In an unprecedented move, the Federal Government has included as part of its 2009 Budget Implementation Act (Bill C-10) a radical overhaul of the Competition Act and a number of important amendments to the Investment Canada Act. Budget bills are enacted quickly and with few revisions. A new era in Canadian competition law is on the horizon.
This McMillan Bulletin discusses the proposed amendments relating to Pricing Practices and their implications for business. The proposed amendments relating to, Advertising and Marketing, Competitor Agreements and Mergers are dealt with in separate Bulletins.
The New Pricing Practices Regime
Bill C-10 introduces nothing short of a complete overhaul of the Competition Act provisions relating to pricing:
- Price Discrimination, Promotional Allowances and Predatory Pricing Offences Repealed — The antiquated provisions (in Sections 50 and 51 of the Competition Act) did not deserve to be criminal offences. Under the new regime, these activities can be subject to review and enforcement action only under the abuse of dominance provisions of the Act – i.e. the conduct will have to be engaged in by a person that substantially or completely controls a market, result in a substantial prevention or lessening of competition, and meet the other requirements of the abuse provision; a high threshold indeed.
- Price Maintenance Decriminalized — Bill C-10 repeals the criminal offence of price maintenance (Section 61 of the Act) and introduces a new, non-criminal reviewable practice of price maintenance under which the Competition Tribunal can review and prohibit the practice.
While the substantive test for price maintenance under the new civil regime is very similar to the existing criminal definition, the person actually must have engaged in the conduct whereas under the current criminal law, attempts to influence also are actionable. More importantly, price maintenance will only be subject of an order of the Competition Tribunal if it has had, is having or is likely to have an “adverse effect on competition” in a market. The new civil regime carries forward the existing defence relating to suggested resale prices. The Commissioner of Competition and private parties both may initiate Competition Tribunal proceedings in respect of price maintenance (although a private party first must obtain leave of the Tribunal). If the Tribunal determines that the respondent has engaged in price maintenance, it may order the respondent to stop engaging in the practice or accept the other person as a customer on usual trade terms. However, it has no authority to fine or make other monetary awards.
Although the Competition Bureau only rarely challenges distribution practices as an abuse of dominant position, the amendments will supplement the current prohibition/remedial order provisions with large “administrative monetary penalties”. The maximum fine will be C$10 million for the first occurrence and C$15 million for subsequent occurrences. Since the Bureau tends to define relevant markets narrowly, firms are likely to become more cautious about engaging in aggressive pricing or distribution practices that could lead to competitor complaints of predatory or exclusionary activity (The Bureau is currently consulting on proposed updates to its Abuse of Dominance Enforcement Guidelines which discuss these issues in greater detail). The amendments do not introduce direct private rights of action for parties affected by an abuse of dominance. However, the introduction of penalties will likely encourage plaintiffs to seek to reverse case law which has held that abuse of dominance was not an “unlawful act” necessary to ground torts such as interference with economic relations and conspiracy to injure.
Implications for Business
The amendments will give suppliers much more flexibility in their pricing decisions. The limits on manufacturers, wholesaler and retailer actions will be minimal, the outright prohibitions against mandated minimum resale prices and the burdens of complying with rigid price discrimination / promotional allowance rules will be removed. Only firms whose pricing might have negative effects on competition need now be concerned with those limitations.
The new rules also permit more flexibility in crafting pricing programs on a North American (or wider) basis. For example, Bill C-10 will permit unilateral minimum advertised pricing policies (MAPPs), which are commonly used in the United States and are problematic under the current Canadian price maintenance rules.
However, as noted above there are large fines for firms who are found to have violated the abuse of dominance provision. Firms having a material share of a market will need to consider the potential impacts on competition of their pricing policies.