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Annual Report of the Commissioner of Competition for the year ending March 31, 2002


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Preventing Anti-Competitive Activity

The Competition Bureau has a range of interdependent instruments at its disposal to respond to anti-competitive activity. Whenever possible, it works with companies to eliminate anti-competitive behaviour and encourage compliance with the law. However, when anti-competitive conduct prevails and there is evidence that a firm has violated the criminal provisions of the Competition Act, the Bureau refers the case to the Attorney General of Canada and recommends prosecution. This can result in heavy fines, prison terms, or both, for offenders. In the past year, prosecutions have led to companies being fined approximately CAN$3 million. In civil matters, when a solution cannot be reached by consent order or other means, the Bureau applies to the Competition Tribunal or the courts for a remedial order.

The following are examples of the Bureau's response to non-conformity, including cases involving international cartels and ones handled 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.

Airline Industry

The state of competition in the Canadian airline industry continued to be at the forefront of public discussion in 2001-2002. In May 2001, the Commissioner appeared before the House of Commons Standing Committee on Transport and Communications and addressed a number of questions concerning the Bureau's enforcement experience and airline policy.

The past year saw some consolidation among Canadian airlines and the disappearance of a number of competitors. Unquestionably, the events of September 11, 2001, caused serious disruption to the industry. Air Canada struggled through the year with record losses and an increasing debt load, and while the continued growth of WestJet had a beneficial effect on competition, the failure of Canada 3000 had a negative impact. Nationally, Air Canada's market share remained in the 80 to 90 percent range, particularly in eastern Canada and on transcontinental routes where it faced little or no competition. Even on major routes, such as Montreal-Toronto and Halifax-Toronto, Air Canada became the only service provider. Against this backdrop, the Bureau continued to treat competition in the airline industry as a priority.

Enforcement Cases and Legal Challenges

In March 2001, the Commissioner filed an application against Air Canada with the Competition Tribunal. The application arose as the result of investigations into Air Canada's response to WestJet's expansion into eastern Canada and the entry into the market of CanJet, another low-cost carrier. The application alleged that Air Canada was engaged in anti-competitive practices, namely operating or adding capacity at fares that did not cover the avoidable cost of providing the service.

This is the first case under the new airline regulations, introduced in 2000 to promote airline competition following the merger of Air Canada and Canadian Airlines, that specified that avoidable costs are to be the standard for assessing predatory conduct in the airline industry. Consequently, both Air Canada and the Bureau asked the Tribunal to consider and rule on specific questions related to the application of this test. The hearing, which began in August 2001, was twice adjourned as a result of the events of September 11 and their impact on the airline industry, as well as the illness of a Tribunal member. The hearing is scheduled to resume before a new panel on October 7, 2002.

In October 2000, Air Canada had launched two legal challenges to the Bureau's authority under section 104.1 of the Competition Act to issue temporary orders to firms in the airline industry. In July 2001, the Quebec Superior Court upheld the Bureau's authority with respect to the first challenge. Air Canada then appealed the decision to the Quebec Court of Appeal. This appeal is scheduled to be heard in October 2002.

In February 2002, the Federal Court of Appeal dismissed Air Canada's second challenge, which concerned the Competition Tribunal's decision to uphold the temporary order issued by the Bureau in the CanJet case.³

Complaints and Investigations

In October 2001, the Bureau began an inquiry into allegations that Air Canada had launched its discount carrier Tango to drive Canada 3000 from the market.

Following an intensive examination, the Bureau concluded, first, that the introduction of Tango could constitute an anti-competitive act on the part of Air Canada and, second, that Tango was having a detrimental impact on Canada 3000. Although the Bureau was prepared to issue a temporary order under section 104.1 of the Competition Act, Canada 3000 ceased operations before it could do so, due to difficulties in addition to the competitive effects of Tango. The Bureau is continuing to monitor Tango and its effects on the market.

During 2001-2002, the Bureau received and investigated a number of complaints, including two from travel agents and their associations, concerning a seat sale that travellers could only take advantage of by booking their reservations over the Internet, and the tendency of airlines to reduce or eliminate commissions paid to travel agents. After examining these complaints, the Bureau concluded they did not provide grounds for a formal inquiry under the Competition Act.

Guidelines on the Abuse of Dominance in the Airline Industry

As described in Chapter 2, the Bureau released draft Enforcement Guidelines on the Abuse of Dominance in the Airline Industry in February 2001 for public consultation (see page 4).

