Canada: Competition Bureau Releases Updated Draft Abuse Of Dominance Guidelines

On January 16, 2009 the Competition Bureau released its long-awaited draft Enforcement Guidelines on The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) for public comment. While these Guidelines do not reflect any major changes to the Bureau's existing enforcement policy, they provide helpful guidance to the legal and business communities on what constitutes a "legitimate business justification" for a practice. They also contain more specific guidance on the Bureau's approach to analyzing common distribution practices, including exclusive dealing, tying and bundled rebates.

There are three principal elements to the abuse of dominance provisions in the Competition Act (the Act). In short, it must be demonstrated that:

  • one or more persons must substantially or completely control a market in Canada;
  • the person or persons have engaged or are engaged in a practice of anti-competitive acts; and
  • the practice has had, is having or is likely to have the effect of substantially preventing or lessening competition in a market.

Noteworthy Changes

The changes to the existing Guidelines, released in 2001, primarily reflect developments in the case law -- notably, the 2006 decision of the Federal Court of Appeal (FCA) in Commissioner of Competition v. Canada Pipe Company Ltd. (Canada Pipe), with respect to the second and third elements of the test for dominance (as noted above).

Legitimate Business Justifications

The draft Enforcement Guidelines on The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) (Draft Guidelines) provide helpful guidance about what constitutes a legitimate business justification for conduct that may adversely impact on competitors. The FCA had stated that such a justification "must provide a credible efficiency or pro-competitive explanation, unrelated to an anti-competitive purpose" and that there must be an "efficiency-related link" between the justification and the respondent.

The Draft Guidelines attempt to clarify the uncertainty left by this framework by providing that "a 'credible or pro-competitive rationale' ... will often comprise activities that minimize costs of production or operation, independent of the elimination or discipline of a rival; or activities that improve a firm's product, service, or some other aspect of the firm's business." The Draft Guidelines then elaborate on these two categories of activities. Unfortunately, this welcome clarification and elaboration are somewhat undermined by the Bureau's position that "if the cost saving can be achieved in an equally effective manner other than through the conduct alleged to be anti-competitive, the Bureau will not consider the conduct as having a valid business justification."

The Draft Guidelines provide the helpful statement that "where it is clear that the firm's objective in engaging in that conduct was for reasons other than the exclusion, discipline, or predation of a competitor, then the Bureau will likely not elect to pursue further the investigation." In cases of mixed motives, the Bureau will continue to investigate the matter. However, the Draft Guidelines do not provide guidance about how the Bureau will conduct the balancing exercise in such cases.

Anti-Competitive Acts

The Draft Guidelines also embrace the FCA's competitor-oriented approach to what constitutes a practice of "anti-competitive acts." In short, they define such conduct as behaviour that has "an intended negative effect on a competitor that is predatory, exclusionary or disciplinary"; they note that intent can be inferred from the relevant circumstances and reasonably foreseeable consequences of the conduct.

The "But For" Approach

In addition, the Draft Guidelines reflect the FCA's "but for" approach to the third of the principal elements of the abuse of dominance test -- namely, what constitutes an actual or likely substantial prevention or lessening of competition. This approach requires an assessment of whether, "but for" the practice in question, competition would be substantially greater in the past, present or future. The Draft Guidelines note that, in conducting this assessment, the Bureau will examine whether, "but for" the challenged conduct, "prices might be substantially lower; product quality, innovation, or choice might be substantially greater; or consumer switching between products or suppliers might be substantially more frequent."

Other Noteworthy Changes

Other noteworthy changes, unrelated to the FCA's decision in Canada Pipe, include:

  • the removal of material that discussed alternative means of resolving cases and that addressed the misperception that the Act can be invoked to protect the profitability of competitors' businesses;
  • a streamlining of the treatment of joint dominance;
  • the adoption of the "hypothetical monopolist" approach to market definition that is reflected in other enforcement guidelines issued by the Bureau;
  • a significantly expanded treatment of exclusive dealing, tying and bundling, and denial of access to facilities, services and inputs. These expanded sections of the Draft Guidelines do not appear to change existing policy or differ materially from the corresponding provisions on denial of access in the Bureau's 2008 Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry. That Bulletin articulates a somewhat lower intervention threshold for access cases than in other major jurisdictions.

Disappointments

Unfortunately, the Draft Guidelines do not materially change the Bureau's approach to the issue of what constitutes "dominance" (the first of the three principal elements in the abuse of dominance provisions). While the United States, Europe and other important jurisdictions are gravitating toward a "substantial market power" test, with safe harbours that are higher than those set out in the 2001 Guidelines, the Bureau has maintained the position that dominance can be demonstrated by a showing of merely some market power.
Its safe harbour for single firm dominance remains unchanged at 35%, while its safe harbour for joint dominance has simply been raised from 60% to 65%. It had been expected, particularly in light of the existing jurisprudence under section 79, that these thresholds would be raised to approximately 50% and 75%, respectively. Similarly, while the Bureau should be commended for its expanded discussion on exclusive dealing in Appendix III of the Draft Guidelines, there was some expectation that the Bureau would identify a safe harbour for exclusive dealing arrangements that foreclose less than 30%-35% of existing customers or effective distribution.

Submissions

The Bureau has invited interested parties to provide comments on the Draft Guidelines by e-mail, fax, or regular mail no later than April 20, 2009.

Paul Crampton is a partner in the Competition/Antitrust Law Group in the Toronto office of Osler, Hoskin & Harcourt LLP. Michelle Lally is a partner in the firm's Competition/Antitrust Law Group and a member of the firm's Executive Committee.

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 Mondaq.com.

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

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.