Conspiracy

Section 45 of the Competition Act makes it an offence to conspire, combine or agree with another person to restrain or injure competition unduly.

Proof of the first element, an agreement, requires proof of a meeting of the minds between two or more persons. This may be demonstrated by either evidence of a written or oral agreement or inferred on the basis of conduct. The Crown must demonstrate both the existence of an agreement and the subjective intent of the parties to enter into an agreement. Assuming an agreement is demonstrated, a court must then consider whether a reasonable person familiar with the industry in question would know or ought to have known that the agreement, if implemented, would lessen competition unduly.

In order to prove "undueness," the Crown must demonstrate that the agreement would prevent or lessen competition unduly. This requires an examination of the behaviour of the parties to an agreement, as well as an examination of the relevant product market and market structure, in order to determine whether the parties to an agreement have market power. There is no explicit threshold under either the Competition Act or existing case law as to when requisite market power can be said to exist. Furthermore, as stated by the Supreme Court of Canada, "particularly injurious behaviour may trigger liability even if market power is not so considerable."

It is noted, however, that the former Commissioner of Competition expressed the view that section 45(1)(b) establishes a per se offence with respect to the conduct described therein, such that the elements of the offence can be established without requiring evidence of market power. Specifically, the former Commissioner was of the view that the Crown need not demonstrate undueness with respect to agreements or arrangements that unreasonably enhance the price of a product, and that reasonableness is to be determined by considering the business necessities of the parties to the agreement and the interests of customers. This interpretation has been contested by the private bar, and the issue has yet to be finally determined.

The penalties for violating section 45 include a fine of up to CDN$10-million and/or imprisonment for a maximum term of five years.

Section 46 of the Competition Act increases the geographic scope of section 45 making it an offence to implement, in Canada, any conspiracy, combination or agreement entered into outside of Canada which, if entered into in Canada, would amount to a violation of section 45.

Conviction under section 46 can result in an unlimited fine at the discretion of the court.

Bid Rigging

Under section 47 of the Competition Act, it is a criminal offence to enter into an agreement where, in response to a call or request for bids or tenders, one or more bidders agree not to submit a bid, or two or more bidders agree to submit bids or tenders that have been prearranged among themselves. For the offence of bid rigging to be proved, the agreement must not be made known to the person calling for or requesting the bids or tenders at, or before the time, that the bid or tender is made.

A party who is convicted of a bid-rigging offence is liable to a fine in the discretion of the court or imprisonment for a term not exceeding five years or both.

Price Maintenance

Price maintenance generally involves resale price maintenance, whereby suppliers exert pressure on downstream parties (e.g. retailers) to raise or maintain prices. Section 61 of the Competition Act prohibits attempts by agreement, threat, promise or any like means to influence upward, or to discourage the reduction of the price at which a party sells a product in Canada. Section 61 of the Competition Act also prohibits refusing to supply a product because of the buyer's low pricing policy, or to otherwise discriminate against a buyer for that reason.

The price maintenance provisions of the Competition Act do not require proof that competition in fact be harmed.

The Competition Act provides certain defences to a company that refuses to supply a buyer because of its low pricing policy, including where it can be demonstrated that: (a) the buyer had a practice of using the product in question as a loss-leader; (b) there was a practice of misleading advertising in respect of the product; or (c) the buyer had a practice of not providing the level of service that ultimate purchasers of the product might reasonably expect.

Section 61 also prohibits persons from attempting to induce suppliers, by threat, promise or any like means, as a condition of doing business with the supplier, to refuse to supply a product to another person because of the low pricing policy of that person.

Conviction under section 61 can result in a fine in the discretion of the court and/or imprisonment for a maximum term of five years.

Predatory Pricing

Section 50(1)(c) of the Competition Act prohibits firms from engaging in a policy of selling products at unreasonably low prices, which has the effect or tendency of substantially eliminating competition or eliminating a competitor, or is designed to have that effect.

The Competition Act also contains a related offence in section 50(1)(b), referred to as geographic predation, which prohibits the selling of products in one area of Canada at prices lower than charged by the same person elsewhere in Canada which have the effect or tendency of substantially lessening competition or eliminating a competitor in that part of Canada, or are designed to have that effect.

In accordance with the Commissioner of Competition's Predatory Pricing Guidelines the examination of potential predatory behaviour requires a two step analysis being:

    (a) a determination of whether market conditions exist which will allow the alleged predator to recoup at a later date the losses incurred from lower prices (i.e., whether the seller will have "market power"); and

    (b) a determination of whether the prices charged are unreasonable in relation to the alleged predator's production costs.

The Commissioner will commence his analysis of market power by examining the market share held by an alleged predator. As a general rule, where the alleged predator's market share is less than 35%, it is unlikely that sufficient market power exists for predation. Other factors to be considered include the number of sellers in the market, the degree of size inequality among firms and barriers to entry.

Under the Predatory Pricing Guidelines, the Commissioner will not regard as "unreasonably low" a price that is at or above the average total cost of the alleged predator. A price set below average variable cost will likely be regarded as "unreasonably low." For prices set between average total cost and average variable cost, the Commissioner's conclusion on reasonableness will depend upon the circumstances.

As to whether the prices in question are engaged in pursuant to a "policy" the Commissioner will consider evidence that the alleged predatory prices are not competitive expediencies of brief duration or defensive reactions to pricing initiatives of other firms.

A person convicted of predatory pricing under either section 50(1)(b) or 50(1)(c) is liable to imprisonment for a term of up to two years.

Price Discrimination

Section 50(1)(a) of the Competition Act prohibits a person from offering a discount, rebate allowance, price concession or other advantage to a purchaser which is not available to competitors of the purchaser with respect to sales of like quantity and quality.

Price discrimination is illegal only with respect to the sale of articles, not the sale of services.

The usual defence to an allegation of price discrimination is that competing customers would not have purchased in like quality or quantity. The use of the word "like" within section 50(1)(a) implies that goods need not be identical nor purchased in identical quantities, in order for the same net pricing to be required to be made available. Industry practice and common sense will indicate whether the quantity and quality of goods are "like" under the circumstances.

Section 50(1)(a) is only applicable with respect to discrimination between competitors. An analysis as to market definition in terms of both geography and products sold is therefore key to determining whether two customers actually compete with one another, such that price concessions may need to be made available to both parties.

The penalty for contravening section 50(1)(a) is a term of imprisonment for up to two years.