An extract from The Dominance and Monopolies Review - Edition 9

Abuse

i Overview

Dominance itself is not proscribed in Canada. For an abuse of dominance to be found, two other statutory conditions in addition to market power must be met. The first of these requires that the dominant firm or firms have engaged or are engaging in a 'practice of anticompetitive acts', as set out in Section 79(1)(b) of the Act. The second is an effects analysis of whether the practice has had, is having or is likely to have the effect of preventing or substantially lessening competition in a market, as set out in Section 79(1)(c). While apparently similar and often assessed on the basis of the same evidence, these are conceptually distinct tests.

Practice of anticompetitive acts

Although an illustrative list of 'anticompetitive acts' is provided in Section 78 of the Act, the list is not exhaustive, and in practice, the abuse of dominance provisions can apply to a wide range of anticompetitive conduct.

Whether an act will be considered 'anticompetitive' depends on the limiting principle of whether it has an intended negative effect on a competitor that is 'predatory, exclusionary or disciplinary'.47 This does not necessarily require subjective intent, and the Tribunal has held that intent can be inferred from the reasonably foreseeable consequences of the conduct or the circumstances in which it is undertaken.48

Further to the ultimate result in the TREB case, the Guidelines, as updated in 2019, take the position that 'certain acts not specifically directed at competitors could still be considered to have a predatory, exclusionary, disciplinary or some other anticompetitive purpose'.49 This interpretation would encompass 'facilitating practices' that do not themselves harm a competitor but permit coordination. It is broader than the interpretation that appeared to have been applied in the earlier Canada Pipe case, in which the requirement that an anticompetitive act be intended to harm a competitor was essential.50 Additionally, as clarified in VAA, in cases where the dominant firm does not compete in the market it is alleged to control, the Bureau (and the Tribunal) will consider whether the firm has a plausible competitive interest when determining whether it has engaged in a practice of anticompetitive acts.

Where anticompetitive intent has been inferred, it is possible to rebut a presumption that the purpose of conduct is anticompetitive by establishing that the conduct had a valid business purpose or justification. In Canada Pipe, it was held that a business justification must have a 'credible efficiency or pro-competitive rationale' and be one that 'relates to and counterbalances the anticompetitive effects or subjective intent of the acts'.51 However, the Guidelines take a broader view that a business justification, while not a defence, could be anything that provides an 'alternative explanation for the overriding purpose of the conduct'.52

Further, the VAA decision clarified that as a matter of law, the regulated conduct doctrine (RCD) does not apply as a defence in Section 79 cases because, inter alia, Section 79 does not contain the 'leeway' language required to allow the RCD to be invoked and, in the VAA's case, there was no statute, regulation or other subordinate legislative instrument that required, directed, mandated or authorised it, expressly or by necessary implication, to engage in the conduct. That said, the Tribunal did, however, confirm that compliance with a statutory or regulatory requirement may nonetheless constitute a legitimate business justification for conduct that is potentially anticompetitive.

A 'practice' of anticompetitive acts under the abuse provisions generally requires more than a single act, but could be met by a single act that has an ongoing or systemic effect or a 'lasting impact' in a market.53 A practice may also consist of different forms of anticompetitive conduct,54 not only repeated use of the same conduct, and can therefore in theory include otherwise innocuous conduct, if used in an anticompetitive manner in combination with other anticompetitive practices.

Substantial lessening or prevention of competition

An abuse of dominance will be subject to a remedy under the Act only if there is an actual or likely substantial lessening or prevention of competition. In principle, this test concerns competition rather than individual competitors.55

The prevailing test was formulated in Canada Pipe, and recently affirmed in TREB, as well as in the context of the evaluation of mergers under the Act.56 It is a 'but for' test that seeks to determine if it is likely that there would be substantially greater competition (past, present or future) in the absence of the impugned conduct.

As was the case prior to Canada Pipe, the test considers whether a practice contributes to the creation, preservation or enhancement of market power, which will be assessed in terms of whether there is substantial effect on market entry or expansion by new or existing competitors. However, in contrast to the test prior to Canada Pipe, it is a comparative, relative assessment, rather than a consideration of whether the absolute level of competition is substantial or sufficient.57 The Guidelines indicate that the Bureau will also consider factors such as whether, but for the practice, monetary prices would be lower, product quality, service, innovation or choice would be greater, or switching between products or suppliers would be more frequent.58 The prior (2012) version of the Guidelines listed similar factors but qualified them by describing the 'but for' scenarios as 'substantially' different, which may suggest that the 2019 Guidelines broaden the potential situations in which the Bureau may look into any given practice.59

ii Exclusionary abuses

The Act enumerates several practices in Section 78 of the Act that relate to the exclusion of a competitor, including:

  1. margin squeezing by a vertically integrated supplier;
  2. acquisition by a supplier of a customer;
  3. pre-emption of scarce facilities or resources;
  4. adoption of non-compatible product specifications; and
  5. exclusive dealing.60

The Guidelines specify that the list above is non-exhaustive and also reference tying and bundling and activities that increase customer switching costs. Moreover, the 2019 Guidelines refer more generally to other activities that 'increase a rival's costs', as was the case in the prior version, and activities that may 'reduce their revenues'.61

The Tribunal and Canadian courts have also recognised numerous other exclusivity abuses in case law, including:

  1. meet-or-release and most-favoured nation clauses;62
  2. rights of first refusal;63
  3. automatic price increases;64
  4. long-term contracts;65
  5. negative option automatic renewal provisions;66
  6. costs or penalties, such as liquidated damages or excessive fees to switch suppliers, return goods or otherwise terminate contracts early;67
  7. the acquisition of competitors and inclusion of non-compete clauses in the acquisition agreements;68
  8. various kinds of loyalty or fidelity rebates,69 including discounts and allowances in exchange for the use of the supplier's logo and name;70
  9. exclusive networks;71
  10. market allocation;72
  11. in the real estate services cases, the use of a database in a way that could be exclusionary;73 and
  12. in the airport case, denying new catering suppliers access to an airport.74
iii Discrimination

The Act formerly contained per se criminal prohibitions against price discrimination and predatory pricing. When price maintenance was decriminalised with the repeal of those provisions in 2009, it was acknowledged that this conduct would remain subject to review under the abuse of dominance provisions where the conditions of Section 79 were met.75

The Act enumerates several examples of discriminatory or predatory conduct, including freight equalisation, introducing fighting brands selectively and temporarily, buying up product to prevent price erosion, and selling articles below acquisition cost.76 Prior cases have also considered the intimidation of competitors and customers through spurious or threatened litigation,77 cross-subsidisation78 and predatory pricing generally.79

The Guidelines provide that in the context of predatory pricing conduct, the Bureau will assess whether the predatory price is sufficient to cover the average avoidable (i.e., variable) costs of providing a good or service, taking into account whether competitors could match the price without incurring a loss, and whether an allegedly predatory price is being offered to meet competition.80

iv Exploitative abuses

As discussed above, the 2019 Guidelines appear to take a broad and flexible approach to the interpretation of anticompetitive acts. In particular, they do not explicitly exclude excessive pricing or similar exploitative abuses. Nonetheless, in principle, the Act does not prohibit such practices, except to the extent that they have an exclusionary, disciplinary or predatory purpose and likely effect.