The United States Supreme Court recently overturned a nearly century-old ban on setting minimum resale prices. In Leegin Creative Leather Products, Inc. v. PSKS, Inc., the Court stated that a manufacturer’s agreement with a retailer to sell products of the manufacturer at or above a specified minimum price is no longer automatically, or per se, illegal. Instead, minimum resale price agreements are to be evaluated on a case-by-case basis under the “rule of reason”. This means that potential benefits to competition must be weighed against potential anti-competitive effects.
It seems that in the United States, the power of manufacturers, distributors and other suppliers to set retail prices has been significantly increased; US manufacturers or their Canadian subsidiaries that sell to Canadian retailers should remember that the law in Canada is not affected by the Leegin decision in any way. Indeed, price maintenance is one of the areas in which there has always been significant similarity between Canadian competition and US antitrust laws. The general rule of thumb has been that resale price maintenance is illegal in the United States and Canada. The Leegin decision changes this general rule. For manufacturers and distributors with North American distribution networks, the decision creates a different standard between Canada and the United States that will require careful management of continental distribution chains.
By comparison, in Canadian competition law, price maintenance is still a per se offence. Section 61 of the Competition Act (Canada) clearly prohibits the influencing upwards of prices by way of agreement, threat, refusal to supply or other similar means. A person who contravenes this prohibition is subject to unlimited fines and/or five years’ imprisonment. The Competition Act also allows parties affected by price maintenance to bring a civil action to recover their damages and costs, regardless of whether a criminal prosecution has occurred.
Canada’s Competition Bureau actively enforces the price maintenance provisions of the Competition Act. For example, in 2004, R. v. John Deere evolved from an agreement in the United States between Deere & Company and US-based retailer Home Depot to sell a new line of garden tractors. Several of John Deere’s Canadian retailers had the impression that they were not allowed to advertise below the minimum suggested price. Following a Competition Bureau investigation, John Deere avoided a criminal charge by settling the case without admitting liability. The terms of the settlement included a “restitution” payment of $1.191 million based on 5% of sales to each dealer. As well, John Deere agreed to a five-year consent prohibition order requiring implementation of a competition law compliance program and changes to its administrative and sales practices in Canada.
There are many examples of international suppliers running afoul of Canadian price maintenance rules. Toyota implemented its Access Toyota “no-hassle” automobile pricing program in Canada and ended up paying a $2.3 million settlement. The Stroh Brewery Company pleaded guilty to charges of price maintenance on its products and was sentenced to pay a $250,000 fine.
In light of the Leegin decision, international manufacturers, distributors and other suppliers that have Canadian operations through distribution or that sell into the Canadian market should be especially careful to avoid adopting a Canadian pricing policy based on US standards. Frequently, it will be necessary to modify such policies substantially or consider alternative advertising, distribution channel and pricing strategies for use in Canada.
For information on Minimum Advertised Price Programs, we invite you to read our recent article by clicking on the following link: http://www.mcmbm.com/Upload/Publication/AntitrustCounselor_0405.pdf In addition, for further background on pricing offences in Canada, we invite you to click on the following link: http://www.mcmbm.com/PricingOffences.html