Amendments to the Competition Act

The Government introduced two airline-related amendments to Bill C-23, now called An Act to Amend the Competition Act and the Competition Tribunal Act, S.C. 2002, c. 16, which came into force on June 21, 2002. The first amendment permits the Competition Tribunal to extend a temporary order issued by the Commissioner when the Bureau does not receive information necessary to complete an inquiry in a timely fashion.

The second amendment allows the Competition Tribunal, in certain defined circumstances, to impose administrative monetary penalties of up to $15 million when, after a hearing, it finds a breach of the abuse of dominance provisions of the Competition Act. These penalties are expected to encourage compliance with the abuse of dominance provisions in the airline industry.

Misleading Representations

On May 18, 2001, Peter Kuryliw, 1473253 Ontario Incorporated and YellowBusiness.ca were charged with committing an offence under the false and misleading representations provisions of the Competition Act. The accused are alleged to have mailed what appeared to be invoices to businesses and non-profit organizations in Canada that were not customers of the Internet-based business directory company.

Deceptive Telemarketing

In June 2001, criminal charges were laid against four Montréal telemarketing companies following an investigation into deceptive telemarketing activities aimed at consumers in Canada and New Zealand. The four companies (Farber Blake Corp., S.D. Prestige Enterprises Ltd., L.A. Premiums, and J.C. & A.) allegedly informed consumers by phone that they would receive a prize, provided they bought one of the company's promotional items. The Bureau alleges the companies sold these items at substantially inflated prices and made misrepresentations about the nature, value and quality of both the prizes and the promotional items.

In October 2001, seven criminal charges were laid against the telemarketing company Tamec Inc. and its subsidiaries, the Commercial Information Bank of Canada and Deev Inc., which marketed various business directories as well as Web-based advertising services. The Bureau received hundreds of complaints alleging that the telemarketers misrepresented the purpose of their calls, provided false information about existing subscriptions to various Tamec products, and did not disclose restrictions that applied to returning products. Complainants also alleged that the telemarketers did not disclose that by agreeing to accept delivery of one edition of a Tamec product, they were actually entering into a multi-edition subscription.

In March 2002, criminal charges were laid against individuals, including the directors, two administrators and seven telemarketers, of two Montréal-based telemarketing companies: 3636135 Canada Inc. (Alexis Corporation) and 3587932 Canada Inc., its administrative affiliate. The charges were laid after the Bureau obtained wiretap evidence of deceptive telemarketing activity. Consumers in Australia and New Zealand claimed that telemarketers phoned to tell them they had been chosen to receive valuable prizes but were required to make a payment prior to delivery. In addition, the Bureau alleged that consumers were misled about the nature, value and quality of the prizes and were offered a grossly overpriced product in exchange for pre-payment.

Cooperation Between the RCMP and the Competition Bureau

The RCMP and the Competition Bureau signed an agreement to work together to curb illegal telemarketing operations, thereby formalizing an arrangement under which Bureau investigators work side-by-side with RCMP investigators, and the two agencies exchange information and strategy. The agreement confirms the Bureau's membership in the RCMP Telemarketing Task Force, Project Emptor, which targets fraudulent, deceptive and misleading telemarketing activity in British Columbia and the northwestern United States. The task force has had a number of successes against crossborder operations in the past two years, taking simultaneous legal action on both sides of the border against B.C.-based telemarketers who target U.S. victims. To date, the task force has seized or frozen assets totalling more than CAN$29.5 million, while securing prison sentences against several individuals.

The Competition Bureau has joined Project Colt (Centre of Operations Linked to Telemarketing fraud), a task force created in 1995 to investigate fraudulent telemarketing operations in Quebec and the northeastern United States. Project Colt comprises representatives from Canadian and American agencies, including the RCMP, the Sûreté du Québec, the Montreal police, the Canada Customs and Revenue Agency, the Federal Bureau of Investigation, the U.S. Customs Service and Postal Service, and the Competition Bureau. The RCMP and the Competition Bureau signed an agreement to formalize the Bureau's membership on the task force.

