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Annual Report of the Commissioner of Competition for the year ending March 31, 2005

Chapter 3: Promoting Compliance with the Civil Provisions

The Competition Bureau acts as a referee in the marketplace to address competition-related disputes arising between businesses or between consumers and businesses. It investigates possible anti-competitive behaviour, such as abuse of dominance, and restraints imposed by suppliers on customers, such as refusal to supply, exclusive dealing and tied selling. The Bureau also investigates cases of false or misleading representations and other deceptive marketing practices.

The Competition Act contains criminal and civil provisions to address false or misleading representations and deceptive marketing practices when promoting a product or business interest. The general civil provision prohibits all materially false or misleading representations. Other provisions specifically prohibit performance representations not based on adequate and proper tests, misleading warranties and guarantees, false or misleading ordinary selling price representations, untrue, misleading or unauthorized use of tests and testimonials, bait and switch selling, and selling a product above its advertised price. The promotional contest provisions set out the requirements for conducting a contest, lottery, or game of chance or skill.

When appropriate, Bureau officials hold discussions with firms to try to obtain voluntary compliance with the law. Sometimes this is all the action needed to correct the situation. A more formal solution involves registering a consent agreement with the Competition Tribunal, in which all parties agree on actions that will restore competition to the marketplace. When voluntary compliance cannot be achieved, the Bureau may file an application with the Competition Tribunal for an order to remedy the situation. Depending on the issue, the Bureau may also register the consent agreement or file the application with the Federal Court or a provincial superior court.

The following illustrates the Bureau’s response to instances of non-conformity in civil matters over the past year. For more information on these cases and others, including information notices, news releases and backgrounders, visit the Bureau’s Web site.

Enforcement Actions

Airline Industry

Competition Tribunal Hearing: Commissioner of Competition v. Air Canada

On October 29, 2004, the Competition Bureau and Air Canada resolved their litigation before the Competition Tribunal concerning allegations that Air Canada engaged in anti-competitive practices directed against the low-cost carriers WestJet and CanJet. The Bureau decided not to pursue the matter in light of the significant changes that have occurred in the airline industry since the litigation began in 2001.

On September 24, 2004, the Bureau sent a letter to major Canadian airlines outlining the approach it will take in its future enforcement of the Competition Act in the airline sector. The letter is available on the Bureau’s Web site.

Authority to Issue Temporary Orders

On June 3, 2004, the federal government withdrew its appeal to the Supreme Court of Canada regarding the decision by the Quebec Court of Appeal to render section 104.1 of the Competition Act inoperative. Section 104.1 gave the Bureau the authority to issue temporary cease and desist orders during inquiries into the airline industry.

Other Airline Examinations

In the summer of 2004, a regional carrier based in Quebec complained that Air Canada had added capacity on some routes at fares that did not cover the cost of providing the service and had increased the number of tickets offered at fares matching the carrier’s lowest fares. However, the complainant failed to respond to requests for further information, so the matter was closed. In June 2004, a regional carrier operating in northern Ontario complained that its competitor was undercutting its fares on some routes in northern Ontario. The information the regional carrier made available, however, did not provide grounds to pursue the matter.

Abuse of Dominance

Canada Pipe

On February 3, 2005, the Competition Tribunal issued a decision dismissing the Commissioner’s 2002 application for an order prohibiting Canada Pipe Company Ltd./Tuyauteries Canada Ltée from engaging in anti-competitive acts through its Bibby Ste-Croix Division. The Bureau alleged that Bibby was abusing its dominant position in the market for the supply of cast iron pipe, fittings and mechanical joint couplings for drain, waste and vent applications in markets across Canada. The company’s loyalty program required its clients to purchase all their drain, waste and vent products exclusively from Bibby in return for substantial rebates. The Bureau argued that the loyalty program locked in Bibby’s customers, reduced competition and prevented greater competition from existing competitors and potential entrants.

The Tribunal concluded that Canada Pipe controlled more than 80 percent of the market but that its loyalty program was not anti-competitive and, based on the evidence, had not substantially lessened or prevented competition.

The Commissioner filed a notice of appeal of this decision with the Federal Court of Appeal on March 7, 2005. Canada Pipe filed a notice of cross-appeal on March 17, 2005.

