Consumer Protection - Anticompetitive Behaviour
GENERAL OVERVIEW
anti-competitive behaviour - unlawful business practices
- In Canada, the federal and provincial governments share jurisdiction over consumer protection and unacceptable business practices.
- It is only the federal government that has jurisdiction over criminal matters and so it can impose criminal as well as administrative sanctions against unacceptable business practices and more broadly to support consumer protections.
- It is widely accepted that competition among suppliers of goods and services keeps quality high and prices low.
- It is not surprising therefore to find that many sections of the federal Competition Act deal with prohibited restrictive trade practices (including abuse of dominant position) and deceptive marketing.
- Among the areas that can pursued criminally are pyramid sales, big rigging, conspiracy to fix process, wage-fixing, no-poach agreements, incorrect precious metal markings, and improper textile or package labelling of consumer goods.
- Provinces also have constitutional authority to address and administratively penalize those involved in deceptive representations and unfair business practices and the Sale of Goods Act implies conditions of quality and fitness for purpose
- There are also specific statutory protections for “consumers”, a term frequently defined in the in provincial statutes and which is relevant to acquiring the safeguards.
- Ontario’s Consumer Protection Act defines “consumer” as someone who “receives or has the right to receive goods or services from a supplier as a result of a purchase, lease, gift, contest or other arrangement, but does not include an individual who intends to sell the goods after receiving them.”
- Provinces provide cooling off periods for specific transactions, and door-to-door sales of certain products are sometimes absolutely banned.
- Consumer complaints are encouraged (re car dealers, gym membership, travel, etc.), and these may be resolved through mediation. Consumer protection agencies may issue compliance orders or levy administrative penalties against offending businesses.
MUCH MORE INFORMATION AND CONTENT BELOW the CAUTION and SUGGESTIONS
Caution: Legal information is not legal advice. This website merely provides general information about the subject area. Copyright 2022.
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Q&A, RECENT RELEVANT OCCURENCES & CASES BELOW
Although not a total or cohesive picture of anti-competitive behavior, the answers to the questions below will help obtain a generalized view of the topic. Only some of the many faces of anti-competitive behaviour are dealt with below. In the textbook, Canadian Law and Business Studies the federal Competition Act and provincial legislation is extensively canvassed. At the following site, have a look inside the book Canadian Law and Business Studies: https://bit.ly/3Ay0lSR.
What is anti-competitive behavior? It is generally accepted that competition among businesses benefits all. Fair competition helps keep prices down and helps develop good quality. It spurs invention: those that are required to compete want to develop a marketable product that can be sold at a modest price. If two or three businesses are the only ones providing a product or service, competition among them is limited. They are seen to have a monopoly. If, on the other hand, there are 10 companies providing a similar product, each one of them is trying to keep costs down and deliver a good product or service that is highly sought. Anti-competitive behavior can range from businesses trying to fix minimum prices to dividing up territories amongst themselves in which each has a monopoly in a particular area. In Canada, the federal Competition Act prohibits anti-competitive behaviour.
Check out our alternative site for additional introductory or contextual information on this topic: https://www.fera-gasparini.ca/
What is a friendly takeover? Remember the goal is to encourage competition and avoid monopolies (a single seller in a market). When Rogers announced that it was interested in purchasing Shaw, this friendly takeover (approved by both Boards of Directors) with an attractive price for the purchase of Shaw shares, some consumers and Canada’s Competition Bureau sounded alarm bells. However, the Competition Tribunal approved of the purchase (with one condition) and an appeal of that decision to the Federal Court of Appeal failed. The Minister of Industry was left with the final say.
Is a merger or takeover anti-competitive behavior? Sometimes it is. In other circumstances, it may be seen as beneficial in that it will allow for more competition among bigger players. (This will become clearer by also reading the answers to the two previous questions.) In a merger, two existing organizations come together to form a new entity to do business. In a hostile takeover, the acquirer focuses on the shareholders and purchasing their shares (without management approval). Ultimately, the shareholders will vote to remove the "disapproving" management team.
Who can stop a merger? Mergers can reduce competition. Canada’s Competition Act has provisions dealing with anti-competitive behaviour. Provisions of the Competition Act allow the Competition Tribunal and ultimately the Minister of Industry to decide on whether to permit a merger such as Rogers’ purchase of Shaw. In the USA, anti-trust laws (their term for anti-competition legislation) is apt to stop JetBlue’s acquisition of Spirit Airlines, a low budget company.
Which anti-competitive behaviour was investigated? In 2014, Loblaw sought compensation from suppliers when its own profits decreased because other retailers sold the suppliers’ products at lower prices. As explained by the Competition Bureau, one of the things alleged was that Loblaw frequently “requested compensation from its suppliers when another retailer’s price for one of the supplier's products was lower than or [the same as] Loblaw's price”. This caused the Competition Bureau to consider “whether the Loblaw Policies caused suppliers to provide less favourable [prices] to other retailers”, or whether this suppressed competition among certain retailers. In the end, Loblaw discontinued such policies and in 2017, the Competition Bureau announced it was discontinuing its inquiry into allegations that Loblaw engaged in conduct contrary to the abuse of dominance provisions of the Competition Act. Where one or more people substantially controls a class or species of businesses in an area (or nationwide), they are in a dominant position. For a business in a dominant position, the Competition Act sets out specifically what are considered to be anti-competitive acts.
