Vertical Practices: Exclusive Dealing, Market Restriction, Tied Selling, and Refusals to Supply

AuthorJohn S. Tyhurst
“Vertical” practices occur between players perform ing dierent func-
tions in the chai n of supply. The various functions in that chain i nclude
resource extraction, manufacturing, distribution, wholesaling, retailing,
and end con sumption.
Vertical practices by a given f‌irm m ay be directed at f‌irms “upstream”
(e.g., applied by a customer to a supply source) or “downstream” (e.g.,
applied by a manufacturer to a consumer or supplier furt her down the
chain of supply), or both. These practices can be contrasted with “hori-
zontal” conduct (such as mergers between competitors or price f‌ixing),
which occurs between players at the sa me competitive level in the sup-
ply chain.
Vertical practices are widespread in the economy and are often not
anti-competitive. Examples include franchise agreements restricting
competition between food and beverage outlets of a particula r brand,
exclusive arrangements requi ring car or farm equipment retailers to sel l
only the supplier’s branded product, or telecommunications serv ices
oered to customers at discounts tied to the customer taking a bundle
of services from the same f‌irm.
Such arrangements may have var ying eects on competition and
eciency depending on the context, which means t hat they require
a case-by-case as sessment to determine their anti-competitive eect.
In general, unless the f‌ir m imposing the vertical re straint is a major
Vertical Practices 403
supplier or possesses m arket power in a properly def‌ined market, the
practices are unlikely to raise issues under the Competition Act.1
There is a high degree of overlap between the vertical practices and
abuse of dominance provisions, given t hat each of the vertical practices
described below may also be assessed as an anti-competitive practice
under section 79 when engaged in by a dominant f‌irm. Indeed, several of
the cases rev iewed below, such a s Canada (Commissioner of Competition)
v Canada Pipe2 and Tel e- Di re ct ,3 were brought under both the abuse of
dominance and vertical practices provisions. A tabular compar ison of
the main elements of abuse of dominance and of vertical practices fall-
ing within sect ion 77 is set out below in Table 8.1. Several dierences
can be seen in compari ng the elements set out there: under section 77,
the respondent f‌irm need only be a “major supplier”; the practice of
anti-competitive acts is nar rowed under section77 and must have an
“exclusionary eect”; and there is no “prevention of competition” branch
under section 77.
Table 8.1. Comparison of the Elements of Sections 78 –79 and 77
Abuse of Dominance
(Sections –)
Vertical Practices
(Section )
()(a): substantial or complete
control of a class or species of
() & (): major supplier of a
product in a market or wide -
spread in a market
Conduct  and ()(b): practice of anti-
competitive acts that are “preda-
tory, exclusionary or disciplinary”
(): practice of tied selling,
exclusive dealing, and market
restriction as def‌ined
Ef‌fect ()(c): practice is likely to
substantially prevent or l essen
competition (SPLC), i.e., “likely
to create, maintain or enhan ce”
market power
() & (): practice is likely to
have an “exclusionary ef‌fect ,”
including impeding entry or expan-
sion of a f‌irm or the introduc tion
of a product to a market, resul ting
in a likely substantial less ening of
1 RSC 1985, c C-34 [Competition Act or A ct].
2 Canada (Commissioner o f Competition) v Canada Pipe, [2005] CCTD No 3 [Can-
ada Pipe CCT], overturned on ot her grounds 2006 FCA 233 [Canada Pipe F CA],
based on f‌indi ng that the Tribunal erre d in its consideration of the ant i-com-
petitive eect s of the practice.
3 Canada (Competition Ac t, Director of Investigation and Research) v Tele-Direct
(Publications) Inc (1997), 73 CPR (3d) 1 (CCT) [Tele- Di rec t].
4 Except refusa l to supply, s 75.
It is important to draw a di stinction, when discussing vertical prac-
tices, bet ween “intrabrand” and “i nterbrand” compet ition. Intrabr and
competition occurs among suppliers of the same branded product, such
as among Petro-Canada gas stations. Interbrand competition is that
between rival suppliers’ products and outlets: e.g., between those of
Petro- Canada, Shell, Ultra mar, etc.
Vertical restraints can aect both intrabrand and i nterbrand com-
petition. In most cases, intrabrand restraints, such as limitations on
the ability of the same branded f ranchises to compete against each
other, are not a concern for competition law as long as there is su-
cient interbr and competition.5 For example, if Petro-Canada were to
limit the geographic territory within which its ser vice stations could
market their branded motor oil (reducing intrabrand competition in oil
between those stations), that would pose few concerns, as consumers
can purchase oil from many dierent competing sources (i.e., there are
plenty of interbrand competitors in motor oil).
These provisions were added in the Stage I amendments of 1976.6 The
genesis of the amendments was a re search inquiry conducted by the
Restrictive Trade Practices Comm ission (RTPC) in the early 1960s into
the distribution practice s of the major oil companies of products such as
motor oil, anti-freeze, tires, batteries, and other products.7
Its 1962 TBA Report concluded that most of the oil companie s
required their branded ser vice station operators8 to carry only t he prod-
ucts supplied by that company — a form of exclusive dealing.9 It found
that the eect of this a nd other practices, such as tied selling, was to cre-
ate barriers to entr y for competing suppliers of oil and other products
5 See, however, the discu ssion of the importance of intr abrand competition in
Stephen Marti n & John T Scott, “GTE Sylvania and Interbr and Competition as the
Primar y Concern of Antitru st Law” (2017) 51 Review of Industr ial Organization 217.
6 An Act to amend the Combines Investigat ion Act and the Bank Act and to repeal
an Act to amend an A ct to amend the Combines Investigation Act a nd the Criminal
Code, SC 1974-75-76, c 76, s 12.
7 Canada, Re strictive Trade Practices C ommission, Report on the D istribution and
Sale of Automotive Oils, Grea ses, Anti-Freeze, Additives, Tires, Batteries and A cces-
sories and Relat ed Products (Queen’s Printer: Ottawa, 1962) — the s o-called TBA
Report [TBA Report].
8 Operators of non-company owned st ations, which made up the bulk of t he
stations in t hat era.
9 TBA Report, above note 7 at 40 –48.

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