Archive for June, 2007

No More MSRP?

Friday, June 29th, 2007

Have you ever wondered how the “manufacturer’s suggested retail price”, or MSRP, came about?  You see the phrase all the time in, for example, commercials selling cars.  The origin lies in competition (or antitrust) law.  In 1911, the United States had recently passed its antitrust legislation (the Sherman Act) and the Supreme Court wanted to ensure that the legislation had some teeth.  As a result, it created the “per se” rule which prohibited businesses from setting minimum prices for their products.  Thus, car companies could not sell cars for “$25,000 but not lower” or discriminate against any car dealerships that decided to give discounts on prices to lower them below a certain price.  Hence the creation of the MSRP.  The price was a “suggestion” and there was nothing to legally preclude the sale of the item below the MSRP.  This concept has also been implemented in Canada through Section 61 of the Competition Act.

The “per se” rule has long been criticized.  The primary criticism has been that the establishment of minimum prices, and the discrimination against those who would discount below the minimum price, is not inherently anti-competitive.  To the contrary, manufacturers claim that if something is new technology, there is an advantage to providing minimum prices so that retailers can guarantee that if they put the time and effort into promoting the product and educating the public about the product then they will see a sale, rather than losing the sale to a discounter.  Think of it this way: have you ever gone to the specialty store or the small retailer that gives personal service to find out about a product and then when you have had a chance to look at, test, etc. the product you then go to some big-box store or online store to buy the exact same thing because it’s cheaper there than at the specialty store?  If this could be prevented, it would (so the argument goes) help to level the playing field among retailers and therefore be good for the economy, mom, home and apple pie.

Yesterday, the U.S. Supreme Court decided in Leegin Creative Leather Products to dispose of the “per se” rule and established a new standard for price maintenance in U.S. antitrust law:  the “rule of reason”.  Sounds catchy, doesn’t it?  The rule of reason recognizes that price maintenance can have both pro-competitive and anti-competitive effects.  It will now be up to the courts to determine in each case whether the balance of effects deters competition and, if so, then sanctions will be required against the manufacturer.  Some of the factors the courts will have to consider are the number of manufacturers seeking to impose price minimums and the market power of the manufacturer seeking to impose the minimum price.

Does this mean that prices for consumer goods will now go up since discount retailers might be cut off?  Possibly.  We’ll have to wait and see – especially since it does not automatically follow that the rule of reason will create results that wildly differ from the results if the per se rule had been applied.  The difference between the two rules is the starting point, but it’s quite possible that the end point would be the same.  It will also be interesting to see what the Canadian courts do with future prosecutions for price maintenance under Section 61 of the Competition Act in light of this change of approach to part of the antitrust regime in the U.S.


Spouses as Witnesses

Thursday, June 28th, 2007

A long-standing rule of evidence for trials is that one cannot compel a person to give evidence if that person is the spouse of a party to a trial (either a defendant if it is a criminal trial or else a plaintiff, defendant, third party, etc. in a civil trial).  The rationale for this rule was that, in “days of old”, a husband and a wife were considered to be one person in the eyes of the law.  The rule was also based on the notion that it fostered matrimonial harmony and confidences.  Of course, this assumed that spouses told each other the truth and never kept secrets from one another (which, as I tell my wife, is ALWAYS the case – at least with me!).

The rule has been harshly criticized.  I happen to think the rule is sound, but in an age when marriage has become almost disposable (I think of how gays and lesbians obtained the right to marry in Ontario and within the first week we had the first lesbian divorce), it seems that if there is little matrimonial harmony or unity there is little need for this old rule of evidence.

On that basis, the Supreme Court of Canada had to determine whether to maintain the rule.  In Couture, the accused was convicted of the murder of his ex-girlfriend and a friend.  He was convicted, in part, based upon statements made by his wife to the police a decade after the murders occurred.   The majority of the Supreme Court determined that the rule should be maintained and, as such, the wife’s statements should not have been allowed into evidence.  The result is that Mr. Couture will get a new trial.  I wonder what the Court would have said if this was a civil case and all that Mr. Couture stood to lose was money rather than his freedom.

