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Annual Report of the Commissioner of Competition for the year ending March 31, 2004


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Chapter 3: Promoting Compliance with the Civil Provisions

The Competition Bureau acts as a referee in the marketplace to address disputes that arise between businesses or between consumers and businesses. It investigates possible anti-competitive behaviour, such as abuse of dominant position, and restraints imposed by suppliers on customers, such as refusal to supply, exclusive dealing and tied selling. The Bureau also investigates cases of false or misleading representations and other deceptive marketing practices, such as representations that are not based on adequate and proper tests, misleading ordinary price representations, and contests, lotteries, games of chance, skill, or mixed chance and skill that do not disclose the required information.

When appropriate, the Commissioner opens discussions to try to obtain voluntary compliance with the law; sometimes, this is all the action needed to correct the situation. A more formal solution involves registering a consent agreement with the Competition Tribunal, when all parties agree on a solution that will restore competition to the marketplace. If voluntary compliance cannot be achieved, the Commissioner may file an application with the Competition Tribunal for an order to remedy the situation. Depending on the issue, the Commissioner may register the consent agreement or file the application with the Federal Court or a superior court of a province.

The following illustrate the Bureau's response to instances of non-conformity in civil matters over the past year. For more information on these cases and others, including information notices, news releases and backgrounders, please visit the Bureau's Web site.

1. Enforcement Actions

Airline Industry

Competition Tribunal Hearing: Commissioner of Competition v. Air Canada

On March 5, 2001, the Bureau asked the Competition Tribunal for an order prohibiting Air Canada from engaging in anti-competitive practices directed against low-cost carriers WestJet and CanJet. The Tribunal decided to hear the case in two phases, the first dealing with the definition of avoidable cost. On July 22, 2003, the Competition Tribunal released its decision on this matter. The Tribunal found that Air Canada had "operated or increased capacity at fares that did not cover the avoidable costs of providing the service" on the Toronto Moncton route, between April 1, 2000, and March 5, 2001, and on the HalifaxMontréal route, between July 1, 2000, and March 5, 2001. In reaching its findings, the Tribunal generally adopted the Bureau's approach on the following:

the categories of costs that were avoidable;
the relevant period of time to be examined;
the relevant unit of capacity to consider; and
the treatment of "beyond revenues" in applying the test.

This interim finding did not deal with the question of whether Air Canada had abused its dominant position in an anti-competitive manner, contrary to section 79 of the Competition Act. This issue will be resolved during the second phase of the hearing, which will examine whether Air Canada was the dominant player on the routes in question, whether its below-cost operations constituted a "practice of anti-competitive acts" and whether that resulted in competition on those routes being prevented or substantially lessened.

In light of Air Canada filing for protection under the Companies' Creditors Arrangement Act on April 1, 2003, the Tribunal stayed its decision on phase one and the appeal period until Air Canada emerges from bankruptcy protection.

Authority to Issue Temporary Orders

On August 14, 2003, the Supreme Court of Canada granted the Attorney General of Canada leave to appeal a decision of the Quebec Court of Appeal striking down section 104.1 of the Competition Act. This provision gives the Bureau the authority to issue temporary cease and desist orders during inquiries into the airline industry.¹

Distribution of Airline Services

Some industry participants raised concerns with the Bureau about certain airlines making discount or "web-fares" available only through their Web sites, which meant that they were not available through the computer reservation systems. The Bureau found that this greater reliance on the Internet was consistent with the worldwide practice of embracing new technology to lower distribution costs. The Bureau did not find that competition had been prevented or lessened substantially as a result of this practice, and concluded that further analysis was unnecessary. The Bureau also helped Transport Canada review the computer reservation systems regulations.

Other Airlines Examinations

During 20032004, the Bureau ended its examination of the following three airline matters.

An allegation of predatory pricing in western Canada. The complainant failed to respond to requests for further information, so the matter was closed in September 2003.
Allegations by six persons resident in Canada that a major carrier was engaging in predatory conduct in operating discount brand flights on certain routes in eastern Canada. The complainants subsequently declined to respond to requests for further information to substantiate their allegations. Since the Bureau's information on fares and capacity on the routes in question did not provide grounds for an application to the Competition Tribunal, the Bureau discontinued the inquiry in September 2003.
The complaint of a carrier operating in northern British Columbia about its inability to get fuel at a small airport in northern British Columbia. The information the Bureau gathered was insufficient to establish whether the complainant had been substantially affected or precluded from conducting business, or whether competition had been substantially lessened. The Bureau closed the matter in February 2004.

