2012 was a busy year for Canadian competition litigation, as numerous cases were heard or decided. The Supreme Court of Canada heard three class proceedings cases involving the Competition Act and the Competition Tribunal had two lengthy hearings.
Outside the courtroom, the Competition Bureau provided new written guidance on merger review and abuse of dominance, and Parliament passed sentencing reforms that affect defendants in criminal cartels.
At the Bureau, Commissioner of Competition Melanie Aitken stepped down in September 2012 and was succeeded by Interim Commissioner John Pecman. Mr. Pecman, the former Senior Deputy Commissioner (Criminal Matters Branch), has nearly 30 years experience at the Competition Bureau.
The following is a selection of 2012's high profile developments, followed by a short commentary on what to expect in 2013.
Court and Tribunal Proceedings
Appeal Pending after First Merger Case Since 2005
In May 2012, the Competition Tribunal ruled in favour of the Commissioner in the first challenge to a merger transaction since 2005. Significantly in this case, the parties had already closed the transaction and the transaction was non-notifiable (i.e., below the threshold for mandatory pre-merger notification). The Tribunal declined to dissolve the merger, instead ordering CCS Corporation to divest the shares or assets of a subsidiary that owned a hazardous waste landfill site. CCS appealed and obtained a stay pending appeal to the Federal Court of Appeal. In December, the Federal Court of Appeal (Evans, Stratas and Mainville, JJ.A.) heard the appeal on the merits and reserved its decision.
Air Canada/United Continental Case Settled by Consent Agreement
Air Canada and United Continental, its US partner airline, entered into a registered Consent Agreement with the Commissioner in October 2012, resolving proceedings commenced by the Commissioner in June 2011. The Commissioner initiated proceedings under both the merger provisions and the new provisions of the Competition Act relating to non-criminal agreements or arrangements between competitors that came into force in March 2010. On 14 key Canada-U.S. routes, the Consent Agreement prohibits Air Canada and United from coordinating prices, coordinating the number of seats available at each price, pooling revenue or costs, or sharing commercially sensitive information.
Abuse of Dominance
Tribunal Hearing in the Toronto Real Estate Board
Over five weeks in September-October 2012, the Competition Tribunal heard the Commissioner's abuse of dominance application against The Toronto Real Estate Board. The proceeding concerns TREB members' ability to offer real estate brokerage services to their customers through virtual office websites, using a data feed of multiple listing service (MLS) information from TREB.
The Commissioner seeks, among other things, to prohibit TREB from enforcing certain of its MLS rules and contract provisions with its members that restrict their use of data about historical listings, including prices of sold properties; and to require TREB to include such historical listings in the data feed being provided to members.
TREB is the second case brought by the Commissioner in relation to the real estate industry under the abuse of dominance provisions in the Competition Act. The first case, against The Canadian Real Estate Association (CREA), settled by Consent Agreement registered with the Tribunal in October 2010.
AMPs Requested against Water Heater Suppliers
On December 20, the Commissioner commenced two abuse of dominance applications related to the market for the supply of natural gas water heaters. The application against Reliance Comfort LP alleges that it has abused its dominant position in three areas of Ontario, by imposing policies that make returning a rented water heater more difficult, making it harder to switch suppliers. The second application alleges that in February 2012, Direct Energy Marketing Limited imposed a water heater return policy that is similarly anti-competitive in markets it allegedly dominates. That new policy is alleged to contain anti-competitive return requirements that were prohibited under a 2002 Consent Order against Direct Energy's predecessor, Enbridge Services – a Consent Order that expired the day before the new return policy came into effect.
The lawsuits ask the Tribunal to prohibit the anti-competitive activities, and to require the respondents to make additional information available to consumers to facilitate the return of water heaters. The Commissioner's applications also seek, for the first time in an abuse of dominance case, an administrative monetary penalty against each respondent: $15 million against Direct Energy and $10 million against Reliance.
Reliance Comfort and Direct Energy can be expected to respond strongly to the Commissioner's applications, as at least one has already done by news release. They will file formal Responses with the Tribunal in February unless the due date is extended.
Tribunal Hearing in Visa/MasterCard
The Tribunal heard the Commissioner's application against Visa and MasterCard in May and June 2012. The application alleges that the two credit card companies are engaged in price maintenance contrary to section 76 of the Competition Act.
The Commissioner seeks, among other things, to prohibit Visa and MasterCard from implementing or enforcing no-surcharge rules on merchants, under which merchants may not add a fee to a transaction when a customer uses a Visa- or MasterCard-branded credit card for payment; and to bar the respondents' honour-all-cards rules, which require merchants who accept a Visa- or MasterCard-branded credit card to accept all of that brand's credit cards, including premium cards that engage higher fees payable by merchants. Visa and MasterCard, supported by two intervenors, strongly opposed the application. The Tribunal reserved its decision at the end of the hearing in June.
