Competition Bureau submission to the OECD Competition Committee Roundtable on Fidelity Rebates
June 14, 2016
Table of contents
The Competition Bureau of Canada (the "Bureau") is an independent law enforcement agency responsible for the administration and enforcement of the Competition Act (the "Act"). The basic operating assumption of the Bureau is that competition is good for both businesses and consumers.
The Bureau does not have presumptions specific to fidelity rebates given the ambiguous competitive effects relating to such rebate programs. Where fidelity rebates create, preserve or enhance a firm’s market power by creating or strengthening barriers to expansion or entry, the Bureau may investigate such rebates under certain civil provisions of the Act aimed at restrictive trade practices, including the exclusive dealing and abuse of dominance provisions. The means through which the Bureau tests the necessary conditions under the relevant legislative provisions will be dependent on the factual circumstances specific to each case.
There is limited jurisprudence in Canada with respect to fidelity rebates; however, where there is sufficient evidence to demonstrate that a fidelity rebate may constitute a violation of the Act, the Bureau has taken, and will continue to take, appropriate action to address such concerns.
Canada’s Competition Bureau (the "Bureau") is pleased to provide this submission to the OECD Competition Committee’s 15‑17 June 2016 Roundtable on "Fidelity Rebates". The Bureau is an independent law enforcement agency that is headed by the Commissioner of Competition (the "Commissioner"), and is responsible for the administration and enforcement of the Competition ActFootnote 1 (the "Act") and other relevant legislation.Footnote 2 In carrying out its legislative mandate, the Bureau strives to ensure that Canadian businesses and consumers have the opportunity to prosper in a competitive and innovative marketplace.
The aim of this submission is to provide an overview of the Bureau’s experience with investigating alleged anti‑competitive fidelity rebate programs. The submission provides:
- background information, including terminology and presumptions of competitive effects of fidelity rebates,
- the analytical framework applicable to fidelity rebates, including the relevant statutory provisions, economic analytical framework, and past cases involving fidelity rebates, and
- policy considerations guiding the Bureau’s decisions regarding prioritization of investigations.
II. Context on fidelity rebate investigations
The Bureau, in enforcing the Act, evaluates allegations on a case‑by‑case basis in the context of structural, factual and market‑specific conditions. Although the Act does not expressly define fidelity rebates or other share‑of‑needs rebates,Footnote 3 the Bureau can, and does, investigate alleged anti‑competitive effects resulting from the same, and may do so under certain civil provisions of the Act. For the purposes of this submission, the term "fidelity rebate," unless otherwise defined, shall refer to programs whereby sellers offer buyers a rebate or discount that is conditional on the buyer demonstrating loyalty in the purchases they make.
b. Presumptions on competitive effects
The Bureau does not have presumptions specific to fidelity rebates given the ambiguous competitive effects relating to such programs. The basic operating assumption of the Bureau is that competition is good for both business and consumers, and the Bureau is typically not concerned with conduct that encourages competitors to compete more effectively. However, conduct that creates, preserves, or enhances market power by erecting or strengthening barriers to expansion or entry, thus making it more difficult for competitors or potential competitors from challenging the market power of that firm, may prompt further investigation.
The Bureau’s stance with respect to fidelity rebates recognizes that they can be considered a legitimate form of price competition. The Bureau believes that fidelity rebates are common and can be pro‑competitive in certain circumstances. For instance, the Bureau has argued in that past that fidelity rebates can be pro‑competitive where they:
- benefit consumers through lower prices, and
- generate efficiencies, such as encouraging supplying firms to invest in marketing and development of new products, and encouraging distributors to concentrate efforts on promoting the supplier’s products. These activities could increase interbrand competition. Footnote 4
In other circumstances, fidelity rebates can be anti‑competitive. For example, suppliers may use fidelity rebates to discourage buyers from trading with a rival supplier, which could occur where the supplier’s rebate is conditional upon the buyer purchasing most or all of their requirements from the supplier. If a sufficient number of buyers are induced by the fidelity rebate to switch their purchasing behaviour, a large share of the relevant market could be foreclosed to the rival supplier, and have the effect of raising the rival supplier’s costs (for example, by the competitor’s loss of economies of scale associated with such foreclosure). In those instances, fidelity rebates may attract scrutiny under the Act.
