In Williams v. Audible, the Supreme Court of British Columbia (the "Court") considered three applications in the context of a proposed conspiracy class action focused on exclusivity provisions in an agreement between Audible Inc. and Apple Inc. relating to the distribution and sale of digital audiobooks in Canada. Ultimately, the Court dismissed the plaintiff's certification application as well as the defendants' application for summary judgment and granted Audible's application to extend a stay of proceedings to two groups of putative class members.
BACKGROUND
In 2003, Audible and Apple entered into an agreement that allowed Apple to sell Audible audiobooks on iTunes. The agreement contained exclusivity provisions that imposed restrictions on Apple to source its audiobooks exclusively from Audible, and restrictions on Audible to refrain, subject to limited exceptions, from integrating its content with any other internet-based store or distribution service other than Apple. In 2006, the parties replaced the 2003 agreement with a Global Master Agreement (the "2006 Agreement") that maintained the general exclusivity provisions of the 2003 agreement but allowed Audible to engage in direct sales of audiobooks from its own website.
In 2018, the plaintiff filed a notice of civil claim against Apple, Audible and Amazon, which had acquired Audible in 2008 and previously entered into a Co-Branding Agreement with Audible pursuant to which Amazon advertised Audible content on its website. Among other things, the plaintiff alleged that the defendants violated s. 45 of the Competition Act (which creates a per se criminal offence for competitors who enter into agreements or arrangements to fix prices, allocate markets, or restrict output) and certain provisions of the Business Practices and Consumer Protection Act ("Consumer Act").
In 2019, the plaintiff sought to certify the action as a class proceeding on behalf of all persons in Canada who purchased digital audiobooks from the Amazon or Audible websites or Apple iTunes Store between 2003 and the date of certification. Prior to the certification hearing, in January 2020, the plaintiff amended the claim to address the fact that Amazon was not a party to the 2006 Agreement. The amendments included a new pleading of two separate agreements that in combination amounted to a conspiracy by Apple, Audible and Amazon: (i) the agreement between Apple and Audible; and (ii) the agreement between Audible and Amazon.
The same representative plaintiff commenced a separate class proceeding against Amazon relating to an agreement between Amazon and third-party sellers not to compete for the sales of new books, music, movies and DVDs on the Amazon Canada website. In March 2020, the Court granted Amazon's application for a stay of proceedings under the Arbitration Act, other than in relation to the plaintiff's claims under the Consumer Act (the "Amazon Stay Decision"). The exception for claims under the Consumer Act was based on Seidel v. TELUS Communications, where the Supreme Court of Canada held that, notwithstanding the existence of a mandatory arbitration clause, claims under section 172 of the Consumer Act may be pursued in Court.
There is a similar arbitration clause in Audible's contract with the plaintiff, which Audible sought to enforce; however, in light of Seidel, and pending the appeal proceedings of the Amazon Stay Decision , the plaintiff agreed to a consent stay of all non-Consumer Act claims, subject to two exceptions: (i) claims for relief on behalf of Alberta residents under the Alberta Consumer Protection Act; and (ii) all claims concerning purchases between July 21, 2010 and September 5, 2012, when Audible's contracts lacked an arbitration clause.
In December 2021, the plaintiff amended the pleadings again to drop the case against Amazon, and in early February 2022 the Court heard the following three applications, which are the subject of this decision:
- an application by Audible to extend the consent stay;
- applications for summary judgment brought by Audible and Apple, seeking to dismiss the Consumer Act claims against Audible and all claims against Apple (there is no arbitration clause in Apple's contracts with its customers and Apple is not a party to the consent stay), or alternatively, seeking to dismiss all claims prior to two years before the action was filed on the basis of a limitation defence; and
- an application by the plaintiff to certify the action as a class proceeding.
THE DECISION
The Court granted Audible's application to extend the consent stay to the Non-Consumer Act claims of Alberta residents and Canadians who purchased audiobooks between July 21, 2010 and September 5, 2012. The Court dismissed the summary judgment applications of Apple and Audible as well as the plaintiff's certification application.
Audible's stay application
In opposing Audible's extension of the consent stay, the plaintiff advanced the same argument that the Court rejected in the Amazon Stay Decision; that is, that the plaintiff can maintain claims on behalf of putative class members even if he himself cannot pursue the claims. However, the plaintiff argued that this case was distinguishable from the Amazon Stay Decision because: (i) Audible's stay application was being heard at the same time as the certification application; and (ii) the plaintiff had put forward an additional proposed representative plaintiff who made purchases at a time when there was no arbitration clause in the Audible customer contracts.
