Annual Report of the Commissioner of Competition for the year ending March 31, 1999

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Appendix I: Discontinued Cases

The Bureau initiated a number of formal inquiries into allegations of anti-competitive activity. These inquiries were conducted and concluded on a range of civil and criminal matters, including the following cases.

Motor Vehicle Supply: Various Provisions, sections 45, 75 and 77

Inquiries were initiated in April 1986, May 1989, May 1995 and September 1996 by statutory obligation, following the receipt of applications signed by six residents of Canada. The four applications related to the same issue, namely policies enforced by most motor vehicle manufacturers. These policies prohibit franchised dealers in Canada from supplying new vehicles for export, either directly or through third parties.

The Competition Bureau concluded that continuing to pursue these inquiries would not be to the benefit of Canadians. In fact, Canadian consumers would most likely be negatively affected through higher prices. The inquiries were discontinued in May 1998.

Sale of Cuban Cigars: Refusal to Deal and Exclusive Dealing, sections 75 and 77

An inquiry was begun in July 1997, following the receipt of an application under section 9 of the Act signed by six residents of Canada alleging exclusive dealing and refusal to deal in relation to the sale of Cuban cigars in Canada. The inquiry disclosed that the company against which the accusations were made was the legal owner of the trademarks in Canada for the cigars in question. It was also concluded that cigars from a number of other countries compete with those from Cuba in the Canadian market for cigars. Therefore, the practices that were alleged did not lessen competition. The inquiry was discontinued in May 1998.

Bidding in the Construction Industry: Abuse of Dominant Position, section 79

Following the receipt of a number of complaints, this inquiry was begun on July 10, 1997, under section 10(1)(b)(ii) of the Act. The object of the inquiry was to determine whether the parties that had established the bid depository in the province of Quebec had engaged in or were engaging in anti-competitive acts with the effect of substantially lessening competition in the construction market in Quebec. Quebec's legislation respecting two of the founding parties expressly authorized those bodies to establish and operate such a bid depository and regulate the bidding process. Based on the facts obtained in the inquiry and because of the existence of regulation governing this activity, it was concluded that grounds did not exist for an application to the Competition Tribunal. Accordingly, the inquiry was discontinued on December 14, 1998.

Sale of Videos: Refusal to Deal, section 75

An inquiry was begun on September 3, 1997, under section 75 of the Competition Act, following the receipt of an application under section 9, signed by six residents of Canada. The application alleged that a major producer of videos had discontinued supply to a distributor in Eastern Canada, with the result that the distributor's business would be substantially affected. The Bureau took the matter up with the video producer and, following discussions, the supply relationship with the complainant was restored. As a result, there were no grounds to pursue the inquiry further and the matter was discontinued on November 17, 1998.

Municipal Transportation Systems: Conspiracy, section 45

This inquiry commenced on March 17, 1997, following the receipt of information indicating that the setting of taxi fares by one western Canadian municipality might be contrary to section 45, the conspiracy provision of the Competition Act. Although many municipalities regulate taxi fares, this activity must be specifically authorized by valid provincial legislation; otherwise, it is not protected from the application of the Act.

The Competition Bureau contacted the municipality and its provincial government. The matter was resolved through an amendment to the relevant provincial legislation authorizing the activity in question. The inquiry was discontinued on November 20, 1998.

Medical Specialists: Conspiracy, section 45

This inquiry was begun on May 20, 1998, following the receipt of a complaint alleging that doctors specializing in a particular medical field in one province had agreed to fix the fees they would charge for the provision of medical services to patients not covered under the provincial health insurance plan. The doctors were alleged to have entered into the agreement pursuant to their activities as members of the provincial medical society's section representing their specialty.

After the Bureau contacted the provincial medical society, the specialist section involved undertook to take all steps necessary to comply with the law. The inquiry was discontinued on October 22, 1998.

Chemical Colouring Agents: Conspiracy, section 45

This inquiry, concerning the sale in Canada of certain colouring agents used by manufacturers of various construction materials, was initiated on December 23, 1997. The inquiry followed allegations that producers of the colouring agents had agreed to fix their prices and to divide among themselves the market for the agents, which contravenes the conspiracy provisions of section 45 of the Competition Act.

Information obtained during the course of the inquiry was insufficient to establish the existence of the alleged conspiracy. The inquiry was discontinued on March 17, 1999.

Bar Services: Conspiracy, section 45, and Price Maintenance, section 61

This inquiry was opened on December 18, 1997, following the receipt of a complaint alleging that, in order to terminate a price war, the majority of owners of bars and restaurant-bars in a small town in the province of Quebec had agreed to set floor prices and to prohibit certain promotions related to the sale of alcoholic beverages. Threats were made against some owners to convince them to respect the agreement.