III. Assessing the competitive effects of fidelity rebates
a. Legislative framework
The Act does not expressly refer to fidelity rebates, nor does it include provisions specific to fidelity rebates. However, fidelity rebates may be reviewable under certain provisions aimed at preventing restrictive trade practices. Specifically, fidelity rebates may be reviewable as exclusive dealing (pursuant to section 77 of the Act) or as an abuse of dominant position (pursuant to sections 78 and 79 of the Act). In many instances, they may be reviewed under both provisions. These provisions are attached hereto as Appendix "A".
i. Exclusive dealing — section 77 of the Act
The exclusive dealing provision was introduced to address situations where the practice of exclusive dealing "deprives the market of products which are in demand and which would produce needed price competition in the market."Footnote 5 The Act defines exclusive dealing as a practice where the customer is coerced or induced "to deal only or primarily in products" of a supplier.Footnote 6
The requisite elements of exclusive dealing under the Act are:
- the practice must be engaged in by a "major supplier"Footnote 7 or it must be "widespread in a market";
- the practice must impede entry into or expansion of a firm, product or sales, or otherwise have an exclusionary effect; and
- the practice must have, or be likely to, result in a substantial lessening of competition.Footnote 8
ii. Abuse of dominance — sections 78 and 79 of the Act
The abuse of dominance provisions guard against anti‑competitive conduct by firms with market power, and promote conditions under which firms are afforded an opportunity to succeed or fail on the basis of their respective ability to compete. The Act does not seek to establish equality among competitors.Footnote 9
To establish an abuse of dominant position contrary to the Act, the Commissioner must show that:
- one or more persons substantially or completely controls a class or species of business, which is synonymous with having market power in the relevant market(s);
- the person or persons with market power must have engaged in or be engaging in a practice of anti‑competitive acts; and
- the practice of anti‑competitive acts must have had, be having, or be likely to have the effect of preventing or lessening competition substantially in a market.Footnote 10
While the Act does not expressly define an anti‑competitive act, the statute provides a non‑exhaustive, illustrative list of anti‑competitive acts.Footnote 11 Further, the courts have defined an anti‑competitive act as one that has as its purpose an intended predatory, exclusionary, or disciplinary effect on a competitor.Footnote 12 As such, exclusionary conduct may be captured under the abuse of dominance provisions.
iii. Discussion on legislative framework
The Act does not include provisions specific to fidelity rebates or discounting practices generally; therefore, the analytical framework for fidelity rebates, and the requisite elements to be established, would be the same as other investigations under the relevant provisions. The Commissioner has the burden of establishing each of the elements under the statutory provisions. As further discussed below, the firm bears the burden of putting forward any business justifications for their behaviour, including any pro‑competitive effects or claimed efficiencies, given that the firm is in possession of the information necessary to evaluate any efficiencies claimed.
In deciding whether to investigate conduct under the exclusive dealing provision, the abuse of dominance provisions, or both, one of the factors considered by the Bureau is the remedy sought. For example, under the exclusive dealing provision, the Tribunal (as defined below) has the discretion to make behavioural orders that it believes "necessary to overcome the effect [of the practice] in the market or to restore or stimulate competition in the market" (including prohibiting the supplier from continuing to engage in the exclusive dealing).Footnote 13 However, unlike the abuse of dominance provisions, financial penalties are not available for findings of exclusive dealing. Should administrative monetary penalties be sought, then an application would need to be brought forward under the abuse of dominance provisions.Footnote 14
The courts have recognized a parallel structure and logic between the exclusive dealing and abuse of dominance provisions. First, both provisions require a finding that the firm in question occupies a position of dominance. Specifically, the exclusive dealing provision refers to a "major supplier of a product in a market" while the abuse of dominance provisions requires that "one or more persons substantially or completely control…a class or species of business."Footnote 15 Second, both provisions require an anti‑competitive act.Footnote 16 Third, both provisions require a finding that competition has actually been or is likely to be substantially lessened.Footnote 17 However, it should be cautioned that although an overlapping analysis may result from the parallel structure, the legal tests applicable under these two provisions would not necessarily produce identical results in all factual circumstances.Footnote 18 Given the similarities between the statutory provisions for exclusive dealing and abuse of dominance, to the extent that fidelity rebates may have exclusionary effects on a competitor, it is possible for an application to be brought forward under both provisions of the Act. This was the approach taken by the Bureau in past cases involving fidelity rebates.
