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The Litigator
AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR

Affleck Greene McMurtry LLP
365 Bay Street, Suite 200  ·  Toronto, Canada
416 360 2800  ·  info@agmlawyers.com  ·  www.thelitigator.ca

Competition Law Update – 2005 Year in Review

Contributors: Michael Osborne , Jennifer Cantwell, Paul Emerson, Angela Yadav, Sonny Ingram, and Michael Binetti

TOP STORIES

Rona keeps Sherbrooke store
In May, the rescinded a September 2003 consent agreement, allowing home improvement retailer Rona Inc. to keep the Sherbrooke , Quebec store it agreed to sell to gain Bureau approval of its acquisition of Réno-Dépot. The Tribunal found that Home Depot’s imminent arrival was a change in the circumstances that led to the consent agreement, and that the agreement would not have been made in the present circumstances. The Tribunal rejected the Commissioner’s arguments that it should refuse to rescind the agreement as a matter of discretion.

The Tribunal’s decision is the first time that the Competition Act’s variation / rescission provision (s. 106) has been applied to a consent agreement. Because are negotiated and made by the parties, not the Tribunal, the Tribunal must look to the intentions of the parties. The Tribunal also emphasized that the Commissioner must be responsive to changing circumstances.

Online payment company seeks resumption of banking services
The Tribunal granted B-Filer Inc. leave to apply for an order requiring Scotiabank to supply it with banking services it needs for its internet payment service, which allows customers to pay internet merchants from their bank accounts. B-Filer claims that Scotiabank closed its accounts because it competes with Interac Online, an online debit card payment system Scotiabank offers. Scotiabank claims that B-Filer violated the terms of its banking relationship by requiring customers to disclose their online banking passwords.

Assignments of intellectual property are within Competition Act’s reach, court holds
In November, the held that where an agreement to assign a patent increases the assignee’s market power in excess of that inherent in the patent itself, the Patent Act provision allowing assignments of patents does not immunize the assignment from contravening the conspiracy provisions of the Competition Act (s. 45).[1] This important decision means that assignments of any intellectual property are potentially subject to scrutiny under the Competition Act. Apotex claims that an assignment of process patents for the antibiotic Cefaclor by Shionogi to Eli Lilly violates s. 45 because it gave Eli Lilly a monopoly over processes for making Cefaclor that it did not have before.

[1] 2005 FCA 361

Guidelines Galore
2005 was the year of the guideline at the Competition Bureau. In April, the Information Bulletin on Private Access to the Competition Tribunal advised that the Commissioner will only intervene in private Tribunal proceedings in exceptional cases that raise significant competition issues and affect the public interest.

In October a draft Information Bulletin on Merger Remedies in Canada outlined the Bureau’s policy on merger remedies. The Bureau prefers structural remedies (divestitures) to behavioural remedies (codes of conduct) and strongly favours “fix-it-first” solutions, where relevant assets are divested before completion of a merger. If a “fix-it-first” solution is not possible, then the Bureau expects a quick sale, and may insist on the sale of additional, more attractive assets (“crown jewels”) if no buyers appear.

In November, the Information Bulletin on Section 11 of the Competition Act listed some of the factors that the Bureau considers in deciding whether to seek s. 11 orders compelling parties to provide documents and information, including the seriousness of the matter, the time frame of the inquiry and the need for a complete and accurate record.

Also in November, the draft Technical Bulletin on “Regulated Conduct” stated the Commissioner’s view that the Supreme Court 2004 decision in Garland v. Consumers Gas Co. narrowed the regulated conduct defence considerably. This defence may be available where some other law authorizes conduct that violates the Competition Act. However, the Bureau takes the position that where provincial law conflicts with the Competition Act, the regulated conduct defence is only available under s. 45 (conspiracy). Otherwise, the Competition Act will trump conflicting provincial legislation.

MERGERS

On February 24, 2006 , the EU announced that its initial investigation into the proposed Inco-Falconbridge merger identified serious competition concerns in certain nickel and cobalt markets, as Inco and Falconbridge are the two leading global suppliers of these metals.