Abuse of Dominant Position

Abuse of dominant position occurs when a dominant firm in a market or a dominant group of firms engages in conduct intended to eliminate or discipline a competitor or to deter future entry by new competitors into the market, with the result that competition is prevented or substantially lessened. The Bureau considers market dominance to be synonymous with market power. The most straightforward indication of the existence of market power is the ability of a firm or group of firms to raise prices above competitive levels for a considerable period of time.

Competition Tribunal Hearing: Commissioner of Competition v. Canada Pipe Company Ltd.

In October 2002, the Bureau filed an application with the Competition Tribunal for an order prohibiting Canada Pipe Company Ltd./Tuyauteries Canada Ltée from engaging in anti-competitive acts through its Bibby Ste-Croix Division.

The application was the first abuse of dominant position case to be heard under the amended Competition Tribunal Rules (February 2002), which changed the documentary disclosure standard from one of relevance to one of reliance. The application alleged that Bibby Ste-Croix was abusing its dominant position in the supply of cast iron pipe, fittings and mechanical joint couplings for drain, waste and vent applications in markets across Canada by introducing a loyalty program that locked in customers and prevented competitors from accessing the distribution network. The Bureau asked the Tribunal to do the following:

order Canada Pipe to stop the alleged conduct;
prohibit the company from acquiring cast iron drain, waste and vent businesses in Canada for the subsequent three years; and
order Canada Pipe to notify the Bureau of any such acquisitions for the subsequent three years.

Canada Pipe responded by filing a motion challenging the amended Competition Tribunal Rules on the grounds that they were against the guarantee in the Canadian Bill of Rights of the right to a fair hearing. The Tribunal dismissed this argument as well as Canada Pipe's subsequent request for further disclosure by the Bureau. The Federal Court of Appeal upheld the latter decision.

The hearing of the Bureau's application began on March 1, 2004 and should be completed in early September 2004.

Exclusive Dealing

Exclusive dealing takes place in three instances:

when a supplier requires or induces a customer to deal only, or mostly, in certain products;
when a supplier requires or induces a customer to buy a second product as a condition of supplying a particular product; and
when a supplier requires a customer to sell specified products in a defined geographic market.

On December 18, 2003, the Bureau announced the conclusion of its examination of the distribution agreement between Best Buy Canada Ltd. and TGA Entertainment Ltd. for the Rolling Stones DVD, Four Flicks.

HMV Canada Inc. alleged that this exclusive agreement breached the Competition Act by denying access to the supply of a product and reducing retail competition. However, the Bureau's examination concluded that an exclusive agreement for one DVD released by a single artist for a limited period did not constitute an anti-competitive practice. Furthermore, the examination did not establish that the necessary exclusionary effects had occurred for there to have been an offence under the Act.

Refusal to Supply

When someone is substantially affected in his or her business, or is unable to carry on business, because he or she cannot obtain adequate supplies of a product on usual trade terms, this is considered refusal to supply under section 75 of the Competition Act.

In 2003-2004, the Bureau did not have any open inquiries under section 75; however, two cases were filed privately with the Competition Tribunal, under the new private access provisions of the Act that came into force in June 2002.

On January 15, 2004, the Competition Tribunal granted leave to Barcode Systems Inc. to make an application against Symbol Technologies Canada ULC, resulting from Symbol Technologies refusing to supply Barcode Systems with barcode scanners. On January 26, 2004, Symbol Technologies appealed the Tribunal's decision to the Federal Court of Appeal. The appeal is pending. This is the first case in which leave has been granted since private access rights were introduced. For more information on this case, see the Tribunal's Web site.

On February 5, 2004, the Competition Tribunal granted leave to Allan Morgan and Sons Ltd. to make an application against La-Z-Boy Canada Limited, resulting from La-Z-Boy refusing to supply Allan Morgan and Sons Ltd. On March 3, 2004, La-Z-Boy Canada Limited appealed the Tribunal's decision to the Federal Court of Appeal. For more information on this case, see the Tribunal's Web site.

Misleading Representations and Deceptive Marketing Practices

The Competition Act contains civil and criminal provisions to address false or misleading representations and deceptive marketing practices when promoting the supply or use of a product or any business interest. The general civil provision prohibits all representations made to the public that are false or misleading in a material respect. Other provisions specifically prohibit the following:

making representations that are not based on adequate and proper tests;
advertising misleading warranties and guarantees;
making misleading ordinary price representations;
making untrue, misleading or unauthorized use of tests and testimonials;
offering products at bargain prices that are not available in reasonable quantities;
selling products above the advertised price; and
conducting any contest, lottery, game of chance, skill, or mixed chance and skill without disclosing the required information.

