Canada: Federal Court of Appeal Orders Competition Tribunal to Reconsider Legal Tests for Abuse of Dominance and Exclusive Dealing in Context of Loyalty Rebate Case

The Federal Court of Appeal (the "FCA") recently interpreted the abuse of dominance provision (s. 79) and the exclusive dealing provision (s. 77) under the Canadian Competition Act (the "Act") in its decision in Commissioner of Competition v. Canada Pipe Company Ltd., (2006) FCA 236. This marks the first time since the enactment of the Act in 1986 that an appellate court has had occasion to consider the tests for exclusive dealing and abuse of dominant position on appeal from the Competition Tribunal (the "Tribunal").

This case is of interest to any American business person or corporation that carries on significant business in Canada and offers loyalty rebate programs. The case is noteworthy because the Tribunal earlier held that an exclusivity loyalty rebate program engaged in by a dominant firm was not an abuse of dominance because it did not result in a substantial lessening or prevention of competition. Although the FCA found errors of law in the Tribunal's analysis, it refused the government's request to reverse the Tribunal's conclusions and instead returned the matter to the Tribunal for a redetermination on the basis of the evidence on record. As a result, it is possible that the Tribunal will reconfirm its earlier conclusions after applying the legal tests articulated by the FCA (all of which is subject to a possible appeal to the Supreme Court of Canada1).


In October 2002, the Commissioner of Competition (the "Commissioner") brought an application against Canada Pipe which, the Tribunal found, produces and sells cast iron, drain, waste and vent ("DWV") products in 6 geographic markets: British Columbia, Alberta, the Prairies, Ontario, Quebec and the Maritimes. Canada Pipe offers a "loyalty rebate" program known as the Stocking Distributor Program (the "Program"). Under the Program, distributors can earn significant rebates and discounts if they choose to stock only cast iron products produced by Canada Pipe. These distributors are, however, free to stock other companies' DWV products which are not made of cast iron and still be entitled to the benefits of the Program. Canada Pipe's share of the cast iron DWV products market was at least 82% in each of the relevant geographic markets.

The Commissioner alleged that the Program constituted both a practice of exclusive dealing with exclusionary effects and a practice of anti-competitive acts, and was likely to have the effect of substantially lessening or preventing competition in the markets for cast iron DWV products by impeding the entry and expansion of competitors.

Tribunal Decision

Pursuant to the abuse of dominance provision and the exclusive dealing provision under the Act, the Commissioner had the burden of proving that Canada Pipe (i) occupies a position of dominance in the market; (ii) engaged in the practice of exclusive dealing with an exclusionary effect or a practice of anti-competitive acts, as applicable; and (iii) caused an actual or likely substantial lessening or prevention of competition. The Commissioner's application was dismissed by the Tribunal despite its finding that Canada Pipe substantially controls the markets in which it operates.2 The Tribunal found that the Program: (i) was not an "anti-competitive act"; (ii) did not have an exclusionary effect in the market; and (iii) did not substantially lessen or prevent competition.

FCA Decision

The FCA determined that the Tribunal had erred in its application of the law in concluding that the conduct of Canada Pipe was neither anti-competitive nor likely to prevent or lessen competition substantially. Furthermore, the FCA found that Canada Pipe, based upon the analysis of the Tribunal, did not have a valid business justification for the Program. The FCA ordered the matter back to the Tribunal for a redetermination in accordance with the analysis and tests described in its judgment, as summarized below.

Statutory Analysis

The similar requisite elements prescribed by the Act for both exclusive dealing and abuse of dominance allowed the FCA to use a parallel analysis to interpret both provisions. The FCA focused its analysis on the issue of abuse of dominance but because of the similarities between the two provisions, the FCA also ordered the issue of exclusive dealing back to the Tribunal to reconsider its decision in light of the FCA's analysis of the abuse of dominance provision.

Lessening of Competition

In its decision, the FCA first considered the appropriate test for the finding of an "actual or likely substantial lessening of competition". The FCA adopted a "but for" test by which the Tribunal should conduct a comparative assessment of the level of competitiveness in the presence of the impugned practice with that which would exist in the absence of the practice. In other words, the test could be defined as follows:

Would the relevant markets – in the past, present or future – be substantially more competitive but for the impugned practice of anti-competitive acts?

