Abuse of Dominance – Where Are We Now?

Recognizing the critical role of the Competition Act (the “Act”) in promoting dynamic and fair markets, Canada’s Minister of Innovation, Science and Industry, the Honourable François-Philippe Champagne, announced on February 7, 2022 that he would carefully consider ways to modernize and improve its operation. Following this announcement, significant competition law reform has taken place in Canada, including the passage of Bill C-19 on June 23, 2022, the passage of Bill C-56 on December 15, 2023 and the passage of Bill C-59 on June 20, 2024 (collectively, the “Bills”).

The Bills include amendments that touch on virtually all facets of competition policy in Canada, including, without limitation, merger review, abuse of dominance, criminal cartels, competitor collaborations, deceptive marketing, private rights of action and market studies. All provisions of the Bills are now in force, with the exception of a select few amendments which will come into force in 2024 and 2025.

According to the Government’s 2023 Fall Economic Statement, these amendments are “generational changes” that “will help bring Canada into alignment with international best practices to ensure that our marketplaces promote fairness, affordability, and innovation”. We would go further and describe these amendments as the most significant changes to the Act in almost 40 years – changes that fundamentally alter and transform the competition law landscape in Canada!

This blog post summarizes in one place the key changes made to the abuse of dominance provisions over the past two years, including, most importantly, the introduction of a new framework that applies a different test depending on the remedy being sought. These changes will, in our view, have a resounding and far-reaching impact on companies doing business in Canada.

New Framework for Abuse of Dominance

Simply being a dominant firm, or even a monopoly, does not in and of itself engage the abuse of dominance provisions. Rather, the abuse of dominance provisions seek to ensure that a person with market power competes with others on merit – whether by ingenuity, competitive performance or investment – rather than by abusing its market power.

Historically, it was necessary to establish each of the following three elements to obtain a remedy under the abuse of dominance provisions:

• Dominance: One or more persons must substantially or completely control a class or species of business throughout Canada or any area thereof.

• Practice of Anti-Competitive Acts: That person or those persons must have engaged in or be engaging in a practice of anti-competitive acts. As discussed below, an anti-competitive act relates to the “intent” or reasonably foreseeable effects of an action, and is often referred to as the “anti-competitive intent” element of abuse of dominance.

• Anti-Competitive Effects: The practice must have had, be having or be likely to have the effect of preventing or lessening competition substantially in a market.

Bill C-56 introduced the following new framework, which applies a different test depending on the remedy being sought:

• Prohibition Order: In order for a prohibition order to be imposed, it must be established that a firm (either on its own or jointly with another firm) is dominant in a market and has engaged in or is engaging in either (1) a practice of anti-competitive acts or (2) conduct (that is not a result of superior competitive performance) that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which the dominant firm has a plausible competitive interest. In other words, in this context, the abuse of dominance provisions require either anti-competitive intent or anti-competitive effects.

• Other Remedies: In order for any other remedies to be imposed, such as administratively monetary penalties (“AMPs”), it must be established that a firm (either on its own or jointly with another firm) is dominant in a market and has engaged in or is engaging in both (1) a practice of anti-competitive acts and (2) conduct (that is not a result of superior competitive performance) that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which the dominant firm has a plausible competitive interest. In other words, in this context, the abuse of dominance provisions require both anti-competitive intent and anti-competitive effects.

In light of this change, which significantly reduces the standard that must be satisfied to obtain a prohibition order, it will be particularly important for potentially dominant firms to carefully review their business practices to ensure that issues do not arise under the abuse of dominance provisions. For example, many common business practices, such as exclusive dealing, tying and bunding, could potentially raise concerns under these provisions even if they do not result in any meaningful competitive effects in the market.

Definition of Anti-Competitive Act

Bill C-19 defines the term “anti-competitive act” to mean “any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition”. Notably, jurisprudence arising from the abuse of dominance provisions historically held that an “anti-competitive act” is one that is intended to have a predatory, exclusionary or disciplinary negative effect on a competitor in a relevant market. As such, the amendments codify this previously accepted definition, and also close an alleged “loophole” in which dominant firms could escape scrutiny when their conduct softens competition but does not have a negative effect on a competitor.

On October 25, 2023, the Competition Bureau (the “Bureau”) released a draft Bulletin on Amendments to the Abuse of Dominance Provisions (the “Draft Bulletin”). The Draft Bulletin discusses, among other things, the updated definition of “anti-competitive act”. In this regard, the Draft Bulletin notes that, in general, the Bureau will continue to apply its existing analysis to identify anti-competitive acts, including considering subjective evidence of intent, the reasonably foreseeable consequences of the conduct, and any pro-competitive or efficiency-enhancing justifications for the conduct.

With respect to the addition of “adverse effect on competition”, the Draft Bulletin notes that this should be considered to capture “any form of conduct that has the purpose of negatively affecting the competitive process”, such as “conduct that softens competition, benefitting one or more competitors”, conduct that reduces firms’ abilities or incentives to compete, or conduct that makes conscious parallelism “more likely or effective” or otherwise facilitates coordination. By way of example, the Draft Bulletin notes that this may include the following:

• agreements between competitors (such as licensing agreements or joint venture agreements);

• sharing competitively sensitive information (which can include a single firm unilaterally choosing to disclose information; firms sharing competitively sensitive information in a reciprocal manner; competitively sensitive information being shared through intermediaries such as trade associations, joint ventures or pricing algorithm developers; or the use of meet-or-release clauses that result in mutual knowledge of pricing decisions); or

• contracts that reference or depend on rivals (i.e., where a contract contains terms that relate to a different commercial relationship involving at least one of the two contracting parties, such as most favoured nation clauses, price parity clauses, non-discrimination clauses or meet-or-release clauses).