b. Economic analytical framework for exclusionary conduct
Exclusionary conduct is designed to:
- make existing or potential rivals less effective at disciplining the exercise of a firm’s market power;
- prevent them from entering the market; or
- eliminate competitors from the market entirely. Exclusionary conduct often achieves such goals by raising rivals’ costs.Footnote 19
The Bureau, in conducting its analysis, may examine whether a firm’s fidelity rebate program increases a competitor’s costs, which may force that competitor to raise its prices, making it more difficult for the competitor to compete, or result in the competitor’s exclusion from the market. For example, where fidelity rebates increase customer switching costs and make customers more difficult for competitors to acquire, this may constitute exclusionary conduct.Footnote 20
Fidelity rebates may allow the incumbent firm to ultimately maintain or increase its prices, which can be profitable if the costs associated with the rebate are offset by the ultimate increase in revenue, or by the preservation of revenues that would otherwise be lost from competitive entry or expansion.Footnote 21
Litigated competition law matters are heard at the Competition Tribunal, a statutorily created, specialized federal adjudicative body in Canada that operates independently from the Bureau (the "Tribunal"). The Tribunal is composed of judicial and lay members, who provide their expertise in economics, industry, commerce or public affairs.Footnote 22 The Tribunal has exclusive jurisdiction to hear and dispose of matters under Part VIII of the Act, Matters Reviewable by Tribunal, among other things. Appeals from the Tribunal are referred to the Federal Court of Appeal, an appellate court that hears cases concerning federal matters.Footnote 23
There is limited jurisprudence in Canada with respect to anti‑competitive fidelity rebates. Canada Pipe (as further discussed below)Footnote 24 has been the only case heard at the Tribunal with respect to fidelity rebates within the last ten years. However, there are two other cases that have also examined fidelity rebate schemes: NutraSweetFootnote 25 and D&B.Footnote 26 D&B was a case involving a buyer‑side fidelity rebate, which is outside of the scope of this submission.
i. Canada Pipe Company Ltd.
Canada Pipe sold cast‑iron drain, waste, and vent ("DWV") products to various distributors in Canada, who in turn sold them to contractors for use in construction projects. Canada Pipe was alleged to control between 80‑90% of the Canadian market for cast‑iron DWV products. The fidelity rebate program in question, the Stocking Distributor Program, involved quarterly and annual percentage rebates that Canada Pipe provided to distributors in return for stocking only Canada Pipe‑supplied cast‑iron DWV products. The rebate was based on exclusivity, not volume. Although a minimum purchase was required, beyond that threshold amount, rebates and discounts were identical regardless of the size of the purchase. No penalties were imposed on distributors for opting out of the program, though they would be charged a higher (non‑discounted) price for the cast‑iron DWV products. The distributors were free to stock other companies’ non‑cast iron DWV products, but were required to purchase cast‑iron DWV products exclusively from Canada Pipe in order to be eligible for the rebates.Footnote 27
The Commissioner filed an application with the Tribunal alleging that the Stocking Distributor Program was an anti‑competitive practice contrary to the exclusive dealing and abuse of dominance provisions. The Commissioner alleged that the Stocking Distributor Program gave Canada Pipe the ability to set prices above competitive levels, deter new entry and expansion of competitors in the relevant markets, and induce stock distributors’ compliance, thus exercising its market power.Footnote 28
In particular, the Commissioner alleged that the "exclusivity and full line forcing combined with [Canada Pipe’s] pricing involving a lower unit price and high quarterly and annual rebates for stocking distributors, create[d] an insurmountable barrier to entry."Footnote 29 Essentially, the Stocking Distributor Program induced distributors to purchase Canada Pipe’s line of cast‑iron DWV products in its entirety. Once distributors were locked into the Stocking Distributor Program, the distribution network was foreclosed to other suppliers who could no longer compete at the margin but had to compete for the distributors’ entire requirements for cast‑iron DWV products. The Stocking Distributor Program significantly raised the costs of entry by creating high switching costs and forcing new suppliers to offer a full line of products and to compensate the distributors for the lost rebates if they stopped buying exclusively from the Canada Pipe.Footnote 30
