On March 20, 2014, the Competition Bureau (Bureau) released for public comment draft enforcement guidelines on the price maintenance provisions found in section 76 of the Competition Act (Draft Guidelines). The Draft Guidelines are the first official statement of the Bureau’s approach to enforcement of the civil price maintenance provisions since they were introduced in 2009 at the same time as the repeal of the criminal per se price maintenance offence previously found in section 61 of the Competition Act. While further clarification on several aspects of the Draft Guidelines would be helpful, the Draft Guidelines are a welcome development for Canadian businesses. Most important, the Draft Guidelines make clear the Bureau’s view that resale price maintenance is a common and in many cases pro-competitive market practice.
Interested parties are invited to provide comments no later than June 2, 2014.
In 2009, the Competition Act was amended to transform price maintenance from a per se criminal offence to a reviewable practice, objectionable only if conduct is having or is likely to have an adverse effect on competition. Under section 76, the Commissioner of Competition (Commissioner) or a private party granted leave may bring an application for relief to the Competition Tribunal (Tribunal) if it can be demonstrated that the following conduct is having or is likely to have an adverse effect on competition:
- A person has directly or indirectly by agreement, threat, promise or any like means influenced upward, or discouraged the reduction of, the price at which the person’s customer, or any other person to whom the product comes for resale, supplies or offers to supply or advertises a product within Canada (subparagraph 76(1)(a)(i)).
- A person has directly or indirectly refused to supply a product to or has otherwise discriminated against any person engaged in business in Canada because of the low-pricing policy of that other person (subparagraph 76(1)(a)(ii)).
- A person by agreement, threat, promise or any like means induces a supplier, as a condition of doing business with the supplier, to refuse to supply a product to a person because of the low-pricing policy of that person (subsection 76(8)).
Remedies under section 76 are essentially injunctive in nature. The Tribunal is not empowered to order financial penalties, nor may private parties sue for damages on the basis of a breach of section 76.
While it has been clear that the replacement of the per se criminal standard with an “adverse effects” requirement would provide manufacturers and wholesalers with substantially more flexibility in their relationships with customers and other resellers of their products, the Bureau has not, until now, provided guidance on the circumstances in which it believes price maintenance would be considered to be anti-competitive. The delay in providing guidance may be attributable to a desire to await the outcome of the case brought by the Commissioner in 2010, challenging certain practices of Visa and MasterCard as price maintenance contrary to subparagraph 76(1)(a)(i) of the Competition Act. In July 2013, the Tribunal released its decision dismissing the Commissioner’s application. The Tribunal’s reasoning is cited frequently in the Draft Guidelines.
The Draft Guidelines
The Draft Guidelines provide useful guidance on a number of key aspects of the Bureau’s enforcement approach to section 76:
- Price maintenance is recognized as potentially pro-competitive, even when engaged in by firms with a significant market presence. The Bureau clearly accepts that price maintenance activities can be pro-competitive in many circumstances. As a general matter, the Bureau is unlikely to have concerns about price maintenance conduct that is “demand-enhancing.” For example, the Bureau has recognized that price maintenance conduct can enhance non-price dimensions of intra-brand competition, such as service and inventory levels, and can correct “free-riding” among retailers. The Bureau also states that price maintenance conduct can stimulate inter-brand competition among competing brands of products, such as by facilitating the entry or expansion of competitors by encouraging retailers to stock and promote the supplier’s products, or by encouraging retailers to engage in marketing efforts for a particular product.
- Smaller competitors acting independently are not likely to face enforcement action under section 76. The Draft Guidelines clearly indicate that the Bureau will take enforcement action only if price maintenance conduct is likely to “create, preserve or enhance market power.” Further clarification would be useful on whether, and if so when, the Bureau would be prepared to act against multiple competitors who engage in price maintenance conduct simultaneously. In addition, further detail would be helpful on the circumstances in which price maintenance conduct may “create” market power. However, a finding of market power typically requires that a firm hold significant market share in an industry with high barriers to entry.
- Principal areas of concern have been identified. The Bureau has adopted the well-recognized circumstances in which price maintenance conduct may be anti-competitive, potentially under other provisions of the Competition Act (e.g., sections 45 and 79) as well as section 76.
- Inhibiting competition between suppliers. Price maintenance conduct may be used by suppliers to facilitate less vigorous price competition among them or to help police a price-fixing arrangement among them.
- Inhibiting competition between retailers. One or more retailers may compel a supplier to adopt price maintenance conduct to facilitate less vigorous price competition among them or to help police a price-fixing arrangement among them.
- Supplier exclusion. An incumbent supplier may use price maintenance conduct to guarantee margins for retailers to make them unwilling to carry the products of rival or new competitors to the supplier. To the extent that this results in the foreclosure of downstream distribution channels to competing suppliers, it may limit or reduce the ability of such suppliers to discipline the supplier’s wholesale pricing, so as to enable the supplier to charge a price that is higher than could be sustained absent the conduct.
- Retailer exclusion. A person may compel a supplier to adopt price maintenance conduct with the objective of excluding competition from discount or more efficient retailers.
The Draft Guidelines contain some hypothetical scenarios to assist businesses in better understanding how the price maintenance provisions are enforced. These hypothetical scenarios are focused on supplier exclusion, refusal to supply a retailer and inducement of a supplier to refuse to supply another person.