The Bureau’s review of Cineplex Galaxy’s acquisition of Famous Players concluded that the exhibition of first run motion pictures continues to be a distinct product market, despite increasing competition from DVDs, Pay-Per-View and Video on Demand. As a result, the Bureau insisted that Cineplex cut 35 theatres.

The Bureau is challenging a grain handling joint venture between the Saskatchewan Wheat Pool and James Richardson International Limited at the Port of Vancouver . The Bureau is concerned that concentration in the ownership of port grain terminals removes competitive alternatives from farmers.

Meanwhile, United Grain Growers Limited has applied under s. 106 to be relieved of its obligation to divest a grain terminal at the port of Vancouver . UGG agreed to the divestiture in 2002 to settle the Bureau’s challenge to its acquisition of Agricore Co-operative Limited. UGG says because independent grain companies have entered into long term grain handling agreements, there is not enough uncommitted grain to make an independent grain terminal viable.

Media giant Quebecor Media bought competitor Sogides , but its president, Pierre Lespérance, had to resign from the board of directors of Gestion Renaud-Bray Inc., which competes with Quebecor’s Archambault Group Inc. bookstores.

CRIMINAL

Ajinomoto Co. Inc. and CJ Corp. pleaded guilty and were fined $1.5 million and $175,000 respectively for participating in an international conspiracy to fix prices of nucleotides, or flavour enhancers, in Canada .

UCAR Inc ., SGL Carbon, Tokai Carbon Co. Ltd., Mitsubishi Corp. , and NipponCarbon Co. Ltd. were fined a total of $25m for participation in a conspiracy to fix prices and restrict output of graphic electrodes. UCAR and SGL supply over 90% of the $440m Canadian market for graphite electrodes.

Labatt paid a $250,000 fine for maintaining prices for discount beer sold by independent convenience stores in Quebec.

The Bureau found no evidence of collusion or by beef packers and grocers, even though beef prices did not fall when cattle prices fell as a result of BSE.

Competition authorities in Europe , the US and Canada are investigating suspicions that several major airlines, including Air Canada, fixed prices for air cargo.

High retail gas prices led to the Bureau’s fifth inquiry into the industry. The Bureau found no evidence of a national conspiracy. However, the Bureau reassured consumers that it was closely following gas prices following hurricane Ka trina.

The Bureau can share materials obtained through search warrants with foreign competition authorities without telling the judge issuing the warrant, and without going through the two-step formal Mutual Legal Assistance Treaty process, the held in R. v. Strucky.[1] The court also held that public interest privilege must be established on a document by document basis.

[1] [2005] OJ No. 5166

REVIEWABLE MATTERS

The Bureau has appealed the Tribunal’s February 2005 decision that Canada Pipe’s Bibby St. Croix division did not abuse its dominant position in the market for cast iron drain, waste and vent pipes. Bibby’s loyalty program encourages customers to stock its products exclusively, but does not impose penalties for switching or bind customers into long-term contracts. The program does not prevent the entry of new competitors and is justified because it allows Bibby to stock a wide variety of less common products and sizes, the Tribunal held.

MARKETING PRACTICES

High gas prices bring out miracle fuel saving devices. The Bureau shut down Canadian spammers promoting a bogus fuel efficiency product called Fuel Saver Pro in December 2005, and, in February 2006, filed an application against Econoco Inc. to stop it claiming that its Econopro device can improve fuel economy.

In April, the Tribunal fined Sears Canada Inc. $100,000 and ordered it to pay costs of $387,000 for exaggerating savings on tires. The “regular” prices advertised were not real because Sears sold less than 2% of the tires at those prices before putting them on sale.

Six telemarketers with Info search Publications Inc. face criminal charges for an alleged business directory scam. Two of the six are repeat offenders and were charged with breaching a ten-year ban on deceptive telemarketing imposed in 2002.

Calgary based Fabutan Sun Tan Studios agreed to stop claiming unproven health benefits from tanning bed use.

