Resale Price Maintenance May Carry More Risk Than Originally Thought in Canada, Eh?

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K&L Gates LLP

[co-author: Betsy Byra]

In a decision made public on 4 May, the Ontario Superior Court of Justice (the Court) determined that an asserted conspiracy claim concerning a price maintenance dispute should proceed to trial, despite Canada’s Competition Tribunal not having issued an opinion on the matter.1 This decision creates a possible loophole in the Canadian Competition Act’s intent to require price maintenance claims to be adjudicated through an administrative body and creates uncertainty for the review of creatively pleaded resale price maintenance claims moving forward.

Competition Tribunal Review of Price Maintenance Claims Under the Competition Act

In 2009, Canada removed its per se criminal prohibition on resale price maintenance, replacing it with a civil framework known as the Competition Act.2 While price maintenance is monitored under the Competition Act, it is not penalized without an additional showing of “adverse effect on competition.”3

Historically, claims brought under the Competition Act are subject to individual review by an administrative body known as the Competition Tribunal (the Tribunal). At this initial stage, the Tribunal takes into consideration factual evidence of “influence” and “adverse effect on competition.”4 This standard poses a significant burden to litigants in the early stages of a proceeding, and results in few cases being reviewed. Of those cases that are reviewed, many also fall into one of the several categories of caveats and exemptions articulated in the Competition Act.5

Upon review, the Tribunal is given limited power to make orders “prohibiting [a manufacturer]…from continuing to engage in the conduct referred to in paragraph (1)(a) or requiring them to accept another person as a customer within a specified time on usual trade terms.”6 Therefore, even if the Tribunal reaches an adverse decision, there is no accompanying risk of damages or fines and no likelihood of criminal sanctions.

There are conflicting interpretations of when a court may remedy a claim brought under the Competition Act. These interpretations turn on whether a remedy is generally available under § 36 of the Act in a court of competent jurisdiction, or if a case may be remedied “only when the Competition Tribunal has made an order prohibiting the conduct and there has been non-compliance with the order.”7

Bypassing Review of Competition Act Claims by the Competition Tribunal

Royal J&M Distributing (Royal), a seller of parts and accessories for power sports equipment, initiated the underlying action against supplier Kimpex for conspiracy and various related actions, such as cutting off product supply and telling other suppliers and customers that it was going out of business.8 Kimpex countered this claim, making various arguments that the suit should not be able to proceed. Among these arguments, Kimpex asserted that the Competition Tribunal had not yet made any determination as to the underlying price maintenance issue in the conspiracy claim, thereby precluding the Court’s consideration of this case.9

In making his determination, Justice Ivan Bloom noted that it was unclear whether a lack of order from the Competition Tribunal should preclude the suit, stating that “[t]he state of the law on this point is uncertain.”10 Ultimately, the Court held in favor of allowing the case to proceed to trial for a determination of the conspiracy claim, noting: “A trial judge should be allowed to determine whether the Plaintiff’s claim for conspiracy to violate s. 76 without a [sic] an order having first been made by the Tribunal is precluded by s. 36….”11 The Court also ordered Kimpex to pay Royal’s legal fees associated with the motion, totaling over $18,000.

Implications of This Decision

With the passage of the Competition Act in 2009 came a certain sense of security for respondents in cases involving resale price maintenance claims. With a high pleading standard to gatekeep Tribunal proceedings and minor civil penalties associated with adverse findings, these cases are rare and involve relatively minor consequences.

The Kimpex decision turns on whether a price maintenance claim creatively pled as a conspiracy claim may be remediated by a court in instances where the Tribunal has not yet made a determination as to whether the underlying price maintenance conduct is unlawful. In light of the Kimpex decision, it appears that more complainants may attempt to bypass the Tribunal altogether and seek a remedy directly in Court by tying a price maintenance claim to other common law claims. If this decision stands, it is good news for individuals and entities able to assert a resale price maintenance related claim under another recognized claim, such as a conspiracy claim.

For manufacturers accused of improper resale price maintenance Kimpex opens the door to the possibility that more cases can be heard in Court—potentially giving rise to increased findings of liability—and a range of repercussions that have not been considered since the passage of the Competition Act in 2009.

Accompanying this decision is much uncertainty for complainants and respondents about the future of price maintenance claims under the Competition Act. As with price maintenance in jurisdictions where it is allowed, manufacturers must always be careful in the manner in which the policy is implemented and enforced. As case law continues to develop, manufacturers should be vigilant when terminating a dealer to avoid any unnecessary actions that may give rise to a common law claim against them, as this could also lead to the ability of a Plaintiff to avoid the Tribunal and file a lawsuit directly in Court.

1 Royal J&M Distrib. Inc. v. Kimpex, 2021 CanLII 14791 (Can. Ont. Sup. Ct. J.).

2 Competition Act, R.S.C. 1985, c. C-3, § 76(1)(b).

3 Id.

4 Id. at § 76(1).

5 Id. at § 76(4)–(7), (9), (11).

6 Id. at § 76(2).

7 Pro-Sys Consultants Ltd. v. Microsoft Corp., 2006 CanLII 1047, at 41 (Can. B.C.S.C.).

8 Kimpex, 2021 CanLII 14791, 2–5.

9 Id. at 5.

10 Id. at 7.

11 Id. at 10.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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