While the Supreme Court has determined that the rule preventing spouses from being forced to testify against each other should remain, it has to be remembered that the key aspect is that spouses cannot be forced by the other side to testify.  You still have to make sure that your spouse is happily in love or else all those secrets you have shared may come out in court someday.   … Excuse me, I have to go buy some flowers.


The Difference of a Few Words – Postscript

Thursday, June 28th, 2007

On May 7 I posted about the Buntain case in British Columbia.  Ms. Buntain and the other female members of the golf club had lost in the British Columbia courts and asked the Supreme Court of Canada to grant them leave to appeal so that they could argue the case before the Supreme Court.  The Supreme Court has now denied the request for leave to appeal with the result that the British Columbia Court of Appeal’s decision now being the final word for that case.


Court Orders for Outside Canada

Monday, June 25th, 2007


Judges generally do not like to make Orders which will not, or cannot, be followed.  An example of this is an injunction against a foreign company.  If the Courts cannot enforce their Orders, then they have previously declined to make such Orders since the Orders wouldn’t be worth much more than the paper they are written upon.  However, Courts in countries such as the U.S. and England have decided for some time now that there is no serious reason not to issue such Orders.  Whether they can be enforced in a foreign country or not is an issue for the litigants to worry about, not the U.S. or U.K. Court.


Canada has now recently found favour with this position.   In Transat Tours, the Supreme Court of Canada dealt with a Quebec company, Transat, that made a contract with a Mexican resort operator.  Transat was to be given exclusive rights to book with the Mexican resort.  The contract was governed by Quebec law and parties agreed that any disputes would go before the Quebec courts.  Subsequently, Transat learned that the resort and several related companies were breaching the agreement and providing booking rights to another Quebec company.  Transat brought an application to the Quebec Court seeking an injunction.  The other Quebec company and the Mexican companies applied to have the injunction request dismissed on the basis that the Quebec Court had no jurisdiction to issue an injunction against Mexican companies that had no assets in Quebec and conducted no business there.  The trial court agreed but the Quebec Court of Appeal disagreed.  The Supreme Court approved the position of the Quebec Court of Appeal.  The Supreme Court held that just because the plaintiff may ultimately have difficulty in enforcing an injunction from a Canadian court in a foreign country, this reason should not, in and of itself, determine the issue.


This case shows yet another reason why businesses should want to have clauses included in their contracts providing that the governing law and the jurisdiction to resolve disputes should be Canadian.  Even if a Canadian plaintiff is successful in convincing a Canadian court to issue an Order affecting a foreign party, it is nowhere guaranteed that the Order will be enforced by a foreign court.  However, the situation has now become a little more beneficial due to the fact that at least Canadian plaintiffs have an opportunity to obtain such an Order, when it was far from certain that they could do so before the decision in Transat Tours.  Moreover, the Canadian legal system is viewed with high regard elsewhere in the world and Canadian companies will have at least a decent chance of convincing foreign courts that their Orders ought to be enforced.




Securities Litigation in U.S. & Ontario

Friday, June 22nd, 2007


The United States Supreme Court handed down a decision yesterday in a class action case alleging untrue statements by a publicly traded corporation (Tellabs Inc. v. Makor Issues & Rights Ltd.).


Under section 10(b) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5, publicly traded companies cannot make untrue statements of material fact.  If this occurs, then investors that purchased securities while this untrue statement was public and not corrected can bring a civil lawsuit against the company for any losses suffered by those investors once the truth was revealed.  However, these rules also potentially exposed public companies to a myriad of lawsuits with, at best, questionable merit.  As a result, the Private Securities Litigation Reform Act of 1995 was enacted.  Among other requirements, any lawsuits alleging “fraud on the market” had to specifically state not only the untrue statements, but also the “facts giving rise to a strong inference that the defendant acted with the required state of mind.”  Congress, however, left the issue of what constituted a “strong inference” open.  The U.S. Court of Appeals in different circuits came to differing conclusions as to what was required.  For example, the Seventh Circuit determined that all that was required was an inference that a reasonable person would make that the defendant intended to influence investors with the information that was disclosed.  Meanwhile, the Sixth Circuit had held that plaintiffs could only rely on the most plausible of competing inferences.  Therefore, if the most plausible inference did not show liability, then the lawsuit could not proceed. 