Misleading Advertising and Consumer Protection
Supreme Court of Canada Decision under Quebec Statute
The Supreme Court released its decision in a case dealing with false and misleading representations under Quebec's Consumer Protection Act. Applying a provision with very similar language to a paragraph in the Competition Act, the court awarded the appellant $1,000 in compensatory and $15,000 in punitive damages arising from a letter inviting him to enter a sweepstakes that effectively gave the general – and misleading – impression that he had won a cash prize.
AMPs Ordered in Contested Proceeding
The Ontario Superior Court ordered final relief, including administrative monetary penalties (AMPs) and restitution in a case of false and misleading representations brought by the Commissioner against four companies and related individuals operating a business directory scam. In Commissioner of Competition v. Yellow Page Marketing et al., the court ordered the defendants to pay an AMP of $8 million, the largest ordered to date in contested proceedings, and to pay restitution. The individuals were ordered to pay AMPs exceeding $1 million in aggregate. Appeals are pending.
Misleading Advertising Proceedings in Ontario
Proceedings are ongoing in Ontario against Rogers Communications and its subsidiary Chatr Wireless for misleading advertising related to dropped calls. The Commissioner is seeking, inter alia, a $10-million AMP against Rogers and Chatr. Rogers has challenged the constitutionality of the AMPs under the Competition Act, as well as the principle that an advertiser needs to have adequate and proper tests of its performance claims before making them to the public.
The Commissioner also began legal proceedings in Ontario against Rogers, Bell Canada, TELUS Corporation and the Canadian Wireless Telecommunications Association in September 2012, in relation to alleged misleading advertising that promotes premium texting services. The Commissioner seeks customer refunds and AMPs of $10 million each from Bell, Rogers and TELUS.
Criminal Matters under the Competition Act
Important Sentencing Reasons in Price-Fixing Case
Chief Justice Crampton of the Federal Court of Canada issued a call for higher fines and more jail time in his sentencing reasons concerning a jointly recommended sentence for price-fixing in Canada v. Maxzone Auto Parts (Canada) Corp. The Chief Justice provided supplementary sentencing reasons, which are rare in guilty plea cases, with the aim of altering future expectations about evidence at sentencing. He noted that, going forward, the Court will require an enhanced evidentiary record and more detailed submissions before determining the appropriateness of a proposed sentence. See the Bennett Jones Update, Sentencing Reasons Call for Higher Fines and Jail Time in Price-Fixing Cases.
RBS Challenges Production Order
The Royal Bank of Scotland is challenging, and won an interim stay of, an Order issued by the Ontario Superior Court pursuant to section 11 of the Competition Act. The terms of the Order, which was sought by the Commissioner as part of its investigation into alleged collusive conduct related to LIBOR (the interest rates for interbank loans), required RBS Canada to produce a substantial amount of documentation in the possession or control of two foreign affiliates.
Criminal Charges Withdrawn in Waste Case
The Bureau withdrew criminal charges against Progressive Waste Solutions Ltd. and its subsidiary BFI Canada Inc. for the breach of a Consent Agreement. The Bureau withdrew the charges on account of what it called “an unfortunate procedural error”, whereby the Bureau became aware of certain privileged information that had been inadvertently disclosed to it during the course of its investigation.
Court of Quebec Interpreted Senior Officer under the Criminal Code
In R. c. Pétroles Global Inc., a Quebec provincial court applied a liberal interpretation to the definition of “senior officer” under section 2 of the Criminal Code to find that Pétroles Global should be subject to criminal liability. The Court focused on substance over form in concluding that the interpretation of “senior officer” should be based on the responsibilities and functions of the individual, rather than his or her title or position. In that case, the individuals' involvement in setting the company's gasoline pricing strategies was sufficient to make the company liable for their actions under the Criminal Code.
Antitrust Class Proceedings
The SCC Heard Three Indirect Purchaser Class Actions
The Supreme Court of Canada heard its first class proceedings certification cases involving antitrust allegations. In three appeals heard together in October, the putative plaintiffs claim damages as indirect purchasers of software products, high-fructose corn syrup and dynamic random access memory (or DRAM) in computers. In the two British Columbia cases, the plaintiffs lost in the court of appeal; in the DRAM case from Quebec, the class action was certified.
One issue for the Supreme Court is the possible adoption of a rule akin to the US Supreme Court's well-known 1977 decision in Illinois Brick, which denied indirect purchasers the right to sue for damages. Based on Supreme Court of Canada precedent, arguments were made about direct purchasers' ability to pass on increased costs to downstream purchasers, and the impact of alleged anti-competitive conduct occurring outside Canada.
B.C. Courts Have Territorial Jurisdiction
The British Columbia Court of Appeal held that the B.C. courts have territorial jurisdiction over a class action by diamond purchasers against several companies associated with De Beers. The claim is based on alleged international price-fixing that affected diamond purchasers resident in B.C.. On the jurisdiction motion, the unsuccessful defendants applied for leave to appeal to the Supreme Court of Canada. The application was dismissed on January 17, 2013.
Statutes and Guidelines
Enforcement Guidelines on Merger Review Process
The Bureau attempted to increase transparency in the merger review process by publishing revised Enforcement Guidelines on the Merger Review Process. The Guidelines provide greater insight into the timing for review of transactions and offer more detail concerning the Bureau's information-gathering processes used during merger review, particularly the supplementary information request (SIR) process.
