Annual Report — Preventing Anti-Competitive Activity

The Competition Bureau has a range of interdependent instruments at its disposal to deal with anti-competitive activity. Whenever possible, it works with companies to eliminate anti-competitive behaviour and encourage compliance with the law. However, when there is evidence of serious violations of the criminal provisions of the Competition Act, the Bureau refers cases to the Attorney General of Canada and recommends prosecution. This can result in heavy fines, prison terms or both for offenders. Over the past year, prosecutions have led to companies being fined approximately $18.7 million. In civil matters, when solutions cannot be reached by consent orders or other means, the Bureau applies to the Competition Tribunal for a remedial order.

The following are examples of the Bureau's response to non-conformity, including cases involving international cartels and ones resolved through alternative case resolution. The Bureau discontinued some cases for various reasons (see Appendix I). For detailed information, including information notices, press releases and backgrounders on these cases and others, please visit the Bureau's Web site (http://www.competitionbureau.gc.ca ).

Airline Industry

Following the acquisition of Canadian Airlines by Air Canada, the Competition Bureau took on additional responsibilities in order to protect competition in the domestic airline industry. Bill C-26, which passed on July 5, 2000, contained a number of amendments to the Competition Act dealing specifically with competition issues in the airline industry. The subsequent enactment of airline regulations under section 78 of the Competition Act (August 23, 2000) provided the Bureau with an additional tool to address concerns about the conduct of the dominant carrier. The past year has seen some new players enter the industry, expansion by existing players into new markets, as well as further consolidation. Throughout, the Bureau has been actively involved in responding to complaints and administering the new legislation.

Temporary Orders

Section 104.1 of the Act allows the Commissioner to issue a temporary order prohibiting a person from operating a domestic service (as defined by the Canada Transportation Act) when parties have met certain preconditions related to concerns about anti-competitive activity. The order is limited to an initial term of 20 days, and may be renewed for two additional periods of 30 days each. Parties subject to an order can challenge it or have it set aside by the Competition Tribunal.

Consultation on Draft Guidelines on Abuse of Dominance in the Airline Industry

On February 8, 2001, the Bureau released enforcement guidelines on abuse of dominance in the airline industry, which outline the approach the Bureau intends to take when enforcing the new legislation and regulations pertaining to the airline industry. By issuing these guidelines, the Bureau is providing guidance to airline industry participants about the type of conduct the Bureau is likely to challenge, with the intention of facilitating a high degree of compliance. Public consultations ran until May 2001.

Enforcement Cases and Complaints

Since January, 2000, the Competition Bureau has received approximately 50 complaints about the airline industry. Many, which were from consumers concerned about excessive air fares and deteriorating levels of service, did not raise any concern under the Competition Act and were referred to the appropriate authority. However, the Bureau also received and examined complaints from nine airlines that Air Canada abused its dominant market position through predatory or exclusionary behaviour. Three of the complaints did not cause concern under the Competition Act or Air Canada's December 21, 1999, undertakings to the Commissioner. In two other instances, Air Canada addressed the concerns through commercial action. Two other complaints are the subject of preliminary examinations by the Bureau.

The two remaining complaints resulted in formal inquiries under the Act. The Bureau launched the first in June 2000, following a complaint from WestJet that Air Canada responded to its entry into the Atlantic Canada market by adding significant capacity and matching or undercutting WestJet's fares.

The second inquiry concerns CanJet's complaint that Air Canada abused its dominant market position in its pricing response to CanJet's entry in September 2000. On October 12, 2000, the Commissioner issued a temporary order against Air Canada, requiring it to withdraw certain discount fares on five routes in eastern Canada. On October 30, the Commissioner extended the order for an additional 30 days, but limited its scope to three routes.

Air Canada initiated two legal challenges in response to these inquiries. The first, a motion filed on October 12 in Quebec Superior Court, sought a declaratory judgment to the effect that section 104.1 of the Competition Act, dealing with the Commissioner's authority to issue temporary orders, was unconstitutional. The hearing on Air Canada's motion took place in May 2001 and a decision is pending. Air Canada filed another motion on October 19, 2000, in Quebec Superior Court seeking a suspension of the Commissioner's temporary order until resolution of the constitutional challenge. On October 24, the Court denied this request.

The second challenge, an application to the Competition Tribunal on November 2, sought to have the order set aside or varied. On November 24, the Tribunal upheld the Commissioner's order, extended it to December 31, and varied it by deleting reference to "similar fares" on the basis that this terminology was too vague. On December 4, Air Canada appealed this decision to the Federal Court of Appeal. The appeal will not be heard until the next fiscal year.*

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* In July 2001, the Quebec Superior Court ruled in favour of the Commissioner's power to issue temporary orders under section 104.1 of the Competition Act.

