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Annual Report of the Commissioner of Competition for the Year Ending March 31, 2000

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 with a recommendation for prosecution, which can result in heavy fines, prison terms or both for offenders. Over the past year, Bureau investigations have led to approximately $102.8 million in fines. In civil matters, when reasonable solutions cannot be worked out by consent orders or other means, the Bureau will apply to the Competition Tribunal.

The following are examples of the Bureau's work in responding to non-conformity, including cases that were resolved through alternative case resolution. Some cases were discontinued 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.cb-bc.gc.ca).

Gasoline

Gasoline pricing continued to attract considerable attention this year and the Bureau devoted significant resources to handling related complaints. Experience suggests, however, that it is often necessary to explain that, except in the case of a national emergency, the federal government does not have the authority to directly regulate retail gasoline prices. While the provinces have this authority, most have chosen to rely on market forces as the best means to determine appropriate prices.

In general terms, investigations under the Competition Act are related to determining whether or not anti-competitive conduct has suppressed these market forces. When there is evidence of anti-competitive conduct concerning gasoline pricing, the Bureau has taken, and will continue to take, appropriate action. In September 1999, for example, charges were laid against a major gasoline supplier, Irving Oil, and two of its gasoline retailers under the price maintenance provision of the Competition Act for attempting to influence upwards the prices charged by competing retailers in the Sherbrooke, Quebec, area.

Other significant investigations included an examination of major price increases in many parts of the country during July 1999, allegations of predatory pricing and abuse of dominance in Chatham, Ontario, allegations of anti-competitive conduct in Saskatchewan, and allegations of predatory pricing and abuse of dominance in the Greater Vancouver area. The Bureau concluded that these regions exhibited competitive market forces at work in the retail gasoline sector. Additional information on these investigations, and other gasoline matters, can be found on the Competition Bureau's Web site.

International Cartels: Conspiracy

With globalization, international cartels that affect the Canadian economy have increasingly been the subject of enforcement activity. Canada and the United States have been among the leading countries to aggressively pursue these kinds of cases.

During the year, inquiries into international price-fixing and market allocation agreements resulted in the largest fines ever imposed under the Competition Act, as well as the largest criminal fine in Canadian legal history.

Fines related to international cartels totalled more than $100 million. One firm was fined $48 million for its role in an international conspiracy to fix prices and allocate market shares for nine vitamin products used in food, animal feed and pharmaceuticals. Other products involved in international cases successfully pursued during the year included citric acid (used extensively in the food and beverage industry as a flavour enhancer and preservative to prevent food spoilage), sorbates (a food preservative), choline chloride (a Vitamin B complex used in animal feed) and sodium gluconate (an industrial cleaner). Senior corporate executives have also been prosecuted in some of these cases.

Toronto Electrical Contractors: Bid Rigging

A series of prosecutions concerning bid rigging by electrical contractors and one general contractor in the Toronto area were concluded this year with a guilty plea by one firm in July 1999 and three others in March 2000.

The bid-rigging scheme permitted participating electrical contractors to determine among themselves who would be the successful bidder on numerous contracts for renovation of commercial office space between 1990 and 1993. In December 1997 and February 1998, five other electrical contractors were prosecuted by the Attorney General of Canada for bid-rigging offences arising from the same investigation. Total fines in the case were more than $3 million.

Universal Payphones: Misleading Representations

On September 15, 1999, the Bureau applied for its first ever interim civil order to prevent Universal Payphones Systems Inc. from continuing certain misleading marketing practices. Universal was engaged in the sale and promotion of a business opportunity to set up individual payphone businesses. Universal promoted its business through the use of national radio, television and print advertising. The Bureau was successful in its application for an interim order. The case is completed and a consent order was obtained under which the company is prohibited from carrying out any and all marketing activities regarding its payphone business for 10 years.

Cave Promotions Inc.: Misleading Advertising

The Bureau laid charges against Cave Promotions Inc. for a series of misleading advertising promotions it ran between April 1997 and September 1998. Cave Promotions Inc. ran a mail "scratch-and-win" promotion in which consumers were led to believe that they had won a significant prize and were directed to call a 1-900 number to claim this prize. Upon calling the number, many consumers found that they had not won a prize at all, or had won a much smaller prize than they had expected. Consumers who called the number were charged $20 or more, a portion of which went to Cave Promotions. A Quebec court imposed a fine of $75 000 along with a prohibition order forbidding the company to engage in similar conduct in the future.

