Micah Wood, Laura Weinrib, Kevin Macdonald and David Dueck, Blake, Cassels & Graydon LLP

This is an extract from the second edition of the E-Commerce Competition Enforcement Guide - published by Global Competition Review. The whole publication is available here.

The Canadian Competition Bureau’s focus on e-commerce and digital competition

In recent years, the Canadian Competition Bureau (the Bureau) has shown a growing interest in e-commerce and the digital marketplace. From abuse of dominance investigations to challenging competitor agreements as unlawful, pursuing allegations of improper online pricing and publishing a discussion paper on big data, the Bureau has clearly focused on the continued growth in e-commerce and the digital economy.

Indeed, the Bureau’s 2019–2020 Annual Plan builds on a growing emphasis on digital competition in previous Annual Plans by making the digital economy its primary focus, and the Minister of Innovation, Science and Economic Development’s mandate letter to the new commissioner of competition (commissioner) underscored this focus by identifying two ‘critical’ digital economy issues for the Bureau to consider: the growing accumulation of data and the digital transformation of the economy. 

Recently, the Bureau hired its first ever chief digital enforcement officer to assist it in building its knowledge and capacity and to better tailor enforcement in the digital economy. The Bureau has also been active in the ongoing international discourse regarding the digital economy, participating in the recent release of a common understanding regarding the opportunities and challenges presented by the growth of the digital economy with the competition authorities of the G7 countries and the European Commission. In continuation of these efforts, in July 2020, the Bureau will assume the presidency of the International Consumer Protection and Enforcement Network where it will focus on promoting truth in advertising online and building consumer confidence in the digital economy. 

In focusing on competition law enforcement in the ‘new’ digital economy, the Bureau has not developed new analytical approaches or tools, but rather has largely taken the traditional framework of Canadian competition law and applied it to the e-commerce industry.

Overview of the Canadian Competition Act

The Canadian Competition Act (the Act) is a law of general application that aims to maintain and encourage competition in Canada to promote the economy’s efficiency and adaptability, and increase the competitiveness of Canadian businesses. The Act is administered and enforced by the head of the Bureau, the commissioner. The Bureau is unable to take action in respect of anticompetitive conduct unilaterally. Instead, the Bureau must present its concerns to a specialised court, the Competition Tribunal (the Tribunal) or a criminal court (as the case may be), which will ultimately decide the issue. Alternatively, the Bureau may enter into settlements with private parties to resolve its concerns. The Bureau may also obtain court orders for the production of data and documents, to interview company executives or inspect property to facilitate investigations and merger reviews.

Merger review

The Bureau has jurisdiction to review and challenge all mergers and acquisitions for up to one year after closing. Mergers exceeding prescribed financial and control thresholds must be notified to the Bureau pre-closing, triggering a waiting period during which the transaction cannot close. However, the Bureau has increasingly focused on mergers that fall below the mandatory notification thresholds, and has recently established a merger intelligence unit to facilitate the detection of potentially problematic transactions that had not been notified to the Bureau. 

In reviewing mergers, the Bureau determines whether the transaction is likely to create, maintain or enhance the ability of the merged entity to exercise market power unilaterally or in coordination with others. Among other things, the Bureau will consider the likely price effects of the merger, as well as impacts on product quality and effects on innovation. Some key assessment factors include the parties’ combined market shares, the degree of market concentration, barriers to entry and expansion (including the dynamics of innovation and research and development in the particular industry), demand-side considerations (including buyer power), regulatory oversight that might constrain the merging parties and efficiencies resulting from the transaction. 

Mergers in the e-commerce industry may raise special issues involving control over big data. The Bureau’s discussion paper ‘Big Data and Innovation’ notes that big data can be either an output sold and priced like any other good or an input that is not sold or priced. If big data is an input rather than an output, the analysis for mergers (and other reviewable matters) can become particularly complex as a result of issues relating to platforms and network effects:

  • Platforms: data-driven platforms may use big data to match demand on one side of a market with demand on the other side of the market. Accordingly, a high price on one side of a market may not be indicative of market power but rather the asymmetry in demand. In Visa/Mastercard, the Tribunal held that the interdependence of demand, feedback effects and changes in profit on both the consumer and merchant sides of the market should be taken into account when analysing the platform. 
  • Network effects: businesses where one person’s demand for a product is contingent on others’ use of the product may experience substantial network effects. These businesses may achieve substantial economies of scale in the accumulation of data, which can in turn create efficiencies that benefit consumers. However, the need for scale can also constitute a potential barrier to entry for new competitors. 