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As a result of information obtained from the WestJet and CanJet inquiries, the Commissioner filed an application before the Competition Tribunal on March 5, 2001, seeking an order prohibiting Air Canada from operating or increasing capacity at fares that do not cover its avoidable cost of providing the service, and from engaging in a policy of matching fares offered by low-cost carriers under certain circumstances. The Tribunal hearing on the Bureau's application began on August 27, 2001.

Other Cases

The following are summaries of some of the major criminal cases that were revoked or in which charges were laid or applications filed with the Tribunal in the past fiscal year.

Misleading Advertising

• In August 2000, 3181731 Canada Inc., doing business as Direct Health Organization, Columbus Health Centre, New Opportunities Publications and Canadian Shipment Centre, pleaded guilty to misleading advertising and was fined $500 000. The company had urged consumers through mail samples to purchase various weight-loss products and to get involved in a get-rich-quick program. Subsequent investigation determined that these representations had not been based on adequate or proper tests.

• In November 2000, three individuals and two companies were charged under the misleading advertising provisions of the Competition Act for allegedly invoicing businesses for unsolicited Internet directory listing services. Documents mailed to more than 500 000 businesses and charitable organizations under the names Yellow Business Pages and Yellow Business Directory asked recipients to mail in money for an Internet directory listing. The charges allege that the mailings appeared to be invoices or bills, when they were in fact solicitations, and that recipients were mistakenly led to believe they were existing customers of the Internet directory service. The trial is scheduled for 2001­2002. On February 5, 2001, the Bureau issued a warning to businesses to be careful before paying invoices for products and services.

Deceptive Telemarketing

• In September 2000, 35 criminal charges under the telemarketing provisions of the Competition Act were laid against F.D.G. Fortune One Group and F.N.G. First National Galleries, their principal director and five telemarketers. The charges allege that the companies' telemarketers, who persuaded consumers to buy promotional products on the understanding they would then receive valuable prizes, misled those consumers about the value of the prizes and the conditions and restrictions required to collect them. The trial is scheduled for 2001­2002.
• In December 2000, the director of S.S. Viking Industries, S.C. Canadian Clearing Centre Inc. and Exclusive Premium Distribution Centre S.C. Corporation pleaded guilty to three criminal charges of misleading advertising and was sentenced to pay $300 000, the highest fine ever imposed against an individual for deceptive telemarketing under the Competition Act. The charges related to company promises to consumers that they would receive valuable awards if they bought promotional products the company was selling at what were subsequently determined to be inflated prices.
• In December 2000, C.S.R.H. Heritage Group Inc. was fined $700 000, and its manager sentenced to a six-month conditional jail term, for promising consumers valuable awards if they bought promotional products at what were determined to be inflated prices.
• In December 2000, a charge of misleading advertising was laid against Dial America Teleservice Corporation and its director related to telemarketing activities through which the company sold U.S. consumers credit card protection. The Bureau alleges, first, that consumers were mistakenly led to believe the company was calling on behalf of, or was affiliated with, their credit card issuer, and, second, that the product did not offer any additional credit card protection.

Deceptive Marketing Practices

• In September 2000, in a civil case, the Bureau registered a consent order with the Competition Tribunal against Gestion Professionnelle (électroprotections) Inc. (GPI) to cease the marketing of the ML-10, an electronic anti-corrosion device. Under the terms of the order, obtained under the deceptive marketing provisions of the Competition Act, GPI agreed to stop selling the device and to refrain from marketing it, or any other similar device, until appropriate tests took place.
• In March 2001, in a civil case, the Bureau filed an application with the Competition Tribunal for an order against P.V.I. International Inc. and two corporate officers with respect to the promotion of a fuel-saving device, the Platinum Vapor Injector. The application alleges that certain claims about the device's ability to save fuel and reduce harmful emissions were false or misleading and not based on adequate tests. It also alleges that false or misleading representations were made in the promotion of the device that gave the impression it had been approved by the Canadian and U.S. governments.

Consumer Packaging and Labelling Act

• On December 13, 2000, Gaston Charbonneau Ltée was convicted on three charges under the Consumer Packaging and Labelling Act. An inspection of several lots of compost revealed that the product did not contain the net quantity declared on the label. The company was fined $3000 and the product in question was seized and removed from sale.