Beef

Beginning in February 2004, the Bureau conducted an examination into allegations of collusive or anti-competitive conduct by packers in the beef industry. There has since been widespread concern about the significant decrease in prices paid for cattle, cows and calves and the failure of wholesale and retail beef prices to follow suit. This decline in prices followed the closing of international borders to exports of live cattle upon the discovery of a case of BSE in Canada in 2003.

The Bureau examined this matter under the conspiracy and abuse of dominance provisions of the Competition Act. The Bureau found no evidence that the pricing patterns since the border closure were the result of agreements among competitors to artificially lower prices paid to farmers or to raise or maintain wholesale or retail prices. The Bureau also determined that there was no evidence to suggest the pricing patterns could be attributed to one or more dominant firms attempting to restrict competition.

Broadcast Rights to the Olympics

In August 2004, CBC/Radio-Canada filed a complaint with the Competition Bureau over an arrangement between Bell Globemedia (CTV/TSN/ RDS) and Rogers Media Inc. (Sportsnet) to submit a joint bid to the International Olympic Committee for the Canadian broadcast rights to the 2010 and 2012 Olympics. The complainants were concerned that the combination of CTV’s conventional broadcasting capability with the two largest sports specialty channels in Canada, TSN/RDS and Sportsnet, would preclude CBC/Radio-Canada from bidding, since it would not have access to a sports specialty channel. The complainants alleged that the alliance raised issues under the Competition Act’s abuse of dominance, mergers and criminal provisions.

The Bureau carefully examined the allegations and found no evidence to suggest that a Bell Globemedia/Rogers Media Inc. partnership would impair CBC/Radio-Canada’s ability to compete for the broadcasting rights or that the partnership would substantially lessen competition.

The Bureau concluded that the bidding process for the Canadian broadcasting rights to the 2010 and 2012 Olympics did not violate the Competition Act.

Insurance

In March 2004, six members of Parliament complained to the Bureau about increases in car, property and commercial insurance premiums in Canada. They alleged that the insurance industry was abusing its dominant market position and not providing Canadians with reasonable and competitive rates. The Bureau also received complaints from several members of the public.

The Bureau reviewed complaints regarding insurance premiums in Canada and found no evidence to suggest that any insurance company or group of companies had engaged in conduct that violated the Competition Act.

Exclusive Dealing

The major case in this section is Canada Pipe.

Refusal to Supply, Private Actions (New Applications)

The following new applications were made to the Competition Tribunal for leave to file private actions.

Mrs. 0’s Pharmacy Inc. v. Pfizer Canada Inc.; Paradise Pharmacy Inc. and Rymal Pharmacy Inc. v. Novartis Pharmaceuticals Canada Inc./Novartis Canada Inc; 1177057 Ontario Inc. c.o.b. as Broadview Pharmacy v. Wyeth Canada Inc.; and 1177057 Ontario Inc. c.o.b. as Broadview Pharmacy v. Pfizer Canada Inc.

There were four private actions against pharmaceutical companies concerning the sale of drugs into the U.S. The applicants alleged that the pharmaceutical companies refused to supply them with various pharmaceutical products and forbade their distributors to deal with them. The applicants sought an order from the Competition Tribunal requiring Pfizer Canada Inc., Novartis Pharmaceuticals Canada Inc./Novartis Canada Inc. and Wyeth Canada Inc. to accept them as customers and dealers of the products on the usual trade terms.

The judge in these cases declined to hear the cases because the applicants had failed to demonstrate that their business was substantially affected.

Robinson Motorcycle Limited v. Fred Deeley Imports Ltd.; and Quinlan’s of Huntsville Inc. v. Fred Deeley Imports Ltd.

In applications filed in June and July 2004, respectively, Robinson Motorcycle Limited and Quinlan’s of Huntsville Inc. alleged that Fred Deeley Imports Ltd. was refusing to supply them with Harley-Davidson products, despite having had a long sales relationship with them. Both retailers sought an order from the Competition Tribunal requiring Fred Deeley Imports Ltd. to accept them as customers and dealers of the products on the usual trade terms.

When Robinson was granted leave to make an application to the Tribunal, Fred Deeley Imports Ltd. filed an appeal to the Federal Court of Appeal, claiming the Tribunal had failed to give reasons for granting the leave application. On November 23, 2004, the Federal Court of Appeal agreed and referred the matter back to the Tribunal. On February 15, 2005, the Tribunal issued its reasons. The Tribunal hearing is scheduled for October 4–14, 2005.

