On September 15, 2014, the Competition Bureau released its final enforcement guidelines entitled Price Maintenance (Section 76 of the Competition Act) (the "Guidelines"), which describe the Bureau's approach to enforcing the price maintenance provision in Canada's federal competition legislation.1 Although the Guidelines are not legally binding, they provide important insight and clarity into the manner in which the Bureau intends to apply the Competition Act to pricing-related policies issued and actions taken by suppliers and others in Canada.
Section 76 of the Competition Act empowers the Competition Tribunal to make an order to stop the following conduct:
(a) suppliers who, by agreement, threat, promise or like means, influence upward or discourage the reduction of the price at which another person supplies, offers to supply, or advertises the supplier's products;
(b) suppliers who refuse to supply products or otherwise discriminate against a person or class of persons because of their low pricing policy; and
(c) persons who, by agreement, threat, promise or like means, induce a supplier, as a condition of doing business with the supplier, to refuse to supply products to another person or class of persons because of that person's low pricing policy, if, conduct has had, is having, or is likely to have an adverse effect on competition in a market.
The Tribunal's remedial jurisdiction is limited to ordering the person who engaged in the conduct to stop, or, in the case of supplier-side discrimination or refusal to supply, to accept the affected person as a customer on usual trade terms. The Tribunal has no authority to impose a fine or other monetary penalty.
Prior to 2009, price maintenance in Canada was a "per se" criminal offence - i.e., an offense was committed merely be engaging in the proscribed conduct whether or not it had any impact on competition. That criminal offence was repealed and slightly remodeled by the new civil provision in 2009.
The new civil provision, with the requirement that price maintenance conduct have an adverse effect on competition, created broad scope for suppliers to adopt policies that could have the affect of influencing the resale price of their products – such as Minimum Advertised Pricing Policies - and to take action to prevent low-pricing. A welcome change, but the new breadth of the provision coupled with a dearth of cases (only one in the past five years) has sometimes made it difficult to provide clear advice about how the provision would be applied in practice by the Bureau, so the Guidelines are welcomed.
Insights from the Guidelines
The price maintenance provision of the Competition Act is layered and complex. The Guidelines very helpfully provide a nuanced interpretation of many of its key provisions reflecting the Bureau's recent experiences and commentary from the Competition Tribunal in the VISA/MasterCard case2, the only decision of the Tribunal to date that has considered the provision.
Key insights from the Guidelines include:
- The Bureau recognizes that price maintenance often is pro-competitive (even when engaged in by firms with significant market presence) in that the conduct may enhance inter-brand competition, correct downstream free-riding or otherwise be demand-enhancing.
- An increase in wholesale prices by a supplier in not price maintenance.
- There must be a causal link between a supplier's conduct and a reseller's pricing; the mere fact that downstream prices increased is not sufficient to conclude a supplier influenced the price.
- The Guidelines state that price maintenance conduct may be direct (e.g. supplier specifies particular price or minimum resale price) or indirect (e.g. terms or conditions of sale that influence prices; a supplier imposing price-parity agreements). (Note that this approach was not fully accepted by the Tribunal in the VISA/MasterCard case.)
- A refusal to supply can be express (i.e., stop selling) or constructive (e.g. more onerous supply terms; unreasonable delays for product delivery) and "discrimination" by a supplier may be through differentiated pricing or non-price conduct such as supplying product on less favourable terms.
- The presence of market power is a "key factor" in determining whether price maintenance conduct is capable of resulting in an adverse effect on competition (and accordingly is likely to attract Bureau scrutiny).
- The Bureau's principal areas of concern in this context are:
(a) in respect of suppliers who influence prices, whether the price maintenance conduct forecloses downstream distribution channels and excludes suppliers that would otherwise compete with the supplier who is engaging in the conduct; and
(b) in respect of persons who induce a supplier not to supply, whether the conduct excludes competitors of the person, such that prices (or service levels) in the market can be profitably maintained at higher levels (or lower service levels) than in the absence of the conduct.
The Guidelines are a welcome addition to the lengthy roster of other enforcement guidelines issued by the Bureau outlining its approach to enforcing the Competition Act. While arguably the Bureau is overly conservative in its interpretation of some aspects of the price maintenance provision, the Guidelines generally are balanced and confirm that there will be relatively few instances in which price maintenance conduct will warrant enforcement action by the Bureau.
1.The Guidelines are available online at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03787.html
2.See Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, 2013 Comp. Trib. 10. McMillan represented MasterCard International.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2014