Price Maintenance

• In September 2000, the Competition Bureau laid charges against Les Pétroles Irving/Irving Oil Inc., a major supplier of petroleum products, and two gasoline retailers for having contravened the price maintenance provisions of the Competition Act. In October 2000 the case went before the Quebec Court, which decided that there was insufficient evidence to go to trial, since the element of threat as defined by the Act was not demonstrated by the facts. Following this judgment, a writ of certiorari was filed in Quebec Superior Court.*

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* The parties were heard on April 17, 2001, and the decision of the court is pending.

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Domestic Conspiracy.

The Competition Bureau regards conspiracies and cartels with particular seriousness, and has been successful in pursuing individuals and corporations involved in these activities with the help of leads provided by other countries, its own information and its immunity policy.

• In April 2000, the notaries association of Rivière-du-Loup, Quebec, pleaded guilty to conspiracy to fix the prices of real estate services notaries offered in the regions of Rivière-du-Loup and Trois-Pistoles, Quebec, and was fined $25 000. In addition, a prohibition order was imposed on the association and on 19 notaries in the two regions to prevent and prohibit the commission of similar new offences.
• In October 2000, five snow removal companies and a consulting firm in the greater Montreal area -- La Cie de pavage d'asphalte Beaver, Excavation Loiselle et frères Inc, Giguère et Geoffroy Inc, Nepcon Inc, Roxboro Excavation Inc. and 9014-6135 Québec Inc. -- were fined $1 million for conspiring to share the market and unduly lessen competition in snow clearing, removal and transportation. The offence involved an agreement to share snow removal contracts awarded by the Ministère des Transports du Québec for the 1997­1998 season.

Bid Rigging

In April 2000, Shakemaster Manufacturing Inc., a Calgary-based manufacturer and retailer of pine shakes, pleaded guilty to rigging bids to purchase commercial timber permits at an auction held by the Alberta Land and Forest Service in November 1996. The company was fined $15 000 and prohibited from agreeing to withhold bids and refrain from competing on purchases of timber from the Alberta Land and Forest Service, and from agreeing on bids without first advising the bidding authority.

Evidence showed that, prior to the auction in question, a manufacturer and retailer of pine shakes met and formed an agreement with other pre-qualified participants in an auction category closed to local manufacturers. Some participants agreed to bid only on designated permits and not to compete with one another.

In February 1998, four other Alberta wood products manufacturers pleaded guilty to charges of bid rigging for their participation in the same scheme. The testimony of two individuals who had previously pleaded guilty, paid fines and performed community service played an instrumental role in the conviction of Shakemaster.

Glyphosate-based Herbicides

The Bureau received a complaint alleging that Monsanto Canada Inc., a major producer of glyphosate-based herbicides, was engaging in tied selling and exclusive dealing. The complaint alleged that Monsanto was tying the sale of its herbicide-tolerant seeds to the sale of its herbicide. The complaint also alleged that Monsanto had entered into exclusive contracts with major distributors.

In the spring of 1999, the Bureau advised Monsanto of its concerns with these practices. As a result, in the fall of 1999 Monsanto introduced a new marketing program that removed restrictions on the ability of farmers to use any brand of glyphosate-based herbicide with the herbicide-tolerant seeds. In addition, Monsanto's revised volume-based distributor and dealer discounts will increase the opportunity for competitive suppliers of glyphosate to gain access to channels of distribution serving the agricultural industry. As these changes resolved the Bureau's concerns, it discontinued the inquiry.

International Cartels: Conspiracy.

With globalization, the Bureau has increasingly directed its enforcement activity at international cartels that are affecting the Canadian economy. Canada has been among the leading countries aggressively pursuing these cases.

In 2000­2001, the following international cartels were fined more than $16 million, including the largest fine ever imposed under section 46 of the Competition Act:

