Leading firms and oligopolies: beware

Jun 28, 2024 12 MIN READ
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The amended Canadian Competition Act

This Update is part of Osler’s guide to the amended Competition Act, which canvasses the significant modernization of Canada’s antitrust law that has transpired following a series of high-profile amendments, culminating in Bill C-59’s royal assent. We invite you to explore our in-depth, multi-part guide examining the key takeaways for businesses operating in Canada.

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The competition law landscape for businesses holding a dominant market position, as well as those operating within oligopolistic markets, has changed with the recent amendments to the abuse of dominance provisions of the Competition Act (the Act). These changes increase the risk of both public enforcement by the Commissioner of Competition (the Commissioner) and private access applications initiated by competitors, consumers or public-interest organizations. Businesses with significant market power now face higher monetary penalties, the possibility of prohibition orders for conduct that was not previously considered an abuse of dominance and, in the near future, private litigation with the potential for financial awards.

In light of these changes, dominant firms will need to consider the strategic calculus when assessing pricing, distribution and access. Firms generally (especially those operating in markets with limited competition) will also need to consider the implications of engaging in conduct that may be perceived as “joint” action with competitors.

New lower burden to restrict conduct of dominant firms

Abuse of a dominant position, Canada’s anti-monopolization law, has long been the key civil reviewable trade practice of the Act. Indeed, it is often commented that the abuse of dominance provisions, contained in sections 78 and 79 of the Act, arguably render the other civil (non-merger) provisions unnecessary.

The abuse of dominance provisions apply only to the conduct of firms that are dominant (or jointly dominant). They also do not prohibit dominance itself, but rather provide for remedial action in relation to certain types of conduct. The key challenge in the formulation and enforcement of the abuse of dominance provisions has, therefore, long been distinguishing between anti-competitive conduct by dominant firms, on the one hand, and healthy and aggressive — even cut-throat— conduct on the other, which is desirable. As the Competition Tribunal (the Tribunal) has noted, discerning the line between anti-competitive conduct and competition on merits is “not an easy task”.[1]

For nearly 40 years, the Commissioner (and, until recently, only the Commissioner) had to establish three legal elements before the Tribunal could exercise its discretion under the abuse of dominance provision and issue any type of remedy:

  1. one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business which the jurisprudence has established is synonymous with dominance or market power
  2. that person or those persons have engaged in or are engaging in a practice of anti-competitive acts
  3. the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market (an SLPC)

Following amendments that came into effect in December 2023, the Commissioner or a private litigant (having obtained leave) can apply for an order against a dominant firm (or firms) prohibiting them from engaging in certain conduct or business practices if dominance (i.e., market power) is proven on an individual or joint basis and it is established that there is either anti-competitive intent or anti-competitive effect (i.e., an SLPC) that is not the result of “superior competitive performance”. 

To obtain a remedial order other than a prohibition order, the Tribunal must still determine that all three elements (dominance, anti-competitive acts/intent and anti-competitive effect) are satisfied. In addition (and as has always been the case for alternative remedial orders), the Tribunal must find that a prohibition order is not likely to restore competition in that market. However, the lower burden to obtain a prescriptive order is a material change to the enforcement of abuse of dominance.

Private enforcement

The private right of action under the abuse of dominance provisions has been in effect for two years. Although the use of the right has been limited, there have been early indications of its utility (e.g., Apotex’s withdrawn leave application in September 2023 following a consensual resolution).[2]

As a result of the amendments, private parties with leave will, in June 2025, be able for the first time to seek a monetary remedy in respect of unilateral conduct. If the Tribunal finds the existence of abuse by a dominant firm, the Tribunal will be empowered to order “an amount, not exceeding the value of the benefit derived from the conduct that is the subject of the order, to be distributed among the applicant and any other person affected by the conduct, the manner that the Tribunal considers appropriate”. It remains to be seen how the addition of potential financial recovery, as well as other changes to the private access regime (see Section Private access regime), will affect the use of the private access right for abuse of dominance.