Monthly Merger Reports and Position Statements
The Bureau also began publishing monthly reports of concluded merger reviews and increased its publication of Position Statements. The Bureau published six Position Statements over the year; they are designed to provide transparency to the antitrust community by communicating the results and briefly describing the Bureau's analysis of a particular proposed merger.
Amendments to the Sentencing Provisions of the Criminal Code
On November 20, 2012, amendments to the sentencing provisions of the Criminal Code came into force. Introduced by Bill C-10, the Safe Streets and Communities Act, the amendments remove the availability of conditional sentences (i.e., non-custodial sentences) for those convicted of conspiracy or bid-rigging under sections 45 and 47 of the Competition Act. The amendments effectively curtail the discretion of sentencing judges and continue a trend, under the current Conservative government, of relying more heavily on custodial sentences for deterrence. See the Bennett Jones Update, No More House Arrest for Competition Act Offenders as Amendments Enter into Force.
Revised Enforcement Guidelines on Abuse of Dominance
The Bureau finalized and published new Enforcement Guidelines on the abuse of dominance provisions of the Competition Act. The new Guidelines were more than three years in the making and outline the Bureau's general approach to enforcing the abuse of dominance provisions. Many observers noted that the new Guidelines provide less guidance, omitting detailed examples and analysis found in the previous guidelines and in drafts.
New Procurement Guidelines Issued by the Government of Canada
The department of Public Works and Government Services Canada issued a new measure in November 2012 that will no longer exempt companies that participated in the Bureau's Leniency Program from the department's integrity provisions. This means that the department will not enter into a contract or real property transaction with, or accept bids from, companies convicted of listed offences (including the conspiracy and bid-rigging offences under the Competition Act), unless they have received a pardon.
What to Watch in 2013
We expect decisions from the courts and Competition Tribunal in several of the cases described above by mid-year. A few pending cases also deserve further comment here.
The outcomes of the Visa/MasterCard and TREBcases are highly anticipated by businesses and consumers, given that they affect credit card transactions and the purchase and sale of homes respectively. Visa/MasterCard will also be the first civil price maintenance decision of the Tribunal following the significant amendments to the Competition Act in 2009. Beyond its high profile in the greater Toronto area, TREB involves the application of the abuse of dominance provisions to a trade association.
TREB and the CCS appeal may provide guidance on the scope of substantial prevention of competition under the abuse of dominance and mergers sections of the Act. Currently, there is much less case law on what it means to prevent competition substantially under the Act, compared with what it means to lessen competition substantially.
Certification motions in numerous class actions are on hold pending the Supreme Court's decisions in the three class action appeals. Because one requirement for certification is a reasonable cause of action in law, a ruling that indirect purchasers have no cause of action, at all or in some circumstances, would necessarily have a cascading effect on existing and future cases. The court's guidance on the evidence expected at certification from damages experts and on territoriality issues would have a similar impact.
The Commissioner's December abuse of dominance applications are not the only proceedings involving the water heater rental market. Since at least 2010, various competitors have launched lawsuits. Last summer, Direct Energy successfully obtained a court order against another competitor to declare that it had breached the Competition Act and the Trade-marks Act. Also in December one respondent, Reliance, reportedly participated in a formal six-citizen complaint to the Commissioner against two of its competitors, alleging “marketplace abuses and misrepresentations”.
Two cases, RBS Canada and Rogers/Chatr, involve constitutional challenges to different provisions of the Competition Act. RBS Canada's challenge raises territoriality issues (production of documents outside Canada) and arguments under the Canadian Charter of Rights and Freedoms (related to RBS Canada's officers and directors). If the matter is not otherwise resolved and RBS Canada is successful, it could have significant implications for the Bureau's ability to obtain information from non-Canadian corporations.
The Rogers/Chatr matter involves a constitutional challenge to the increased AMPs under the Competition Act for misleading advertising, increases that were implemented in 2009. Challenges to AMPs under other statutes provide some guidance. For instance, the Federal Court of Appeal in US Steel upheld AMP provisions in the Investment Canada Act in 2011. In 2012, the Court of Appeal for Ontario upheld the AMP provisions in the Ontario Securities Act, concluding that the magnitude of the AMPs in question was geared to the Ontario Securities Commission's regulatory mandate and did not reach the level of a penal sanction, in the circumstances.
Finally, how will the Bureau's Leniency Program for criminal matters be affected by the combination of (i) Chief Justice Crampton's sentencing reasons in Maxzone, (ii) Parliament's elimination of house-arrest and (iii) the new federal procurement guidelines? Will these developments affect individual defendants' (and their counsels') risk analysis in deciding whether to seek leniency and whether or not to plead guilty to charges of price-fixing or bid-rigging? Early December remarks from the Interim Commissioner suggest that the Bureau believes that the Maxzone decision strongly supports the Leniency Program.
Note: Bennett Jones LLP represents the Commissioner of Competition in the TREB and Yellow Page Marketing proceedings and represented the Commissioner in the CREA case.