Canada: Federal Court of Appeal Overrules the Competition Tribunal in Commissioner of Competition v. Canada Pipe

Last Updated: August 2 2006

In Commissioner of Competition v. Canada Pipe (released on June 23, 2006), the Federal Court of Appeal (the "FCA") held that the Competition Tribunal ("Tribunal") applied the wrong tests when it determined that Canada Pipe's loyalty rebate program did not amount to exclusive dealing or abuse of dominance. The case is the first decision of the FCA interpreting the Competition Act's abuse of dominance and exclusive dealing provisions. In addition to allowing the Commissioner's appeal, the FCA dismissed Canada Pipe's cross-appeal on the Tribunal's finding of dominance. The FCA then referred the case back to the Tribunal for redetermination in accordance with the tests prescribed by the FCA.

Abuse of Dominant Position

The FCA held that the Tribunal applied the wrong tests when it determined that Canada Pipe's rebate program designed to promote exclusivity in the distribution of cast iron drain, waste and vent ("DWV") pipe, fittings and couplings did not constitute a practice of anti-competitive acts or have the effect of substantially preventing or lessening competition in the relevant markets.

Abuse of Dominant Position

In order to establish abuse of dominance, the Commissioner of Competition must establish: dominance; a practice of anti-competitive acts; and a likely substantial prevention or lessening of competition in a market.The FCA held that the Tribunal applied the wrong tests when it determined that Canada Pipe's rebate program designed to promote exclusivity in the distribution of cast iron drain, waste and vent ("DWV") pipe, fittings and couplings did not constitute a practice of anti-competitive acts or have the effect of substantially preventing or lessening competition in the relevant markets. The FCA also said that the Tribunal applied the wrong approach in finding a valid business justification for Canada Pipe's rebate program.

(a) Anti-competitive Effects 79(1)(c)

The FCA held that the correct approach to determining whether conduct of a dominant firm substantially lessens competition is a "relative and comparative assessment" of the competitiveness of the relevant markets with and without the alleged anti-competitive conduct (the rebate program), with reference to actual effects in the past and present as well as the likely future effects. The FCA endorsed a "but for" test: Would the relevant markets - in the past, present or future - be substantially more competitive "but for" the anti-competitive act? The FCA concluded that the Tribunal erred in not applying a "but for" test but rather ".from the narrow, absolute perspectives of preventing entry and competition, and not from the broader, relative and comparative perspective of 'impeding' or 'lessening' competition".

(b) Practice of Anti-competitive Acts 79(1)(b)

The FCA also held that the Tribunal applied the wrong test in concluding that Canada Pipe's rebate program did not constitute a practice of "anti-competitive acts". The FCA stated that "An anti-competitive act is one whose purpose is an intended negative effect on a competitor that is predatory, exclusionary or disciplinary" and that in determining whether conduct is an anti-competitive act "a link need not be proven between the impugned practice and a decrease in competition". The FCA held that the Tribunal erred in this part of its analysis by focusing on the effects of the rebate program, rather than its purpose. The FCA went on to affirm prior Tribunal statements to the effect that anti-competitive purpose need not be proven by subjective evidence of intent, but can be established by objective evidence.

(c) Valid Business Justification

The FCA held that ".a business justification for an impugned act is properly relevant only insofar as it is pertinent and productive in relation to the determination required by paragraph 79(1)(b), namely the determination as to whether the purpose of which the act was performed was a predatory, exclusionary or disciplinary negative effect on a competitor". The Tribunal erred, the FCA found, in giving an independent role to business justification, and in concluding that improved consumer welfare, on its own, could establish a valid business justification.

Exclusive Dealing

With respect to exclusive dealing, the Tribunal applied the same legal test and analysis of the substantial lessening of competition element that it used for its abuse of dominance analysis. Consequently, the Court held that the Tribunal also erred in its interpretation of the test for substantial lessening of competition with respect to section 77(2). The Tribunal's conclusion that Canada Pipe's rebate program did not have an exclusionary effect was also set aside and sent back to the Tribunal for redetermination.

Market Definition

The FCA dismissed Canada Pipe's cross-appeal on market definition. The FCA concluded that the Tribunal's finding of multiple geographic and product markets was reasonable.

What's Next

It remains to be seen whether Canada Pipe will seek leave to appeal the FCA decision to the Supreme Court of Canada, and whether the Tribunal will come to a different result as and when it applies the legal tests prescribed by the FCA.

It remains to be seen whether Canada Pipe will seek leave to appeal the FCA decision to the Supreme Court of Canada, and whether the Tribunal will come to a different result as and when it applies the legal tests prescribed by the FCA.

The FCA's approach to defining an "anti-competitive act" under section 79(1)(b) may seem to contradict the often cited mantra that competition laws exist to protect competitors, not competition. However, the FCA's approach is consistent with the plain meaning of section 79(1)(b), which must be read in conjunction with the other parts of section 79, notably section 79(1)(c), which requires competitive effects. Whether the FCA's approach will provide more or less certainty for business on the application of Canadian abuse laws will have to await the redetermination decision of the Tribunal.

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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