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Antitrust: restrictive agreements and dominance

The Act contains non-criminal provisions relating to abuse of dominance (Section 79), restrictive agreements among competitors (Section 90.1) and various distribution practices (Sections 75–77). These provisions, which are collectively known as 'reviewable practices', permit the Commissioner to seek an order from a specialised court, the Competition Tribunal (Tribunal), where the Commissioner can show that the reviewable practice is, or is likely to have, a negative effect on competition.

The Bureau has made enforcing the reviewable practices provisions a significant priority, and has brought a number of notable cases and obtained a number of consent agreements.

i Significant casesThe Commissioner of Competition v. The Toronto Real Estate Board

In 2018, the Toronto Real Estate Board (TREB) applied for, but was denied, leave to appeal to the Supreme Court of Canada from a decision of the Federal Court of Appeal, upholding the decision of the Tribunal below. This brought to a conclusion a case first brought by the Commissioner in 2011.

TREB's application to the Supreme Court followed its unsuccessful appeal to the Federal Court of Appeal from the Tribunal's 2016 decision finding that TREB had abused its dominant position pursuant to Section 79 of the Act. Specifically, the Tribunal found that TREB, through its operation of the multiple-listing service and its membership rules, controlled the market for residential real estate brokerage services in the Greater Toronto Area (GTA). The Tribunal also found that TREB has a 'plausible competitive interest in adversely impacting competition' in the market for residential real estate brokerage services in the GTA because it wished to shield its traditional members from new and innovative competitors (and to exclude these new competitors). The Tribunal concluded that TREB's rules with respect to the use of the multiple-listing service were intended to insulate traditional members from innovative new competition, and had the effect of substantially preventing non-price competition.

TREB's principal argument before the Federal Court of Appeal was that the Tribunal erred by concluding that competition had been lessened substantially without requiring the Commissioner to quantify the alleged anticompetitive effects. The Federal Court of Appeal issued its decision in December 2017, upholding the Tribunal's decision. The Court held that the requirement imposed by the Supreme Court of Canada in Tervita – that the Commissioner quantify any quantifiable alleged anticompetitive effects in order to rely on them – did not apply in the abuse of dominance context. The Court held that no such obligation existed because that statutory scheme is different from that relating to mergers, where an efficiencies defence is available. However, the Court expressed sympathy for TREB's arguments, explaining that 'as a matter of logic' the Supreme Court's rationale for requiring that quantifiable effects be quantified 'could equally be applied to determinations made under both' the abuse of dominance and merger provision.

The Commissioner of Competition v. HarperCollins

Tribunal proceedings involving the e-books industry also finally concluded in 2018, with the entry by HarperCollins and the Commissioner into a consent agreement. The result of that agreement, together with Kobo's defeat in certain collateral proceedings is that, four years after originally entering into consent agreements to address alleged anticompetitive conduct in the e-books industry and almost six years after the United States Department of Justice publicly announced its case, the Commissioner finally obtained his desired remedy in the case.

In 2014, the Commissioner announced the entering into of consent agreements with four trade book publishers in relation to an alleged agreement among competitors with respect to the sale of eBooks in Canada. Those consent agreements, if implemented, would have prohibited the publishers from utilising certain commercial terms (such as most-favoured-nation clauses) in distribution agreements with online retailers, among other things. The consent agreements were broadly similar to consent decrees entered into by those same publishers in the United States with the United States Department of Justice concerning the sale of eBooks following the launch of the iPad by Apple in 2010.

Following a challenge to these consent agreements brought by a third-party online retailer, Kobo, the agreements were rescinded on technical grounds in 2016. The Commissioner then entered into new consent agreements, addressing these technical defects. However, HarperCollins, which had originally agreed to a consent agreement in 2014, did not agree to enter into a new consent agreement in 2016. As a result, the Commissioner brought an application, alleging that HarperCollins had entered into an agreement with competitors that lessened competition substantially. In its defence, HarperCollins brought a motion for summary judgment, arguing that the Commissioner's allegations concerned an agreement in the United States, and that the Tribunal did not have jurisdiction over such a foreign agreement. In July 2017, the Tribunal issued a decision rejecting HarperCollins' motion for summary judgment. The Tribunal held that the alleged conduct had a real and substantial connection to Canada, even though it occurred outside of Canada. Given the existence of such a real and substantial connection, it was within the jurisdiction of the Tribunal to make an order in respect of it. HarperCollins did not appeal the Tribunal's decision.

The Commissioner of Competition v. Softvoyage

In January 2018, the Commissioner announced that he had entered into a consent agreement with Softvoyage Inc, a developer of travel-related software, also under the provision of the Act prohibiting the abuse of a dominant position.

Softvoyage produces software that is used by tour operators. In particular, tour operators use two types of Softvoyage software. The first type permits tour operators to manage the content of their vacation packages – that is, to assemble the various components (flights, hotel offers, etc.) into tour packages that are offered to consumers. The second type permits tour operators to provide access (i.e., to distribute) to travel agents, websites and other retailers of the tour operator's inventory of holiday packages.

