On February 3, 2013, the Federal Court of Appeal released a significant ruling that reversed the Competition Tribunal's earlier finding that the abuse of dominance provisions of the Competition Act do not apply to the Toronto Real Estate Board. In short, the Court found that the Tribunal had adopted an overly narrow interpretation of the Act and failed to properly analyze whether TREB had engaged in a practice of anti-competitive acts within the meaning of the abuse of dominance provisions. The decision is a significant win for the Commissioner of Competition and the Tribunal will now have to re-examine the competitive practices of the largest real estate board in Canada.
Significance of Decision
The decision1 calls into question the commonly-held interpretation of the Court decision in Canada Pipe,2 namely, that for a party's conduct to constitute a practice of anti-competitive acts it must have an intended exclusionary, predatory or disciplinary effect vis-à-vis that party's competitors. In its decision, the Court clearly found that an intended exclusionary, predatory or disciplinary act need not be directed at that party's own competitor. Rather, the Court validated the Commissioner's position that a subsection 79(1) order can be made against a person who controls a market otherwise than as a competitor if the act is exclusionary, predatory or disciplinary vis-à-vis a competitor in that affected market.3 In terms of the manner in which such control may be exercised, the Court states that this could occur "by controlling a significant input to competitors in the market, or by making rules that effectively control the business conduct of those competitors". In this regard, the Court's decision also validates at least to some degree the expansive interpretation of "anti-competitive acts" taken by the Bureau in its 2012 revised Abuse of Dominance Guidelines which state that "while many types of anti-competitive conduct may be intended to harm competitors, the Bureau considers that certain acts not specifically directed at competitors could still be considered to have an anti-competitive purpose."
As a result of the Court's decision, businesses which enjoy market power – even outside of the market within which they may consider themselves to compete but do control – ought to be cautious of conduct which may be viewed as predatory, exclusionary or disciplinary towards a competitor in such a market. Most importantly, trade associations cannot assume that their activities are beyond the scope of the abuse of dominance provisions simply because they do not compete with their members. Beyond its application to trade associations, the Court's interpretation also appears to leave open the possibility that conduct of powerful purchasers or powerful suppliers that negatively impacts their upstream suppliers or downstream customers may be subject to scrutiny under section 79 of the Act. This more expansive scope to section 79 is particularly important given that the Commissioner is now able to seek significant monetary penalties where a party is found to have engaged in conduct which is contrary to section 79 of the Act.
TREB is a not-for-profit trade association that serves more than 35,000 real estate brokers and salespeople across Ontario. The Commissioner's application pertained to the multiple listing service (MLS) that TREB makes available to its members, which is an electronic database that contains current and historical information about the purchase and sale of residential real estate in Canada. All members of TREB have access to TREB's MLS database, including the historical data, and are permitted to disclose the historical data to their clients in person, by fax, by mail or by email. However, TREB prohibits its members from posting historical data on a virtual office website (VOW), with the result that those members who operate through a VOW cannot enable clients to access the historical data online.
The Commissioner alleged that TREB abused a dominant position in the market for residential real estate brokerage services by establishing and enforcing rules for members' access to information on MLS – rules that hamper the effective use by certain members of electronic data services, thereby perpetuating the traditional "bricks and mortar" model at the expense of more efficient and lower-cost alternatives.
The Tribunal ruled that the Commissioner's application failed to establish that the required elements under section 79 had been met – most importantly, subsection 79(1)(b), which requires that the respondent be engaged in a practice of "anti-competitive acts."4 The Tribunal held that, consistent with the Court's position in the 2006 Canada Pipe decision, anti-competitive acts must be intended to have a negative effect on a competitor. TREB could not be found to have engaged in an anti-competitive act vis-à-vis its members because it does not itself provide real estate services in competition with its members. Accordingly, the Tribunal dismissed the Commissioner's application without hearing the case on its merits. For a more detailed discussion of the Tribunal's decision, refer to our previous Osler Update.
Abuse of Dominance Provision
Subsection 79(1) of the Act provides that the Tribunal may order a remedy where the following three elements are proven by the Commissioner:
- one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,
- that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and
- the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.
Subsection 78(1) sets out a non-exhaustive list of anti-competitive acts. Where the elements of subsection 79(1) are met the Tribunal may issue an order prohibiting the conduct. The Tribunal also has the power to order an administrative monetary penalty not exceeding $10 million in the first instance.
Federal Court of Appeal Decision
The Court accepted the validity of the Commissioner's arguments and found that:
- While a party may not be a competitor within a particular market, that party may nevertheless control the market by, for example, making rules that control the business activities of competitors within that market.
- The Canada Pipe decision focused on acts that have as their purpose a negative effect on a competitor that is predatory, exclusionary or disciplinary. However, this should not be interpreted narrowly, and does not mean that a person who does not compete in a particular market can never be found to have committed an anti-competitive act against competitors in that market. While the Tribunal interpreted the word "competitor" as it was used in Canada Pipe to refer to "competitor of the person who is the target of the Commissioner's application for a subsection 79(1) order", the Court held that there is "nothing in the language or context of the Competition Act to justify the addition of those qualifying words".
- In support of this interpretation, the Court looked to paragraph 78(1)(f) of the Act as an example of an anti-competitive act which is not necessarily taken by a party against its competitor (paragraph 78(1)(f) describes the buying up of products to prevent the erosion of existing price levels as an anti-competitive act). The Court further states that paragraph 78(1)(f) indicates that Parliament did not intend to limit the scope of subsection 79(1) in the manner suggested by the Tribunal's decision. Moreover, if the decision in Canada Pipe intended to narrow the application of subsection 79(1) then that previous decision would be "manifestly wrong because it is based on flawed reasoning".
- The Court also rejected the Tribunal's statement that it found support for its conclusion in Bureau guidelines as well as subsection 79(4) of the Act which provides that for purposes of applying paragraph 79(1)(c), the Tribunal must consider whether the alleged anti-competitive act is the result of superior competitor performance. The Court found that the Bureau's guidelines do not offer guidance on the interpretation of subsection 79(1), as they at most indicate that "the Commissioner's understanding of the scope of subsection 79(1) has changed over time." With respect to the Tribunal's reliance on subsection 79(4), the Court found that whether subsection 79(4) is relied upon by the Tribunal will vary from case to case, and there is "no reason to infer from subsection 79(4) that as a matter of law, a subsection 79(1) order cannot be made against the Board simply because it does not compete with its members."
While we await the Tribunal's re-hearing and decision on the merits, the Court decision is an endorsement of the Bureau's broadened approach to the application of the abuse of dominance provision. It is also possible that TREB will appeal the Court decision.
1 Commissioner of Competition v. The Toronto Real Estate Board 2014 FCA 29.
2 Commissioner of Competition v. Canada Pipe Co. 2006 FCA 233.
3 In this regard it is interesting to note that on January 28 2014 in an U.K. competition case involving the practices of London Luton Airport operator in awarding coach concessions the English High Court held that a dominant undertaking can abuse its position (contrary to UK competition law) either by distorting competition on the market in which it operates itself or by distorting competition on the market on which its customers compete with each other. The Court held that, although Luton does not compete on the downstream market (as it does not operate any coach services itself or have any interest in a company operating coach services), if its conduct results in a distortion of competition on that market this can still amount to an abuse of dominant position. In this case, the Court noted that although Luton does not operate coach services, it derives an important commercial and economic benefit from the downstream market as the new concession agreement provides it with a share of the revenue generated in that market.
4 Commissioner of Competition v. The Toronto Real Estate Board 2013 Comp. Trib. 9.
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