On August 13, 2004, Fred Deeley Imports Ltd. appealed the Tribunal’s decision to grant leave to Quinlan’s to file an application.

Robinson and Quinlan also sought an interim order for relief under section 75 of the Competition Act. On November 3, 2004, Fred Deeley Imports Ltd. was ordered to supply Quinlan’s with non-seasonal general merchandise and parts until the Tribunal reached a final decision. On December 7, 2004, the Tribunal also granted Robinson a consent interim relief order.

Refusal to Supply, Private Actions (Recent Developments)

There were new developments in 2004–2005 in ongoing cases.

Barcode Systems Inc. v. Symbol Technologies Canada ULC

On October 7, 2004, the Federal Court of Appeal dismissed Symbol Technologies’ appeal of the Competition Tribunal’s January 2004 decision to give Barcode Systems permission to make an application in a private action under section 75 of the Competition Act. Barcode Systems had applied to the Tribunal for an order to require Symbol Technologies to provide bar code equipment. On February 24, 2005, Symbol Technologies filed an application with the Tribunal to have that order rescinded under section 106, on the grounds that circumstances had changed. The receiver for Barcode Systems had been successful in its application to the Manitoba Court of Queen’s Bench in January 2005 to obtain supply from Symbol Technologies.

On March 29, 2005, Barcode Systems, in its response to this proceeding, argued that the Manitoba Court of Queen’s Bench order requires Symbol Technologies to supply the receiver for the company, not Barcode Systems itself. Barcode Systems also argued that, even though the receiver had sold the assets of the company, this did not prevent Barcode Systems from taking legal action before the Competition Tribunal to obtain supply from Symbol Technologies.

Allan Morgan and Sons Ltd. v. La-Z-Boy Canada Limited

On March 3, 2004, La-Z-Boy appealed to the Federal Court of Appeal requesting a reversal of the Competition Tribunal’s decision to grant Allan Morgan and Sons leave to make an application. La-Z-Boy’s motion for a stay of the section 75 application was also dismissed, since the firm provided no persuasive evidence of irreparable harm. On April 8, 2005, the parties filed a notice of discontinuance with the Tribunal, having settled the matter between them.

False or Misleading Representations and Deceptive Marketing Practices

The Forzani Group Ltd.

In July 2004, a consent agreement was registered with the Competition Tribunal concerning certain ordinary selling price representations made by The Forzani Group Ltd., Canada’s largest sporting goods retailer. As a result of a Bureau investigation, which included a search of Forzani’s Calgary headquarters, the Commissioner had reason to believe that the firm had significantly inflated the regular price of certain products, thereby overstating the savings to consumers buying goods on sale at its Sport Chek and Sport Mart retail locations.

Under the terms of the consent order, Forzani agreed to do the following:

pay a record administrative monetary penalty of $1.2 million;
pay all the costs of the Bureau’s inquiry ($500 000);
publish corrective notices in Canadian newspapers, in store flyers, on its corporate websites and in retail stores across Canada; and
establish a corporate compliance program.

Sears Canada Inc.

In January 2005, following a lengthy hearing, the Competition Tribunal decided that Sears had breached the Competition Act by making false or misleading representations when advertising discounts on certain tires. This landmark decision is the first to be handed down by the Tribunal under the ordinary selling price provisions of the Competition Act. In its ruling, the Tribunal found that Sears had not sold a substantial volume of the tires at the regular prices featured in the advertisements, and that Sears could not truly have believed that its regular tire prices were genuine and bona fide prices. The Tribunal also upheld the constitutionality of the relevant provisions of the Competition Act.

The written decision was followed in April by an order for Sears Canada Inc. to pay a $100 000 administrative monetary penalty, as well as $387 000 towards the Bureau’s legal costs. The Tribunal’s order also prohibited Sears’ automotive business division from engaging in similar conduct for a period of 10 years. The administrative monetary penalty, which was agreed to by Sears in a joint submission to the Tribunal, was the maximum that could be imposed in these circumstances.

