Commissioner of Competition v. Canada Pipe Co., 2006 FCA 233
Judge | Desjardins, Létourneau and Pelletier, JJ.A. |
Court | Federal Court of Appeal (Canada) |
Case Date | June 23, 2006 |
Jurisdiction | Canada (Federal) |
Citations | 2006 FCA 233;(2006), 350 N.R. 291 (FCA) |
Competition Commr. v. Can. Pipe Co. (2006), 350 N.R. 291 (FCA)
MLB headnote and full text
Temp. Cite: [2006] N.R. TBEd. JL.023
Commissioner of Competition (appellant) v. Canada Pipe Company Ltd./Tuyauteries Canada ltée (respondent)
(A-106-05; 2006 FCA 233)
Indexed As: Commissioner of Competition v. Canada Pipe Co.
Federal Court of Appeal
Desjardins, Létourneau and Pelletier, JJ.A.
June 23, 2006.
Summary:
The Competition Commissioner sought an order against Canada Pipe Company Ltd. (Canada Pipe), a supplier of cast iron drain, waste and vent products, under ss. 77 (exclusive dealing) and 79 (abuse of dominant position) of the Competition Act to prohibit Canada Pipe from engaging in a marketing strategy known as the Stocking Distribution Program.
The Competition Tribunal dismissed the application. The Commissioner appealed.
The Federal Court of Appeal allowed the appeal, referring the matter back to the Tribunal for redetermination in accordance with the Court of Appeal's reasons.
Trade Regulation - Topic 503
Competition - General - Interpretation of Competition Act - The Competition Tribunal dismissed the Competition Commissioner's application for an order prohibiting Canada Pipe Company Ltd. from engaging in a marketing strategy which the Commissioner alleged was an abuse of the company's dominant position - On the Commissioner's appeal, the Federal Court of Appeal considered the correct interpretation of s. 79(1)(c) of the Competition Act (abuse of dominant position) - The analysis required by s. 79(1)(c) was equivalent to a "but for" test - The Tribunal had to compare the level of competitiveness in the presence of the impugned practice with that which would exist in the absence of the practice and then determine whether the preventing or lessening of competition, if any, was "substantial" - The comparison had to be done with reference to actual effects in the past and present, as well as likely future effects - As the "but for" test described an approach that corresponded to the requirements mandated by s. 79(1)(c), it was one that the Tribunal had to consider in all cases, although it was not necessarily the only correct approach - See paragraphs 35 to 44.
Trade Regulation - Topic 503
Competition - General - Interpretation of Competition Act - The Competition Tribunal dismissed the Competition Commissioner's application for an order prohibiting Canada Pipe Company Ltd. from engaging in a marketing strategy which the Commissioner alleged was an abuse of the company's dominant position - On the Commissioner's appeal, the Federal Court of Appeal considered the correct interpretation of "anti-competitive act" in s. 79(1)(b) of the Competition Act (abuse of dominant position) - An anti-competitive act was one that had an intended negative effect on a competitor that was predatory, exclusionary or disciplinary - Proof of the intended nature of the negative effect could be established directly through evidence of subjective intent or indirectly by reference to the reasonably foreseeable consequences of the acts - In appropriate circumstances, proof of a valid business justification could overcome the deemed intention by showing that anti-competitive effects were not the overriding purpose - To be relevant, a business justification had to be a credible efficiency or pro-competitive rationale which related to and counterbalanced the anti-competitive effects and/or subjective intent - See paragraphs 63 to 73.
Trade Regulation - Topic 503
Competition - General - Interpretation of Competition Act - The Competition Tribunal dismissed the Competition Commissioner's application for an order prohibiting Canada Pipe Company Ltd. from engaging in a marketing strategy which the Commissioner alleged was exclusive dealing (s. 77(2)) and an abuse of the company's dominant position (s. 79(1)) - On the Commissioner's appeal, the Federal Court of Appeal discussed the relationship between ss. 77(2) and 79(1) - A parallel structure and logic was readily apparent - Both provisions required an initial determination that the company occupied a dominant position - Both called for the identification of a particular type of conduct, either exclusive dealing with an exclusionary effect (s. 77(2)) or anti-competitive acts (s. 79(1)) - Both provisions required a finding of actual or likely substantial lessening of competition - While the tests would not necessarily produce identical results in all cases, an overlapping analysis was to be expected - However, unlike s. 79(1), s. 77(2) set out three distinct elements, each of which had to be established before an order prohibiting exclusive dealing could issue - See paragraphs 20 to 22 and 99.