In 2003-2004, the matters described below were before the courts or resolved thought consent agreements.

Sears

In July 2002, the Bureau filed its first application with the Competition Tribunal under the ordinary selling price provisions of the Competition Act, claiming that Sears Canada Inc. quoted inflated regular prices when promoting certain tires to consumers at so-called sale prices. In the application, the Bureau asked the Tribunal to issue an order requiring Sears to stop the alleged conduct for 10 years, to publish a notice outlining the Tribunal's findings and to pay an administrative monetary penalty. Sears challenged the constitutionality of the relevant section of the Competition Act. The Tribunal has heard evidence in the matter, written final arguments have been filed, and final oral arguments on the constitutionality of the ordinary selling price provisions have been heard. Pending the outcome of a motion by Sears to re-open the evidentiary portion of the hearing, the final oral arguments with respect to the alleged conduct have been postponed.

Suzy Shier

On June 13, 2003, the Bureau announced that it had reached a settlement with the women's clothing retailer Suzy Shier Inc., which had misrepresented its regular or ordinary selling prices. Bureau investigators found that the retailer had placed price tags on clothes indicating regular and sale prices, when, in fact, the items had not been sold at the regular price in significant quantities or for a reasonable period of time.

Under the terms of the consent agreement filed with the Competition Tribunal, Suzy Shier Inc. agreed to do the following:

pay an administrative monetary penalty of $1 million;
ensure all future representations of the regular price would comply with the ordinary selling price provisions of the Competition Act;
implement a corporate program to ensure compliance with these provisions; and
publish corrective notices in newspapers across Canada.

Goldline

On March 16, 2004, the Bureau announced that it had settled a case with Teleresolve Inc., an affiliate of Goldline Telemanagement Inc., a seller of prepaid long-distance phone cards. The Bureau had investigated reports of the company charging hidden fees, and charging higher per minute rates and fewer minutes than advertised.

Under the terms of the consent agreement filed with the Competition Tribunal, Teleresolve agreed to do the following:

pay an administrative monetary penalty of $750 000;
provide a credit of 50 percent of the value of all WOW and LILY prepaid calling cards with proof of purchase; and
not make representations in Canada or to Canadians, including on the Internet, that are false or misleading.

Teleresolve has since withdrawn the WOW and LILY cards from the market.

Tristar

On December 2, 2003, the Bureau announced that it had reached a settlement with Tristar Distribution Centre of Woodstock, Ontario, and its president, Trevor Brisebois, concerning the vacuum cleaner distributor's marketing practices. Bureau investigators discovered that Tristar and its distributors had used scratch-and-win promotional flyers that implied recipients had won a prize, when, in fact, this was conditional on their agreeing to participate in an in-home product demonstration.

Under the terms of the consent agreement filed with the Competition Tribunal, Tristar and its president agreed to do the following:

pay an administrative monetary penalty of $75 000;
publish a corrective notice in Ontario newspapers;
administer a new corporate compliance policy that covers marketing practices; and
not make false or misleading representations in future promotional material.

The Gold Factory and R. Pye & Sons Jewellers

On April 24, 2003, the Bureau announced that it had settled a case against The Gold Factory and R. Pye & Sons Jewellers of St. John's, Newfoundland and Labrador. The consent agreement filed with the Competition Tribunal required the corporation and the officers who operated the jewellery retail chain to stop using deceptive pricing practices when promoting jewellery sales. Specifically, a Bureau investigation revealed that the jewellery retailers misrepresented the value of savings to consumers by continuously offering significant discounts on their inflated regular price of gold jewellery.

Under the terms of the consent agreement, the corporation's officers agreed to only make written and verbal representations about the regular selling price of their products in the following circumstances:

when 50 percent of the products had been sold at the stated regular price within the 12 months prior to the claim; and
when the products had been offered for sale at the stated price or higher within the 12 months prior to the claim.

Para

On May 7, 2003, the Bureau settled a case that concerned the marketing practices of Para Inc. of Brampton, Ontario. The consent agreement filed with the Competition Tribunal concerned Para's claim that a certain paint would generate energy savings. Following tests by the Bureau and Para, Para agreed to limit these performance claims, as follows.

It would not claim energy savings greater than five percent in an average residential house.
It would say that energy savings vary according to climate and the construction quality of the building, among other factors.
It would not describe the heat transference qualities of the paint without identifying the energy-saving qualities as agreed to above.

2. Alternative Case Resolutions

The Bureau chooses the best and most efficient means of restoring competition in the marketplace. It resorts to an adversarial approach only when all other avenues to correct anti-competitive behaviour have failed or the activities constitute a flagrant disregard for the law. Some matters may be resolved quickly and easily, without full inquiry or judicial proceeding. This reduces uncertainty, saves time and avoids lengthy court actions.