Fabutan Sun Tan Studios

In March 2005, the Bureau filed an application with the Competition Tribunal to stop Calgary-based Fabutan Sun Tan Studios and its president, Douglas McNabb, from making false representations to the public about the health benefits of indoor tanning. The company allegedly implied that moderate indoor tanning treated vitamin D deficiency and seasonal affective disorder, stimulated metabolism and prevented or reduced the risk of cancer, heart or cardiovascular disease, osteoporosis and sunburn. The company also stated that tanning in moderation is safe. The Competition Bureau asked the Tribunal to order Fabutan to stop making certain representations regarding the benefits and safety of indoor tanning, to publish a corrective notice and to pay an administrative monetary penalty.

Performance Marketing Ltd.

This is the Bureau’s first case under Project FairWeb, a dedicated Internet surveillance and enforcement program aimed at combating misleading and deceptive advertising found on the Internet.

In December 2004, the Bureau registered a consent agreement with the Competition Tribunal in which Performance Marketing agreed, among other things, to refund consumers the full price of two diet patches, called Dyapex and Zyapex.

Performance Marketing claimed that the patches were a safe and natural weight loss product, giving the false impression that without performing any physical exercise or dieting individuals could lose weight, reduce their appetite, control their cravings and speed up their metabolism. The patches were sold through the company’s affiliates and advertised on numerous websites hosted under a variety of addresses. Performance Marketing also failed to enforce its anti-spam policy, which resulted in its affiliates using spam to sell it’s products.

Under the terms of the consent agreement, Performance Marketing has agreed to do the following:

ensure that spam is not used as a means of marketing its products;
stop making any performance claims to the public, unless the Bureau agrees that they are based on adequate and proper tests;
post a corrective notice on its website; and
provide a full refund to those who purchased the product.

Urus Industrial Corporation (Koolatron)

In July 2004, Urus Industrial Corporation, operating as Koolatron, and the Commissioner of Competition registered a consent agreement with the Competition Tribunal concerning the sale and marketing of the AB Energizer, an electronic muscle stimulation device. The Bureau’s inquiry concluded that Urus, through infomercials and its website, made representations that could give consumers the false impression that by using the device they could lose weight, obtain well-defined abdominal muscles and replace the workout benefits of a fully equipped gymnasium without doing any physical exercise.

Under the consent agreement, Urus agreed to stop selling and marketing the device and any similar devices offering weight loss or muscle toning that do not require exercise, unless the Bureau agreed that the claims were based on adequate and proper tests. Urus also agreed to refund any unsatisfied consumers, to broadcast corrective notices on each of the television stations initially used for the promotion of the AB Energizer and to pay an administrative monetary penalty of $75 000. It also agreed to establish, implement and maintain a formal corporate compliance program regarding the use and content of advertisements and other promotions.

Platinum Vapour Injector

In May 2004, the Federal Court of Appeal upheld a Competition Tribunal ruling that found that claims made to consumers about a fuel-saving device known as the Platinum Vapour Injector (PVI) were false or misleading.

The 2002 Tribunal decision ordered the company to stop making fuel-saving and emission-reduction claims about the PVI, and ordered the company and individuals to pay an administrative monetary penalty. The Federal Court of Appeal denied the company’s appeal of the Tribunal decision. At the same time, the Court also found that the Tribunal had erred in not ordering the company to publish corrective notices.

Federal Auction Service

In March 2005, the Bureau registered a consent agreement with the Competition Tribunal under which Federal Auction Service and its president, Amir Durrani, agreed not to make representations that the company had been retained, authorized or instructed to sell items on behalf of the federal government, unless those representations were accurate. The company agreed to pay an administrative monetary penalty of $25 000. The consent agreement also required the company to clearly identify the volume and source of each item for sale at its auctions, to publish corrective notices in newspapers and on its website, and to implement a formal company compliance policy regarding the use of promotions.

Goodlife Fitness Clubs Inc.

In February 2005, in a consent agreement filed with the Competition Tribunal, Goodlife Fitness Clubs Inc. agreed to stop making representations about the price of memberships in its clubs that failed to adequately disclose all the mandatory additional fees. It also agreed to pay an administrative monetary penalty of $75 000. The consent agreement also required the company to publish a corrective notice on its website and in certain Ontario and Quebec newspapers, and to administer a new corporate compliance policy about promotions. Goodlife owns and operates 90 fitness clubs in six Canadian provinces.

