Suppliers that attempt by agreement, threat, promise or like means, to influence upward or discourage the reduction of the price of products or services, are subject to criminal liability in Canada under Section 61(1)(a) of Canada’s Competition Act (the “Act”).1 Last week, Labatt Brewing Company faced such liability after an inquiry by the Canadian Competition Bureau (the “Bureau”) into the Quebec beer industry resulted in allegations that between March 2004 and April 2005, Labatt engaged in price maintenance in violation of Section 61(1)(a) of the Act. Following an agreement with the Attorney General of Canada, Labatt pleaded guilty to one charge of the offense.
The Labatt Investigation and Conviction
A person who violates Section 61(1)(a) may be subject to imprisonment for a maximum of five years, a fine to be determined in the discretion of the court, or both.2
In Labatt’s case, the volume of sales at issue represented only a small portion of Labatt’s total sales of beer in Quebec. The Court of Quebec fined Labatt $250,000, which matches the highest amount previously imposed for a violation of Section 61(1)(a).3
According to an agreed statement of facts, Labatt influenced the price of discount beer sold by nine convenience store and grocery retailers by offering money and free cases of beer to store operators. In one case, Labatt offered a Sherbrooke, a Quebec retailer, $2,000 to raise the price of a competitor’s products.4
The Bureau initiated its investigation of the industry after receiving a complaint in September 2004. In December 2004, after Labatt’s Sherbrooke sales director had knowledge that the Bureau was launching an inquiry of the commercial practices of sales representatives in the region, Labatt allegedly continued to violate the Act’s price maintenance prohibition. This continued even after the Bureau conducted in March 2005 an investigation and seized documents at Labatt’s Sherbrooke offices. Once the company was issued a notice by the Bureau of its probable violation of the Act, it retained counsel to review its sales policy and took other measures to see that unlawful conduct did not occur. The Bureau represented to the court that it was satisfied that the unlawful conduct was isolated, as the conduct was limited to three sales representatives, and did not result from a general policy of price maintenance.
The court also issued a prohibition order against Labatt requiring it to inform all its Quebec independent convenience and independent grocery stores that it and its representatives cannot by agreement, threat, promise or like means, attempt to influence upwards or discourage the reduction of the price of alcoholic beverages.
Canada’s Price Maintenance and Refusal to Deal Laws Impose Strict Standards on Suppliers
Section 61 of the Act has given rise to many criminal convictions and enforcement actions. Several class action suits for damages have also been launched in recent years.5 The Act has a broad application. There is no market power or dominant firm threshold or “safe harbor” from liability. Anyone who, by agreement, threat, promise or like means, attempts to influence prices upward or discourage their reduction, commits a criminal act, regardless of whether competition is harmed. Intellectual property agreements that include price terms may violate Section 61 too.
Violations of Section 61(1)(a) have been found even where something less than an express agreement, threat or promise was used to influence price upward or discourage its reduction. For example, a suggestion to increase prices made by a supplier to a retailer upon whom the retailer is dependent and who could be easily terminated, will violate the Act, even if the suggestion is not accompanied by any explicit threat.6 Likewise, a supplier who tells a dealer that it may cut off its supply if the dealer does not raise its prices would be attempting to influence price by way of a threat and contravene the statute. Duress, coercion, inducement or similar means used to influence price upward or discourage its reduction all constitute “like means” and will violate the Act.7
It is also a criminal act in Canada to refuse to deal with retailers because of the low prices they offer.8 Section 61(1)(b) provides that no person shall refuse to supply a product to or otherwise discriminate against any other person engaged in business in Canada because of the low pricing policy of that other person. Discrimination is interpreted to include many forms of distinctions in treatment; direct or circumstantial evidence of an intent to discriminate against a retailer because of its low pricing policy could result in a criminal conviction.