To support the Commissioner’s position, the Commissioner submitted testimonial evidence showing that there had not been any effective and viable entry in the relevant markets.Footnote 31 The Commissioner’s expert, Dr. Thomas Ross, testified that the effect of the Stocking Distributor Program made it prohibitively costly for a distributor to source a portion of its cast‑iron DWV from Canada Pipe and source its remaining needs from a competitive supplier.Footnote 32 A competing manufacturer of cast‑iron DWV products, Vandem Industries, submitted evidence "the capacity of a [Canada Pipe] competitor to satisfy all needs of a distributor needing cast‑iron DWV pipe and fittings…is non‑existent in Canada."Footnote 33 Sierra Marketing Inc., an importer, also testified to the difficulties of establishing a new distribution network.Footnote 34
The Tribunal concluded that Canada Pipe, while dominant in the relevant markets, had not engaged in a practice of anti‑competitive acts, and in any case there had not been a substantial lessening or prevention of competition attributable to the Stocking Distributor Program.Footnote 35 The Commissioner appealed the Tribunal’s decision, and the Federal Court of Appeal found that the Tribunal had erred by applying the incorrect legal tests under exclusive dealing and abuse of dominance provisions and sent the matter back to the Tribunal for redetermination. The Commissioner and Canada Pipe negotiated a settlement by way of a consent agreement prior to the rehearing, pre‑empting the Tribunal’s re‑determination of the case with the legal test put forward by the Federal Court of Appeal.
ii. The NutraSweet Company
In 1989, the Director of Investigation and ResearchFootnote 36 (the "Director") filed an application against NutraSweet, a supplier of aspartame that controlled approximately 95% of the Canadian market for aspartame. Supply contracts between NutraSweet and purchasers of aspartame included certain contractual provisions that were associated with exclusivity:
- exclusive supply clauses requiring the customer to purchase all of its aspartame requirements from NutraSweet and exclusive use clauses requiring the customer to use its aspartame as the sole or primary sweetener in the buyer’s products;
- trademark and logo display allowance, providing for a substantial discount conditional upon the buyer’s use of the NutraSweet logo and name on the packaging and advertisements of their own products. In order to have the logo appear on the package or the advertisements, only NutraSweet brand aspartame could be used; and
- meet‑or‑release clauses, providing NutraSweet the option to meet a lower price offered or to release the customer to purchase from another supplier, and most‑favoured nation clauses.
The Director made two allegations against NutraSweet:
- that its contract terms created an exclusive supply relationship that restricted entry or expansion by existing or potential entrants in contravention of the exclusive dealing provision, and
- that NutraSweet was selling below its acquisition cost, which is set out as an anti‑competitive act in the abuse of dominance provisions.Footnote 37 The Director argued that the terms of the supply contracts tied up a large percentage of the market, making it difficult for competitors to enter the market, as demonstrated by the difficulties faced by existing and would‑be competitors in making inroads on NutraSweet’s market shares.Footnote 38
The Director submitted evidence that with the exception of one company, Tosoh Canada Ltd., all suppliers and manufacturers who had the capability to produce and market aspartame in Canada had left the Canadian market and were no longer tendering for the supply of aspartame in Canada.Footnote 39 The Director also submitted expert evidence that the significant financial investments required for a firm to successfully compete, including marketing expenses, research and development, and production costs (including particularly significant sunk costs), made entry risky. NutraSweet’s production capacity and long term supply contracts with major diet soft drink beverage manufacturers (the largest customers in the market) also made it very difficult for competitors to capture a share of the market sufficient to support an efficiently scaled production plant prior to NutraSweet’s response.Footnote 40
The Tribunal found the impugned contractual provisions to be anti‑competitive and concluded that financial incentives and the exclusivity clause amounted to exclusive dealing. Although sales were not conditioned on the customer dealing exclusively with NutraSweet, the fidelity rebates financially induced customers to deal only in the respondent’s brand of aspartame, and to refrain from using another producer’s aspartame, which led to exclusivity and made it virtually impossible for competitors to enter the market.Footnote 41 The Tribunal held that the branding strategy was pursued for the purpose of excluding future or existing competition, rather than for efficient distribution or use of the product.