Competition Bureau officers met with the alleged instigators of the agreement. The agreement was subsequently abandoned and competition was re-established in the market. The inquiry was discontinued on June 19, 1998.

Compact Refrigerators: Bid-rigging, section 47

An inquiry was started on September 17, 1997, following the receipt of a complaint alleging that three compact refrigerator rental companies had rigged a tender to supply students in residence at an Ontario university. One of the companies allegedly involved in the activity was granted immunity from prosecution by the Attorney General of Canada in return for providing information on the matter to the Competition Bureau. The second company was contacted by the Bureau, and the matter was resolved after the company provided written undertakings that such behaviour would not occur in the future.

Information obtained during the inquiry indicated that the third company bidding on the tender had not been involved in the alleged bid-rigging. The inquiry was discontinued on March 31, 1999.

Burial Vaults: Price Discrimination, section 50, and Abuse of Dominant Position, section 79

This inquiry was begun on July 8, 1997, upon the receipt of a six-resident application under section 9 of the Competition Act alleging that a cemetery in southern Ontario was discriminating against the manufacturers of burial vaults. It was alleged that the cemetery was imposing a service fee to cap and install the burial vaults of all manufacturers, except one with which the cemetery was affiliated. The application also alleged that the imposition of the service fee was an abuse of dominant position by the cemetery, aimed at eliminating competition in the sale of burial vaults.

The inquiry established that the cemetery did not substantially or completely control the burial business in its geographic market, as would be required to bring the provisions of section 79 of the Competition Act into play. Less than 10 percent of the vault manufacturer's business was dependent on clients of the cemetery in question. Section 50 of the Act did not apply in this case because the allegations involved the sale of a service and the section applies only to the sale of articles. The inquiry was discontinued on March 29, 1999.

Video Cassette Rentals: Predatory Pricing, section 50

This inquiry was opened on August 17, 1998, following the receipt of a six-resident application under section 9 of the Competition Act. The applicants alleged that a video cassette rental company in a major city in the province of Quebec had adopted a policy of renting video cassettes in the retail market at unreasonably low prices for the purpose of forcing its competitors out of the market.

The inquiry determined that the rental of video cassettes in the metropolitan market in question was very competitive and that the alleged predator did not have sufficient market power to successfully engage in the alleged predatory pricing strategy. The inquiry was discontinued on October 5, 1998.

Education Programs: Misleading Advertising, section 52

This inquiry, which was opened on November 1, 1998, pursuant to section 9 of the Competition Act, concerned several representations made to the public by an educational institution relating to its tuition costs, its quality of education and the qualifications of its instructors. This matter was reviewed under section 52 of the Competition Act, which makes it a criminal offence for anyone to make a representation to the public that is false or misleading in a material respect.

After a review of the case, it was determined that criminal charges would not be laid as the representations made by the company were not materially misleading, as required for the application of the statute. The inquiry was discontinued on January 6, 1999.

Leather Products: Misleading Advertising, section 52

Inquiries were begun on June 18 and September 12, 1997, after the Competition Bureau received complaints that two leather goods manufacturers were representing their handbags as made in Canada when, in fact, the amount of Canadian content in terms of labour and material was very low. These matters were reviewed under section 52(1)(a) of the Competition Act, which makes it a criminal offence for anyone to make a representation to the public that is false or misleading in a material respect.

The Bureau contacted the manufacturers, who indicated a willingness to take corrective action by undertaking to cease the practices in question and to publish corrective notices in various major daily newspapers across Canada, including the national edition of The Globe and Mail. These inquiries were subsequently discontinued on May 3 and June 25, 1998.

Mail-order Hearing Aids: Misleading Advertising, section 52

This inquiry was opened on March 17, 1998. It focussed on concerns about performance claims and money-back guarantees used by a Canadian hearing aid company in its national mail-order marketing materials. The company's activities were reviewed under section 52 of the Competition Act. This section makes it a criminal offence for anyone to make a representation to the public that is false or misleading and to make representations to the public guaranteeing performance, efficacy or length of life of the product that are not based on adequate and proper testing. The conduct of the president of the company was examined in relation to the provisions of a prohibition order issued in relation to an earlier investigation.

The inquiry was discontinued on November 24, 1998, after the Competition Bureau determined that the company was no longer involved in selling the product to the general public, the advertising practices in question had ceased, the assets of the company had been sold, and the individual accused had reportedly withdrawn from the mail-order business. The provisions of the prohibition order will continue to apply until September 1999, should the individual choose to re-enter the market for hearing aids.

