Copyright © 2004 McGraw-Hill Ryerson Limited 1 PART 5 – SPECIAL CONTRACTUAL RELATIONS  Chapter 24 – Restrictive Trade Practices Prepared by Douglas H. Peterson, University of Alberta

Copyright © 2004 McGraw-Hill Ryerson Limited 2 RESTRICTIVE TRADE PRACTICES Introduction Nature of the Legislation Restrictive Trade Practices Mergers and Firms in a Dominant Position Conspiracies and Combinations in Restraint of Trade

Copyright © 2004 McGraw-Hill Ryerson Limited 3 RESTRICTIVE TRADE PRACTICES Offences Relating to Distribution and Sale of Products Reviewable Activities Offences Relating to Promotion and Advertising of Products Civil Actions Under the Competition Act

Copyright © 2004 McGraw-Hill Ryerson Limited 4 INTRODUCTION Introduction Attempt by government to eliminate forces that interfere with free competition Prohibition of those activities that unduly interfere with free enterprise Common Law Actions in contract against unreasonable restraint of trade Actions in tort for conspiracy and unlawful interference with trade Statute Competition Act

Copyright © 2004 McGraw-Hill Ryerson Limited 5 INTRODUCTION Alarming rise in monopoly powers in late 1800’s Early anti-trust responses in 1889 Major consolidations of piecemeal legislation 1960 and Combines Investigation Act Combines, from Combinations (oligopolies) The Competition Act

Copyright © 2004 McGraw-Hill Ryerson Limited 6 NATURE OF THE LEGISLATION The Competition Act National coverage as federal act Prohibits certain trade practices as criminal offences Applies to goods and services Commissioner of Competition has broad investigative powers, with right to warranted search and seizure

Copyright © 2004 McGraw-Hill Ryerson Limited 7 NATURE OF THE LEGISLATION Administered by the Commissioner of Competition Violations: Civil Review matters brought to its attention Commissioner investigates Refusals to deal, consignment selling, exclusive dealing, etc Criminal Commissioner refers matters to the Attorney General Conspiracy, bid-rigging, price discrimination/predation, etc Dual criminal/civil An individuals ability to bring a private action is limited Not in connection with a reviewable matter

Copyright © 2004 McGraw-Hill Ryerson Limited 8 NATURE OF THE LEGISLATION Reviewable Matters Marketing Activities Market restriction, exclusive dealing, “tied” selling, consignment selling, refusal to supply goods Remedy Order to cease prohibited practice Abuse of Dominant Position and Mergers Reviewed to ensure competition Remedy Any remedy to restore competition

Copyright © 2004 McGraw-Hill Ryerson Limited 9 RESTRICTIVE TRADE PRACTICES Nature of the Legislation The Competition Tribunal Act Tribunal is a Court of record Tries cases of reviewable practices brought by Commissioner of Competition May make rectification orders Failure to comply with orders is criminal contempt Appeal lies to Federal Court of Appeal

Copyright © 2004 McGraw-Hill Ryerson Limited 10 RESTRICTIVE TRADE PRACTICES Restrictive Trade Practices (Competition Act) Applies to goods and services Three main categories Practices related to nature of the business organization Practices that arise between firm and competitors Practices that arise between a firm and its customers

Copyright © 2004 McGraw-Hill Ryerson Limited 11 MERGERS AND FIRMS - DOMINANT POSITION Dominance itself is not improper Reviewable if lessen competition to determinant of public Dominance or monopolies have potential for abuse Criminal action can also be brought but very hard to convict May prohibit or modify terms of mergers

Copyright © 2004 McGraw-Hill Ryerson Limited 12 COMBINATIONS AND CONSPIRACIES Prohibit conspiracies and combinations that unduly lessen competition In any product, an offence to unduly: Limit dealing in any product Limit manufacturing And unreasonably enhance price Limit competition

Copyright © 2004 McGraw-Hill Ryerson Limited 13 COMBINATIONS AND CONSPIRACIES Covered Activities Exchange of statistics Defining product standards Exchange of credit information Cooperation in R&D Cooperation in environmental measures Applies only on a domestic basis Services Standards and competence matters are allowed Banks are covered by the act Affiliates are exempted

Copyright © 2004 McGraw-Hill Ryerson Limited 14 COMBINATIONS AND CONSPIRACIES A practice whereby contractors, in response to a call for bids or tenders, agree amongst themselves as to the price or who should bid or submit a tender A restrictive trade practice unless the person calling for he bids is advised of the arrangement Offence under act since 1976 Services Special provision for professional sports

Copyright © 2004 McGraw-Hill Ryerson Limited 15 DISTRIBUTION AND SALE OF PRODUCTS Designed to prevent special concessions to large buyers or prevent large buyers from insisting on special concessions Price discrimination Same quality, same quantity, same sales time Advertising allowances Rebates, promotional allowances Allowed if on a proportional basis

Copyright © 2004 McGraw-Hill Ryerson Limited 16 DISTRIBUTION AND SALE OF PRODUCTS Regional competition Applies to both lower or higher prices than competition Lower prices only prohibited if effect is to eliminate competition on a regional basis Price fixing Controlling prices at which goods can be sold to others Includes threats or inducements “Suggested retail price” is allowed if remains only a suggestion Loss Leader Selling – selling goods not for profit but to advertise or to attract customers to a place of business

Copyright © 2004 McGraw-Hill Ryerson Limited 17 DISTRIBUTION AND SALE OF PRODUCTS Pyramid selling Payment of fees or commissions not based upon sale of product, but upon the recruitment or sales of others Deceptive telemarketing

Copyright © 2004 McGraw-Hill Ryerson Limited 18 REVIEWABLE ACTIVITIES Selling methods that are reviewable Abuse of dominant position, refusal to supply Consignment selling Exclusive dealing Tied selling Market restriction Foreign directives to Canadian subsidiaries Foreign arrangements affecting Canadian firms

Copyright © 2004 McGraw-Hill Ryerson Limited 19 OFFENCES RELATING TO PROMOTION AND ADVERTISING OF PRODUCTS False or misleading Misleading in a material respect Materially misleading representation Not enough to be technically correct Strict liability Absolute liability violation of s.7 of the Charter Can avoid liability if show violation due to error and reasonable precautions have been taken

Copyright © 2004 McGraw-Hill Ryerson Limited 20 OFFENCES RELATING TO PROMOTION AND ADVERTISING OF PRODUCTS Sales above advertised price Act allows for advertising errors Must correct promptly and give notice to public of error Double ticketing – practice of attaching several different price tickets to goods Only the lowest price may be charged Bait-and-switch Advertise at bargain price to attract customers and there is not an adequate supply of the product Must show took adequate steps to obtain product

Copyright © 2004 McGraw-Hill Ryerson Limited 21 CIVIL OPTIONS Can take criminal or civil action Common law action for restraint of trade activities Damages – for party injured as a result of breach of the Competition Act Amount limited to actual loss Burden of proof on private individual Can use evidence from a criminal action in a civil action

Copyright © 2004 McGraw-Hill Ryerson Limited 22 SUMMARY Purpose is to maintain free competition Permit forces of competition to regulate versus government or dominant members Review mergers and monopolies Prohibit those that are contrary to public interest Ban combinations or conspiracies that unduly lessen competition Bans certain seller’s practices Act is part criminal, part civil