The Court held that the timing of the certification decision was not relevant to Audible's substantive right to pursue a stay of proceedings and that the Amazon Stay Decision was not distinguishable on this basis. Moreover, the Court concluded that the plaintiff could not continue non-Consumer Act claims against Audible on behalf of the new proposed representative plaintiff for the same reason it could not advance such claims on behalf of any other putative class member: if the plaintiff's proceeding against Audible is stayed, there is no proceeding to continue.
Summary judgment applications
Pursuant to Rule 9-6 of the B.C. Supreme Court Civil Rules, summary judgment may be granted if the court is satisfied, based on the evidence, that the plaintiff has no chance of success. The onus is on the defendant to show that there is no genuine issue for trial. If a determination of the merits of the plaintiff's claim requires a weighing of the evidence, then judgment cannot be granted under Rule 9-6.
The defendants asserted that there is no genuine issue for trial on the basis that the 2006 Agreement was not unambiguously harmful to competition, and thus, all the plaintiff's causes of action were bound to fail. Viewing the legislative history and context of s. 45 of the Competition Act, the defendants claimed that s. 45 was intended to apply to "hard core" or "naked" cartel agreements that lacked any pro-competitive benefits.
The defendants emphasized that their agreement was not a horizontal agreement between competitors, but rather, a vertical agreement between an upstream supplier of audiobooks (Audible) and a downstream purchaser and reseller (Apple), which the defendants stated is well recognized to have pro-competitive justifications. The Court noted that the agreement is what is known as a "dual distribution" agreement as Audible competes with Apple in addition to supplying it with audiobooks.
To support their position, the defendants proffered two affidavits of the former Commissioner of Competition, who provided his opinion on the approach he anticipates the Competition Bureau would take to the agreements between the defendants and what Parliament intended the scope of s. 45 to capture.
Subject to limited exceptions, the Court struck the affidavit evidence relied on by the defendants, finding it irrelevant and unnecessary as to how the Bureau would characterize the actual agreements in issue in this case. The Court held that it did not require the assistance of an expert to interpret domestic legislation; rather, the Commissioner's review of the legislative history and evolution of s. 45 could have been put before the Court in the form of legal argument or a journal article.
Ultimately, the Court held that the evidence on the record was not uniform on how to properly characterize the exclusivity provisions in the 2006 Agreement. The experts disagreed as to whether the exclusivity provisions are properly characterized as a vertical agreement, which would unambiguously have a pro-competitive justification. Consequently, the Court declined to grant summary judgment on the basis that it was not satisfied beyond a doubt that the plaintiff's claims were "bound to fail".
Notably, the Court held that the B.C. summary judgment provision is not suitable to resolve a complex and relatively novel issue of competition law regarding the application of s. 45 to a "dual distribution" agreement, and ought to be decided based on a full evidentiary record.
Based on the evidence on the record, the Court was also not satisfied beyond doubt that the claims of class members arising prior to two years before the action was filed were bound to fail based on a limitation defence. Contrary to the defendants' assertions, the Court held that this was not an exceptional case in which it was appropriate to resolve limitation issues at an early stage.
Certification application
The Court dismissed the plaintiff's application to certify the action as a class proceeding, finding that the common issues and preferability criteria were not satisfied.
The Court held that the plaintiff had failed to put forward sufficient evidence to show harm or loss could be determined on a class wide basis. The Court noted that the only common issue that could conceivably be certified on the record was the issue of whether the defendants' agreements were contrary to s. 45 of the Competition Act. However, in the absence of any evidence of a methodology for assessing damages on a class-wide basis, the Court held that the certification of that issue alone will not advance the claims of class members.
In the absence of any evidence that there is a methodology for assessing damages across the class, the Court ultimately held that a class proceeding was not the preferable procedure for the fair and efficient resolution of a common liability issue in this case.
Key Takeaways
- The case serves as a reminder to consider the impact of arbitration provisions and stays of proceedings on all putative class members. While courts may draw distinctions between Consumer Act claims and non-Consumer Act claims given the Supreme Court of Canada's decision in Seidel, once a proposed representative plaintiff's non-Consumer Act claims are stayed, there is no proceeding to advance the non-Consumer Act claims of other possible class members.
- The case highlights how courts in British Columbia may be unlikely to find summary judgment suitable to resolve relatively novel and complex issues such as the application of s. 45 to a "dual distribution" agreement.
- The case exemplifies a greater willingness by the Court to exercise its gatekeeper role and take a somewhat closer look at evidence at the certification stage.
As the plaintiff has filed a Notice of Appeal with the British Columbia Court of Appeal in this case, counsel will want to keep an eye on any guidance offered by the higher court(s).
Originally published August 26, 2022
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