Multi-level Marketing Training Courses and Retail Discount Cards: Misleading Advertising, section 52, and Multi-level Marketing and Pyramid Selling, section 55

This inquiry began on February 21, 1997, after the Competition Bureau received a complaint that a Canadian company selling training courses and retail discount cards was allegedly making false representations and was operating a pyramid selling scheme.

The company's activities were reviewed under a number of sections of the Competition Act. It was determined that the company and its co-founders were providing false and misleading information in the promotion of the supply and use of its products, contrary to section 52(1)(a) of the Act. The investigation also revealed that the company's marketing plan contained representations relating to compensation and the representations did not constitute or include fair, reasonable or timely disclosure of compensation earned by a typical participant, pursuant to section 55 of the Act. In addition, the plan contained a purchase requirement as a condition of joining the plan and there was no stated policy for the return of products on reasonable terms if a participant wished to leave the plan, contrary to section 55.1(1)(b) and (d) of the Act.

The company ceased its multi-level marketing operations in October 1997 and subsequently declared bankruptcy in December 1997. The inquiry was discontinued on July 31, 1998.

Promotional Contest: Misleading Advertising, sections 52 and 59

An inquiry was initiated on December 10, 1996, after a complaint was received that a soft drink producer had run a promotional contest based on a popular game and made several related representations to the public. It was alleged that the rules and instructions pertaining to the contest were contradictory to the rules of the original game, thus potentially confusing the public.

This matter was reviewed under section 52 of the Competition Act, which makes it a criminal offence for anyone to make a representation to the public that is false or misleading, and under section 59, which makes it a criminal offence for anyone not to make fair and adequate disclosure of the number and approximate value of the prizes, of the area or areas to which the prizes relate, and of any fact known by the person that affects materially the chances of winning a promotional contest.

After thorough review of the facts of the case and the wording of the allegedly misleading representations, it was determined that the evidence was not sufficient to lay criminal charges and that it would not serve the public interest to prosecute an alleged offence that had occurred more than two years earlier and had not been repeated. The inquiry was discontinued on July 28, 1998.

Real Estate: Misleading Advertising, section 52

This inquiry began on September 25, 1996, after the Bureau received a complaint that a real estate board made misleading representations to the public in a free weekly publication. It was alleged that the particular wording of the advertisement left the clear impression that only board members were qualified professional real estate agents. This matter was reviewed under section 52(1)(a) of the Competition Act, which makes it a criminal offence for any one to make a representation to the public that is false or misleading.

The Competition Bureau contacted the real estate association that had developed the advertising campaign for its member real estate boards. The association indicated a willingness to take corrective action by entering into a formally agreed resolution where it undertook to revise the advertisement to ensure that future publications of the advertisement would not imply that licensed real estate agents who are not members of real estate boards are unqualified or unprofessional. The inquiry was subsequently discontinued on October 28, 1998.

Flooring Products: Price Maintenance, section 61

An inquiry was started on February 21, 1996, after a complaint was received that a Canadian flooring manufacturer had allegedly required its Ontario dealers to adhere to a marketing program that did not allow its flooring products to be sold for less than the manufacturer's suggested retail prices. This stipulation in the company's marketing program may have been illegal under section 61 of the Competition Act, which makes it a criminal offence for anyone to influence upward or discourage the reduction of the price of a product by agreement, threat, promise or any like means. Manufacturers or distributors who make suggestions regarding resale prices should state clearly that their business customers are under no obligation to accept the suggested prices.

The Bureau contacted the flooring manufacturer, who indicated a willingness to take corrective action. The company agreed to change its marketing program and to institute a corporate compliance program to ensure that similar questionable behaviour would not occur in the future. The company's new marketing program made it clear that its dealers were under no obligation to respect the company's suggested retail prices. The inquiry was discontinued on March 30, 1999.

High-speed Residential Internet Access: Abuse of Dominant Position, section 79

This inquiry was begun on August 20, 1998, after allegations of abuse of dominant position and "below-cost" selling against subsidiaries of Bell Canada were reported to the Competition Bureau.

Evidence demonstrated that Bell's share of the retail Internet market was significantly below the 35 percent level - the minimum generally required to establish market dominance. Furthermore, evidence indicated that Bell's below-cost pricing policy for ADSL-based residential Internet service - as part of the introduction of a new technology and the need to meet market prices - was a legitimate business strategy. Cable companies, for instance, have greater market penetration than Bell for high-speed residential service. Their high level of market penetration is the result of aggressively marketed cable modem service at prices that are comparable or below those charged by Bell for similar service. The inquiry was discontinued on March 12, 1999.