The Commissioner's investigation concluded that Softvoyage is the dominant supplier for both types of software in Canada, with a share of sales of more than 90 per cent in each market. The Commissioner's investigation also concluded that Softvoyage had engaged in a series of practices that had the effect of raising barriers to entry for rival suppliers. These practices included Softvoyage's use of its control of the market for distribution software to 'facilitate' its control over the market for content management software through technical barriers that negatively impacted the ability of tour operators to use rivals' content management software. Softvoyage is alleged to have then used restrictive contractual provisions in its agreements with tour operators that made entry by rivals even more difficult. These provisions included exclusivity clauses that prevented tour operators from using other distribution software, or from extracting data from Softvoyage's content management software for use with other distribution software.

The consent agreement requires, among other things, that Softvoyage refrain from enforcing such contractual terms for a period of seven years, and to facilitate connectivity between Softvoyage's content management software and third-party software through good faith and non-discriminatory collaboration.

The Bureau's press release announcing the consent agreement refers to Softvoyage's software as 'essential', but does not explain its conception of the concept of 'essential facilities', or whether this is a cognisable theory of harm under Canadian law. Softvoyage did not admit the truth of the allegations.

The Commissioner of Competition v. Vancouver Airport Authority

In October and November 2018, the application brought by the Commissioner against Vancouver Airport Authority (VAA) was heard on its merits before the Tribunal. At the time of writing, the Competition Tribunal had not released its decision.

In September 2016, the Commissioner brought an application against (VAA). VAA is a non-profit organisation that is charged with carrying out a statutory mandate to manage Vancouver International Airport in the public interest. Its board members are nominated by various levels of government and professional organisations. The application alleged that VAA controls the market for access to the airside (roughly the area within the Airport's security perimeter and outside the terminal), and that VAA is exercising that control in a way that substantially lessens or prevents competition in the market for the supply of galley handling services – the loading of in-flight meals onto aircraft at the airport. VAA filed a full response to the Commissioner's application, denying the Commissioner's allegations under all heads of the abuse of dominance provision.

In preparing for the hearing of this matter, the Commissioner produced a large volume of documents, but asserted 'public interest privilege' over a subset and refused to produce them to VAA. A series of decisions by the Competition Tribunal had established that the Commissioner was entitled to withhold from production in Tribunal (non-criminal) proceedings any document or information he had gathered from third parties in the course of his investigation by relying upon a blanket 'public interest privilege'. VAA challenged the assertion of public interest privilege as a class privilege, arguing among other things that the operation of the privilege resulted in a serious imbalance in the procedural rights of the parties. The Tribunal, which considered VAA's challenge at first instance, rejected VAA's arguments, finding among other things that the Commissioner's 'public interest privilege' had long been recognised by Canadian courts.

VAA appealed the Tribunal's decision to the Federal Court of Appeal. In a decision issued in January 2018, the Federal Court of Appeal upheld VAA's challenge and abolished class-based public interest privilege. The decision rested on two pillars. First, the Court concluded that the privilege was not necessary, since there was no evidence to support the Commissioner's argument that abolition of the privilege would result in third-party sources being less inclined to provide information to the Commissioner owing to fear of reprisals. The Court noted that similar 'candour' arguments had been viewed sceptically by the Supreme Court of Canada, and that such scepticism was warranted given that competition law authorities in other jurisdictions carry out their investigative mandates without such a class privilege to rely upon. Second, the Court was concerned about the serious unfairness that can result from such a one-sided privilege. The effect of the decision – which will apply in all contested proceedings before the Tribunal into the future – leaves the Commissioner able to assert public interest privilege on a document-by-document basis. Such assertions of privilege, which will be fact-specific, are more likely to result in a fair process before the Tribunal.

ii Trends, developments and strategies

The Bureau has continued its practice of seeking production and other orders under Section 11 to investigate reviewable practices. For example, in 2018, the Commissioner sought and obtained orders to obtain detailed financial and pricing records and interview a high-level executive in connection with an investigation into predatory pricing by WestJet Airlines Ltd's low-cost carrier, Scoop. Similar orders were obtained in 2016 against airlines such as First Air and Canadian North.

Responding to Section 11 orders can be an invasive and time-consuming process that requires the target company and others involved in an inquiry to make extensive documentary production. The use of this investigative tool clearly raises the costs for businesses of responding to Bureau inquiries. It also increases the likelihood of greater public attention and interest to the Bureau's inquiry, given the public filings in the Court's record.

iii Outlook

The Bureau can be expected to continue investigating and bringing enforcement actions in areas of the economy that it considers can benefit from innovation. The TREB, E-books and Softvoyage cases are just three examples of situations where the Bureau believed that it was appropriate to bring litigation to address business practices that it viewed as erecting barriers to entry or otherwise restricting innovation. In recent years, the Bureau has also conducted investigations of other companies, including Google, whose products and services are innovative. Given the Bureau's continuing interest in promoting the conditions it believes are necessary for innovation, future investigations in these types of industries are likely.