Canada: Competition Bureau Releases Draft Price Maintenance Guidelines

On March 20, 2014, the Bureau released draft guidelines on its enforcement approach to price maintenance for public consultation. Price maintenance (section 76 of the Competition Act) includes the practise of a supplier setting a minimum advertised or resale price of its product. In 2009, significant amendments were made to the Competition Act, including the decriminalization of price maintenance conduct. As of 2009, generally speaking, price maintenance is permitted. As such, these draft guidelines are a welcome statement by the Bureau as they provide some insight into how the Bureau will apply the amended price maintenance provisions to common business practices such as minimum resale pricing, manufacturer-suggested resale pricing and minimum advertised pricing.

Background - Price Maintenance Amended and Decriminalized in 2009

In 2009, price maintenance was decriminalized and transformed into a reviewable practice under the civil sections of the Competition Act. Under the previous criminal price maintenance provisions, it was a criminal offence to "attempt" to influence the price upwards or discourage price reduction, and there was no requirement to demonstrate a negative effect on competition to secure a conviction. The new civil price maintenance provisions do not apply to an "attempt", and require the applicant to demonstrate an "adverse effect on competition" resulting from the conduct. The Commissioner of Competition, or a private party granted leave by the Competition Tribunal, will therefore have to demonstrate that the action taken has actually had some detrimental effect on competition in a market. Price maintenance applies to advertised as well as selling prices. Price maintenance occurs when:

  • a person influences upward or discourages the reduction of another person's selling or advertised prices by means by agreement, threat, promise or any like means; or
  • when a person refuses to supply another person or otherwise discriminates against them because of their low pricing policy; and
  • in the case of both, the conduct has had, is having or is likely to have an adverse effect on competition in a market.

Where these elements are met, the Competition Tribunal may order a person to stop engaging in the conduct or may require the person to accept the customer on usual trade terms. Private parties may seek leave of the Tribunal to bring an application under section 76. Notably, the Tribunal has no authority to fine or make other monetary awards for unlawful price maintenance, and there is no private right of action for damages.

The Bureau's Draft Price Maintenance Guidelines

The draft guidelines are a helpful start in understanding the Bureau approach to price maintenance and treatment of common business practices such as minimum resale pricing, manufacturer-suggested resale pricing and minimum advertised pricing. They elaborate on how the Bureau determines whether the elements of price maintenance are met, including providing examples, hypotheticals and descriptions of the type of evidence the Bureau will consider in assessing whether the section applies. The recent Visa/MasterCard1 case, is also referenced in the guidelines. Recognizing that price maintenance can be pro-competitive in many circumstances, the draft guidelines also include examples of such circumstances, as well, as when the conduct may be anti-competitive.

The due date to provide comments on the draft guidelines is June 2, 2014. A copy of the draft guidelines can be found here.

Set out below are some highlights from the draft guidelines:

  • Directly or indirectly influenced upward or discouraged reduction of retailer's prices:

    • price increase in a downstream market, in and of itself, does not establish that a supplier has directly or indirectly influenced upward or discouraged the reduction of a retailer's price;
    • "direct" influence: typically occurs where a supplier specifies a particular price to the retailers at or above which the retailer is to sell or advertise a product;
    • "indirect" influence: may occur where level of prices are influenced through non-price-based conduct, such as terms and conditions on which the supplier provides a product to a retailer. Parity agreements may also indirectly influence a retailer's price upwards.
  • Resold product does not have to be identical to the product supplied by the supplier:The guidelines refer to the recent Visa/MasterCard decision and state that the Competition Tribunal did not conclude that the product that a retailer resells must be identical to the product supplied to it by the supplier. They cite, for example, product that is resold may be repackaged, reapportioned, processed or transformed from the product supplied or, where the resold product is bundled with products other than the product supplied, but in a manner in which the product supplied is a significant component of the product resold.
  • Refusal to supply can be constructive: constructive refusals can involve price. e.g. where a wholesale price for the product supplied is patently in excess of any price that could reasonably be expected to be obtained in a downstream market or non-price conduct by a supplier (e.g. delays in filling orders/filling orders in an incomplete manner).
  • No requirement that a person be an existing or previous customer of a supplier for refusal to supply: section 76 may apply where a person with a low pricing policy generally (e.g. discount retailer) is refused supply of a product that it has never previously bought or resold.
  • Low pricing policy:

    • "Proximate cause" of the refusal to supply or discrimination in the supply: a person's low pricing policy need not be the only factor or the primary reason for the refusal or discrimination, but rather a factor informing the supplier's decision.
    • "Policy" (v. "practice"): a retailer's stated intent with respect to a future course of low pricing conduct may constitute a "low pricing policy", even if the retailer has not yet engaged in the conduct. Conversely, a retailer that has engaged in low pricing conduct to a limited or isolated extent could be considered not to have a "policy" of low pricing.
  • Adverse effect on competition:

    • Market Power is Key: Bureau will be concerned with price maintenance only where it is likely to create, preserve or enhance market power.
      • Is the supplier or retailer able to profitably maintain its prices above the competitive level as a result of the price maintenance conduct?
      • Bureau will consider pre-existing market power and any market power derived from its price maintenance conduct.
      • Direct (i.e. profitability, supracompetitive pricing) and indirect (i.e. market share,2 share stability and distribution, barriers to entry, extent of technological change, retailer or supplier counterveiling power) indicators of market power will be considered.
    • Adverse effects is relative: to determine whether the conduct creates, preserves or enhances market power, the Bureau will compare the level of competitiveness in a market in the presence of the price maintenance conduct against the level that would exist in its absence.
  • When price maintenance is pro-competitive: enhancing non-price dimensions of intra-brand competition (i.e. service and inventory levels) among competing retailers, encourages retailers to engage in marketing efforts for a particular product, correcting "free-riding" among downstream retailers. When price maintenance is demand-enhancing, the conduct is unlikely to create, preserve or enhance market power, so as to have an adverse effect on competition.
  • When price maintenance is anti-competitive: inhibits competition between suppliers or between retailers, supplier or retailer exclusion.
    • Supplier-based theories of harm: foreclosure of downstream distribution channels and the exclusion of suppliers that would otherwise compete with the person engaging in the conduct.
    • Retailer-based theories of harm: conduct that excludes competitors of a retailer such that prices can be profitably maintained above (or non-price dimensions of competition can be maintained below), the level absent the price maintenance conduct.
  • More than one person may engage in price maintenance: Where several competing suppliers each engage in the conduct, the Bureau may move against more than one of those suppliers to address any adverse effect on competition. If there has been an agreement between these competitors, the criminal conspiracy3 or civil competitor collaboration provisions4 could apply.
  • Resolution prior to formal proceedings: generally, parties will have an opportunity to respond to the Bureau's concerns and to propose a resolution (formalized by way of consent agreement) before the Bureau commences formal proceedings with the Competition Tribunal.
  • Hypothetical scenarios to illustrate generally applied analysis: scenarios include: co-operative advertising agreement, refusal to supply a retailer, and inducing a supplier to refuse to supply to another person.

Footnotes

1 The Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 2013 Comp. Trib. 10. For further discussion on this decision, see our article: Reasons in Commissioner of Competition v. Visa.

2 Generally, a share of less than 35% will not usually prompt further examination, however, citing the Visa/Mastercard decision, the Bureau's view is that there may be instances where a share of less than 35% could indicate market power.

3 Section 45 of the Competition Act.

4 Section 90.1 of the Competition Act.

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