Multilevel Marketing

In May 2001, Lifestyles Canada Ltd. was fined $95 000 after pleading guilty to four criminal charges under the Competition Act's multilevel marketing provisions. The ruling came as a result of the Bureau's investigation into Lifestyles Canada's recruitment practices. As part of its recruitment efforts, Lifestyles Canada and some of the participants in the multilevel marketing plan used Web sites and recorded telephone messages, distributed promotional material and held meetings to highlight participants who had earned hundreds of thousands or even millions of dollars. However, the company failed to disclose that the income of a typical participant was between $399 and $2000 per year. In addition to a fine and prohibition order against Lifestyles Canada, the Ontario Superior Court of Justice also imposed prohibition orders against four participants in the multilevel marketing plan, two in Ontario and two in Alberta. The actions against the individuals were finalized in November 2001.

In March 2002, 11 charges were laid against NSV Nutrinautes Inc. under the multilevel marketing, pyramid selling and false or misleading representations provisions of the Competition Act. The Quebec company operates a multilevel marketing plan known as the Cocooning Club, which promotes and sells computer software on nutrition and other subjects. The Bureau alleged that the firm and its participants, through Web sites and a TV infomercial, recruited new participants by exaggerating income expectations without disclosing the income of a typical participant.

Price Maintenance

On September 27, 2001, the Bureau laid charges against Sherwood Co-operative Association Limited, a supplier of petroleum products, and one of its managers, under the price maintenance provisions of the Competition Act. The charges alleged that Sherwood and the manager attempted to influence upwards, or discourage the reduction of, the price at which an independent retailer sold gasoline and diesel fuel near the city of Regina.

Deceptive Marketing Practices

In December 2001, the Bureau filed a consent order with the Competition Tribunal against Antirouilles Electroniques TP, and Garantie Express Inc. and its president, about the promotion of an electronic anti-corrosion device known as Total Protection. Marketed primarily in Quebec, the $300 device was promoted as being able to protect a car's entire body against rust. The Bureau determined that the tests the companies used to substantiate this claim were insufficient.

Under the terms of the consent order, the companies agreed to cease marketing Total Protection and an extended anti-corrosion guarantee. In addition, they agreed not to market similar products in Canada without adequate and proper tests. The order also required the companies to inform the affected consumers in writing that they could choose to keep the two products with the complete eight-year anti-corrosion insurance policy or get their money back. This was the second consent order the Bureau has issued about electronic anti-corrosion devices. It is currently examining other devices with similar performance claims.

Consumer Packaging and Labelling

In November 2001, Gotham Industries Inc., a chemical company based in Sainte-Thérèse, Quebec, pleaded guilty to three counts of false or misleading representation of the quantity of their products. An inspection of packages of paint thinner, methyl hydrate and antifreeze revealed that the labels did not accurately reflect the quantity of product in the packages. The firm was fined $500 for each charge, for a total of $1500, under the Consumer Packaging and Labelling Act. The Superior Court of Quebec ordered that a Competition Bureau officer inspect the 248 packages that violated the Act before they could be released for sale.

In December 2001, Laurentide Chemicals, Atlantic Ltd., a chemical company based in Richibucto, New Brunswick, pleaded guilty to four counts of false or misleading representations of the quantity of their products. The company was fined $1500 for each charge, for a total of $6000, under the Consumer Packaging and Labelling Act. An inspection of five lines of Laurentide paint products revealed that the labels did not accurately reflect the amount of paint in the packages.

International Conspiracy

In July 2001, an investigation by the Competition Bureau into the food industry led to the conviction of Japan-based Ueno Fine Chemicals Industry Ltd. on charges of participating in an international price fixing and volume allocation conspiracy. The company was fined CAN$1.25 million, while one of its former senior executives was fined CAN$150 000 for his part in the conspiracy. The investigation revealed that Ueno was involved in an international price fixing and market sharing conspiracy for more than 17 years, affecting prices of preservatives used in the food industry. Ueno is the fourth international company to be convicted of such offences in Canada in the past three years.

In October 2001, an international investigation of the food preservative industry by the Competition Bureau, led to the conviction of U.S.-based Pfizer Inc., which pleaded guilty to price fixing and was fined CAN$1.5 million. The Bureau's investigation revealed that Pfizer was involved in an international price fixing conspiracy from 1992 to 1994, fixing the prices for sodium erythorbate, a food preservative agent.

Alternative Case Resolution

Alternative case resolution, one of the instruments the Bureau uses to address anti-competitive behaviour, involves efforts to achieve compliance with the law without contested enforcement measures. The following are examples of cases the Bureau successfully resolved in this way in the last year.

Predatory Pricing and Price Discrimination

In the fall of 2001, the Bureau received a complaint and related information that a sugar producer may have been engaging in predatory pricing and price discrimination in the supply of sugar in eastern Canada.