Further, the display and promotion allowance were also found to induce exclusivity because where the buyer
- decided to not use NutraSweet exclusively in a product, they would not be able to use the logo and thus be disqualified from the promotional allowance, or
- preferred to not use NutraSweet’s logo, the buyer would essentially be forced to purchase all of their aspartame needs from a different supplier as it would be too expensive to buy from NutraSweet without the promotional discounts.
New suppliers would have to be sufficiently established to meet those needs, and customers would need to be willing to purchase from the new supplier. As a result, the Tribunal issued an order prohibiting NutraSweet from entering into or enforcing the impugned contract terms with Canadian customers unless such terms also appeared in contracts between NutraSweet and any competitors of the Canadian customers.Footnote 42
d. Discussion on analytical framework
The means through which the Bureau tests the necessary conditions in each of the exclusive dealing and abuse of dominance provisions will be dependent on the factual circumstances specific to each case. In conducting its analysis, the Bureau will typically gather evidence from the target of the investigation and third parties, in addition to examining publically available information and retaining industry and economic experts.
i. Market power
The Bureau considers market power, in the general sense, to be the ability to profitably maintain prices above the competitive level or similarly restrict non‑price dimensions of competition such as product quality, choice, service, or innovation for a significant period of time (typically a year).Footnote 43 In assessing the competitive effects of unilateral conduct, the Bureau will generally first define the relevant product and geographic market(s) and then look to direct and indirect indicators of market power. Given that direct indicators of market power, such as profitability or evidence of supra‑competitive pricing are not always conclusive, the Bureau will also look at quantitative and qualitative indirect indicators of market power, such as:
- market shares,
- barriers to entry,
- customer countervailing power, and
- technological change and innovation.Footnote 44
The Bureau will also consider the ability of existing or potential competitors to discipline the exercise of market power, or to enter the market in response to a dominant firm exercising its market power.
In contested fidelity rebate cases to date, the market shares of those firms were found to be very high. However, the absence of high market shares does not provide a safe‑harbour, and does not preclude the Commissioner from examining firms with anti‑competitive fidelity rebates.Footnote 45
ii. Practice of anti‑competitive acts
The exclusive dealing and abuse of dominance provisions require a practice of exclusive dealing or a practice of anti‑competitive acts. While a "practice" normally involves more than a single isolated act, it may nonetheless be satisfied by a single act that is sustained and systemic, or that has had or is having a lasting impact in a market.Footnote 46
The meaning and interpretation of "exclusive dealing" and "anti‑competitive acts" has been discussed in greater detail above, in sections III.a.i and III.a.ii, respectively.
1. Role of business justifications
As stated above, courts have held that within the section 79 analysis, an anti‑competitive act is identified by having as its purpose an intended predatory, exclusionary, or disciplinary effect on a competitor. Legitimate business justifications for the behaviour are one consideration to be weighed when assessing the overall character or overarching purpose of the conduct, along with the reasonably foreseeable or expected objectives of the effects, and evidence of subjective intent. According to the Federal Court of Appeal in Canada Pipe,
"In appropriate circumstances, proof of a valid business justification for the conduct in question can overcome the deemed intention arising from the actual or foreseeable effects of the conduct, by showing that such anti‑competitive effects are not in fact the overriding purpose of the conduct in question. In essence, a valid business justification provides an alternative explanation as to why the impugned act was performed. To be relevant in [establishing that the dominant firm has engaged in a practice of anti‑competitive acts], a business justification must be a credible efficiency or pro‑competitive rationale for the conduct in question, attributable to the respondent, which relates to and counterbalances the anti‑competitive effects and/or subjective intent of the acts" (emphasis added).Footnote 47
The Federal Court of Appeal has stated that the valid business justification doctrine is not an absolute defence to otherwise anti‑competitive conduct.Footnote 48 Rather, it may be one factor used to assess the nature of the alleged anti‑competitive act:
"A business justification for an impugned act is properly relevant only as it is pertinent and probative in relation to the determination required by paragraph 79(1)(b), namely the determination as to whether the purpose for which the act as performed was a predatory, exclusionary or disciplinary effect on a competitor….a valid business justification can, in appropriate circumstances, overcome the deemed intention arising from the actual or foreseeable negative effects of the conduct on competitors, by demonstrating that such anti‑competitive effects are not in fact the overriding purpose of the conduct in question."Footnote 49
When assessing the overriding purpose of an alleged anti‑competitive practice, the Bureau will assess the credibility of business justifications raised by the firm(s), their link to the impugned practice and the likelihood of the efficiency or pro‑competitive claims being achieved. The Bureau will generally require detailed and comprehensive information that substantiates the efficiency gains claimed by the firm, including evidence showing the nature, magnitude, likelihood and timeliness of the asserted gains, and why the alleged efficiency gains are not likely to be achieved if a Tribunal order is made.