Given the above, it is clear that a wide range of commercial agreements and practices could potentially be viewed as having an intended adverse effect on competition. Again, this re-enforces the need for potentially dominant firms to carefully review commercial agreements and practices – even if they do not result in any meaningful competitive effects in the market.

List of Anti-Competitive Act

Subsection 78(1) of the Act include a non-exhaustive list of examples of anti-competitive acts, including for example, using fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor; pre-empting scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market; and selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.

Bill C-19 expanded the list of anti-competitive acts in section 78 of the Act to include “a selective or discriminatory response to an actual or potential competitor for the purpose of impeding or preventing the competitor’s entry into, or expansion in, a market or eliminating the competitor from a market”. While the Draft Bulletin recognizes that this new example may clarify the scope of section 78, it notes that the list under section 78 has always been non-exhaustive and, in the Bureau’s opinion, the abuse of dominance provisions previously applied to this type of conduct. As such, the Bureau is of the opinion that this amendment does not expand the scope of the abuse of dominance provisions. We agree.

More importantly, Bill C-56 expanded the list of anti-competitive acts in section 78 of the Act to include “directly or indirectly imposing excessive and unfair selling prices” – something that arose from the government’s attempt to address rising prices in the Canadian economy. This example was added after the Draft Bulletin was released, so it is unclear at this time how the Bureau will address it. Current guidance from the Bureau does discuss “supra-competitive” pricing as direct evidence of market power, but not as an offence or an anti-competitive act. It is possible that “excessive” or “unfair” selling prices could be determined based on a competitive benchmark, or based on some multiple of a firm’s production costs (i.e. some type of price-cost comparison). Notably, this is the approach used in several European and other foreign jurisdictions. That said, in order for “excessive or unfair selling prices” to contravene the Act, it will hopefully be the case that such pricing practices must still fall within the definition of anti-competitive act (i.e. be intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or intended to have an adverse effect on competition).

Going forward, potentially dominant firms will need to exercise caution with respect to their pricing practices, including being cognizant of whether their prices are significantly above market pricing, whether any of their products earn an unusually high margin, and whether any prices could be interpreted to be “excessive” or “unfair.” We recommend that potentially dominant firms carefully document their reasons for any significant prices increases, having regard to appropriate benchmarks.

In this regard, the OECD has stated that several different types of benchmarks have been used to determine whether a price is excessive. These benchmarks can be geographic (i.e., based on similar products provided in other similar geographic regions), historic (i.e., based on a comparison between current and past variables, possibly of the same company) and/or relate to other companies providing identical or similar products or services. Whatever approach is used, benchmarks can relate to a notion of reasonable return and/or be based on a comparison of prices, profitability or price-cost mark-ups.

Competitive Effects Factors

Bill C-19 introduced a list of factors to be considered for the purposes determining whether a practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market. These factors include (1) the effect of the practice on barriers to entry in the market, including network effects; (2) the effect of the practice on price or non-price competition, including quality, choice or consumer privacy; (3) the nature and extent of change and innovation in a relevant market; and (4) any other factor that is relevant to competition in the market that is or would be affected by the practice.

Notably, the Bureau (and the courts) already considered these factors as part of its analysis under the abuse of dominance provisions. In fact, many of these factors were included in previous guidance from the Bureau. As such, similar to the expanded list of anti-competitive acts discussed above, the Draft Bulletin confirms that these amendments do not change the Bureau’s enforcement approach.

Importantly, with respect to consumer privacy, the Draft Bulletin also confirms that the Bureau does not view the introduction of “consumer privacy” as creating a new, stand-alone goal or purpose for the Act (i.e., protection of privacy), but simply confirms that privacy is a relevant feature of product quality with respect to which firms may compete.

Increased Administrative Monetary Penalties

Bill C-19 and Bill C-56 each increased the size of AMPs available under the abuse of dominance provisions. Prior to these amendments, the available AMPs (for corporations) were a maximum of  $10 million ($15 million on a subsequent order). Following Bills C-19 and C-56, the AMPs available under these provisions are the greater of (1) $25 million ($35 million on a subsequent order) or (2) three times the value of the benefit derived from the anti-competitive practice, or, if that amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues. Significantly, as noted above, AMPs are only available if the Commissioner or a person who has brought a private application establishes that a firm (either on its own or jointly with another firm) is dominant in a market and that both the “anti-competitive intent” and “anti-competitive effects” elements are made out.

That said, the ability of the Tribunal to order the payment of such significant AMPs further enforces the need for potentially dominant firms take steps to ensure they do not engage in conduct that could run afoul of the abuse of dominance provisions. This includes, among other things, implementing and/or updating their competition law compliance policies to take into account these “generational changes” to the Act.

If you have questions about the amended abuse of dominance provisions and/or would like assistance in preparing/updating a competition law compliance program, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Competition, Marketing & Foreign Investment group.