In an unexpectedly brief decision dated April 15, 2013, the Competition Tribunal dismissed the Commissioner of Competition’s application challenging certain practices of the Toronto Real Estate Board (TREB) under the abuse of dominance provisions in section 79 of the Competition Act (Act). The Tribunal dismissed the application on the basis that section 79 did not apply to the conduct at issue. Therefore, the Tribunal did not consider whether TREB’s conduct is supported by a legitimate business rationale or whether it substantially prevents or lessens competition.
The decision is noteworthy for these reasons:
First, the Tribunal firmly rejected the Competition Bureau’s assertion in its 2012 revised Abuse of Dominance Guidelines (the Guidelines) that despite the decision of the 2006 Federal Court of Appeal in Canada Pipe, anti-competitive conduct need not be directed at a competitor for section 79 to apply. The Tribunal reaffirmed the Canada Pipe rule that the impugned conduct must have had an intended negative effect on a competitor that is predatory, exclusionary or disciplinary. Therefore, for section 79(1) to apply, “the dominant firm must compete with the firm(s) harmed by the dominant firm’s practice of anti-competitive acts.” Given the significant penalties that can now be ordered under section 79, this clear denial of the Bureau’s attempt to extend the application of the abuse of dominance provisions beyond the limits of established jurisprudence is welcome confirmation of the scope of section 79 for all Canadian businesses.
Second, of particular interest to trade associations, the decision provides some comfort that an association will not itself likely be exposed to significant monetary penalties under the abuse of dominance provisions where actions of the association impact the market in which members of the association compete.
Third, the Tribunal appears to have endorsed the use of section 90.1 to challenge trade association rules that impact competitive activities of association members.
TREB is a not-for-profit trade association that serves more than 35,000 real estate brokers and salespeople across Ontario. The Commissioner’s application1 pertained to the multiple listing service (MLS) that TREB makes available to its members. MLS is an electronic database that contains current and historical information about the purchase and sale of residential real estate in Canada. The Commissioner alleged that TREB had abused a dominant position in the market for residential real estate brokerage services by establishing and enforcing rules for members’ access to information on MLS – rules that hamper the effective use by certain members of electronic data services (known as virtual office website, or VOW services), thereby perpetuating the traditional “bricks and mortar” model at the expense of more efficient and lower-cost alternatives.
The Commissioner sought an order from the Tribunal to, among other things, prohibit TREB from directly or indirectly enacting, interpreting or enforcing any rules that exclude, prevent or discriminate against TREB member brokers who wish to use the information in the Toronto MLS system to offer services over the Internet. TREB amended its rules shortly after the application was filed to permit some MLS information to be made available to consumers through VOWs. The Commissioner subsequently amended her application, maintaining that steps taken by TREB to only partially open the flow of information were not sufficient to remedy the substantial lessening of competition.
In response to the Commissioner’s allegations, TREB argued, among other things, that because TREB does not compete in the market for residential real estate brokerage services, it could not abuse a dominant position in that market.
The Tribunal agreed with TREB, finding that the Commissioner’s application failed to establish that the required elements under section 79 had been met – most importantly, subsection 79(1)(b), which requires that the respondent be engaged in a practice of “anticompetitive acts.” The Tribunal held that, consistent with the Federal Court of Appeal’s position in the 2006 Canada Pipe decision, anti-competitive acts must be intended to have a negative effect on a competitor. Accordingly TREB could not be found to have engaged in an anti-competitive act vis-à-vis its members because it does not itself provide real estate services in competition with its members. The Tribunal further rejected the Commissioner’s assertion based on the Guidelines that a broader scope for section 79 is supported by the acknowledgement in Canada Pipe that one of the enumerated examples of anti-competitive acts under section 78 (i.e., section 78(1)(f)) is not explicitly directed at a competitor. The Tribunal found instead that the requirement of intent to harm a competitor could be implied. The Tribunal also rejected the Commissioner’s assertion that the use of the non-exhaustive term “includes” in section 78 contemplates the inclusion of additional non-enumerated conduct that is not intended to have a negative effect on a competitor. The Tribunal held that, because virtually all of the enumerated anti-competitive acts in the subsection contemplate harm to competitors, it is a necessary element.
The Tribunal also referenced subsection 79(4) as further evidence that the abuse of dominance provision applies only if the dominant firm is a competitor. Subsection 79(4) requires that the Tribunal consider “whether the practice is a result of superior competitive performance” when determining whether a practice “has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.”
The Tribunal concluded its decision with the observation that while the abuse of dominance provision did not apply, it may be open to the Commissioner to seek an order under section 90.1 of the Act on the basis that the impugned TREB rules may constitute an agreement or arrangement among members of TREB’s board of directors (who are competitors) that substantially prevents or lessens competition. The Tribunal referenced this passage of the Bureau’s Competitor Collaboration Guidelines in making this observation:
Agreements between members of a trade or industry association may also constitute agreements between competitors for the purpose of section 90.1. The Bureau considers that rules, policies, by-laws or other initiatives that prevent or lessen competition substantially, and that are enacted and enforced by an association with the approval of members who are competitors, constitute agreements between competitors for the purpose of section 90.1.
While the Tribunal was careful to point out that it had not assessed the likely merits of such a claim, it nevertheless suggests that the Tribunal believes that a trade association’s rules may be subject to challenge under section 90.1 of the Act. It remains to be seen whether this view will withstand scrutiny, particularly if the organization in question has a legal personality that is separate from that of its members, and its board of directors is not composed of competitors.
The Commissioner has 30 days to appeal the decision.
For more information about this decision please contact Michelle Lally, Chair, Competition/Antitrust, or any member of our Competition/Antitrust group.
1 The Commissioner’s application was originally filed on May 27, 2011, followed by an amended application filed on July 7, 2011.