In practical terms, the FCA suggested that the proper application of the "but for" question might include an examination of the following considerations: whether entry or expansion might be substantially faster, more frequent or more significant without the Program; whether switching between products and suppliers might be substantially more frequent; whether prices might be substantially lower; and whether the quality of products might be substantially greater.

The FCA concluded that a plain meaning interpretation of the statutory language mandates a comparative analysis and the "but for" test is such an approach and, therefore, must be considered in all cases. The FCA did, however, suggest that the Tribunal may, in addition to the "but for" test, develop or adopt other appropriate tests in future abuse of dominance cases.

Engaging in a Practice of Anti-Competitive Acts

The FCA confirmed that a "practice" is more than an isolated act but may be one occurrence that is sustained and systemic, or that has had a lasting impact on competition. It was clear that Canada Pipe was engaging in a practice as the Program was found to be structured, organized and applied throughout Canada and this finding was not contested by Canada Pipe.

The Act does not define an "anti-competitive act" but instead, provides illustrative examples to be used as guidelines. The FCA confirmed that the common denominator of the examples provided in the Act is that (i) an anti-competitive act will be identified by reference to its purpose; and (ii) the purpose must be an intended negative effect on a competitor that is predatory, exclusionary or disciplinary. The FCA emphasized that the anti-competitive act must have a negative effect on a competitor and criticized the Tribunal for requiring evidence of a link between the alleged anti-competitive act and a decrease in competition. The FCA held that whether an anti-competitive act substantially lessens or prevents competition is an issue to be dealt with separately.

Business Justification

In appropriate circumstances, proof of a valid business justification can overcome the deemed intention of engaging in anti-competitive behaviour if it can be shown that there is an overriding business purpose to justify the conduct in question. In this case, the FCA refrained from providing examples of what might constitute a valid business justification.

The FCA did determine, however, that the two business justifications put forth by Canada Pipe were not valid: (i) that the Program's uniform rebate structure encourages competition, by creating a level playing field between small and large distributors3; and (ii) that the Program makes possible the high-volume of sales necessary to enable Canada Pipe to maintain a full line of products and achieve economies of scale which benefits both its distributors and consumers. In the FCA's view, the Tribunal's reasons failed to establish the necessary efficiency-related link between the Program and Canada Pipe; "improved consumer welfare is on its own insufficent to establish a valid business justification". The FCA's decision will likely create uncertainty as to whether and under what circumstances there exists a business justification that may be successfully raised by a defendant or whether the FCA has essentially closed the door to a defendant's ability to rely on the use of a valid business justification as a defense.


Depending upon a possible appeal to the Supreme Court of Canada, the FCA's judgment may have engendered a new level of uncertainty in the Tribunal's case law on abuse of dominance and exclusive dealing.


1. We understand that Canada Pipe will be seeking leave to appeal the FCA decision to the Supreme Court of Canada. It is expected that a decision on the application for leave will be released by the spring of 2007.

2. Canada Pipe brought a cross-appeal to challenge the Tribunal's finding that it held a position of dominance in the Canadian marketplace based upon a definition of the relevant products market that was too narrow. This issue was dealt with in a separate decision, delivered on the same day. The Tribunal had determined that high profit margins and Canada Pipe's ability to vary prices across the regions were good indicators of market power. The cross-appeal was dismissed as two of the three judges found the Tribunal's conclusion, that Canada Pipe enjoyed market power, was reasonable. The third judge, observing that market power was "the ability to set prices above competitive levels for a considerable period of time", questioned how the Tribunal could conclude that Canada Pipe had market power when, in the face of competition in British Columbia, Alberta, the Prairies and Ontario it lowered its prices. Pelletier J.A. was of the opinion that "reducing prices to respond to the emergence of new competitors is inconsistent with the ability to set prices above competitive levels for a considerable period" and, accordingly, was of the view that the question of Canada Pipe's market power in British Columbia, Alberta, the Prairies and Ontario should be returned to the Tribunal for reconsideration.

3. To qualify for the Program, distributors are required to purchase a minimum amount of product. So long as distributors qualify, Canada Pipe will provide its rebates and discounts to distributors no matter what quantity is actually purchased.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions