In the past, in North America, the manufacturer of a product that was distributed through one or more authorized distributors had to deal with the restrictions imposed by Canadian competition law (or under United States antitrust law) concerning resale price maintenance. This was problematic since the circumstances that lead a manufacturer to want to impose a resale price are numerous. The manufacturer may wish, due to the good reputation of the product, to make sure that it will be resold at a price that reflects its value and avoid customers likening it to a low quality product. Also, a manufacturer might have distinct networks of authorized distributors in different countries and want to make sure, especially in the age of e-commerce, that an authorized distributor situated in country A will not start selling the product in country B at a price that is lower than that for which it is usually sold in country B.
However, for a long time, such a manufacturer could not control the resale price within a given territory. As much in US law as in Canadian law, fixing the resale price of a product was considered as illegal in itself (per se), which meant that the practice was prohibited whatever the effects on the market might be.
In the united States, the situation changed in 2007 with the Supreme Court's decision in the case of Leegin Creative Leather Products, Inc. v. PSKS, Inc.1 in which it overturned a century of case law and ruled that having a minimum resale price would no longer constitute an offence in itself (per se) but rather should be the subject of a reasoned analysis (rule of reason), that is, an analysis based on the anticompetitive effects of the practice.
As is often the case, Canada fell behind in 2009 with amendments to the Competition Act that, in particular, caused the criminal offence of resale price maintenance to disappear and be replaced by provisions making this practice susceptible to a review that may result in the issuance of a prohibition order by the Competition Tribunal if it "has had, is having or is likely to have an adverse effect on competition in a market"2.
Thus, the general rule still remains that a manufacturer must not impose a resale price unless it is only a suggested price and it is clearly stated that the manufacturer's commercial customers are in no way required to accept the suggested price. On the other hand, a manufacturer who does not comply with this general rule can count on the fact that the Competition Bureau or the private party who wishes to have the practice prohibited must show the real or potential anticompetitive effect of the imposition of the resale price. Therefore, the manufacturer may potentially make a series of arguments to justify the practice, which simply would have been illegal under the per se regime.
It should be noted that the nature of the justifications that will be judged acceptable by the Competition Tribunal will remain somewhat nebulous until some case law is established under the aegis of the new provision in the Competition Act. Normally, these justifications would have to establish effects favouring competition that are greater than the negative effects on free competition. The manufacturer might also be able to invoke the fact that he has only a small market share to argue that the practice at issue does not have an effect on the relevant market.
But undoubtedly it is even more important that, due to the migration in Canada of this offence towards a civil regime (as opposed to a penal regime), a manufacturer can feel relieved by the fact that even if his resale price maintenance practice contravenes the law, no penal sanction (fine or imprisonment) can be imposed on him and no action for damages can be instituted against him3. Therefore, the only risk he faces is that the Competition Tribunal issues an order to cease maintaining the price, further to a recourse initiated by the Competition Bureau or a private party.
With these amendments to the Competition Act, a manufacturer may henceforth consider adopting a practice aimed at maintaining a resale price without fear of penal consequences and with confidence that he will have an opportunity to defend its legitimacy if it is contested.
Footnotes
1 551 U.S. 877 (2007).
2 See subsection 76(1) of the Competition Act (Canada) and particularly paragraph (b).
3 See paragraph 2 of section 76 of the Competition Act (Canada).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
