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Canada Pipe case 'could change competition in Canada'

|Written By Christopher Guly

Commissioner of Comp-etition v. Canada Pipe Co. Ltd. has already made a bit of history by becoming the first abuse-of-dominance case under the Competition Act to be heard by the Federal Court of Appeal.

Brian Facey says,

The case could have even further implications should it end up in the Supreme Court of Canada, says competition lawyer Brian Facey. The Supreme Court is expected to release its decision on whether to grant leave to appeal by the spring.

"It could change competition in Canada, depending on what the court would say on the test of substantial lessening of competition when a company has the market power and ability to exclude competitors or raise prices and harm consumers."

Facey, a partner at Blake Cassels & Graydon LLP, worries that the country's top court could be influenced by "troubling language" in the Federal Court of Appeal's June 23 decision that sent Canada Pipe back to the Competition Tribunal for a redetermination.

"The court's ruling makes reference to the 'purpose' clause under s. 1 of the Competition Act that talks about protecting small business," says Facey. "But our competition law has never been only about protecting small business - it's also been about protecting consumers.

"If the Supreme Court says the Federal Court of Appeal is right about that section not being about consumers, that would mark a fundamental change to Canadian law and put Canada at odds with the rest of the world."

He says Canadian companies' use of fidelity rebates as rewards or incentives in exchange for customer loyalty is banned in Europe. But much like in Canada, dominant companies in the United States can use loyalty rebates unless they're found to be excluding competitors and harming consumers under American anti-trust law.

Last year, following an exhaustive investigation that led to the case commencing in 2003, the Competition Tribunal determined that while Canada Pipe has a dominant position for ductile iron drain, waste, and vent-water pipes in Canada, the company's fidelity rebate program did not have an exclusionary effect and did not significantly diminish or prevent competition.

But Facey says in light of an international "convergence movement" on competition underway, European regulators are toying with the idea of considering the effects corporate rebate programs have on consumers.

"If Canada goes in the opposite direction, it would look strange in the international community," he says.

Competition lawyer Jeanne Pratt, an associate at Fraser Milner Casgrain LLP in Toronto, says while European countries and the U.S. are trending toward an effects-based test for anti-competitive acts, the Federal Court of Appeal ruled in Canada Pipe that the 20-year-old Competition Act has an intent component.

"The court said that intent to harm a competitor can be proved either by objective or subjective evidence," she says.

Last year, the Competition Tribunal rejected allegations made by Sheridan Scott, the commissioner of competition, that Canada Pipe's loyalty rebate program constituted an abuse of the company's dominant position because it had the effect of potentially squeezing out new entrants in the market.

The tribunal held that Canada Pipe's customers could switch suppliers at any time and pointed out that competitors had entered the market in recent years - two factors that failed to illustrate the company was involved in anti-competitive acts.

However, the Federal Court of Appeal ruled that the tribunal didn't apply the right test to determine whether or not Canada Pipe's program was sufficiently anti-competitive.

"The Competition Tribunal looked at the effects of the loyalty-rebate practice, but the Federal Court of Appeal said the tribunal should have looked at the intent of that practice," says Pratt.

"The court said if it's to harm a competitor or if it's reasonable to expect it would be of harm to a competitor, then it meets the test for the practice of anticompetitive acts under the Competition Act."

She says that by contrast, the trend with most abuse-of-dominance cases in the U.S. and Europe is in demonstrating that to be anticompetitive, a practice has to have an anticompetitive effect.

"It's not just that you intend to harm a competitor, since most players in the market do intend to harm their competitors."

Pratt says as a result of the Federal Court of Appeal's decision in Canada Pipe, large companies doing business in Canada are "uncertain as to where the line between good competition and anticompetitive conduct is right now."

Arguably, businesses preferred the Competition Tribunal's findings on the case in February 2005.

Says Pratt, "That decision meant that a big company could still compete aggressively without crossing the line into anticompetitive behaviour."

However, Facey says while dominant companies might like that conclusion, "smaller competitors may fear that they will have difficulty competing successfully."

He says in light of the Federal Court of Appeal ruling, companies holding significant market positions "need to think twice" before using fidelity rebates until the Canada Pipe case is resolved - either through a second review by the Competition Tribunal alone or via the Supreme Court of Canada in what would mark the first abuse-of-dominance case heard by the top court.

"I have tons of clients calling me asking, 'What do we do now?'" says Facey.

"I tell them the tribunal could order them to stop doing something and in some circumstances order the divestiture of shares or assets of the dominant company."

In the mid-1990s, the Competition Tribunal ordered A.C. Nielsen to stop engaging in anticompetitive practices and to divest historical scanner data - the only time, thus far, that the tribunal has used its divestiture power in an abuse-of-dominance case.

Proposed amendments to the Competition Act, introduced in 2004, which would have enabled the tribunal to levy significant fines, were never passed by Parliament.

Facey says the expense of going through a tribunal hearing is "enormous."

"A company could spend millions and millions of dollars on legal fees and experts," he explains. "The government has a heckler's veto and can make the litigation process so painful by issuing subpoenas and getting all sorts of information about the company without having to share any of that information with the company.

"The Competition Bureau only has to disclose information that it's going to rely upon. If, through discovery, anything is found to be exculpatory regarding the company, the bureau doesn't have to share that information."

Facey points out that Canada Pipe marks the second time the Federal Court of Appeal has sent a case back to the Competition Tribunal for a redetermination.

Five years ago, the federal appellate court allowed the Competition Bureau's appeal of a proposed merger between Superior Propane Inc. and ICG Propane Inc. - a case in which Facey served as co-counsel for Superior Propane.

Despite finding that the companies together would hold a monopoly in several markets, the Competition Tribunal allowed the merger. But the Federal Court of Appeal held that the tribunal incorrectly applied the efficiency defence in s. 96 of the Competition Act and sent the case back to the tribunal for a redetermination in accordance with the court's judgment.

However on redetermination, the tribunal - using the legal test established by the Federal Court of Appeal - still found that the merger was of net benefit to Canada and could proceed.

A subsequent appeal confirmed that result. (Justice Marshall Rothstein, the newest member of the Supreme Court of Canada, wrote the decision.)

The case concluded in January 2003; by then, Superior and ICG had already merged.

But having the Federal Court of Appeal weigh in on matters relating to the Competition Act "defeats the whole purpose" of the Competition Tribunal, says Facey.

"The point of having a specialized tribunal is to avoid having to keep going back to the court of appeal and the back to the tribunal."

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