In the past I have been involved in some very large-scale competition law matters. The Competition Bureau has gone after some of my former clients in investigations involving the beer industry or the entertainment industry (in that case, the distribution of movies to theatres throughout the country). The focus, however, has always been in large industries with large players. The Bureau has not gone after small and medium enterprises (SMEs) to any significant extent. However, I was reading the latest copy of the Canadian Bar Association’s magazine which suggests that this may change.
Changes to competition laws are coming soon (March 2010 to be exact) that will start to shift the focus from criminal prosecution of violations of competition law to more of a focus on civil litigation and liability. Moreover, with the shift towards civil liability, then not only can the Bureau take action over breaches of competition law but so can others. The article gives a couple of examples that are worthwhile taking note of:
1. Suppose that you and your competitor decide to allocate the market amongst yourselves. For example, suppose that you sell tires. You and your competitor are the only ones in town who sell tires. You agree to only sell “normal” tires and your competitor agrees to only sell “winter tires”. This gives you a monopoly for half of the year’s tire sales and your competitor has the monopoly for the other half of the year. Previously, the sales may not have been large enough to catch the attention of the Competition Bureau. But, now, John Customer can sue the both of you and say that this arrangement forces prices to remain artificially high.
2. You’ve heard the ads for “if you find a lower price anywhere else, bring in the ad and we’ll beat it by 10%”. Generally speaking, these are limited time offers. But, sticking with my tire example above, suppose that you wanted to get rid of your opponent so you offer tires for sale at wholesale prices. Will you make any money? No. Will all of the people in the area come to you instead of going to your opponent? Of course. So long as you have enough money in the bank to outlast your opponent, then your opponent will fail financially and you will then be the only place in town to buy tires. This practice is known as “predatory pricing”. Previously it was covered only in the criminal provisions, but the Bureau never significantly enforced this provision of the Competition Act. However, now you could be sued by either your former opponent – who would claim that you acted on purpose to run him out of business – or else you could be the subject of a lawsuit by either one or more customers (perhaps even a class action) who will claim that the result is that they now have to pay more for tires since you’re the only place in town.
3. There are a series of provisions in the Competition Act that deal with deceptive marketing. These involve issues of misleading advertising – for example, ads that say “9 out of 10 doctors agree that using my competitor’s toothpaste will make your teeth fall out,” where this is clearly untrue. As it now stands, the maximum penalties are $100,000 for a first offence and $200,000 for subsequent offences. As of March, 2010, the penalties will be increased to up to $10 Million for a first offence and $15 Million for subsequent offences. What are the chances that you’ll be hit with a $100,000 fine right now? Not huge. But when the maximum gets raised up to $10 Million this will have two effects on the court: (a) it will show them that Parliament is sending a clear signal that such advertising is not to be permitted; and (b) if the maximum is now $10 Million, even a $100,000 fine is only 1% of the total possible fine, so it’s not seen as harsh as it would be before March 2010, since now a $100,000 fine is a 100% penalty.
Finally, one of the people quoted has suggested that if the Competition Bureau follows the example of the U.S., it will start to go after SMEs – who have more limited resources to fight the Bureau – and use these cases to build up the case law in the Bureau’s favour that would then allow the Bureau to go after the bigger industries or players.
Is this going to be Chicken Little yelling “the sky is falling”? No. But the reality is that the Competition Act wasn’t really applied against SMEs in the past. That may well change and so you might want to spend some time between now and March 2010 having someone review your contracts and business arrangements to ensure that nobody would have any realistic claims they could make against you.
Something to think about.