• In July 2000, SGL Carbon Aktiengesellschaft pleaded guilty to participating in an international conspiracy to fix prices and allocate markets for graphite electrodes. Graphite electrodes are used primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all mini-mills, and for steel refining in ladle furnaces. SGL was fined $12.5 million, the largest single fine ever levied under section 46 of the Competition Act. SGL's conviction followed the March 1999 conviction of UCAR Inc. ($11 million fine) for its participation in the same conspiracy. SGL and the other members of the cartel agreed to restrict their production capacity, to fix the prices they would charge, and to allocate the volumes they would sell of graphite electrodes in world markets. As a result of the international cartel, a regime of uniform pricing existed between the two main suppliers of electrodes to the Canadian market, UCAR and SGL, and alternative supply sources were eliminated. It is estimated that over the course of this conspiracy, from May 1992 until June 1997, graphite electrode prices in Canada increased by more than 90 percent.
• In February 2001, Tokai Carbon Co. pleaded guilty to helping its competitors implement the graphite electrode conspiracy and was fined $250 000. It was understood by cartel members that Tokai would not supply product to the Canadian market. This conviction demonstrates that the Bureau will hold even firms with little or no commerce in Canada accountable for illegal conduct affecting Canada.
• In January 2001, Freyssinet Limitée pleaded guilty to rigging a 1991 tender for a contract to supply and install a system to reinforce the concrete base of the Hibernia oil platform, and was fined $800 000. Another company was granted immunity in return for being the first to approach the Bureau in this case.
• In March 2001, Carbone of America Industries Corp. pleaded guilty to fixing the prices of isostatic graphite in semi-machined and non-machined or block form, and was fined $300 000. Carbone was a member of an international cartel that agreed to fix prices and divide world markets for the product, which is primarily used for electrical discharge machining and in the continuous casting and semi-conductor industries.
• In September 2000, Daicel Chemical Industries Ltd. pleaded guilty to an international price fixing and market sharing conspiracy involving sorbates that affected prices for 17 years. The company was fined $2.46 million. Sorbates are chemical preservatives used primarily as mould inhibitors in many high-moisture and high-sugar foods, such as cheese and other dairy products, bakery products, fruit, berry and vegetable products, flavours, spices, syrups and pet foods. Takaysu Miyasaka, a citizen of Japan and former Daicel executive officer and general manager, pleaded guilty and was fined $250 000 for his role in the conspiracy, which operated from 1979 until 1996.

Alternative Case Resolution

Among the instruments the Bureau has developed to address anti-competitive behaviour, alternative case resolution refers to efforts to achieve compliance with the law without contested enforcement measures. The following are examples of cases successfully resolved in this way over the past year.

Price Maintenance

• In March 2000, the Bureau received a complaint that a giftware supplier had allegedly discontinued supplying one of its customers because of the customer's low-pricing policy. Discontinuing supply is illegal under the price maintenance section of the Competition Act. Following a meeting with Bureau officials, the supplier informed the Bureau that it would take all steps necessary to ensure compliance with the Act.
• During the spring of 2000, the Competition Bureau examined a proposed e-commerce program for dealer automobile sales that appeared to raise price maintenance issues under the Competition Act. A key concern was that a "dealer price" was quoted to consumers without an accompanying up-front price disclaimer that "dealers may sell for less." As a result of Bureau interventions, the Web site was revised to include this disclaimer and to notify consumers that the quoted pricing was negotiable.
• In July 2000, the Bureau examined an allegation that the merchant agreement of a large credit card company contained a binding clause prohibiting businesses from offering discounts to customers who pay by some means other than credit card. On confirming this was the case, Bureau staff met with senior officials of the credit card company to point out how this clause could raise concerns under the price maintenance provisions of the Competition Act. As a result of these discussions, the credit card company removed the clause from the merchant agreement and immediately informed its merchants of the change.
• In October 2000, the Bureau received a complaint that a Quebec coffee machine distributor had discontinued supplying one of its customers because of that customer's low-pricing policy. As any such behaviour is illegal under section 61 of the Competition Act, Bureau officials met with the distributor, who subsequently offered to supply his machines to the complainant.
• In November 2000, the Bureau investigated a complaint that a supplier of quilting fabrics had indicated that the complainant would have to raise prices in order to continue receiving supplies. In December, the Bureau informed the supplier that this alleged conduct is contrary to the price maintenance provisions of the Competition Act and provided documentation.
• An insurance broker refused to provide project insurance to engineers and architects unless they charged in accordance with a suggested fee schedule issued by the association for engineers and architects. This matter was reviewed with the insurance broker in December 2000 and the broker agreed to take the offending condition out of its policy.

Price Discrimination

• In September 2000, a local retailer and installer of satellite dishes complained that smaller private installers were able to buy identical products at lower prices from his supplier, even though their volume of purchases was smaller. The Bureau contacted the supplier, who acknowledged that the smaller installers were previous employees who were receiving a special employee discount. The supplier agreed to limit the quantities sold at special prices to previous employees.
• During the winter of 2001, the Bureau received information that there were significant variations in the promotional discounts on photocopier equipment that a photocopier manufacturer was offering to competing purchasers. As part of its examination, the Bureau conducted information and compliance interviews with the manufacturer to discuss the price discrimination concerns this activity raised. Consequently, the manufacturer agreed to ensure that its corporate promotional discount policy complied with the Act.
• In March 2001, the Bureau investigated a situation in which a small retailer of wood tools was not receiving the same discount as his competitors from a particular supplier, even though he was buying the same quantity of tools. After the Bureau informed the retailer of the price discrimination guidelines in the Competition Act, he contacted the owner of the wood tool company, who agreed to provide him with the same discounts.