The Bureau filed an application to stop five Quebec weight loss companies from claiming that a device called Cellotherm can produce the effects of liposuction without surgery.

Criminal charges were laid against Michael Reynolds and John Armstrong of CSCT Inc., for claiming their cancer treatment would selectively kill cancer cells without harming other healthy cells. Cancer victims paid thousands of dollars, not including transportation and accommodation at “treatment” locations such as Switzerland and Spain , for the alleged treatment.

The Bureau seized a shipment of sunglasses from China falsely labeled “Made in Canada ” and “UV400 protection” and did not give them back until Gift Cave Corp. removed the labels.

PRIVATE ENFORCEMENT

In June, the Tribunal denied automobile grey marketer Construx’s application for leave to commence a private application because it did not show that it was “substantially affected in its business”. GM had refused to sell Construx new vehicles because Construx was exporting them in violation of GM’s policy.

A corporation that is no longer a going concern cannot maintain a private application under s. 75, the Tribunal held in dismissing Barcode’s application to force Canada to supply it with bar code equipment. Barcode went bankrupt after being granted leave to bring its application; all that was left was a shell company.

Morgan’s Furniture discontinued its application seeking resumption of supply of La-Z-Boy chairs, and Quinlan’s and Robinson Motorcycle Limited settled their applications seeking to force Harley Davidson distributor Fred Deely to sell them motorcycles.

In March 2005, the Ontario Superior Court approved a global settlement worth $140 million in several relating to alleged conspiracies to fix prices for vitamins. The class actions followed a series of guilty pleas in Canada and the US that netted the Canadian government about $100 million in fines.

DuPont and Crompton Corporation agreed to pay over $5 million to settle class actions alleging they fixed the price for synthetic rubber.*

Polyester staple manufacturers DuPont, Nan Ya Plastics Corp. and others paid nearly $1 million to settle a class action alleging they fixed prices.

INTERNATIONAL AFFAIRS

The International Competition Network vowed to cut red tape in multi-jurisdictional merger review and appointed Canada ’s Sheridan Scott as Vice-Chair of its Steering Group and Co-Chair of a new working group on telecommunications services.

In September, Canada and Japan agreed to improve enforcement in international cartels and merger review. The agreement provides for notification of enforcement actions that may affect the other country, conflict avoidance and consultation, and the protection of confidentiality.

THE LONG ARM OF US

“But for” is not enough: in 2004, in Empagran, the US Supreme Court said that foreign plaintiffs cannot sue in the US for where the adverse foreign effect of a price fixing conspiracy is independent of its effect in the US. On remand, appeal court rejected the plaintiffs’ argument that but for a conspiracy to fix vitamin prices in the US , price fixing outside of the US would not have succeeded. “But for” causation is not enough; the domestic effect must be the proximate cause of the foreign injury.

The FTC and the Bureau engaged in some educational false advertising: Fatfoe.ca appears to advertise miraculous weight loss products. But a click reveals the site to be a warning against diet rip-offs. The agencies have not revealed how many orders they have received. See also: http://www.wemarket4u.net/

FURTHER ANALYSIS

Tribunal restores Sherbrooke store to Rona by Michael Osborne

Online payment company seeks resumption of banking services by Michael Osborne

Intellectual property is not exempt from Competition Act’s reach by Michael Osborne

Bureau can share information with foreign authorities, judge rules
by Michael Osborne

Dominant firms can have loyalty and that encourage exclusivity, Tribunal rules by Michael Osborne

The Sears decision: much needed clarification or just spinning our wheels?
by Jennifer Cantwell

cannot bring application, Tribunal rules by Michael Osborne

Synthetic rubber and polyester staple class actions settle by Michael Osborne

“But for” is not enough US appeal court finds it has no jurisdiction in Empagran case by Michael Osborne

W. Michael G. Osborne
Affleck Greene McMurtry LLP

W. Michael G. Osborne

Michael Osborne is a former Partner of Affleck Greene McMurtry LLP

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