Alternative Case Resolution

In 2004–2005, the Bureau settled through alternative case resolution 35 matters under the false or misleading representations and deceptive marketing practices provisions of the Competition Act and the provisions of the three standards-based statutes.¹

The Bureau may examine certain matters under both the criminal and civil provisions of the Competition Act, the provisions of the standardsbased statutes or both. In each case, the Bureau examines matters under all relevant provisions of the statutes it enforces. The following are examples of cases in which concerns were raised under the civil false or misleading representations and deceptive marketing practices provisions of the Act.

Seal of Authenticity

In June 2004, the Bureau resolved a complaint regarding a certification seal on the bottle label of an apple-based product. The certification seal could have potentially led consumers to believe the seal had been awarded by an independent organization when in fact it belonged to the company. The manufacturer also used its website to promote the seal as proof of the product’s authenticity. This practice gave the company an unfair advantage over manufacturers of identical products. When the Bureau informed the company of the requirements of the Competition Act, it agreed to stop using and publicizing the seal.

Retail Sale Flyers

In April 2004, the Bureau responded to an enquiry from a health-food distributor that discovered that 1.4 million of its sale flyers had advertised incorrect prices for two products.

As a result of discussions with the Bureau, the company provided written and verbal assurance that corrective notices would be published in the same newspapers that carried the flyers, that in-store corrective notices would be posted, and that a quality control program would be put in place to prevent similar errors.

Jewellery Retailer

In April 2004, the Bureau resolved a complaint alleging that a jewellery retailer’s Yellow Pages advertisement that included the phrase "50% off on jewellery year-round" was potentially misleading.

After being contacted by the Bureau, the company agreed to remove the advertisement from subsequent editions of the Yellow Pages and to remove all in-store signs carrying the advertisement. The company also agreed to place a corrective notice in the local newspaper.

National Publishing Company

In December 2004, the Bureau resolved a complaint under the promotional contests provision of the Competition Act regarding a delay in the distribution of prizes. The contest was advertised on a website and open to all residents of Canada. The prizes included 10 trips valued at approximately $5000 each and secondary prizes valued between $28.95 and $99.99. The complainant discovered that she had won a secondary prize by checking the promoter’s website, but she had never been notified of her win.

Although the contest closed on October 20, 2003, a number of secondary prizes were not sent to the winners until November 5, 2004. This could have raised an issue under the Act.

Company representatives indicated that mistakes did occur with the distribution of secondary prizes because of confusion caused by overlapping responsibilities in different cities. The company took 12 months to investigate, identify and resolve the problem. To ensure future compliance with the Act, the company agreed to do the following:

remind the people responsible for promotional contests in each of their markets to keep proper documentation for future contests; and
establish safeguards to ensure that all prizes are distributed expeditiously, ideally within 30 days of a contest’s conclusion, with remedial action when a prize is not delivered within that time frame.

Written Opinions

The Bureau provides legally binding written opinions to businesses seeking to comply with the Competition Act. Of the 22 written opinions the Bureau issued in 2004–2005 on the civil and criminal false or misleading representations and deceptive marketing practices provisions of the Act, seven dealt with the civil provisions, specifically, paragraph 74.01(1)(a) and section 74.06. Paragraph 74.01(1)(a) prohibits all representations, in any form whatever, that are false or misleading in a material respect. Section 74.06 of the Act prohibits any promotional contest that does not disclose the number and approximate value of prizes, the geographic area or areas in which the prizes may be awarded and any important information relating to the chances of winning, such as the odds. The Act also stipulates that the distribution of prizes must not be unduly delayed and that participants must be selected or prizes distributed randomly or on the basis of skill.

The following are examples of written opinions that dealt with the civil provisions of the Act.

Promotional Contest: Charitable Sweepstakes

In August 2004, a Canadian registered charity sought a written opinion on whether a proposed promotional contest would raise concerns under the Competition Act. The charity proposed running a casino video terminal sweepstakes game resembling 8-Liners. The charity terminals would be located at various retail establishments. To play the game consumers would need to purchase pre-paid long distance phone cards that would give access to the video terminal. The cost of the phone card would then be donated to the charity. A "no purchase necessary" method of entry would apply. The complete rules and regulations for the contest would be posted at retail establishments.

