In Difederico v. Amazon.com, 2023 FC 1156, the Federal Court refused to certify a proposed class action involving allegations that a collection of Amazon entities (“Amazon”) had breached sections 45 and 46 of the Competition Act, R.S.C. 1985, c. C-34 (the “Act”). The decision is a further example of courts exercising their gate-keeping function at the certification stage to weed out claims that have no prospect of success.
The plaintiffs sought to certify a class action alleging Amazon’s agreements with third-party sellers contravened sections 45 and 46 of the Act, which establish indictable criminal offences for conspiring, agreeing, or arranging certain anti-competitive conduct. A contravention of these sections can lead to civil recovery for loss or damage via section 36 of the Act.
The plaintiffs’ claims were based on two allegedly anti-competitive agreements, namely:
- A clause in Amazon’s Business Solutions Agreement that required third-party sellers to ensure that prices of products they sold on Amazon’s online retail platform were at least as favourable as the selling prices of those products on any other e-commerce website; and
- Sections of Amazon’s Fair Pricing Policy, which allowed Amazon to take action against pricing practices that harmed customer trust, including setting a price on a product or service that was significantly higher than recent prices offered on or off Amazon.
In this case, the plaintiffs alleged that the estimated inflationary impact of Amazon’s alleged anti-competitive practices to be upwards of $12 billion.
The Decision of the Court
The Court refused to certify the class, finding that the plaintiffs failed to establish the first requirement for certification, namely, that the pleadings disclose a reasonable cause of action:
- First, the Court held that the plaintiffs had not pled sufficient material facts with respect to all of the constituent elements of sections 45 and 46, for either of the allegedly anti-competitive agreements; and
- Second, the Court found it was plain and obvious that neither of the allegedly anti-competitive agreements is an agreement contemplated by sections 45 and 46 of the Act, which target “hard-core” or “naked” cartel agreements (e., agreements that are generally recognized to have unambiguously harmful effects on competition and consumers).
To determine whether pleadings disclose a reasonable cause of action, courts assume the facts pleaded to be true and consider whether it is “plain and obvious” that the pleadings fail to disclose a reasonable cause of action. The test is a high standard and courts err on the side of permitting novel but arguable claims to proceed.
To bring a successful claim under section 45 of the Act, the plaintiffs needed to plead and later prove that Amazon had been a part of a “conspiracy, agreement or arrangement” with a competitor to engage in certain anti-competitive practices described in the subsections. As section 45 establishes a criminal offence, the plaintiffs also needed to plead and later prove the requisite mens rea element, (i.e., that Amazon subjectively intended to enter into these agreements and had the objective intention of engaging in the prohibited anti-competitive practices).
Failure to Plead Sufficient Material Facts
For pleadings to disclose a reasonable cause of action they must include sufficient material facts to support their allegations.
The Court found that the plaintiffs’ Statement of Claim pled sufficient material facts to support their allegations that Amazon had entered into agreements with third-party sellers and that Amazon and at least some third-party sellers were actual competitors.
However, the Court found that the plaintiffs had only made bald allegations that the agreements contravened sections 45 and 46 of the Act. For instance, the plaintiffs alleged that the agreements limited price competition, but failed to plead any particular price or price range that the parties agreed to fix, maintain, or increase. Likewise, the plaintiffs failed to plead the objective mens rea element or sufficient material facts to establish the element for each subsection of section 45.
Not Contemplated by the Act
The Court reviewed the legislative purpose and jurisprudence of sections 45 and 46 of the Act and found that the provisions were meant to capture “hard-core” or “naked” cartel agreements. In establishing criminal offences in which offenders could be sentenced for up to 14 years in prison, the Court found that the sections were clearly not intended to capture agreements that may have the indirect effect of adversely impacting prices.
In this context, the Court held that it was plain and obvious that sections 45 and 46 were not intended to capture Amazon’s agreements with third-party sellers. The agreements raised by the plaintiffs were explicitly directed towards favouring customers on Amazon’s platform and did not directly seek to control the prices on other platforms or harm the consumer.
- The decision reinforces the importance of pleading material facts with sufficient particularity. Bald allegations that merely track statutory language are not sufficient.
- The decision highlights the willingness of courts to exercise their gatekeeping function at the certification stage of a proposed class proceeding. Here the Court meaningfully engaged with the legislative purpose and jurisprudence of the Act to determine that the claim had no reasonable prospect of success.
- The decision is a reminder that in cases where civil recovery is available for criminal offences, the plaintiff will likely need to plead and later prove not just that the defendants acted in a certain manner, but also that they intended to do so.