Why is anti-competitive behaviour illegal or unlawful? As suggested above, if competition is stifled, so too is inventiveness, innovation, betterment, and advancement. Uncontrolled, anti-competitive behaviour affects all – the economy, individuals, and the nation. If some businesses and organizations do not abide by the rules of fairness, it is harmful to the businesses that do and to consumers and ultimately a detriment to all. There seems to be a universal recognition that competition must be encouraged, and anti-competitive behaviour punished. In the United States, antitrust laws protect consumers from predatory business practices and ensure fair competition. In a 1999 in the US, a Swiss pharmaceutical company was fined a half billion dollars for antitrust violations. More recently Intel faced a staggering fine in the billions for abusing its dominant position in the CPU market. (The goal allegedly was to squeeze out AMD.) In mainland China, its “State Administration for Market Regulation” (SAMR) is the watchdog, and in 2022 imposed a significant fine of more than $12 million dollars (US) against an academic database firm for abusing its "dominant market position”. See above for abuse of dominant position in Canada.
Does the Competition Bureau have teeth? It has been investigating alleged bread price fixing among the giant grocery chains for more than 5 years, yet has not laid charges. While that is so, one dominant grocery chain made admissions and amends, and those who were not so transparent faced searches and seizures of information by the Competition Bureau.
What is price fixing? Basically, these are unlawful arrangements among suppliers or distributors of products or services to ensure that prices are kept at a certain level thereby limiting competition among themselves and keeping their profit margins high.
FORTNITE FINED: Without admitting the allegations or charges, Epic Games, the developer of the video game Fortnite, has agreed to pay more than a half billion dollars in administrative fines presumably because of how it set up its in-game store (resulting in unwanted purchases) and how it collected and used private information from children and teen players. With reference to Fortnite, Epic Games faced accusations of threats, bullying and traumatizing practices - unlawful business practices. The USA agency making the claims was the Federal Trade Commission.
CHARGING MORE THAN ADVERTISED: In a 2022 case based on Quebec’s Consumer Protection Act, it was alleged that Air Canada charged higher prices than advertised. Accordingly, the Consumers’ Union Group sought a reduction in what was paid by its members equivalent to certain taxes, charges, surcharges, and other fees added on. The Upper Court in the class action lawsuit did not agree. Air Canada had warnings on its website that the fares did not include all charges. Further, the manner in which Air Canada displayed its prices did not influence consumers to buy and there was no proof of a monetary loss to the consumer.
RECALL Preferred to a CLASS ACTION LAWSUIT: In Ontario, someone suing on behalf of a group may be certified as a class action lawsuit if a five-part test is met:
(1) the pleadings disclose a cause of action;
(2) there is an identifiable class of two or more persons that would be represented by the representative plaintiff;
(3) the claims of the class members raise common issues;
(4) a class proceeding would be the preferable procedure for the resolution of the common issues; and
(5) there is a representative plaintiff who meets certain criteria.
In the Coles case, a class action was not seen as the preferable procedure for air bag defects in vehicles. Chrysler Canada’s recall campaign was seen as preferable to address the product defect: Coles v. FCA Canada Inc., 2022 ONSC 5575 (CanLII)
CAUTION: Nothing on this website is legal advice.
Ponzi, Fraud, Robert Stanford and the Canadian Bank Connection
In simple terms, a Ponzi scheme is a fraud based on a belief that a investment vehicle can give you high returns. It is funded by using monies from new investors to make payments to older investors until this can no longer be sustained. The scheme is named after a 1920s American swindler, Charles Ponzi.
Prior to 2012, Robert Stanford, a U.S. citizen, now serving a 110-year sentence, was involved in the second largest Ponzi scheme in history. He and three others used an offshore bank, Stanford International Bank Ltd. (“SIB”), as a vehicle to defraud the bank’s customers of over seven billion dollars.
Upon SIB’s collapse, it was placed into liquidation. The Joint Liquidators commenced a lawsuit on behalf of SIB against TD Bank, claiming: (1) it was liable to SIB for knowing assistance in breach of fiduciary duty (owed by TD to its customer, SIB); and (2) it was negligent in the provision of services.
However, the trial judge and the Court of Appeal for Ontario disagreed. The trial judge found that TD Bank had no actual knowledge of the fraud and was not reckless or willfully blind. As for the negligence claim, the trial judge correctly concluded that there was insufficient proximity to give rise to what would have been a novel duty of care.
The purpose of TD Bank’s undertaking was to act as SIB’s agent for the purpose of transferring funds to and from SIB and its customers. It did not, “assume the role of a regulator, auditor or insurer.”
The judgment is not the easiest to read but the details may be found here: 2022 ONCA 788 (CanLII) | McDonald v. Toronto-Dominion Bank | CanLII. Canada’s Competition Act prohibits pyramid sales (Ponzi and similar schemes).
FALL 2022: Food Costs Jump Nearly 11%: CBC reported that Members of Parliament had looked into grocery chains possibly profiting from inflationary expectations but could not find evidence of “greedflation” on the part of grocers. Nevertheless, in October of 2002, the Competition Bureau of Canadas said it would investigate the rising cost of food.
PROPOSED RBC PURCHASE OF HSBC TO BE REVIEWED: The Competition Bureau and Ministry of Finance are looking into this proposal to see if this further concentration of banking services would reduce consumer options and increase costs. RBC was looking to this $13.5 billion acquisition as a way of better meeting the needs of its global clients.