As part of its examination, the Bureau conducted a compliance interview with the sugar producer. As a consequence, the sugar producer was made aware of the relevant provisions of the Competition Act and reviewed its pricing policies for compliance. The Bureau subsequently monitored pricing in the market and reviewed it in relation to the allegations. The examination is now closed.

Price Maintenance

In October 2001, a Bureau inquiry led to an order by the Federal Court of Canada prohibiting a supplier of assessment tests from engaging in price maintenance activities. The order, made with the consent of the supplier, resolves a complaint that the supplier had refused to supply a retailer because of the low prices that retailer was charging. Assessment tests are used by educators and medical professionals to measure educational skills and, in some cases, to establish psychological profiles of clients.

In November 2000, the Bureau received a complaint that a scuba diving shop in western Canada had sent a letter to its competitors proposing a fixed price for scuba diving lessons and requesting they meet to discuss the proposal. The letter also made reference to an alleged agreement to fix the price of scuba diving lessons in another city. The Bureau consulted the scuba diving shops that received the letter and found that no price-fixing agreement existed. The shop that sent the letter provided written assurance that it would comply with the provisions of the Competition Act in its future dealings with competitors. The matter is now closed.

In April 2000, the Bureau began investigating a consumer complaint that a foreign sunglasses manufacturer had threatened to stop supplying four retailers in western Canada should they have sold its brand name sunglasses below the suggested retail price. Consultations with the retailer confirmed the allegations. Consequently, the Bureau informed the retailers and manufacturer of their rights and obligations under the price maintenance provisions of the Competition Act. The manufacturer then provided written assurance that it would comply. The matter is now closed.

In August 2001, the Bureau began investigating an allegation that six major electrical parts distributors in the Calgary area had met and agreed to impose a minimum surcharge of $20 on all shipments of electrical parts, and that the distributors had sent notices containing similar wording and dates to customers advising of the price increases. When it became clear that evidence supported this allegation, the Bureau sent letters to the distributors involved in the price-fixing conspiracy, informing them of their rights and obligations under the conspiracy provisions of the Competition Act. The matter was resolved and is now closed.

Abuse of Dominance

In May 2001, the Bureau initiated an inquiry into complaints about the cost to consumers of exiting the Enbridge Services Inc. natural gas water heater rental program in parts of Ontario. The Bureau concluded that the exit charges and conditions prevented other companies from attracting customers and competing. Enbridge agreed to resolve the Bureau's concerns. In February 2002, the Competition Tribunal issued a consent order to encourage competition in the supply and service of natural gas water heaters in Ontario. The order included the following terms.

Competitors will no longer be prevented from disconnecting and returning Enbridge's rental water heaters.
All customers will be given a clear "buy-out price" option for their Enbridge rental water heater reflecting its price at the time of installation.
The period during which rental arrangement exit charges apply is reduced from 11 to 5 years, having the immediate impact of eliminating exit charges for more than 35 percent of Enbridge's current rental customers.
While subject to exit charges, Enbridge rental customers will be protected against rental rate increases greater than the rate of inflation.

The consent order gives small and medium-sized businesses the opportunity to compete effectively in Ontario and provides consumers with greater freedom to switch suppliers to take advantage of low prices.

In December 2001, the Bureau reached an agreement with the Insurance Corporation of British Columbia (ICBC) about allegations of anti-competitive conduct. The Bureau identified competition concerns arising from a number of ICBC's actions or threats of action allegedly targeting brokers selling insurance from ICBC competitors. The Bureau initiated discussions with ICBC to resolve the concerns. During the course of those discussions, the provincial government undertook a core review of ICBC's status, business and future. It is expected that this review will result in changes to the automobile insurance industry in the province that will promote competition. In this changing context, the Bureau has accepted ICBC's assurances that it has discontinued its alleged anti-competitive conduct.

Information Contacts

The Bureau may contact individuals during the course of an investigation when it believes that they may be unaware that their conduct raises concerns under the Competition Act, Consumer Packaging and Labelling Act, Textile Labelling Act and Precious Metals Marking Act, and that they might comply with the legislation if it were explained to them. The people contacted are under no obligation to discuss the matter or justify their conduct but, should they decide to take voluntary corrective action, the Bureau would then determine whether to continue the examination, monitor the anti-competitive conduct or close the file. Numerous information contacts were made during 2000-2001 in such areas as transportation, sports equipment, maternity clothing, professional fee setting and retail sales of consumer goods.