A senior Bureau official recently noted that even mergers involving firms with low market shares but large amounts of valuable data could raise concerns, with the Bureau willing to consider forcing companies to sell data to fix competition concerns arising from a proposed merger. 

Criminal offences for price fixing and bid rigging

It is a criminal offence, among other things, to enter into an agreement with a competitor or potential competitor with respect to price, customers, output or capacity, or to submit a bid (or refrain from submitting a bid) in response to a call for tender as a result of an agreement with another person. The Bureau has noted that the criminal offence is reserved for ‘naked restraints’, namely restrictions not implemented in furtherance of a legitimate collaboration or joint venture. Otherwise, it will investigate the alleged business practices under the civil provisions of the Act.

A person who has conspired to fix prices, or supply or allocate customers or markets may be subject to imprisonment for up to 14 years or a fine of up to C$25 million, or both. For bid rigging, penalties include imprisonment for up to 14 years or a fine at the discretion of the court (no upper limit), or both. Private parties may sue to recover single (not treble) damages for violations of the criminal prohibitions, either individually or in the form of a class action. 

Increasing attention has been given to the potential for big data and computer algorithms to facilitate pricing coordination between competitors. The Bureau’s view is that there must be an ‘agreement’ or ‘meeting of the minds’ between competitors to fix or control prices or production, or allocate markets to constitute a criminal conspiracy under the Act. However, the Bureau cautioned that disclosing a pricing algorithm to competitors could constitute a facilitating practice (akin to distributing a price list to competitors) by providing evidence indicating the existence of an agreement between competitors. The Bureau also noted that future developments around artificial intelligence technology may create opportunities for cartel agreements even in the absence of human involvement. Although the Bureau has observed no evidence of such collusion to date, and therefore declined to provide guidance on this point, it continues to monitor these developments. 

Civil prohibition on illegal agreements

Agreements between competitors or potential competitors that do not constitute naked restraints may be challenged under Section 90.1 of the Act.  Where the Tribunal finds that the agreement is likely to prevent or lessen competition substantially, the Tribunal may issue an order prohibiting enforcement of the agreement in whole or in part. No fines or other penalties may be imposed. Only the commissioner can bring an application under Section 90.1; private parties cannot, nor can they sue for damages in respect of agreements that are found to violate Section 90.1. Section 90.1 does, however, provide an exception preventing the Tribunal from issuing an order relating to an agreement for which the efficiencies (including fixed-cost savings) outweigh and offset the anticompetitive effects.

The Bureau challenged an arrangement between Apple and several e-book publishers that restricted the ability of retailers to offer discounts through clauses in their distribution agreements with the publishers under Section 90.1 of the Act, having concluded that the parties’ conduct reduced competition for e-books in Canada. To resolve these concerns, the Bureau signed consent agreements with Hachette, Macmillan, Simon & Schuster, Apple and HarperCollins. Of particular note was the Tribunal’s finding in HarperCollins that it was not plain and obvious that the Tribunal’s jurisdiction under Section 90.1 did not extend to agreements entered into outside of Canada where the agreement prevents or lessens, or is likely to prevent or lessen, competition substantially in a market in Canada. This finding may have important implications for digital economy firms operating across borders, even if they have no physical presence in Canada.

Abuse of dominance

To establish an abuse of dominance, three criteria must be met. First, a firm or group of firms must be dominant. The Tribunal considers a person to be dominant where that person possesses ‘considerable latitude to determine or influence price or non-price dimensions of competition in a market, including the terms upon which it or others carry on business in the market’. The Tribunal has found a rebuttable presumption of dominance where a firm’s share in a relevant market exceeds 50 per cent. 

Second, the dominant firm (or firms) must have engaged in a practice of anticompetitive acts. This element can be established where it is shown that the conduct at issue was subjectively or objectively intended to have predatory, exclusionary or disciplinary effects on a competitor. Though not an absolute defence, a valid business justification – such as a credible efficiency or pro-competitive rationale – can be used to demonstrate that the conduct at issue was not undertaken for an anticompetitive purpose. 

Finally, the anticompetitive conduct must have had, be having or be likely to result in a substantial prevention or lessening of competition in a relevant market. This element involves a ‘but for’ assessment as to whether the conduct preserves, maintains or enhances market power to a substantial degree. 

An abuse of dominance is determined by the Tribunal upon application by the commissioner. Only the commissioner can bring such an application, third parties cannot. Where the Tribunal finds an abuse of dominance, it can make an order prohibiting a party from continuing to engage in the anticompetitive conduct or where the order would not be effective, it can direct the party to take certain specific actions (such as the divestiture of assets or shares). In addition, the Tribunal may impose an administrative monetary penalty of up to C$10 million for the first offence and up to C$15 million for subsequent offences. 

