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
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
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
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.
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
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Competition Bureau issued a template document for use as a form of Consent Agreement, to be filed with the Competition Tribunal to resolve concerns the Bureau may have with proposed mergers.
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