Each of the anticipated efficiencies claimed would be assessed against the nature of potential orders that may be made (such as an order prohibiting the fidelity rebate program) to determine whether those gains would likely be attained by alternative means if the potential orders are made. Efficiency gains not affected by the order are not included in this balancing analysis. Depending on the circumstances, legitimate business objectives could include reducing the firm’s production or operating costs, or improvements in technological or production processes that lead to innovation or improvements to product quality or service.Footnote 50
In Canada Pipe, the Tribunal addressed two business justifications put forward by Canada Pipe:
- that the Stocking Distributor Program’s rebate structure encouraged competition by creating a level playing field between small and large distributors as the discounts were based on loyalty rather than volume, and
- that the Stocking Distributor Program enabled the high‑volume sales necessary to enable the company to maintain a full line of products. The Tribunal rejected the first business justification (despite acknowledging that although the argument put forward is an enunciated purpose of the Act, it was unrelated to the analysis) and accepted the second business justification on the basis that it enabled the company to produce a full product line. The Federal Court of Appeal disagreed with the Tribunal’s findings relating to business justifications, noting that although maintaining a full product line is beneficial to customers, "improved consumer welfare is on its own insufficient to establish a valid business justification" for the purposes of assessing whether the dominant firm is engaging in a practice of anti‑competitive acts.Footnote 51
iii. Substantial lessening of competition
Assessing whether the relevant market would be substantially more competitive in the absence of the impugned anti‑competitive behaviour requires a relative comparative assessment of competitiveness in a market with and without the impugned practice of anti‑competitive acts, and then determining whether the prevention or lessening of competition, if any, can be characterized as "substantial".Footnote 52 An approach endorsed by the Federal Court of Appeal is a but‑for analysis: "would the relevant markets — in the past, present or future — be substantially more competitive but for the impugned practice of anti‑competitive acts?"Footnote 53 Some considerations may include whether:
- entry or expansion by a potential or existing competitor might be substantially faster, more frequent or more significant without the impugned conduct,
- switching between products and suppliers may be substantially more frequent,
- prices might be substantially lower, and
- product quality might be substantially greater.Footnote 54
IV. Policy considerations for prioritizing investigations
The Bureau’s investigations and enforcement actions under the civil provisions of the Act are typically driven by complaints submitted by parties such as private individuals or businesses, though the Bureau may also initiate an investigation upon becoming aware of potential competition issues through other means.
A preliminary assessment is usually undertaken prior to the commencement of an investigation. As part of the preliminary assessment, the Bureau considers whether the alleged conduct may contravene the Act, among other things. If a concern appears to have merit, the Bureau may commence an investigation into the matter. The Bureau’s decision to pursue an investigation and the prioritization of investigations into certain conduct is subject to a number of considerations, including
- the Bureau’s strategic planning process, and
- the likely impact of the alleged anti‑competitive behaviour, giving priority to conduct that has a greater negative impact to competition in the Canadian marketplace.
The Bureau’s strategic planning process includes an environmental scan to identify trends, opportunities, and risks related to competition enforcement. The findings from the environmental scan help to shape the priorities and objectives of the Bureau’s annual plan, which communicates to Canadian consumers and stakeholders in the business and legal communities the Bureau’s priorities and objectives for the coming year. For example, an area of focus for the Bureau currently includes supporting innovation in the digital economy. The Bureau also publishes a three‑year strategic plan, which acts as a roadmap to guide the Bureau’s longer‑term operational and enforcement activities.Footnote 55 As such, rather than focusing on a particular category of conduct (e.g. fidelity rebates), the Bureau typically takes on investigations if they are aligned with the Bureau’s priorities and strategic vision.