The Bureau has actively pursued abuse of dominance investigations involving a number of digital economy firms. For example, the Bureau investigated Google for potential abuse of dominance relating to online search, search advertising and display advertising services in Canada. The Bureau found that Google had used anticompetitive clauses in its AdWords Application Programming Interface terms and conditions with the intent to exclude rivals, which negatively affected advertisers. Google agreed to remove these clauses and committed not to reintroduce them for five years. However, with respect to the other allegations, the Bureau discontinued its inquiry in 2016, having found insufficient evidence that these practices were engaged in for anticompetitive purposes or substantially lessened or prevented competition. 

Similarly, the Bureau investigated Apple for potential abuse of dominance relating to restrictions and obligations imposed on wireless carriers for the sale and marketing of iPhones in Canada. The Bureau was concerned that certain contractual terms could have prevented wireless carriers from working with competing smartphone manufacturers. The Bureau discontinued its inquiry in 2017 on the basis that there was insufficient evidence to conclude that Apple’s practices had substantially lessened or prevented competition in any relevant market. 

The Bureau has also undertaken a number of investigations regarding access to data. In Nielsen, the Bureau alleged that Nielsen had entered into contracts with major Canadian grocery and pharmacy retail chains to acquire their scanned data on a long-term and exclusive basis to prevent potential competitors from acquiring this data. The Tribunal found that the effect of this conduct was to exclude all potential competitors from obtaining the data and held that Nielsen should be presumed to have intended that effect. The Tribunal imposed a remedy preventing Nielsen from entering into or enforcing contractual provisions that restricted retailers from selling data to other competitors.

The commissioner also challenged rules set by the Toronto Real Estate Board (TREB) on how its broker members could use or post certain information, such as sold prices, on password-protected virtual office websites (VOWs). The Tribunal ordered TREB not to limit the use of this information by broker members, thereby allowing them to post this information on VOWs. While the Tribunal rejected the Bureau’s position that posting this information would reduce commissions, and increase sales and conversions, it still found that this information would potentially enable members to offer new qualitative services in the future. The Federal Court of Appeal affirmed the Tribunal’s decision, and leave to appeal was not granted by the Supreme Court of Canada. 

Similarly, the Bureau investigated TMX Group Limited’s (TMX) restrictions preventing investment dealers from sharing private market data with third parties. Aequitas Innovations Inc (Aequitas) complained to the Bureau that TMX’s restrictions were anticompetitive because they prevented Aequitas from developing a cheaper alternative source of indicative securities market data. Having found that future competition from Aequitas’ product was unlikely to materialise, the Bureau concluded that TMX’s data sharing prohibition was unlikely to substantially prevent competition and discontinued its investigation. 

Distribution matters

The commissioner and private parties (with leave of the Tribunal) can seek orders from the Tribunal prohibiting certain distribution practices. However, the Tribunal cannot impose fines or other penalties and private parties cannot sue for damages for a violation of these provisions.

Resale price maintenance occurs where a supplier influences upwards or discourages the reduction of the price at which a product is sold for resale and this conduct has had, is having or is likely to have an adverse effect on competition in a market. For example, manufacturers may implement minimum resale price, manufacturer-suggested resale pricing or minimum advertised pricing policies to facilitate competition with other manufacturer’s brands and discourage ‘free-riding’ among retailers. The Bureau’s price maintenance guidelines recognise that resale price maintenance can have both pro-competitive and anticompetitive effects, depending on the circumstances. 

In Visa/MasterCard, the commissioner challenged certain rules put in place by credit card networks regarding the treatment of credit cards by merchants. In dismissing the commissioner’s application, the Tribunal found that there was no ‘resale’ of the services provided by the credit card networks to the issuer banks servicing consumers and acquirer banks servicing merchants, clarifying that a resale is a strict requirement under the Act. While the products being ‘resold’ do not need to be identical, they will often be at least substantially similar. 

Tied selling occurs where a supplier induces or requires a customer purchasing a product to acquire another product or to refrain from using or distributing another supplier’s product. The provision is directed towards conduct whereby a supplier uses its market power in one market to reduce competition in another market by tying the sale of products in each market together. For example, the seller of a software platform might bundle other software products with its platform, effectively forcing customers of the software platform to also acquire the other software products.

Exclusive dealing occurs where a supplier induces or requires a customer to deal only or primarily in certain products or to refrain from dealing with certain products. For example, manufacturers may include clauses in their agreements with online retailers preventing those retailers from also selling products manufactured by another competitor. In NutraSweet, the Tribunal held that significant financial incentives (e.g., discounts and rebate programmes) to encourage exclusive dealing constituted sufficient ‘inducement’ for purposes of Section 77. 