Water Treatment Systems: Misleading Representations

Aztec Industries Inc., a distributor of water treatment systems in Western Canada, was charged on December 16, 1998, under the Competition Act for making representations to the public that failed to fully disclose, prior to the sale and supply of the products, the terms and conditions under which the product would be supplied and under which a refund would be provided. The company also failed to disclose the true amount of the refund and other costs associated with the sale and supply of the products. Further, the company made false and misleading representations concerning the price at which the products were ordinarily sold and the availability of special discounts. The company pleaded guilty, was fined $65 000 and became subject to a prohibition order.

Deceptive Telemarketing and Deceptive Mail

Following consumer complaints, the Bureau conducted a criminal investigation and laid charges against S.S. Viking Industries, S.C. Canadian Clearing Centre Inc., Exclusive Premium Distribution Centre and S.C. Corporation, and against their principal director, two managers and 11 individual telemarketers. In total, 85 criminal charges were laid in this case.

Deceptive Telemarketing

Following receipt of hundreds of complaints from consumers who bought products in order to participate in contests for non-existent prizes, the Bureau laid charges against 17 companies including American Family Publishers, Publishers Central and First Canadian Publishers, and 18 individuals. Record fines of $1 million and prison terms of two to six months were imposed.

Alternative Case Resolution

Within the range of interdependent 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 resolved this way in the past year.

Engineer Consultants: Bid Rigging

The Bureau became aware of an agreement between consulting engineers to refuse to submit bids in response to a call for tenders for the construction of a building. It was alleged that the consulting engineers had agreed not to submit competitive bids and to force the organization responsible for the call for tenders to adopt a certain rate for their professional fees.

As part of the Bureau's examination, Bureau staff held compliance meetings with the parties involved. Bureau staff explained to the professionals their responsibilities under the Competition Act. The professionals subsequently agreed to comply with the Act and the situation was thus resolved.

Laser Hair Removal: Conspiracy

The Bureau examined an incident in which a competitor approached a laser hair removal company to set up an agreement to stop competing and raise prices. The Bureau contacted the competitor who was trying to eliminate competition and explained the consequences of the proposed action under the Competition Act. The potential agreement was never implemented and prices did not go up.

Travel Agents: Conspiracy

In response to decreases in commission fees from airlines, some travel agencies have introduced service fees. The Bureau was informed that 15 agencies in the same city had met to discuss their deteriorating financial situation. The participants were small business owners and many were not aware of the conspiracy provisions in the Competition Act.

Bureau staff contacted the owner of one of the travel agencies in attendance to ensure that the group was not meeting to set common service fees. The Bureau determined that there was no agreement reached on service fees. A letter to the agency emphasized that decisions on service fees must be made independently by each travel agent and the Bureau provided an information package to the agency.

Mycom: Exclusive Dealing and Abuse of Dominance

The inquiry into Mycom Canada Ltd. and a former employee for alleged violation of the Competition Act involved a request from the Bureau to the company to provide under oath a voluntary return of company records with respect to a civil inquiry under the exclusive dealing and abuse provisions. The Bureau viewed the response to be insufficient and misleading and consequently initiated an obstruction inquiry.

During the course of the inquiry, the company wrote a letter of apology to the Bureau and remedied the alleged non-compliance. It also agreed to cooperate with the Bureau in future inquiries. As well, it instituted a disciplinary policy for employees who fail to comply with the Act and has had them take a course on compliance with the Act. In addition, the Bureau's concerns regarding the original civil inquiry into exclusive dealing and abuse of dominant position were alleviated when the company altered its sales policy.

Agricultural Herbicide: Tied Selling, Exclusive Dealing and Abuse of Dominance

In October 1998, the Bureau initiated an inquiry under the civil tied-selling, exclusive-dealing and abuse-of-dominance provisions with respect to Monsanto's Roundup brand glyphosate herbicide and herbicide-tolerant seeds marketing program. Under this program, Monsanto tied the sale of the herbicide to the sale of the seed and entered into exclusive contracts with dealers and distributors requiring them to primarily sell Monsanto's herbicide.

In September 1999, Monsanto voluntarily indicated its intention to revise its marketing and distribution programs as a result of new marketing policies. Under Monsanto's new marketing program, there is no restriction on the ability of farmers to use any brand of glyphosate herbicide registered for use with Monsanto's herbicide-tolerant seed.