Expanded Tribunal remedies

The Tribunal now has a full range of strong remedies at its disposal, which include

  • Prohibition orders: Prohibition orders are common remedies in these cases and have included prohibitions on certain contractual terms (e.g., exclusivity, rights of first refusal, non-competes, automatic renewals, most-favoured-nation clauses, bundling and tied selling) and prohibitions on future acquisitions.
  • Prescriptive orders: an order directing any or all persons against whom an order is sought to take actions, including the divestiture of assets or shares, that are reasonable and necessary to overcome the effects of the practice in that market. Prescriptive remedies have included orders to provide access or supply on reasonable terms and conditions.
  • Monetary penalties: administrative monetary penalties (AMPs) in an amount not exceeding the greater of (a) $25 million ($35 million for subsequent orders) (up from $10 and $15 million) and (b) three times the value of the benefit derived or, if this amount cannot be calculated, 3% of the respondent’s annual worldwide gross revenues. In this regard, the Act enumerates the factors the Tribunal must consider when determining the amount of any AMP and explicitly provides that the purpose of an AMP is “to promote practices by that person that are in conformity with the purposes of this section and not to punish that person”.
  • Private remedies: Once the private access regime takes effect, a private litigant will be able to seek relief in respect of unilateral conduct. If the Tribunal finds the existence of abuse by a dominant firm, the Tribunal will be empowered to order “an amount, not exceeding the value of the benefit derived from the conduct that is the subject of the order, to be distributed among the applicant and any other person affected by the conduct, the manner that the Tribunal considers appropriate”.

Expansion of the meaning of anti-competitive acts, but intent remains key

In June 2022, section 79 was amended to define “a practice of anti-competitive acts” as an act that is intended to have (a) a predatory, exclusionary or disciplinary negative effect on a competitor (which reflects the jurisprudence to date) or (b) an adverse effect on competition (which introduced a new concept that has yet to be judicially considered). Following this amendment, any conduct intended to harm competition or the competitive process is captured.

The Act’s non-exhaustive list of examples illustrating the types of conduct that may be considered anti-competitive was expanded in 2022 to include explicitly a selective or discriminatory response to an actual or potential competitor for the purpose of impeding or preventing the competitor’s entry or expansion, or to eliminate that competitor. In the Competition Bureau’s (Bureau) Draft Bulletin on Amendments to the Abuse of Dominance Provisions (yet to be finalized),[3] the Bureau further elaborated on its position that acts intended “to have an adverse effect on competition” include MFN clauses, price parity clauses and non-discrimination clauses, as well as serial acquisitions by dominant firms.

In December 2023, the list of the types of conduct that may be considered anti-competitive was, more controversially, expanded to include “directly or indirectly imposing excessive and unfair selling prices.” The Bureau did not seek this addition, and it was met with many questions regarding its intended application. While further guidance and experience with the new provision will provide greater clarity, it is important to note that the practical application should be limited given the inclusion within the overall framework of the abuse of dominance provisions.

The concept of excessive pricing has been a feature of competition law in the European Union for decades as it relates to exploitative practices by dominant firms. In the E.U., the concern relates to situations in which a dominant firm charges a price that is excessive relative to an appropriate competitive benchmark (either an appropriate measure of costs or a comparison with a lower price charged in a situation comparable to the dominant firm’s circumstances). Unlike Canada’s abuse of dominance provisions, as discussed below, the E.U. violation does not require a finding of potential intent or harm to the competitive process; rather, it can occur as a result of the mere exploitation of buyers by the dominant firm. For this reason, the E.U. experience should not be a good model for determining either whether a price is “excessive and unfair” or the consequences of such a finding.

The jurisprudence on the meaning of “a practice of anti-competitive acts” has established that conduct will only be considered “anti-competitive” if its “overall character” or “overriding purpose” is anti-competitive in nature. A valid pro-competitive or efficiency-enhancing business justification for the conduct can overcome the actual or reasonably foreseeable anti-competitive effects of conduct if it can be shown that it is attributable to the respondent; is independent of the anti-competitive effect of the practices concerned; and counterbalances the anti-competitive effects and/or subject intent of the acts. Such justifications may include legal compliance; cost reductions in production; improvements in technology or production; processes that result in innovative new products and improvements in product quality; and protecting the viability of existing competition so as to avoid disruptions in operations. The introductory language to the list of anti-competitive acts in section 78 reflects the need for a finding of anti-competitive intent. Accordingly, although pre-dating June 2022, we expect the jurisprudence relating to anti-competitive intent and business justifications to remain still very much applicable.

Accordingly, despite the expanded definition of anti-competitive acts, a firm’s intent, rationale and justification for its conduct, practice or strategy remains a critical consideration in determining whether an act is in fact anti-competitive. As before, it is important that firms with leading market positions or operating in highly concentrated markets be aware of how certain aggressive business strategies are affecting or may affect the market and carefully consider and contemporaneously document the business justifications for their conduct or business practices.

