On December 20, 2007, the Competition Bureau announced the end to five years of litigation concerning the Stocking Distributor Program (SDP) of Canada Pipe Company Ltd. with the filing of a consent agreement with the Competition Tribunal. The consent agreement pre-empts the Tribunal’s re-determination proceedings in the case. As a result, the proper legal approach to the Competition Act’s abuse of dominance provision, in light of the Commissioner of Competition’s position in the proceedings, has yet to be resolved.
The SDP is a loyalty program under which Canada Pipe offers rebates and discounts to distributors that purchase all of their requirements for cast-iron pipe, cast-iron fittings and mechanical joint couplings (collectively known as cast-iron “drain, waste and vent” or DWV products) exclusively from Canada Pipe. Under the terms of the consent agreement, Canada Pipe will implement and offer a modified rebate program to distributors in Canada as an alternative to the SDP, which Canada Pipe may continue to offer. The modified rebate program will provide rebates and multiplier discounts to distributors meeting a minimum purchase requirement, but will not be conditional on exclusive purchases of DWV products from Canada Pipe. Significantly, total rebates and discounts under the SDP (or any other rebate program) are not to exceed those available under the modified rebate program, although Canada Pipe retains the right to offer additional price concessions or discounts “on an asneeded basis in order to match what Canada Pipe believes to be legitimate competing offers.” The consent agreement therefore effectively nullifies Canada Pipe’s SDP during the five-year term of the agreement.
The Bureau began its challenge of the SDP in 2002, with an application to the Tribunal seeking an order for its elimination as a contravention of the Act’s civil exclusive dealing (s. 77) and abuse of dominance (s. 79) provisions. The Tribunal rejected the Commissioner’s application in February 2005, finding that while Canada Pipe was dominant in relevant markets, its conduct did not amount to an “anti-competitive act” and did not prevent or lessen competition substantially.
On appeal, the Federal Court of Appeal ordered a re-determination of the case in June 2006, finding that the Tribunal erred by applying the incorrect legal tests under s. 79. With respect to the test for a “substantial lessening or prevention of competition,” rather than focusing on whether a substantial level of competition continued to exist (evidenced by new entry and switching by distributors), the Court held that the Tribunal should have asked whether relevant markets would have been substantially more competitive “but for” the impugned practice of anticompetitive acts. The Court also held that the Tribunal erred in requiring a link between the impugned conduct and a negative impact on competition for a “practice of anti-competitive acts” to exist. Instead, the Court held that an anti-competitive act is identified by having as its purpose (based on the overall character of the act, including its reasonably foreseeable or expected effects, any business justification and evidence of subjective intent) an intended predatory, exclusionary or disciplinary effect on a competitor. Effects of the practice on competition are examined in determining the existence of a substantial lessening of competition. Finally, the Court held that for a valid business justification to exist, an impugned practice must have a credible efficiency or pro-competitive explanation; enhanced consumer welfare is on its own being insufficient.
Prior to filing of the consent agreement, the Tribunal was scheduled to hold a re-determination hearing on the case in February 2008. The Commissioner, in her arguments on the re-determination, raised several interesting issues concerning the proper legal approach under s. 79, the resolution of which has unfortunately been preempted by the settlement.
In particular, the Commissioner argued in her factum that, with respect to anti-competitive acts, “[t]he evidence of [Canada Pipe’s] subjective intent unequivocally establishes that the SDP is an act that has its purpose an intended negative exclusionary effect on competitors and therefore, is an anti-competitive act within the meaning of paragraph 79(1)(b) of the Act.”1 The Commissioner argued that “[i]n light of the evidence regarding the subjective intent of [Canada Pipe], it is not necessary to consider the reasonably foreseeable consequences of the SDP.”2 Contrary to the Commissioner’s submissions, however, the Federal Court of Appeal had held that “evidence of subjective intent is neither required nor determinative” in establishing an anti-competitive act, but rather is one of the “[r]elevant factors to be weighed to determine [the] overarching ’purpose’, or ’overall character’ of the conduct”, along with the reasonably foreseeable or expected objective effects of the act and any business justification.3
With respect to the test for establishing a substantial prevention or lessening of competition, the Commissioner cited a prior decision of the Tribunal in arguing that “[w]here a respondent has significant market power, even a small effect on competition qualifies as substantial.”4 The Federal Court of Appeal did not comment on this issue in its decision. However, as Canada Pipe argues in response, “to suggest that a de minimis impact upon competitors would be sufficient to meet the “substantiality” threshold in section 79(1)(c) would be to read this threshold out in all cases where it has been established that a firm has market power. Given that market power is a precondition under section 79(1)(a), this would effectively mean the elimination of the substantiality component under section 79(1)(c) in all abuse of dominance cases.”5
Clearly, despite the Federal Court’s decision in the case, significant issues remain to be resolved with respect to the enforcement of Canada’s laws regarding abuse of a dominant position. With the settlement of the case, however, these issues remain to be heard another day.