In addition, Monsanto's volume-based distributors and dealer discounts will increase the opportunity for competitive suppliers of glyphosate to gain access to channels of distribution serving the agricultural industry.

The Insurance Corporation of British Columbia (ICBC): Abuse of Dominance

ICBC is a provincial Crown corporation that provides mandatory basic automobile insurance to all residents of British Columbia and competes with other insurance companies to supply optional auto insurance products. The Bureau became concerned that a "most-favoured customer" clause in contracts between ICBC and certain auto body shops discouraged selective discounting by repair shops, thereby substantially lessening competition in markets for insured auto body repair services. In addition, the Bureau was concerned that by raising the costs of ICBC's rivals, the clause likely lessened competition in the optional auto insurance market in B.C.

Subsequently, ICBC agreed to withdraw the "most-favoured customer" clause from the agreement it has with auto body shops that participate in the Corporation's Alternative Transportation Program. Removing this clause resolved the Bureau's concerns.

Golf Accessories: Refusal to Supply

A retailer of golf accessories informed the Bureau that he was refused supplies because he was a discounter. Bureau staff examined the matter, contacted the supplier and explained the relevant provisions of the Competition Act. The supplier subsequently agreed to provide the product and supply to the retailer was restored.

Sporting Goods: Refusal to Supply

A retailer who was advertising and selling sporting goods over the Internet, alleged that he had been cut off because of his low-pricing policy. The Bureau examined the matter and discussed the issue with the supplier. Bureau staff reminded the supplier of his responsibilities under the Competition Act and the supplier then agreed to conform with the Act.

Automobile Manufacturer: Misleading Advertising

An automobile manufacturer advertised that a particular type and brand of vehicle had attained a five-star safety rating from the National Highway and Traffic Safety Administration in the United States. Investigation revealed that the five-star rating was not received until after the advertisements were published.

The company undertook to avoid repeating the statement, avoid using statements that may mislead the public or create a false or misleading general impression, avoid omitting relevant information that may materially mislead the public, publish four corrective notices in a national newspaper and in all major provincial newspapers, and inform company staff and its advertising agency of the contents of the undertaking.

Plumbing Products: Misleading Representation

A plumbing products supplier, when promoting the sale of its plumbing products to attendees at a Canadian seminar, said that in survey results the company's products had superior brand awareness compared to those of five competing companies. Investigation revealed that the survey results were not applicable to all plumbing product categories in Canada.

To satisfy the Commissioner's concerns, the company undertook to avoid repeating the representation, using any survey information or statistical results in future advertising without disclosing material criteria, and making any false or misleading representation in a material respect about the company's products.

The company also undertook to distribute a corrective letter to attendees of the seminar, distribute a revised survey chart to all seminar participants, inform company staff of the contents of the undertaking, and provide evidence of the company's compliance review of advertising to the Deputy Commissioner of Competition, Fair Business Practices Branch.

Air-cleaning Products: Misleading Representation

A supplier of air-cleaning products stated in pamphlets and technical documents various environmental and efficacy claims that were false and not based on adequate and proper tests.

The company undertook to avoid repeating the representations, avoid using environmental and efficacy claims that are not based on adequate and proper tests and that may mislead the public or create a false or misleading general impression, publish corrective notices in national newspapers, and inform company staff and its advertising agency of the contents of the undertaking and establish a formal company policy on executive review of advertisements.

Software: Misleading Representation

A software manufacturer stated that certain software allowed the easy exporting of financial and other relevant information into tax preparation software sold by other firms in Canada. Examination showed that this claim was not true for all existing tax preparation software sold in Canada.

The company undertook to modify its Canadian Internet site, which had contained this statement, apply stickers to existing products to correct the statement, and offer a full refund to any customers who raised concerns about the inability to export financial data from this product.

Towing Service: Misleading Advertising

A towing service stated in various telephone directory advertisements that service could be obtained at reduced prices and that more than a specified number of tow trucks were available to provide service. Investigation revealed that the low rates were subject to certain conditions and only applicable after initial use of the service and that, in several markets, there were fewer trucks than the ad stated available to provide service.

The company undertook to avoid repeating the statement, avoid using statements that may mislead the public or create a false or misleading general impression, and avoid omitting relevant information that may materially mislead the public.