Trade Regulation - Topic 724
Competition - Unfair competition - Restrictive trade practices - Abuse of dominant position - Canada Pipe Company Ltd. (Canada Pipe) sold cast iron drain, waste and vent products - The Competition Commissioner sought an order prohibiting Canada Pipe from engaging in a marketing strategy known as the Stocking Distributor Program (SDP), a loyalty rebate program that the Commissioner alleged was an abuse of Canada Pipe's dominant market position - The Competition Tribunal dismissed the application, finding, inter alia, that while Canada Pipe had market power, the SDP had not substantially lessened or prevented competition as required by s. 79(1)(c) of the Competition Act - The Commissioner appealed - The Federal Court of Appeal allowed the appeal - The Tribunal erred in failing to consider whether, without the SDP, the relevant product market would have been substantially more competitive - The Tribunal's identification of evidence of competition subsisting in the presence of the SDP was insufficient - Proper examination of the question might include whether (i) entry or expansion might be substantially faster, more frequent or more significant without the SDP; (ii) switching between products and suppliers might be more frequent; (iii) prices might be lower and (iv) product quality might be greater - See paragraphs 45 to 58.
Trade Regulation - Topic 724
Competition - Unfair competition - Restrictive trade practices - Abuse of dominant position - Canada Pipe Company Ltd. (Canada Pipe) sold cast iron drain, waste and vent products - The Competition Commissioner sought an order prohibiting Canada Pipe from engaging in a marketing strategy known as the Stocking Distributor Program (SDP), a loyalty rebate program that the Commissioner alleged was an abuse of Canada Pipe's dominant market position - The Competition Tribunal dismissed the application, finding, inter alia, that while Canada Pipe had market power, the SDP was not an anti-competitive act because it had not prevented entry or competition in certain regions - The Commissioner appealed - The Federal Court of Appeal allowed the appeal - Rather than asking whether the SDP's purpose was an intended negative effect on competitors, as required by s. 79(1)(b) of the Competition Act, the Tribunal had examined whether there was evidence of a decrease in competition - This approach implied that unless an impugned act prevented entry of competitors or competition or unless it was the predominant cause of uncompetitive market attributes, the act could not be considered anti-competitive - This was an unwarrantedly and incorrectly narrow test - See paragraphs 74 to 83.
Trade Regulation - Topic 724
Competition - Unfair competition - Restrictive trade practices - Abuse of dominant position - Canada Pipe Company Ltd. (Canada Pipe) sold cast iron drain, waste and vent products - The Competition Commissioner sought an order prohibiting Canada Pipe from engaging in a marketing strategy known as the Stocking Distributor Program (SDP), a loyalty rebate program that the Commissioner alleged was an abuse of Canada Pipe's dominant market position - Before the Competition Tribunal, Canada Pipe suggested two business justifications for the SDP: (i) its uniform rebate structure encouraged competition by creating a level playing field and (ii) it made possible high-volume sales necessary to maintain a full product line - In dismissing the Commissioner's application, the Tribunal accepted the second justification - The Commissioner appealed, submitting, inter alia, that the second business justification was actually a self-interest argument - The Federal Court of Appeal allowed the appeal - Improved consumer welfare on its own was insufficient to establish a business justification under s. 79(1)(b) of the Competition Act - There had to be a credible efficiency or pro-competitive explanation attributable to the company - Without such an explanation, self-interest remained the only justification for the SDP - See paragraphs 84 to 91.
Trade Regulation - Topic 727
Competition - Unfair competition - Restrictive trade practices - Exclusive dealing - Canada Pipe Company Ltd. (Canada Pipe) sold cast iron drain, waste and vent products - The Competition Commissioner sought an order prohibiting Canada Pipe from engaging in a marketing strategy known as the Stocking Distributor Program (SDP), a loyalty rebate program that the Commissioner alleged constituted exclusive dealing - The Competition Tribunal dismissed the application, finding, inter alia, that while the SDP was a practice of exclusive dealing according to s. 77(1)(b) of the Competition Act, an exclusionary effect had not been established - The Commissioner appealed - The Federal Court of Appeal allowed the appeal - The Tribunal's analysis of the evidence of barriers to entry and the SDP's effect was conducted from the narrow perspective of whether the SDP had actually prevented entry or had an anti-competitive effect and not the broader perspective required by s. 77(2) of whether the SDP was likely to impede entry or expansion or have any other exclusionary effect - This unduly narrow perspective constituted reversible error - See paragraphs 96 to 99.
