Canada: Competition Bureau Releases New Draft Guidelines On Abuse Of Dominance

The Competition Bureau announced yesterday that it has released its long-awaited revised draft Abuse of Dominance Guidelines outlining the Bureau's approach to reviewable matters under sections 78 and 79 of the Competition Act. The newly released Guidelines are intended to replace the draft guidelines released in January, 2009, which was the first time the Bureau had updated its enforcement approach to abuse of dominance since 2001.

Abuse of dominance occurs when a dominant firm (or group of firms) in a market engage in a practice of anti-competitive acts that result, or are likely to result, in a substantial prevention or lessening of competition. Sections 78 and 79 of the Competition Act allow the Competition Tribunal, on application by the Commissioner of Competition, to prohibit dominant firms from engaging in anti-competitive practices, or to order such further remedial action as is reasonable and necessary to restore competition in the market.

To prove abuse of dominance, three principal elements must be established:

1. one or more persons substantially or completely controls, throughout Canada, a class or species of business;

2. the person or persons have engaged in a practice of anti-competitive acts; and

3. the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially in a market.

As regards the Bureau's approach to these basic elements, the 2009 Guidelines did not represent a fundamental shift. Rather, they merely updated some of the Bureau's practice in light of recent jurisprudence, most notably, the Canada Pipe case, which provided the first opportunity for the Federal Court to consider the application of the abuse of dominance provisions in sections 78 and 79 of the Act.

The new Guidelines, which replace the previous publications on abuse of dominance, are considerably shorter and more concise.  Highlights include the following:

  • The new Guidelines state explicitly that, unlike certain other jurisdictions that prohibit supra-competitive pricing by dominant firms, "charging higher prices to customers, or offering lower levels of service than would otherwise be expected in a more competitive market, will not alone constitute abuse of a dominant position."
  • The new Guidelines reiterate the view that market share is one of the most important determinants of potential market power. They also expand in several ways upon the Bureau's approach to market shares in assessing whether market power exists.
  • While reiterating that a market share of less than 35 percent will generally not prompt further examination, the Bureau's approach where a market share above 35 percent exists is now more nuanced. In the 2009 Guidelines, the Bureau said that where market share is above 35 percent it "will normally continue its investigation." The new Guidelines state that a market share between 35 and 50 percent will not give rise to a "presumption" of dominance "but may be examined by the Bureau depending on the circumstances," while a market share of 50 percent or more will generally prompt further examination.   Such an approach appears to suggest an acceptance that dominance at shares less than 50 percent will be a relatively uncommon occurrence.
  • The new Guidelines state that, in addition to an individual firm's market share, distribution of the remaining market among competitors is relevant: while greater market share is likely to increase a single firm's ability to sustain a price increase, such an exercise of market power also increases with the disparity between its market share and those of its competitors. The Bureau will also look at the durability of a firm's market share. If shares have fluctuated significantly among competitors over time (e.g., as a result of the intermittent exploitation of new technology that allows firms to "leapfrog" their rivals), a higher current market share may be less relevant to establishing market power.
  • The new Guidelines state that, although "anti–competitive act," as described in section 78 of the Act, is defined in relation to its purpose—an intended negative effect on a competitor – the Federal Court of Appeal and the Competition Tribunal have acknowledged that paragraph 78(1)(f) (which deals with buying up of products to prevent the erosion of existing price levels) is "one" exception to the requirement that an anti-competitive act be directed at a competitor. Whether use of the word "one" is intended to indicate that the Bureau believes there may be other exceptions is unclear.
  • In assessing whether a particular act is likely to be anti-competitive, the new Guidelines reiterate that the Bureau generally views conduct described in section 78 of the Act as falling into two broad categories: (i) exclusionary conduct; and (ii) predatory conduct. Unlike the 2009 Guidelines, however, details regarding the Bureau's approach with respect to specific anti-competitive acts have been removed, including raising rivals' costs, exclusive dealing, tying, bundling, bundled rebates and denial of access to a facility or service. What this means about the Bureau's current thinking on these acts is unclear, the effect of which is to diminish rather than enhance understanding of the Bureau's approach to the enforcement of section 79.
  • As with the 2009 Guidelines, the Bureau notes the inherent difficulty of distinguishing between predatory and competitive pricing. In the new Guidelines it states that one of the methods it will use to overcome some of these difficulties is an examination of whether the alleged predatory price can be matched by competitors without incurring loss, and whether the alleged predatory price is merely "meeting competition" in the sense that it is a reaction to match a competitor's pricing strategy. How the Bureau's consideration of whether a price can be matched by competitors without incurring a loss relates to the other requirements of predatory pricing, such as sale by the alleged predator below some level of cost and recoupment, is unclear.
  • The Bureau has reaffirmed that, in considering whether an impugned act prevents or lessens competition substantially, the question is not whether the absolute level of competition in a market is substantial or sufficient. Rather, the Bureau considers the relative level of competitiveness in the presence and absence of the impugned practice such that it can satisfactorily determine 'but for' the practice at issue, would there likely be greater competition in the market?

As noted in a previous post, section 79 of the Act was amended in 2009 to include administrative monetary penalties (AMPs). In cases where it finds that an abuse of dominance has occurred, the Competition Tribunal may impose a maximum AMP of C$10 million for a first infraction and C$15 million for subsequent infractions. While AMPs were introduced after the publication of the 2009 draft guidelines, it is unfortunate that the new guidelines are silent on how the Bureau will incorporate AMPs into its section 79 enforcement approach. Indeed, the new Guidelines provide no guidance on remedies at all.

The new Guidelines are open for comment by interested parties until May 22, 2012.

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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