The Supreme Court was therefore called upon to determine what standard should be used to determine whether a lawsuit could proceed.  The decision can be found here.


The majority’s decision, written by Justice Ginsburg, held: “A [lawsuit] will survive … only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.”  In other words, if a reasonable person could infer that the disclosure or omission was as likely as not to have been done to influence the market, then the lawsuit can proceed.  But, if other inferences (ie. inferences that the action or omission was innocent in nature) were more likely, then the action would not proceed.


Justices Scalia and Alito wrote separate decisions that would have preferred a different test which required a plaintiff to prove that the more plausible of any inferences was that the company or its officers/directors acted contrary to the legal requirements (being, therefore, a gloss on the Sixth Circuit’s decision).  In dissent, Justice Stevenson would have followed the test set down by the Seventh Circuit.


It is interesting to compare this arrangement to the situation under Ontario’s relatively new provisions in its Securities Act to allow for lawsuits based on disclosures or omissions affecting the “secondary” market (ie. people who buy their shares after the initial public offering).  In Ontario’s new regime, any claim must pass a judicial vetting process.  Under the new Section 138.8, any potential plaintiff must obtain leave of the court, which will only be granted if the Court is satisfied that (a) the action is being brough in good faith; and (b) that there is a “reasonable possibility” that the action will succeed at trial.


In the end the U.S. and Ontario regimes will probably achieve the same results, but if a lawsuit is knocked out under the U.S. legislation, it will happen because of a purely procedural ruling that the pleading was insufficient whereas at least under the Ontario regime it will be knocked out on a recognition that the claim lacks sufficient merit to warrant taking it to trial.



SPAM Notice

Friday, June 15th, 2007

I am not particularly adverse to spam.  To me there is little difference between junk mail in my mailbox and junk mail in my Outlook Inbox.  99% of the time what I receive is useless, but it’s that 1% that is actually useful that it makes me tolerate spam or junk mail.  Of course, the BIG difference between direct mail and spam is the almost non-existent cost for spam.  Add to this, however, the even bigger fact that anyone can produce spam.

As an example, if I wanted to create a fake e-mail address and attach it to a domain name and then send out spam using that fake address, I can.  So, if I wanted to tell my software that my name is 012345 and then fire out a million e-mails with that e-mail address, probably 60% of them will make it through as spam while 40% will bounce back because for one reason or another because the e-mail address of the intended recipient is no longer valid.  The real problem for, in this example, IBM, is the fact that not only is the message not coming from Big Blue, but it also cannot do anything to stop someone from sending out these spam messages using a fake e-mail address.

The reason I am writing this blog today is because I walked into the office this morning, plugged in my laptop and then proceeded to download just under 600 messages almost all of which were “Message Undeliverable” relating to someone who had used my domain name for spam.  This has happened in the past, but the numbers were relatively low (a few here and there) – until today.

So, even though it is not of my doing, my apologies to any and all for any inconvenience caused by receipt of this spam.  Second, I am trying to wade through the now 700 or so messages to determine whether any are true undeliverable messages for messages I sent.  I would certainly love to get my hands on the spammers, but even if I could, suing them would be useless since they have no money – if they did, then they’d use proper direct mail marketing techniques.


Contractual Limitation Periods

Wednesday, June 6th, 2007

On January 1, 2004 the new Limitations Act, 2002 took effect in

Ontario. The general limitation period was reduced from six years to two years. At the same time, the legislation provided that the limitation periods could not be varied by agreement of the parties unless the agreement was signed prior to January 1, 2004. An amendment to the legislation that took effect on October 19, 2006 appears to have gone largely unnoticed in the business community. Section 22 of the Act now permits the parties to change the limitation period as they wish – subject to certain rules.

It is not uncommon, for example, for businesses to provide customers with some form of credit. When the customer fails to pay, promises are made, the business wants to maintain positive relations with the customer and anyone the customer knows, and the next thing that you know two years have passed and it is too late for the business to sue the customer for payment under the general limitation period set out in the Act. Conversely, for example, in some instances a business may want to have in its contract that the limitation period for suing it is only one year (this is commonplace, for example, in insurance contracts). Both of these examples may now be possible.

