The Pricing Provisions of the Competition Act Recent Developments

Presented by Mike Sullivan
Canadian Bar Association
Annual Fall Conference on Competition Law

October 2-3, 2003
Hilton Lac Leamy, Hull, Québec

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Outline

• Pricing Provision Origins
• Enforcement: History, Guidelines, Activity
• Reform Attempts
• April 2002 Standing Committee Report
• June 2003 Consultation Paper
• Reform Objectives

Origins of Pricing Provisions

• S. 50: Price Discrimination, Predatory Pricing
  • introduced 1935 following Report of the Royal Commission on Price Spreads and Mass Buying
• S. 51: Discriminatory Promotional Allowances
  • introduced 1960 to complement price discrimination provisions
• S. 61: Price Maintenance
  • introduced 1951 following McQuarrie Commission Report
  • strengthened by 1976 Stage I Amendments
• Criminal nature of provisions reflect historical foundation of competition law

Enforcement History

• Price discrimination - advisory opinions
• Carnation and Sherbrook Driving Schools only geographic price discrimination decisions
• Numerous complaints; some jurisprudence; few instances of predatory pricing

Enforcement Guidelines

• 1992 Price Discrimination and Predatory Pricing Guidelines
  • approach incorporates economics
  • significant impact on private sector practices and enforcement
• Predatory Pricing Guidelines
  • criticized in VanDuzer Report for inhibiting enforcement
• Draft Guidelines on Unreasonably Low Pricing Policies
  • released March 2002 to mixed reviews
• Further consultations on predatory pricing enforcement pending current round of amendment consultations

Enforcement Activity Post VanDuzer

• Large volume of complaints; cases address price maintenance:
  • Irving and Regina gas - Accused under s. 61 not bound over for trial
  • Stroh Brewery (Québec) - Guilty plea and $250,000 fine (s. 61)
  • ReMax and Toyota - consent prohibition orders (s. 34(2))
• Predatory Pricing as Abuse of Dominance
  • NutraSweet and Tele-Direct; Tribunal considered predatory pricing under s. 79
  • 2000 airline regulations
    • Specific predatory pricing provisions under s. 79
    • Air Canada (Phase I) Tribunal decision applied 'avoidable cost' test for predation

Attempts at Legislative Reform

• 1971 (C-256)
  • civil price discrimination provision without competition test
  • cost-based and "meet-the-competition" exemptions
• 1976 and 1977 (C-42 and C-13)
  • civil and criminal provisions for price discrimination
  • predatory pricing provision based on "abnormally low prices"
• 1996 Consultative Panel Report on Amendments to the Competition Act: repeal price discrimination and discriminatory promotional allowance provisions
• Business community concern about anti-competitive pricing practices did not result in legislative change

April 2002 Standing Committee Recommendations

• Repeal s. 50 and 51
  • treat discriminatory and predatory practices as anti-competitive acts within abuse provisions
• Repeal s. 61
  • treat vertical price maintenance under abuse provisions and horizontal price maintenance under "two track" conspiracy provision

April 2002 Standing Committee Recommendations
October 2002 Government Response

• Public consultation on decriminalizing s. 50 and 51, and s. 79 "dominance" test
• Premature to change s. 61 - conspiracy and price maintenance provisions interrelated
• Government support for Tribunal to order AMPs but not damages
• Private access rights reviewed in 2004
  • Government to assess whether private access rights warranted

June 2003 Consultation Paper

• Consultation paper mirrors Government response to s. 50, 51 and 79(1)(a)
• S. 78(1)(i) amended to add:
  (i.1) selling products at a price below avoidable cost for the purpose of disciplining or eliminating a competitor or impeding or preventing a competitor's entry into, or expansion in, a market
• Discriminatory and predatory practices subject to current Tribunal orders under s. 79 and AMPs
• Extension of s. 36 private right to recover damages following s. 79 order in contested proceedings

Objectives of Reform

• Decriminalization of s. 50 and 51: pro-competitive, efficient pricing practices
• Tribunal better forum to litigate market power issues
• Proposals distinguished from predecessors - AMPs and expanded rights to recover damages, greater deterrence