Words and Phrases
Anti-competitive - The Federal Court of Appeal discussed the definition of the phrase "anti-competitive" as found in s. 79(1)(b) of the Competition Act, R.S.C. 1985, c. C-34 - See paragraphs 63 to 73.
Cases Noticed:
R. v. Proulx (J.K.D.), [2000] 1 S.C.R. 61; 249 N.R. 201; 142 Man.R.(2d) 161; 212 W.A.C. 161, refd to. [para. 26].
Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 26].
Director of Investigation and Research v. Nutra Sweet Co. (1990), 32 C.P.R.(3d) 1 (Comp. Trib.), appld. [para. 27].
Gravel and Lake Services Ltd. v. Bay Ocean Management Inc. et al. (2002), 298 N.R. 369; 2002 FCA 465, refd to. [para. 31].
SMX Shopping Centre Ltd. v. Minister of National Revenue (2003), 314 N.R. 365; 2003 FCA 479, refd to. [para. 31].
Naguib v. Minister of National Revenue (2004), 317 N.R. 88; 2004 FCA 40, refd to. [para. 31].
Ship Tordenskjold v. Ship Euphemia (1908), 41 S.C.R. 154, refd to. [para. 33].
R. v. Perka, Nelson, Hines and Johnson, [1984] 2 S.C.R. 232; 55 N.R. 1, refd to. [para. 33].
R. v. Keegstra (J.), [1995] 2 S.C.R. 381; 180 N.R. 120; 169 A.R. 50; 97 W.A.C. 50, refd to. [para. 33].
Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1, refd to. [para. 33].
Director of Investigation and Research, Competition Act v. Southam Inc. et al. (No. 1), [1997] 1 S.C.R. 748; 209 N.R. 20, refd to. [para. 34].
Commissioner of Competition v. Superior Propane Inc. et al., [2001] 3 F.C. 185; 269 N.R. 109 (F.C.A.), folld. [para. 34].
Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000), refd to. [para. 40].
Canada (Director of Investigation and Research) v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R.(3d) 289 (Comp. Trib.), agreed with [para. 42].
Canada (Director of Investigation and Research) v. D&B Companies of Canada Ltd. (1995), 64 C.P.R.(3d) 216 (Comp. Trib.), refd to. [para. 42].
Canada (Director of Investigation and Research) v. Tele-Direct (Publications) Inc. (1997), 73 C.P.R.(3d) 1 (Comp. Trib.), refd to. [para. 63].
Statutes Noticed:
Competition Act, R.S.C. 1985, c. C-34, sect. 77(1) [para. 19]; sect. 77(2) [para. 20]; sect. 78(1) [para. 18]; sect. 79(1) [para. 16]; sect. 79(4) [para. 17].
Authors and Works Noticed:
Canada, Minutes of Proceedings and Evidence of the Legislative Committee on Bill C-91, 1st sess., 33rd Parliament (1986), pp. 2:8-9, 3:7-9, 3-17, 4:55-56, 5:13, 5:15, 5:63-64, 6:9-10, 6:57-58, 7:55-57, 7:60-63, 9:20-21, 11:3, 11:32-33 [para. 70].
Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (2001), generally [para. 33]; pp. 5, 19 [para. 39].
Counsel:
Randall Hofley and Leslie Milton, for the appellant;
Kent Thomson, James Doris and Charles Tingley, for the respondent.
Solicitors of Record:
Johnston & Buchan LLP, Ottawa, Ontario, and John H. Sims, Q.C., Deputy Attorney General of Canada, Gatineau, Quebec, for the appellant;
Davies Ward Phillips & Vineberg LLP, Toronto, Ontario, for the respondent.
This appeal was heard on February 7 and 8, 2006, at Ottawa, Ontario, by Desjardins, Létourneau and Pelletier, JJ.A., of the Federal Court of Appeal. Desjardins, J.A., delivered the following judgment for the Court on June 23, 2006.
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