Canada Publishes New Competition Enforcement Guidelines

On September 20, 2012, Canada's Competition Bureau published the final version of its Enforcement Guidelines on the abuse of dominance provisions (sections 78 and 79) of the Competition Act. The Competition Bureau's release of the Enforcement Guidelines replaces all of the Bureau's previous publications on the abuse of dominance provisions.
Abuse of dominance occurs when a dominant firm (or group of firms) in a market engage in a practice of anticompetitive acts that result, or are likely to result, in a substantial prevention or lessening of competition. Sections 78 and 79 of the Competition Act allow the Competition Tribunal, on application by the Commissioner of Competition, to prohibit dominant firms from engaging in anticompetitive practices, or to order such further remedial action as is reasonable and necessary to restore competition in the market.

To prove an abuse of dominance, three elements must be established:

1. One or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business;
2. that person or those persons have engaged in or are engaging in a practice of anti-competitive acts; and
3. the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.

In a supplement to the first criterion, the Bureau refers to one or more persons, which in context refers to any individual or group of individuals who, in coming together and consolidating their power, control a large share of the target market. It also states that there must be evidence that the firm in question controls a significant share of a class or species of business. The Bureau defines a class or species of business as the relevant market to the product in question- the market consisting of the product and viable substitutes for the product. When a firm is able to maintain product standards such as quality and price at levels that differ significantly from the competitive level in its relevant market, whether it is by market share or other economic factors, it is deemed as having market power and understood as having significant control over the market. However, in order for the firm to be put under scrutiny, there must also be a lack of convenient alternatives in close proximity to a region. If substitutes that are affordable and relatively convenient to obtain exist for consumers in an area, a firm's market power cannot be seen as necessarily anticompetitive.

The second criterion then looks at the practices of the firm in question, and deems whether or not the firm has exhibited anticompetitive behavior. In the language of the act, a practice of anticompetitive nature can be a single or continuing act by the firm that has made a lasting or significant impact on the relevant market. In particular, it is stated that a firm is defined as carrying out an anti-competitive act if it commits an intentional act of “predatory, exclusionary, or disciplinary” nature that seeks to bring about a negative effect to a competitor. Exclusionary behavior is defined in this Act as a design intended to prevent competitors from entering a market, eliminate competitors from the market, or limit the competition's ability to discipline the firm's market power. Predatory behavior, on the other hand, is described as the setting of prices below the market value for a short period of time in order to eliminate competition. However, the Bureau also discusses the importance of an overarching business objective in determining whether or not a practice is anticompetitive. While the existence of such a goal does not necessarily acquit a firm of previously accused anti-competitive behavior, the Bureau claims that a business justification that is legitimate and pro-competitive could counterbalance the previous accusation and give the firm wiggle room in its own defense.

Finally, the third criterion covers the process by which the Bureau determines whether or not a firm is punishable for causing “substantial harm to competition.” Regardless of whether a firm is found guilty of partaking in anticompetitive activity or not, the Bureau must still make an assessment regarding the effects that the anticompetitive actions may have on its relevant market. In its assessment, the Bureau evaluates not only the current state of competition in a given market, but also the possibility of competition's presence in the market if the firm had not taken its anti-competitive actions. In doing so, the Bureau attempts to trace the root of dwindling competition to the firm in question and in particular the anticompetitive behavior that the firm has exhibited.

The Enforcement Guidelines do not represent a fundamental shift in the Competition Bureau's approach to these basic elements. Rather, they merely updated some of the Bureau's practice in light of recent case law.

Thomas Chao
(202) 589-1834
tchao@dbmlawgroup.com