It is not the Bureau’s standard practice to conduct ex‑post assessments of cases. However, the Bureau is currently engaged in an examination of how it conducts performance measurement in order to enhance meaningful reporting of the impact of its activities.
The Bureau is active in carrying out its mandate in the enforcement and administration of the Act. Where there is sufficient evidence to demonstrate that a fidelity rebate or other rebate programs may constitute a violation of the Act, the Bureau has taken, and will continue to take, appropriate enforcement action to address such concerns.
Appendix A: Relevant Provisions of the Competition Act
Exclusive dealing, tied selling and market restriction
77 (1) For the purposes of this section,
exclusive dealing means
(a) any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to
(i) deal only or primarily in products supplied by or designated by the supplier or the supplier’s nominee, or
(ii) refrain from dealing in a specified class or kind of product except as supplied by the supplier or the nominee, and
(b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii) by offering to supply the product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out in either of those subparagraphs; (exclusivité)
market restriction means any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to supply any product only in a defined market, or exacts a penalty of any kind from the customer if he supplies any product outside a defined market; (limitation du marché)
tied selling means
(a) any practice whereby a supplier of a product, as a condition of supplying the product (the "tying" product) to a customer, requires that customer to
(i) acquire any other product from the supplier or the supplier’s nominee, or
(ii) refrain from using or distributing, in conjunction with the tying product, another product that is not of a brand or manufacture designated by the supplier or the nominee, and
(b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii) by offering to supply the tying product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out in either of those subparagraphs. (ventes liées)
Exclusive dealing and tied selling
(2) Where, on application by the Commissioner or a person granted leave under section 103.1, the Tribunal finds that exclusive dealing or tied selling, because it is engaged in by a major supplier of a product in a market or because it is widespread in a market, is likely to
(a) impede entry into or expansion of a firm in a market,
(b) impede introduction of a product into or expansion of sales of a product in a market, or
(c) have any other exclusionary effect in a market,
with the result that competition is or is likely to be lessened substantially, the Tribunal may make an order directed to all or any of the suppliers against whom an order is sought prohibiting them from continuing to engage in that exclusive dealing or tied selling and containing any other requirement that, in its opinion, is necessary to overcome the effects thereof in the market or to restore or stimulate competition in the market.
(3) Where, on application by the Commissioner or a person granted leave under section 103.1, the Tribunal finds that market restriction, because it is engaged in by a major supplier of a product or because it is widespread in relation to a product, is likely to substantially lessen competition in relation to the product, the Tribunal may make an order directed to all or any of the suppliers against whom an order is sought prohibiting them from continuing to engage in market restriction and containing any other requirement that, in its opinion, is necessary to restore or stimulate competition in relation to the product.
(3.1) For greater certainty, the Tribunal may not make an award of damages under this section to a person granted leave under subsection 103.1(7).
Where no order to be made and limitation on application of order
(4) The Tribunal shall not make an order under this section where, in its opinion,
(a) exclusive dealing or market restriction is or will be engaged in only for a reasonable period of time to facilitate entry of a new supplier of a product into a market or of a new product into a market,
(b) tied selling that is engaged in is reasonable having regard to the technological relationship between or among the products to which it applies, or
(c) tied selling that is engaged in by a person in the business of lending money is for the purpose of better securing loans made by that person and is reasonably necessary for that purpose,
and no order made under this section applies in respect of exclusive dealing, market restriction or tied selling between or among companies, partnerships and sole proprietorships that are affiliated.
Where company, partnership or sole proprietorship affiliated
(5) For the purposes of subsection (4),
(a) one company is affiliated with another company if one of them is the subsidiary of the other or both are the subsidiaries of the same company or each of them is controlled by the same person;
(b) if two companies are affiliated with the same company at the same time, they are deemed to be affiliated with each other;
(c) a partnership or sole proprietorship is affiliated with another partnership, sole proprietorship or a company if both are controlled by the same person; and
(d) company, partnership or sole proprietorship is affiliated with another company, partnership or sole proprietorship in respect of any agreement between them whereby one party grants to the other party the right to use a trade‑mark or trade‑name to identify the business of the grantee, if
(i) the business is related to the sale or distribution, pursuant to a marketing plan or system prescribed substantially by the grantor, of a multiplicity of products obtained from competing sources of supply and a multiplicity of suppliers, and
(ii) no one product dominates the business.