The Bureau’s written opinion stated that the contest as proposed would not give the Bureau grounds to launch an inquiry.

Promotional Contest: Win a Mini Cooper

In April 2004, a real estate agency sought a written opinion on whether a proposed promotional contest would raise concerns under the Competition Act. The company planned to purchase a Mini Cooper Classic and promote it with advertisements, which would also include a short list of contest rules. At the end of a year, a draw for the car would take place. The Bureau’s written opinion stated that the contest as proposed would not give the Bureau grounds to launch an inquiry.

Promotional Contest: Television Game Show

In May 2004, a law firm sought a written opinion on behalf of a Canadian film and television production company on whether a proposed promotional contest would give rise to concerns under the Competition Act. The company’s television program would allow home viewers to participate in a real-time contest played on the television show.

The Bureau’s written opinion stated that the contest as proposed would not give the Bureau grounds to launch an inquiry.

Promotional Contest: "Cash-Call" Contest

In December 2004, a printing company sought a written opinion on whether a proposed promotional contest would give rise to concerns under the Competition Act. The company planned to operate a sweepstakes by selling break-open tickets that would give the purchaser two minutes of longdistance calling time and an opportunity to win cash prizes by matching three symbols identified on the front of the ticket. Free tickets could also be obtained by sending a self-addressed, stamped envelope to the company. The complete rules and regulations for the contest would be posted at retail establishments and on the dispensing machines. The Bureau’s written opinion stated that the contest as proposed would not give the Bureau grounds to launch an inquiry.

Online Business Directory Web site

See the summary of this case.

Sports Pool on Computer Terminals

In October 2004, a law firm sought a written opinion on behalf of an entertainment company on whether a proposed promotional contest would raise concerns under the Competition Act.

The company proposed to run a sports pool on computer terminals that would interact with closed circuit broadcasts accompanying sporting events. The terminals would be located in various bars. To play the game, a consumer would purchase a card that gave access to the terminal. A "no purchase necessary" method of entry would also apply. The complete rules and regulations for the contest would be posted at the bar.

The written opinion the Bureau issued on December 10, 2004, stated that the contest as proposed would give the Bureau grounds to launch an inquiry. In the Bureau’s view, the official rules and regulations and the printed promotional material, which would be available in participating bars as well as on the company’s website, contained misleading representations and did not provide adequate and fair disclosure to potential participants of the number and value of prizes being awarded.

The company revised its proposal and submitted it to the Bureau, which issued a second written opinion on March 4, 2005. The second opinion stated that the contest as proposed would not give the Bureau grounds to commence an inquiry because the official rules and regulations did not include any misleading representations and provided adequate and fair disclosure to potential participants of the number and value of prizes being awarded, the existence of skill testing questions, any regional allocation of prizes (if applicable), the contest closing date, the chances of winning, and facts possessed by the contest organizer that would materially affect the chances of winning.

Prepaid Calling Cards

In June 2004, a long-distance prepaid calling card company sought a written opinion on the application of the Competition Act to the proposed marketing representations and promotional plans for its prepaid telephone calling cards.

The Bureau examined the proposal under both the criminal and civil false or misleading representations and deceptive marketing practices provisions of the Act. It was unable to determine whether the proposed material for two calling cards provided sufficient grounds to launch an inquiry because the relevant information was not clear about how charges would be applied to these cards.

With respect to the promotional materials for the other three cards, the Bureau’s opinion was that there were sufficient grounds to launch an inquiry under the false or misleading representations and deceptive marketing practices provisions of the Act for the following reasons.

The materials contained fine print disclosures contradicting the general impression created about the advertised rates and the telephone minutes available.
The materials used ambiguous language that could mislead consumers when choosing the products.
In some cases, it appeared to be impossible to achieve the long-distance minutes advertised.

More details about these written opinions can be found on the Bureau's Web site.

Footnotes

1 See chapter 2 for a general description of the criminal false or misleading representations and deceptive marketing practices provisions of the Competition Act and a general description of the Consumer Packaging and Labelling Act, the Precious Metals Marking Act and the Textile Labelling Act. See chapter 3 for a general description of the civil false or misleading representations and deceptive marketing practices provisions of the Competition Act.