Where tied selling or exclusive dealing is likely to result in a substantial lessening of competition by impeding entry, expansion or innovation, or having any other exclusionary effect in a market, the Tribunal may issue an order prohibiting the conduct from continuing. 

The Tribunal may also prohibit a person from engaging in a market restriction requiring a customer to supply a product only in a defined market or penalising the customer for supplying outside a defined market. For example, manufacturers may restrict online retailers from selling products to customers outside specific regions. Where the conduct is likely to substantially lessen competition, the Tribunal may issue an order prohibiting the supplier from engaging in such conduct. 

Misleading claims

The misleading advertising and deceptive marketing practices provisions prohibit the making of a representation to the public that is false or misleading in a material respect, where the representation is made to promote a product or business interest. The precise form of the representation does not matter, meaning that the scope of the prohibition is not limited to content in traditional advertisements. In conducting its analysis, the Bureau will consider the general impression conveyed by the representations as well as their literal meaning.

The Bureau has long held that the misleading advertising and deceptive marketing provisions apply equally to online advertising and e-commerce, and has published guidelines on the application of the Act to representations on the internet. However, in 2014, the Act was amended as part of the coming into force of Canada’s Anti-Spam Legislation (CASL) to include new restrictions that specifically deal with representations in electronic messages that are made to promote a product or business interest. In particular, the Act now prohibits false or misleading representations in electronic messages, as well as in the sender information, subject line or locator (such as URLs and metadata) of such messages. And, interestingly, the false or misleading representation does not need to be material to run afoul of the Act in the case of representations made in the sender information, subject line or locator.

Where the Tribunal determines that a person has engaged in false or misleading representations, it may issue an order prohibiting the conduct, requiring that a corrective notice be published or restitution be paid to consumers harmed by the practice, or imposing an administrative monetary penalty, or both. Individuals may be fined up to C$750,000 for the first occurrence and up to C$1 million for subsequent occurrences. Corporations may be fined up to C$10 million for the first offence and up to C$15 million for subsequent offences. 

Furthermore, if the false or misleading representation is made knowingly or recklessly, it may contravene the criminal provisions of the Act, punishment for which may include a fine at the discretion of the court (without an upper limit) or imprisonment for up to 14 years, or both. 

Regular price claims

Under the Act, the ‘ordinary selling price’ or ‘regular price’ of a product must either represent the value at which a substantial volume of the product was sold within a reasonable period or the value at which the product was offered for sale in good faith for a substantial period. The Bureau has investigated multiple retailers for allegedly inflating the regular price when advertising products ‘on sale’.

For example, the Bureau launched an application against Hudson’s Bay Company in 2017 alleging that the company grossly inflated the regular prices of sleep sets, including in online representations, and misled consumers regarding their ‘clearance’ inventory. Hudson’s Bay Company ultimately agreed to pay a penalty of C$4 million to settle the matter plus C$500,000 towards the Bureau’s costs. Similarly, the Bureau recently conducted an investigation into Amazon’s marketing practices. The Bureau found that Amazon’s website and mobile application often compared their selling prices with a ‘list price’ and allegedly set out a dollar amount of savings and percentage discount off the list price, giving the impression that products could be purchased at prices lower than the prevailing market prices. Although Amazon obtained the list prices from its suppliers, it did not independently verify their accuracy. Amazon agreed to pay a C$1 million administrative monetary penalty to settle the matter. 

Drip pricing

The Bureau has also taken action on ‘drip pricing’, a specific form of deceptive marketing under the Act that e-commerce companies need to remain particularly aware of when selling products online. Drip pricing occurs when a company advertises one price but incrementally adds or ‘drips’ various fees, charges or taxes during the purchasing process, resulting in a much higher final price.

A series of cases involving the rental vehicle industry are illustrative of this issue. The Bureau alleged that companies advertised discounted rental prices but later added fees implied as government-required taxes and surcharges. The Bureau concluded that these fees were not government-mandated and that the companies were using the additional revenue to recover their costs. Avis and Budget paid a C$3 million administrative monetary penalty to settle the matter, while Hertz and Dollar Thrifty paid a total of C$1.25 million, Enterprise Rent-A-Car paid C$1 million and Discount Car & Truck Rentals paid C$700,000 to settle similar allegations. Furthermore, the case against Avis and Budget marked the Bureau’s first proceedings under the new provisions of the Act that came into force in 2014 as part of CASL, since these companies used electronic messages to disseminate their price representations.

