Defending an Abuse of Dominance Case after the Vancouver Airport Decision

Written By Andrew D. Little

The Competition Tribunal has released extensive reasons for dismissing the abuse of dominance claim brought by Canada's Commissioner of Competition against the Vancouver Airport Authority. For future investigations and litigation commenced by the Commissioner, two prominent points emerge from the Tribunal's decision:

• even conduct that intentionally excludes a competitor from a market is not necessarily "anti-competitive"—a full analysis of the overall "character" of the conduct is required; and
• the "regulated conduct defence" does not apply to abuse of dominance in Canada. But potentially anti-competitive conduct may be justified if it was done to comply with a statutory or regulatory requirement.

The Vancouver Airport Authority Case

The Commissioner's application under section 79 of the Competition Act focused on the decision of the Vancouver Airport Authority (VAA) to allow only two in-flight caterers to operate at Vancouver International Airport (YVR). The Commissioner claimed that VAA's decision to exclude additional competitors from access to the airside—preventing new entrants into the market—was anti-competitive. 

In its reasons, the Tribunal agreed with the Commissioner that VAA substantially controlled the relevant market at YVR. Access to the airside was required for a caterer to compete; due to its power over airside access, VAA controlled who did and did not compete, as well as how many firms could compete, in the supply of airside services at YVR. 

However, on the evidence, VAA's conduct was not "anti-competitive" and had not lessened or prevented competition substantially at YVR.

The Commissioner has announced that he will not appeal. The Tribunal's decision is therefore final.

1. Intentionally Exclusionary Conduct May Not Be "Anti-Competitive"

It is often difficult to distinguish legitimate marketplace competition from "anti-competitive" conduct that could be offside the Competition Act. To determine whether conduct is "anti-competitive" under section 79, the Tribunal assesses the overall "character" of the conduct. 

The Commissioner must prove that the impugned acts have an "intended negative effect on a competitor that is exclusionary, predatory or disciplinary". The defending company may respond with evidence of a business justification for its conduct.

The conduct in the VAA case was not easy to assess. Two caterers asked VAA for a chance to compete at YVR. VAA denied their requests. The Tribunal concluded that VAA intended to exclude, and in fact continued to intentionally exclude, those potential new competitors from the relevant market. That finding on intentional exclusion was consistent with its conclusions in Commissioner of Competition v Toronto Real Estate Board [TREB].  

But the Tribunal ultimately came to a different conclusion than it did in TREB: on the evidence, VAA's motivations were pro-competitive and the overriding purpose of the exclusionary conduct was legitimate. 

The Tribunal painstakingly reviewed the evidence, including about why and how VAA decided not to grant access to the airside to additional competitors. 

First, the evidence established that VAA's purpose was not to exclude new entrants. Instead, its purposes were to preserve existing competition by ensuring airlines at YVR were served by at least two full-service caterers; to avoid the effects on airlines of a disruption in service if one competitor exited the market; and to avoid harm to VAA's reputation and its ability to attract and retain new airlines and routes to YVR. All of these aimed to help YVR compete better with other airports. VAA's revenues were not a factor in its decision.

Second, the Tribunal rejected the Commissioner's position that VAA's analysis before its decision was superficial and inadequate. VAA did not perform a study, nor specifically consult any airlines, nor do comprehensive due diligence to support its decision. VAA relied extensively on its senior management's knowledge, experience and analysis when it decided—which the Tribunal declined to second-guess. VAA's justifications were also present from the outset and dominated its motivations throughout. They were not a pretext (as in TREB) or an after-the-fact construction. 

Although reasonable people could differ about the decision of whether or not to exclude new entrants from the market, the evidence persuaded the Tribunal that VAA's justifications were "credible" and "adequate". 

In overall character, therefore, VAA's conduct was not anti-competitive, even though VAA did, throughout, intend to exclude new competitors from entering the market at YVR. 

2. Conduct Required by Law: Legal Compulsion Is Still Important

The second noteworthy point from the VAA decision concerns whether and how businesses can justify their conduct if that conduct was required or compelled by law. Canada's regulatory environment often causes businesses to engage in activities to comply with a statute or regulation. The question arises however: what if those activities cause a negative effect on competition?

The Tribunal first addressed the "regulated conduct defence" (RCD), which has been used in criminal cases under the Competition Act. The RCD may apply if a party engages in conduct that is required, directed or authorized by a federal or provincial statute or regulations, and a provision expressly (or by necessary implication) directs or authorizes the person to engage in the conduct. 

The question for the Tribunal was whether the RCD extends to abuse of dominance under section 79—a non-criminal section of the Act. The answer was no. Section 79, the Tribunal held, does not contain the "leeway" language that must be present for the RCD to exempt or shield conduct from the Competition Act. 

Despite that conclusion, legal compulsion continues to be highly consequential in abuse of dominance investigations and litigation. The Tribunal's reasons confirmed that potentially anti-competitive acts done to comply with a statutory or regulatory requirement may constitute a "legitimate business justification". Put another way, a legal requirement may justify conduct that could otherwise be "anti-competitive". That conclusion is consistent with prior case law, including TREB, and with the Bureau's own Abuse of Dominance Enforcement Guidelines. 

Neither VAA nor TREB convinced the Tribunal that their actions were compelled by law. In the VAA decision, no statute, regulation or other legal instrument specifically compelled, mandated or authorized the exclusion of competitors from YVR. Similarly, TREB had not engaged in its exclusionary conduct to comply with federal privacy legislation.

For additional details on required and regulated conduct, please read the Defending an Abuse of Dominance Case blog.

Conclusion

The Tribunal's reasons in VAA are comprehensive and nuanced. Like the reasons in TREB, the VAA decision is instructive on what constitutes a practice of "anti-competitive" acts and how the Tribunal will approach evidence suggesting that conduct may be legitimate competition. The result in VAA provides an interesting contrast to the Commissioner's success on the evidence in TREB. 

For guidance on abuse of dominance matters, please contact the author or any other member of the Competition Law group.

Andrew D. Little was a member of the Bennett Jones counsel team for the Commissioner of Competition in the TREB case.

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