Abuse of Dominance

• In July 1997, the Bureau became concerned about the marketing and selling practices of H.J. Heinz Company of Canada Ltd., a manufacturer of jarred baby food and infant cereal. The Bureau's concerns focussed specifically on Heinz's anti-competitive practices of making large, lump-sum payments up front to retailers not to stock jarred baby food and infant cereal produced by its competitors, of entering into multiyear contracts for exclusive supply, and of providing discounts conditional upon exclusive supply. In light of the Bureau's concerns, Heinz provided the Bureau with an undertaking under which it agreed to stop these marketing and selling practices. Consequently, the Bureau discontinued its inquiry in August 2000.

Market Restrictions

• The Competition Bureau examined the competitive impact of a covenant that was part of the sale of the Come By Chance Refinery to its current owners, North Atlantic Refining. The covenant in its original form was part of the sale by Petro Canada of the refinery in the late 1980s and was further modified when North Atlantic Refining purchased the refinery. The Bureau was concerned that the covenant, which specified that sale products from the refinery could not be sold anywhere in Canada except Newfoundland without compensation paid to Petro-Canada, was a market restriction that was or was likely lessening competition substantially. The Bureau presented its concerns to the parties to the covenant, who in turn negotiated a modified covenant that replaced the required compensation clause with a profit-sharing arrangement. This arrangement allows North Atlantic Refining to market the Come By Chance products throughout Canada.

Conspiracy

• In January 2001, an association of insurance adjusters attempted to set the rates at which tow operators would be reimbursed for their services. After the Bureau reviewed the conspiracy provisions of the Act with the relevant parties, the local police department decided to request submissions from individual tow operators and insurance adjusters on what they felt would be a fair schedule of rates. The police department then published a schedule of suggested rates that it felt would be appropriate. Any tow operator willing to provide the service at or below these rates was placed on a rotation schedule.

Misleading Advertising and Deceptive Marketing Practices

• Following an application filed by six Canadian residents (which is the requirement for this type of inquiry), the Bureau launched an inquiry into the marketing practices of a company that was promoting a special type of spout for the collection of maple sap. The company claimed the spout was a newly patented product. However, the Bureau's examination of the matter revealed that the product was not in fact patented, but that the Canadian Intellectual Property Office was reviewing a patent application. Once contacted by the Bureau, the company signed a formal undertaking to stop making the claim, and to send letters to those persons targeted by the advertisement.

• A distributor and importer of agricultural irrigation systems promoted its product as having the best warranty coverage in the industry, as well as being comparatively superior in performance to its competitors. The representations were found to be inaccurate. To respond to the Commissioner's concerns about the misleading representation and deceptive marketing practices provisions of the Competition Act, the target company voluntarily discontinued the false advertisements, agreed to refrain from similar practices in the future, and advised staff members and distributors to cease using advertising materials the claims in which could not be verified. The U.S. manufacturer also advised all North American distributors to discontinue the use of the representations.
• The Bureau received a complaint that a beverage company was promoting its product as being the top-selling product in its class, based on statistics from the previous year, contrary to the false or misleading representation provisions of the Competition Act. The company submitted a proposed plan of action that included a shipment of new product packaging and the re-labelling of products containing the disputed claim. The steps the company undertook addressed the Bureau's concerns.

Variation of Consent Order

On September 8, 2000, the Competition Tribunal issued a variation of the consent order between the Competition Bureau and the Bank of Montreal et al. that it had originally approved on June 25, 1996.

The amendment means that the Interac Association is no longer obliged to approach the Competition Tribunal on an ad hoc basis for non-compliance issues related to association rules. Prior to this change, with the exception of monetary penalties for failure to meet Interac's performance policy, the Interac board could only expel members that did not comply with association rules. The amendment allows the Interac board to levy monetary penalties for a range of offences, provided the discipline meets rational business objectives and does not discriminate. This policy applies to all members, is without competitive significance, and is consistent with policies and practices of other major North American networks.

The variation of the consent order in no way affects the possible application of the Competition Act to the activities of the Interac Association or its members. The Competition Bureau consented to this variation and expects that the amendment will permit the Interac board to manage its business affairs in a flexible and measured manner.