Canada: Visa and MasterCard Rules Challenged by the Competition Bureau

Last Updated: December 21 2010
Article by Barry Zalmanowitz, Jenelle Matsalla and Sandra Walker

On Wednesday, December 15, 2010, the Competition Bureau announced that it filed an application with the Competition Tribunal for a remedial order prohibiting Visa and MasterCard from enforcing or continuing to impose their allegedly restrictive and anti‐competitive terms on merchants accepting their credit cards.

According to the Bureau's filing with the Competition Tribunal, the terms at issue dictate that when a merchant accepts one of Visa or MasterCard's credit cards, the merchant must accept all credit cards offered by that company, even if the card imposes considerable costs on the merchant (e.g. premium cards). Further, the terms prohibit merchants from encouraging consumers to consider lower cost payment options like cash or debit and from applying a surcharge to the purchase price for customers who choose to use high cost cards.

The Bureau's application is brought under the price maintenance provision of the Competition Act. The pricing provisions in the Competition Act were amended in March, 2009, with the new civil price maintenance provision replacing the former criminal price maintenance offence. This application is the first brought by the Bureau under the amended price maintenance provision.

The price maintenance provision applies to any person: (i) whose business involves supplying or producing a product, (ii) extends credit by way of credit cards or whose business relates to credit cards, or (iii) who has the rights and privileges conferred by intellectual property (all simply termed "supplier"). Resale price maintenance arises where a supplier, by means of a threat, promise or agreement, influences upward or discourages the reduction of the price at which the person's customer supplies or offers to supply a product. In order for the Bureau to successfully challenge Visa and MasterCard, an adverse effect on competition must also be demonstrated.

The Bureau claims that the rules imposed on merchants by these credit card companies have upwardly influenced or discouraged reduction of the prices paid by merchants for credit card network services on their networks, resulting in increased costs for merchants, who in turn pass the costs along to customers by raising the prices of consumer goods.

The remedies available under the former criminal price maintenance provision included fines, imprisonment and private damage lawsuits. But while the new civil price maintenance provision has language similar to the former criminal prohibition, the only remedy available under this new provision for the type of conduct allegedly engaged in by Visa and MasterCard is an order made by the Competition Tribunal prohibiting the conduct where it adversely affects competition in a market.

The Bureau's decision to bring the application against Visa and MasterCard under the price maintenance provision of the Competition Act is interesting. The sole remedy available for resale price maintenance is more limited than the remedies available for abuse of dominance. Under the abuse of dominance provision, in addition or in the alternative to the Tribunal issuing an order prohibiting the party from engaging further in the anti‐competitive conduct, the Tribunal has the authority to issue an order directing the parties against whom the order is sought to overcome the effects of the anticompetitive conduct, as well as to impose administrative monetary penalties of up to $10 million for a first order where there has been a contravention of the provisions.

The Bureau may have decided to advance the application under the price maintenance provision rather than the abuse of dominance provision for a number of reasons. Although the companies appear to fulfill the dominance requirement under the abuse of dominance provisions at a glance (as Visa and MasterCard collectively processed over 90% of all consumer credit card transactions in Canada in 2009, according to the Bureau's application), the companies may not actually be jointly dominant. Further, the Bureau may have reasoned that it would be more straightforward to demonstrate to the Competition Tribunal that the conduct of the credit card companies has had, is having or is likely to have an adverse effect on competition in a market, rather than that the conduct is likely having the effect of preventing or lessening competition substantially in a market (as required by the abuse of dominance provision). Thus, there is a greater likelihood that the Bureau will be able to prevent the continuation of the alleged anti‐competitive conduct under the price maintenance provision.

This application follows a similar challenge brought by the Bureau in early 2010 against the rules of the Canadian Real Estate Association ("CREA") restricting the use by Canadian property sellers of the multiple listing service ("MLS"). While the CREA case was settled in September, it indicates a trend by the Bureau this year in choosing to combat anti‐competitive effects of networks on various markets in 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.

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