Abuse of Dominant Position

On October 1, 2003, the Bureau discontinued an investigation it had begun in April 2002 under section 79 of the Competition Act concerning commercial waste disposal contracting practices in the Winnipeg area. According to complainants, competition in these markets was being restricted by long-term contracts and right-of-first-refusal clauses in them. Following discussions with the Bureau, the companies in question agreed that they would limit the initial and subsequent renewal terms for standard form contracts to three years and would not include right-of-first-refusal clauses.

Misleading Representations and Deceptive Marketing Practices

In 2003-2004, the Bureau used alternative case resolutions to settle 47 matters under the criminal and civil misleading representations and deceptive marketing practices provisions of the Competition Act and 10 matters under the three standards-based statutes.²

The Bureau may examine certain matters under the criminal and civil provisions of the Competition Act and the standards-based statutes. The following are examples of cases in which issues were raised under the civil misleading representations and deceptive marketing practices provisions of the Competition Act.

Telecommunications Provider: Misleading Representation

The Bureau received a complaint about advertisements on the Internet claiming that a telecommunications provider's pay-per-view movies were the "latest and greatest hit Hollywood movies." The Bureau's examination under the deceptive marketing practices provision of the Competition Act revealed that this was not the case, since pay-per-view movies are regularly released approximately two months after their release in video rental stores. Following discussions with the Bureau, the company agreed to use the phrase "latest and greatest pay-per-view releases" in its Internet advertisements.

Fitness Equipment: Ordinary Selling Price

A complaint about a Toronto-area fitness equipment retailer's pricing policies alleged that while newspaper advertisements promoting the sale of treadmills included both a regular price and a discounted price, the retailer never sold the product at the regular price. After discussions with the Bureau, the head of the retail chain agreed to undertake a number of corrective measures, and to inform all officers, employees and agents of the chain about them.

Building Supply Retailer: Low-Price Guarantee

The Bureau received complaints about a large retail building supply chain's advertised low-price guarantee, promising customers that the retailer would beat by 10 percent the price of identical products sold by a competitor at a lower price. The complainants alleged that the retailer was not honouring the guarantee on certain building supplies, such as lumber and drywall. Following discussions with the Bureau, the company provided written assurance that the corporate policy for the price guarantee did not exclude building supplies such as lumber and drywall. The company undertook to advise all stores and store employees of the policy and to prepare a training bulletin for their benefit.

Store Policy for a Low-Price Guarantee: Misleading Representation

A complaint alleged that a national retailer's "10% low price guarantee" was potentially misleading. The retailer claimed in its flyers that it would match any competitor's lower price and cut an additional 10 percent. However, the complainant alleged that when he advised the manager of a franchise that a competitor had a lower price, the manager refused to give him the discount, arguing that his store did not compete with the other retailer.

In response to Bureau concerns, a company official agreed the incident was a breach of the policy contract the independently owned franchises were expected to follow. The company then assured the Bureau in writing that it would take the necessary measures to prevent the situation from recurring.

Telecommunications Retailer: Promotional Contest

The Bureau received a complaint alleging that a telecommunications retailer's promotional contest did not comply with the Competition Act, since the disclosure requirements were not met and the advertised prize was not awarded. A Bureau examination revealed that the contest did not provide adequate and fair disclosure of the approximate value of the prize and other information about the chances of winning. In addition, the distribution of the prize was unduly delayed.

As a result of the Bureau's intervention, the company agreed to satisfy all of the information disclosure requirements in future promotional contests and to distribute prizes without undue delay.

Medical Device: Performance Claims

A complaint about a retailer of medical devices alleged that a manufacturer's product performance claims were false and misleading. In the Bureau's view, the claims at issue could mislead consumers into purchasing the company's products rather than those of its competitors.

Following discussions with the Bureau, company officials agreed to do the following:

destroy all company brochures making reference to these claims;
notify national sales representatives of the error;
distribute a corrective notice to customers who received a copy of the brochure; and
include the quality control manager in the approval of advertising for their products.

Lawn Care Services: False or Misleading Representations

On April 28, 2003, following a negotiated settlement, the Bureau discontinued an inquiry it had launched on August 16, 2000, under paragraphs 74.01(1)(a) and (b) of the Competition Act into environmental claims made by a lawn care service company. A complaint filed by six persons resident in Canada alleged that the company was making environmental claims that suggested that the chemical pesticides it used were safe and not harmful to the environment.