More recently, the Bureau has targeted Ticketmaster for adding mandatory fees – such as ‘service fees’, ‘facility charges’ and ‘order processing fees’ – when consumers use Ticketmaster’s websites or mobile application. According to the Bureau, the fees raised advertised ticket prices by more than 20 per cent, and in some cases, by over 65 per cent. However, consumers only saw these fees after navigating seat selection, entering their personal information and completing other steps of the purchasing process. In its application to the Tribunal, the Bureau alleged that this practice took advantage of consumers investing time and effort in navigating the purchasing process, which caused them to become reluctant to ‘lose their tickets’ even after finding out the real price later in the process. Ticketmaster paid a penalty of C$4.5 million to settle the matter, in addition to paying C$500,000 to cover the costs incurred by the Bureau during its investigation. 

Reviews and sponsorships

Another area of concern for the Bureau has been ‘astroturfing’ – the practice of advertisements masquerading as independent reviews online. In its first Deceptive Marketing Practices Digest (Digest), the Bureau noted that companies were increasingly using astroturfing to boost their own online ratings or lower the ratings of competitors. For example, in 2015, the Bureau alleged that certain Bell Canada employees were encouraged to post positive reviews and ratings of Bell products on the iTunes App Store and the Google Play Store, without disclosing that they were employed by the company. To settle the matter, Bell agreed to pay a C$1.25 million administrative monetary penalty. 

The Bureau has since stated that while online reviews offer a wealth of information that support consumer decision-making and may operate to reward companies that provide a superior product or service, authenticity and impartiality of the reviewer are critical factors. There is an expectation that reviewers have actually experienced the product or service and have no hidden connections with the company that may result in some ulterior motive for posting a positive review. 

Astroturfing can also occur when companies provide incentives to customers to leave positive reviews, or hire ‘reputation enhancement’ or ‘search engine optimisation’ firms to post fake reviews. More recently, the Bureau has raised concerns around social media influencers, who are often paid, whether via monetary payments or otherwise (such as travel or free products), to promote products or brands on their platform. These forms of astroturfing call into question the impartiality of the reviewers, which may lead to allegations of misleading advertising. As such, failure to disclose sponsorship relationships may fall within the prohibitions against misrepresentation and false advertising. To that end, the Bureau has drafted a checklist for influencers and advertisers regarding the disclosure of such relationships as part of its 2018 Digest.

Recent Bureau research and advocacy

The Bureau has actively advocated for increased competition through e-commerce and related technologies as a means of increasing consumer welfare in certain industries. In 2015, the Bureau published a white paper outlining how ride-sharing companies such as Uber and Lyft presented a ‘meaningful source of competitive pressure on traditional taxi operators’. The Bureau argued that the software used by these companies improved convenience in obtaining, tracking and paying for transport, and their online peer review system provided incentives encouraging better customer service. In 2019, the Bureau followed up on this report by encouraging British Columbia’s Select Standing Committee on Crown Corporations to level the playing field for taxis and ride-sharing providers. 

In 2017, the Bureau released a market study into financial technology, focusing on three broad service categories: retail payments, lending and equity crowdfunding, and investment dealing and advice. Overall, the Bureau found that innovations in financial technology create opportunities to increase choice and convenience for consumers and lower costs for businesses. The study advocated a number of regulatory changes to modernise Canada’s approach to financial technology, including adopting a principles-based rather than a technology or device-based approach, harmonising rules across provinces and identifying a policy lead to facilitate industry development. This was followed up with a progress report in September 2018 on its key recommendations in light of recent regulatory and policy changes in this area. 

More recently, the Bureau published a periodical on the benefits of online prescription eyewear retailers to consumers. The Bureau noted that these virtual businesses generated significant costs savings that benefited consumers and also appeared to improve access to eyewear products for consumers living in rural or otherwise underserviced communities. As such, the Bureau argued that eyewear regulation should be evidence-based and strictly limited to what is necessary to address public health and safety. Together, these publications indicate the Bureau’s positive attitude towards e-commerce and related technological innovations, while continuing its mandate to promote increased competition and protect consumers from anticompetitive business practices.

A second key area of focus for the Bureau has been big data. In 2017, the Bureau issued a discussion paper assessing big data’s role in mergers and monopolistic practices, cartels and deceptive marketing practices. The following year, the Bureau published a summary of key themes from its consultations. The publications reiterated that existing competition law principles and frameworks (e.g., market definition, market power and competitive effects) can effectively guide competition law enforcement in the area of big data. Nonetheless, the Bureau recognised that Canadian jurisprudence in this area has not yet been fully developed, therefore its approach to enforcement may shift as the Tribunal and other courts provide further guidance.

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