The recent Kobe Mohr v. National Hockey League1 decision of the Federal Court (the "Decision") provides important jurisprudential guidance on the application of sections 45 and 48 of the Competition Act (the "Act"). These provisions prohibit naked anti-competitive conspiracies and conspiracies relating participation in professional sports respectively.
In September, 2020, Kobe Mohr, as Representative Plaintiff on behalf of all major junior hockey players that signed a standard player agreement, filed a Statement of Claim in the Federal Court seeking damages of approximately $825 million for an alleged conspiracy among Canadian and U.S. hockey leagues as well as the governing body for hockey in Canada (collectively, the "Defendants") contrary to section 48 of the Act.
The Defendants brought a motion to strike the Statement of Claim on grounds it was plain and obvious section 48 was inapplicable to the Defendants.
The plaintiff brought a motion to amend the Statement of Claim to add numerous individual hockey teams within the Defendant leagues as defendants and to allege agreements contrary to section 45 and 48 of the Act.
Sections 45 and 48 of the Competition Act
Under section 45 of the Act, it is a criminal offence for competitors to agree to:
- fix, maintain, increase or control the price for the supply of a product or service;
- allocate sales, territories or customers for the production or supply of a product or service; or,
- fix, maintain, control, prevent, lessen or eliminate the production or supply of a product.
Breach of section 45 is an indictable offence, subject to a fine of up to $25 million or imprisonment for a term of up to 14 years or both.
Subsection 48(1) of the Act states that every one who conspires with another person to
- limit unreasonably the opportunities of another person to participate as a player or competitor in professional sport or to impose unreasonable terms and conditions on player or competitor participants in professional sport; or,
- to limit unreasonably the opportunity for another person to negotiate with and play for the team of choice,
is guilty of an indictable offence. According to subsection 48(3), section 48 applies, and section 45 does not apply, to agreements between "teams and clubs engaged in professional sport as members of the same league or between and among directors, officers or employees of those teams or clubs where the agreements ... relate exclusively to matters described in subsection (1) or to the granting and operation of franchises in the league". The penalty for breach of section 48 is a fine in the discretion of the court or imprisonment for a term not exceeding 5 years or both.
In the Decision, Chief Justice Crampton dismissed the plaintiff's Motion to Amend the Statement of Claim and granted the Defendants Motion to Strike based, amongst other things, on the scope of sections 45 and 48 respectively.
(i) Scope of section 45
The Motion to Amend raised squarely the issue of whether agreements in relation to the purchase of a product or a service, sometimes referred to as "buy-side agreements", are within the scope of section 45. As discussed in our blog available here Competition Bureau provides New Guidance: No Poach, Wage-Fixing and Other Buy-side Agreements | Competition chronicle, section 45 of the Act was amended in 2009 to establish a per se criminal office for naked restraints on competition, namely, agreements to fix prices, allocate markets/customers, or restrict output. The amendments removed the competitive effects analysis previously required under the provision. They also removed all references to the purchase of products or services.
It was generally understood that the 2009 amendments removed buy-side agreements from the scope of section 45. However, following increased interest in "no-poach" and "wage-fixing" agreements by U.S. antitrust authorities, the Bureau was asked to clarify its view on whether section 45 applies to buy-side agreements. In response, the Bureau issued guidance last year (Competition Bureau statement on the application of the Competition Act to no-poaching, wage-fixing and other buy-side agreements – Canada.ca) confirming that it did not intend to pursue no-poach, wage-fixing and other buy-side agreements under section 45. The Decision provides legal precedent for this approach.
Chief Justice Crampton concluded that by its explicit terms, section 45 does not apply to the purchase or acquisition of a product – a conclusion he noted is supported by the legislative history of the provision and is consistent with the Bureau's guidance. He left open the possibility, however, that "45(1)(c) may apply to a supplier boycott or other "hard core cartel" agreement among competitors in a downstream market to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product in which they compete".
Turning to the proposed Amended Statement of Claim, Chief Justice Crampton held that the Defendants and many of the proposed defendants were not competitors in any respect, and that even those that might compete in some respect (that is, teams or clubs within a league), did not compete in the production or supply of the relevant product, namely, player services; at most, these clubs competed in the acquisition of these services. On this basis, Justice Crampton concluded "it is plain and obvious that the plaintiff has not pleaded a reasonable cause of action in relation to section 45".
(ii) Scope of Section 48
As noted above, subsection 48(3) provides that section 48 applies, and section 45 does not apply, to "agreements or arrangements between or among teams and clubs engaged in professional sport as members of the same league" and that relate "exclusively" to matters identified in subsection 48(1).
Chief Justice Crampton found that subsection 48(3) limits the application of section 48 to intra-league agreements that relate exclusively to matters raised by subsection 48(1), namely intra-league agreements that unreasonably limit opportunities to participate in professional sport as a player or competitor, impose unreasonable terms and conditions of such participation, or unreasonably limit opportunities to negotiate and play with the team of choice. In making this determination, Chief Justice Crampton rejected the argument that subsection 48(3) simply removes the conduct identified in 48(3) from the scope of section 45 and does not limit the scope of section 48. He found that this interpretation would arbitrarily and absurdly subject some agreements relating to professional sport to the different sanctions available under sections 45 and 48. He also held that an interpretation of 48(3) which limits the provision solely to conduct identified in subsection 48(1) is more consistent with the overall scheme and legislative history of the provision.
Chief Justice Crampton also determined that the proposed Amended Statement of Claim did not allege any intra-league agreements relating exclusively to conduct described in 48(1). On this basis, he concluded that it was plain and obvious the proposed Amended Statement of Claim did not disclose a reasonable cause of action under section 48 of the Act.
The plaintiff has filed a notice of appeal of the Decision. Subject to any determinations on appeal, the Decision is a significant legal precedent confirming that section 45 does not apply to buy-side agreements and providing the first substantive judicial assessment of the application of section 48.
1. 2021 FC 488
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