When persons deemed to be affiliated
(6) For the purposes of subsection (4) in its application to market restriction, where there is an agreement whereby one person (the "first" person) supplies or causes to be supplied to another person (the "second" person) an ingredient or ingredients that the second person processes by the addition of labour and material into an article of food or drink that he then sells in association with a trade‑mark that the first person owns or in respect of which the first person is a registered user, the first person and the second person are deemed, in respect of the agreement, to be affiliated.
(7) In considering an application by a person granted leave under section 103.1, the Tribunal may not draw any inference from the fact that the Commissioner has or has not taken any action in respect of the matter raised by the application.
Abuse of dominant position
78 (1) For the purposes of section 79, anti‑competitive act, without restricting the generality of the term, includes any of the following acts:
(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer’s entry into, or expansion in, a market;
(b) acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose of impeding or preventing the competitor’s entry into, or eliminating the competitor from, a market;
(c) freight equalization on the plant of a competitor for the purpose of impeding or preventing the competitor’s entry into, or eliminating the competitor from, a market;
(d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;
(e) pre‑emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market;
(f) buying up of products to prevent the erosion of existing price levels;
(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or to eliminate him from, a market;
(h) requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor’s entry into, or expansion in, a market; and
(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.
(j) and (k) [Repealed, 2009, c. 2, s. 427]
(2) [Repealed, 2009, c. 2, s. 427]
Prohibition where abuse of dominant position
79 (1) Where, on application by the Commissioner, the Tribunal finds that
(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,
(b) that person or those persons have engaged in or are engaging in a practice of anti‑competitive acts, and
(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,
the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.
Additional or alternative order
(2) Where, on an application under subsection (1), the Tribunal finds that a practice of anti‑competitive acts has had or is having the effect of preventing or lessening competition substantially in a market and that an order under subsection (1) is not likely to restore competition in that market, the Tribunal may, in addition to or in lieu of making an order under subsection (1), make an order directing any or all the persons against whom an order is sought to take such actions, including the divestiture of assets or shares, as are reasonable and as are necessary to overcome the effects of the practice in that market.
(3) In making an order under subsection (2), the Tribunal shall make the order in such terms as will in its opinion interfere with the rights of any person to whom the order is directed or any other person affected by it only to the extent necessary to achieve the purpose of the order.
Administrative monetary penalty
(3.1) If the Tribunal makes an order against a person under subsection (1) or (2), it may also order them to pay, in any manner that the Tribunal specifies, an administrative monetary penalty in an amount not exceeding $10,000,000 and, for each subsequent order under either of those subsections, an amount not exceeding $15,000,000.
Aggravating or mitigating factors
(3.2) In determining the amount of an administrative monetary penalty, the Tribunal shall take into account any evidence of the following:
(a) the effect on competition in the relevant market;
(b) the gross revenue from sales affected by the practice;
(c) any actual or anticipated profits affected by the practice;
(d) the financial position of the person against whom the order is made;
(e) the history of compliance with this Act by the person against whom the order is made; and
(f) any other relevant factor.
Purpose of order
(3.3) The purpose of an order made against a person under subsection (3.1) is to promote practices by that person that are in conformity with the purposes of this section and not to punish that person.
Superior competitive performance
(4) In determining, for the purposes of subsection (1), whether a practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of superior competitive performance.
(5) For the purpose of this section, an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright Act, Industrial Design Act, Integrated Circuit Topography Act, Patent Act, Trade‑marks Act or any other Act of Parliament pertaining to intellectual or industrial property is not an anti‑competitive act.
(6) No application may be made under this section in respect of a practice of anti‑competitive acts more than three years after the practice has ceased.
Where proceedings commenced under section 45, 49, 76, 90.1 or 92
(7) No application may be made under this section against a person on the basis of facts that are the same or substantially the same as the facts on the basis of which
(a) proceedings have been commenced against that person under section 45 or 49; or
(b) an order against that person is sought by the Commissioner under section 76, 90.1 or 92.
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