Notable areas of uncertainty

Scope of joint dominance

The robust jurisprudence on dominance has confirmed that dominance is synonymous with market power. Market power of a single firm may be measured either directly by showing that the firm has already exercised market power (e.g., pricing practices or large profits can be an indication of market power) or indirectly using various indicia. While not definitive, market shares in particular may be indicative of whether an entity is dominant and has market power. The Bureau’s Abuse of Dominance Enforcement Guidelines (which are in the process of being revised to reflect the most recent legislative developments) state that the Bureau generally will not pursue allegations of abuse against a single firm with market share of less than 50%.

The abuse of dominance provisions, however, also contemplate the possibility of abuse by jointly dominant firms. To date, none of the fully contested abuse cases have dealt with joint abuse of dominance and there continues to be uncertainty about the scope of conduct that will result in firms being found to be acting “jointly.” While there have been two litigated cases based on a joint dominance theory of harm, in both cases the existence of joint dominance was taken as a given as there was an explicit agreement between the firms involved. Furthermore, both cases ended with a consent order being issued such that the Tribunal did not render a decision that establishes the requisite elements for a finding of joint abuse of dominance.

The Bureau has, through its guidelines, public comments and the 2009 consent agreement with two major suppliers in the waste industry, emphasized that parallel or complementary — albeit unilateral — conduct by competitors in relatively concentrated markets may ground a finding of joint dominance. A theory based on a concept of “facilitating practices” has also been suggested on a number of occasions. However, the meaning and scope of joint dominance has yet to be tested before the Tribunal. The Bureau has previously stated in its guidance that it will not investigate allegations of joint abuse of dominance where the firms collectively have a combined share below 65%.

SLPC and superior competitive performance

The assessment of whether the market impact of impugned conduct results from “superior competitive performance” has been provided for in the abuse of dominance provisions for some time. However, with the possibility now of the Tribunal making prohibition orders without any need to show anti-competitive intent, the circumstances in which a SLPC may reflect superior competitive performance are of potentially heightened importance.

When assessing whether a practice or conduct is resulting in or likely to result in an SPLC, the Tribunal is required to consider whether the practice is a result of superior competitive performance. In making this assessment, it may consider

  • the effect of the conduct on barriers to entry in the market, including network effects
  • the effect of the conduct on price or non-price competition, including quality, choice or consumer privacy
  • the nature and extent of change and innovation in a relevant market
  • any other factor that is relevant to competition in the market that is or would be affected by the conduct

The Tribunal, therefore, is asked to engage in some form of balancing of pro-competitive effects against the effects of the conduct and to attempt to assess what the market would look like in the absence of the behaviour at issue. For example, even the Bureau has recognized that exclusionary conduct may be beneficial to consumers and the legality of the behaviour involves a balancing of the pro-competitive and anti-competitive consequence of the practice. As it has previously stated:

Superior competitive performance is only a factor to be considered in determining the cause of the lessening of competition, and not as a justifiable goal for engaging in an anti-competitive act. Having lower costs, better distribution or production techniques, or a broader array of product offerings can put a firm at a competitive advantage that, when exploited, will lessen competition by leading to the elimination or restriction of inferior competitors. This is the sort of competitive dynamic that the Act is designed to preserve and, where possible, enhance, as it ultimately leads to a more efficient allocation of resources.[4]

Certainly, further guidance on the concept of superior competitive performance is warranted.

Limitation period

Section 79 is subject to a three-year limitation period whereby an application may not be made by the Commissioner in respect of a practice of anti-competitive acts or conduct more than three years after the practice or conduct has ceased. A one-year limitation period applies in respect of applications made by private parties.

[1] Canada (Director of Investigation and Research) v. Tele-Direct (Publications) Inc, [1997] CCTD No 8 at 263, 73 CPR (3d) 1 (Comp. Trib.).

[2] For more information, please see our earlier Osler Update on the Apotex application for leave.

[3] Competition Bureau Canada, “Bulletin on Amendments to the Abuse of Dominance Provisions”, at section 4.

[4] Competition Bureau Canada, “Enforcement Guidelines on the Abuse of Dominance Provisions” [PDF] (July 2001).

Authors: Shuli Rodal, Michelle Lally, Kaeleigh Kuzma, Christopher Naudie, Adam Hirsh, Alysha Pannu, Danielle Chu, Chelsea Rubin, Reba Nauth, Zach Rudge, Graeme Rotrand

The amended Canadian Competition Act: what businesses need to know

Available in English only (en anglais seulement)

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