The Bureau discussed the issue with company officials who agreed to distinguish between services using chemical pesticides and pesticide-free services, and to refrain from implying that pesticides were not harmful or that services were pesticide-free when they were not.

Jewellery Store: Ordinary Price Claims

On September 18, 2003, following a negotiated settlement, the Bureau discontinued an inquiry it had launched on May 3, 2002, under sub-section 74.01(3) of the Competition Act into the marketing practices of a jewellery retailer with stores in Regina and Vancouver. The inquiry was part of a Bureau initiative in the retail jewellery industry to curb the use of false or misleading ordinary price representations to lure potential customers away from competitors. Over 18 months, Bureau officers observed that, in apparent contravention of the ordinary price claims provision of the Act, the retailer advertised goods as being on sale or offered large discounts for long periods, and that staff regularly offered customers discounts from the marked prices. Bureau officials spoke with the retailer and, subsequently, the Vancouver store closed and the Regina outlet agreed to bring its practices in line with the Act.

On December 2, 2003, the Bureau discontinued an inquiry it had launched on May 3, 2002, in response to allegations that a jewellery retailer had made false or misleading representations to the public about its prices for various articles of jewellery. Under sub-section 74.01(3) of the Competition Act, it is reviewable conduct to represent a price as the seller's own ordinary selling price when the seller has not sold a substantial volume of the product at that price or offered the product for sale at that price in good faith for a substantial period of time. This kind of advertising can influence consumers' purchasing decisions and lure them away from legitimate competitors.

The company in question stopped these representations shortly after it was made aware of the Bureau's concerns and also provided a written assurance of compliance regarding all future marketing practices. The Commissioner decided against pursuing the matter further, given the size and scope of the operation, among other things.

Lottery Corporation: Misleading Representation

On February 16, 2004, the Bureau discontinued an inquiry it had launched on November 2, 1999, into the marketing practices of a lottery and game of chance corporation. An application filed by six persons resident in Canada alleged that in promoting its lottery games, the corporation made false and misleading statements to potential ticket purchasers and failed to disclose certain facts that could affect the purchaser's chance of winning. The Bureau discussed the issue with the corporation, which agreed to make changes to its practices to ensure that adequate information was provided to its retailers and, in turn, to consumers, including complete, up-to-date information about game prize structures, odds of winning and the number of claimed and unclaimed prizes.

Electronics Liquidator: Warranty Claims and Mandatory Labelling Information

A summary of this case is available on page 16.

3. Written Opinions

The Bureau provides legally binding written opinions to businesses seeking to comply with the Competition Act and the standards-based statutes. Company officials, lawyers and others may request a written opinion on whether a proposed business plan or practice would raise concerns under any of these laws. The Bureau's written opinions take into account jurisprudence, previous written opinions and its current policies. Written opinions remain binding for as long as the material facts remain substantially unchanged and the conduct or practice is carried out substantially as proposed.

To promote compliance with and foster transparency in the administration and enforcement of the Act, the Bureau publishes detailed summaries of its written opinions on its Web site. Here is an example of the written opinions the Bureau issued in 2003-2004.

Misleading Representations and Deceptive Marketing Practices

The Bureau issued 23 written opinions concerning the civil and criminal misleading representations and deceptive marketing practices provisions of the Act.³ Only one dealt with the civil provisions of the Act, specifically, section 74.06.

Section 74.06 of the Act prohibits any promotional contest that does not disclose the number and approximate value of prizes, the geographic area or areas in which the prizes may be awarded and any important information relating to the chances of winning, such as the odds. The Act also stipulates that the distribution of prizes must not be unduly delayed and that participants must be selected or prizes distributed randomly or on the basis of skill. The Bureau issued a written opinion in response to a request from an advertising agency on behalf of a tour bus operator/travel agency about whether a proposed promotional contest would raise concerns under the Act. The Bureau concluded that if the company implemented the plan as proposed, the Bureau would not have sufficient grounds to launch an inquiry.

Footnotes

¹ On June 3, 2004, the Government withdrew its appeal.

² See Chapter 2 (page 16) for a general description of the criminal misleading representations and deceptive marketing practices provisions of the Competition Act, and a general description of the Consumer Packaging and Labelling Act, the Precious Metals Marking Act, and the Textile Labelling Act. See page 23 for a general description of the civil misleading representations and deceptive marketing practices provisions of the Competition Act.

³ See page 23 for a general description of the civil misleading representations and deceptive marketing practices provisions of the Competition Act. See Chapter 2 (page 16) for a general description of the criminal misleading representations and deceptive marketing practices provisions of the Competition Act.