Section 22 of the Act now permits the parties to an agreement to set out what will be the applicable limitation period within which any lawsuits must be commenced. Conceivably, limitation periods could now be reduced to one day since the Section is primarily concerned with extensions of limitation periods and is essentially silent on reducing the limitation periods. As for extensions, the general maximum limitation period that can be agreed upon by the parties would be fifteen years (in accordance with Section 15 of the legislation). However, the limitation period could be extended beyond this “ultimate limitation period” where the parties are aware that a claim already exists. An example of this may be where a lender agrees to enter into a standstill agreement and both the lender and the debtor know that a claim exists already for payment. In this example, the lender may now wish as a condition to entering into the standstill agreement to include a provision that has the parties agreeing to either a very long limitation period or providing that there shall be no limitation period.

As a general rule, there is no restriction on the extension of limitation periods (up to waiving them) for any types of agreement. However, reductions of limitation periods can only be agreed upon in “non-consumer” agreements. That is, for any agreement that does not involve a “consumer” as that term is defined in the Consumer Protection Act, 2002 – namely “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.”It might be worthwhile to take another look at your standard business agreements and determine whether they should be amended to reflect either a longer or a shorter limitation period. If you want to look at the wording of the legislation, it can be found here.


Happy Birthday

Saturday, June 2nd, 2007

When children reach approximately one year of age, they start to walk.  For businesses, it is estimated that approximately fifty percent will fail within the first year.  The firm is now one year old and after some growing pains and moving into its own offices, I think it’s fair to say that my baby has now learned to walk.  In fact, I’m proud to say that it looks like the firm has gone from crawling straight to running.  In that respect, I can say that I am a proud parent.  At the same time I can say that I am very relieved.  With a year behind it, and no bankruptcy or business failure, the first hurdle has been cleared.  The goal, of course, is to last the five years by which time most businesses have clearly established themselves.  One down, four to go.

At times like this, it is nice to look back, see what has worked and what lessons can be learned for the future.  Over the past year I have learned wonderful lessons like:

- If you clean up your home office to make it a truly compatible remote office where serious work can be performed, the first thing your family will do is move that ^&(%*! hamster into your office “to help keep you company”;

- Beer fridges and office windows are two of life’s little ironies.  You really want them when you don’t have them but when you do have them, you usually pay them little attention.  (Which is a good thing on the beer side of the equation as my “Molson Muscle” doesn’t need to be strengthened.);

- Prior practices like pacing around your home office as you contemplate legal arguments, positions and negotiations suddenly take on a completely different dynamic, and make you much more self-conscious, when you add the two beady little eyes of a hamster watching your every move;

- Despite your worries that nobody is reading your blog, the day eventually comes when you start to receive spam sent as comments to your blog and you realize that at least your blog is not completely lost in cyberspace;

- No great law firm, or business for that matter, ever had a hamster as a mascot;

- Anything you put in your office will be “interesting”, but absolutely nothing is as cool to a little boy as a water fountain in the hallway that has really high pressure and will guarantee to soak his head and the upper portion of his shirt no matter how he approaches the stream of water or how gently he tries to turn the handle;

- You get some really interesting voice-mail messages from people after changing your daily outgoing message to say “I won’t be in the office this morning as I am trying to catch a hamster that has escaped and is running amok in my home office”;

- Sometimes you just get lucky in the staff you hire; and

- If you take the boy out of the big Bay Street firm and let him run his own show, he’ll come to remember that practicing law is actually fun again (so long as there are no hamsters involved).

It has been a very good year and to my staff (Paula, Emily and Dan) I thank you for your assistance and good humour.  To all my clients, thank you for your support, your understanding when the computer system had a glitch from time to time, and your continued belief in my abilities.  Hopefully Year Two will be just as good, and even better, than Year One.


* The firm certifies that no hamsters were harmed in the completion of Year One.  No promises for Year Two, though.  (Hmmm … If I rotated the nozzle slightly and set him on top, I wonder how far he’d fly once I turned the handle on that hallway water fountain to full?  Just a thought.  I’d never really do anything like … but then again …)