings that the merger will yield per annum for the next decade. On this
basis, the tribunal held that the efficiency gains would be greater than, and offset, the effects of the lessening of
By relying on the total surplus standard the tribunal rejected other competing models of measuring efficiency
gains of a merger such as the balancing weight standard advanced by the Commissioner bcos that standard took
into a/c the redistributional effects of the wealth transfer from consumers to shareholders when competition is
lessened and the merged entity is able to raise prices as a result, especially in the inelastic propane market.
It held that the only effects that could be considered under s. 96(1) were the effects of the merger on resource
allocation, as measured by in principle by the deadweight loss which takes both quantitative and qualitative
effects into a/c.
The tribunal concluded that the merging parties bore the burden of proving all the elements of s. 96 on a b/c of
probabilities, except for the “effects of any prevention or lessening of competition” which had to be demonstrated
by the Commissioner.
The Commissioner appealed to the FCA. The main question whether for the purpose of efficiency defence, the
“effects” of an anti-competitive merger was limited as a matter of law to the loss of resources to the economy as a
whole, (the deadweight loss) or whether it includes the wealth transfers from consumers to producers that occurs
when a merged entity exercises its market power to increase prices above competitive levels, the elimination of
smaller competitors from the market, and the creation of a monopoly.
The FCA held that by so limiting the factors to be considered as effects, the tribunal erred in law bcos it failed to
ensure that all the objectives of the competition Act, and the particular of each merger, could be considered in the
balancing exercise mandated by s. 96. This holding was based on:
(a) Section 96 is a balancing provision and need not be applied mechanically. Since the efficiency defence
requires the tribunal to b/c competing objectives, its operation must remain flexible and not stilted by a
(b) Section 96 itself does not stipulate what effects may be considered. Effects is broad enough to encompass
anything caused by the event.
(c) Section 5.5 of the MEGs recognizes that a merger may have more than one effect. The redistribution of
resources is in fact one of the effects of a merger.
(d) The statutory requirement that for a s. 96 defence to succeed the efficiency gains must be more than, and
offset, the effects of the lessening of competition suggests a more judgmental assessment than is called for by
the largely quantitative calculation of deadweight loss that the tribunal employed.
(e) While s. 96(3) expressly eliminates the redistributive effects from the calculation of efficiency gains, s. 96(1)
does not have such a limitation. If Parliament wanted to have that limitation, it would have turned its mind to
that just as it did in s. 96(3)
(f) Section 1.1 plus the legislative history of section 96 suggests that Parliament to weigh all the negative effects
of a merger against the efficiency gains. Although s. 1.1 sets forth inconsistent purposes, it is integral to the
Act and must be regarded as establishing the parametres for interpreting its more specific provisions such as s.
96. It also requires that the tribunal focus on more than one objective of the Act.
(g) While s. 96 give paramountcy to the objective of economic efficiency, it does not restrict countervailing
“effects” to the deadweight loss. This lead to the conclusion that all anti-competitive effects of the merger
should be b/c against the efficiency gains, pursuant to the parametres set out in s. 1.1
(h) Characterizing the Act as an economic instrument does not limit the consideration of effects to the deadweight
loss, when there are other economic effects, such as the redistribution of wealth.
(i) Moreover, the tribunal is charged with protecting overall public interest by balancing conflicting interests and
(j) Where demand is inelastic significant price increase will always give a lower deadweight loss. It will be wrong
for ignore this large wealth transfer from consumers to producers by simply classifying it as neutral.
(k) The tribunal rejected the balancing weights standard as being unpredictable for businesses bcos it leaves them
in a limbo as to whether a merger will be approved or not. The FCA found that absolute predictability is not
essential. Competition law is different from criminal law or tax law where a certain level of predictability is
required so that an individual can arrange their affairs so that they don’t violate the law. Two merging entities
that are unsure whether their merger will be challenged by the Commissioner can avail themselves of ARC for
instance. Predictability is also a matter of degree. The parties merging can submit their proposal to the
Commissioner for his opinion.
(l) The existing authorities did not support the correctness of the tribunals’ interpretation of s. 96(1) effects. Not
all economists or other jurisdictions embrace the tribunal’s embrace of the total surplus standard.
On the issue of the burden of proof, the FCA held that:
The Commissioner has the legal burden of proving the extent of the relevant effects. The merging parties have the
burden, not only of proving the scale of the efficiency gains that wouldn’t have occurred but for the merger, but
also of persuading the tribunal on the issue of whether the efficiency gains are likely to be greater than, and offset,
the anti-competitive effects if the merger goes ahead.