Section 61(1)(a), the price maintenance statute, was introduced in 1951 and reflects the idea that price maintenance lacks any redeeming social effect, so all price maintenance is considered illegal, without more. In this regard, it has the structure of a “per se” violation of U.S. antitrust law, although the conduct involved may be unilateral acts by a fringe firm, and even in the absence of anti-competitive effects. Section 61(1)(b), the criminal refusal to deal statute, by comparison, was softened beginning in 1976 such that a supplier may refuse to deal with a dealer where it believes, on reasonable grounds, that the dealer is using the supplier’s products as “loss leaders”;9 does not offer the level of service a purchaser would reasonably expect;10 or has a practice of engaging in misleading advertising in respect of the supplier’s products.11 The case law varies in the definitions of “price” and “cost,” and there is uncertainty as to when a product may be deemed a loss leader. This makes reliance on the loss leader defense riskier. None of these defenses, however, are available to threats to refuse to supply, only actual refusals may be covered by these defenses.
Further, by amendments made to the Act in 2003, private actions, including class actions, are available for actions based on claims of price maintenance or refusals to deal. Many of the civil cases filed so far have been brought by dealers suing suppliers after a refusal to continue to deal.12
While a proposal to decriminalize a number of the pricing provisions in the Competition Act are included in Bill-C-19, a package of proposed amendments to the Act being considered by Canada’s Parliament this year, price maintenance and refusal to deal are not among them.13 These statutes are therefore likely to remain the law in Canada for the foreseeable future. Moreover, the Competition Bureau “will continue to fully enforce the price maintenance provision of the Competition Act.”14
The strict standards for price maintenance and refusal to deal, and the willingness of Canadian regulators to enforce those laws, should cause companies whose products or services reach Canada to seek competent counsel to ensure sales and trading policies comply with all local rules.
- R.S.C. 1985, c. C-34.
- § 61(9) of the Act.
- In October 2002, the Stroh Brewery Company (Quebec) Ltd., a competitor of Labatt’s, pleaded guilty to charges of price maintenance. The conviction followed a Bureau investigation revealing that Stroh prohibited convenience stores and other retail outlets in Quebec from discounting Stroh’s bottled beer of various sizes by the case. The Federal Court of Canada imposed a $250 000 fine, the largest fine at that time in a price maintenance case.
- Available online, Competition Bureau Homepage, (last accessed 30 November 2005) (available only in French
- 2005 Competition Act and Commentary (Toronto: Butterworths, 2005) at 60.
- R. v. Shell Canada Products Ltd.,  M.J. No. 305 (1989), C.P.R. (3d) 501 (Man. Q.B.), leave to appeal refused  M.JH. No. 73 (1990), 45 B.L.R. 231 (Man. C.A).
- 2005 Competition Act and Commentary (Toronto: Butterworths, 2005) at 61.
- Since January 2004, the Act has also included a private right of action for refusal to deal. Prior to this, the Commissioner of Competition had exclusive jurisdiction to enforce the civil refusal to deal provision of the Act. Under Section 75(1) of the Act, where, on an application by the Commissioner or a person granted leave under section 103.1, if the Tribunal finds that:
(a) a person is substantially affected in his business or is precluded from carrying on business due to his inability to obtain adequate supplies of a product anywhere in a market on usual trade terms,
(b) the person referred to in paragraph (a) is unable to obtain adequate supplies of the product because of insufficient competition among suppliers of the product in the market,
(c) the person referred to in paragraph (a) is willing and able to meet the usual trade terms of the supplier or suppliers of the product,
(d) the product is in ample supply, and
(e) the refusal to deal is having or is likely to have an adverse effect on competition in a market,
the Tribunal may order that one or more suppliers of the product in the market accept the person as a customer within a specified time on usual trade terms unless, within the specified time, in the case of an article, any customs duties on the article are removed, reduced or remitted and the effect of the removal, reduction or remission is to place the person on an equal footing with other persons who are able to obtain adequate supplies of the article in Canada.
- §§ 61(10)(a) and 61(10)(b).
- § 61(10(d).
- § 61(10)(c).
- See e.g. Quinlan’s of Hunstville Inc. v. Fred Deeley Imports Ltd. 2005 Comp. Trib. 20, where the Tribunal issued its first ever interim supply order; Broadview Pharmacy v. Wyeth Canada Inc., 2004 Comp. Trib. 22; and Construx Engineering Corporation v. General Motors of Canada 2005 Comp. Trib. 21.
- Bill-C-19 includes geographic price discrimination, price discrimination, predatory pricing and promotional allowances.
- The Bureau stated this in its news release of the Labatt plea. See Canadian Competition Bureau Homepage, (last accessed 30 November 2005).