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C h a p t e r 5 L e g i s l a t i o n i n t h e M a r k e t p l a c e
Sears advertised a particular brand of tires as being on sale. The ad said, “Save 45%,” when in fact Sears regularly sold only about 2 percent of those tires at the posted price. The ad inflated the regular cost of the tires, making the sales price appear more attrac- tive. This constituted misleading advertising, which could bring “harm to consumers, business competitors, and competition in general.” The penalty included a payment of $500 000 and a commitment not to do it again.13 Note that the Competition Act requires a court, when determining whether an advertisement is false or misleading, to not only look a the literal wording but also the general impression of the ad. Merchants must be very careful when approving such adds to consider the general message in order to avoid running afoul of the act. Note also that current penalties being assessed with respect to misleading advertising make the Sears fines look insignificant.
The practice of bait and switch is also prohibited. This is where a product is adver- tised at one price, but not enough of the product is supplied so that the customer can be persuaded to buy a higher-priced alternative.
Where there are attempts to manipulate the market using “deceit, falsehood, or other fraudulent means,” such actions are indictable offences under the Criminal Code with a potential penalty of up to 14 years’ imprisonment.
Full Disclosure The Act requires that merchants make full disclosure of all relevant information in many situations. For example, where games or contests are involved, the number of prizes and chances of winning must be disclosed and the winners must be cho- sen at random or based on a skill. Telemarketing operations must disclose such informa- tion as the identity of the seller and the nature and true price of the product being sold. Where multilevel marketing schemes are involved, representations as to earnings and sales (both actual and expected) must be fair and accurate. Of course, in all situations any false or misleading representation is an offence.
Other Matters Reviewable by the Tribunal Often a supplier will manipulate the sale of a product at the retail level by restricting the supply of their product to only merchants that will sell at the suggested retail price, or by tying the sale of one product to another. If such a practice may have an adverse effect on competition in the market, the tribunal can order that the conduct stop. Where a supplier sells a product below
Schemes that tie the sale of products to other products or restrict who can buy are reviewable by tribunal
13Commissioner of Competition v. Sears Canada Inc. Comp. Trib. No. CT-2002-004.
Deceptive Marketing Practices include
■ False and misleading
representations
■ Warranty or performance claims
not supported by tests
■ Unsupported tests and
testimonials
■ Bargain prices not supported by
goods sold at regular prices
■ Bait-and-switch tactics
Table 5.4 Deceptive marketing Practices (Part VII.1 of the act)
• False and misleading representations to the public • Warranty or performance claims not supported by tests • Unsupported tests and testimonials
• Bargain prices not supported by goods sold at regular prices • Selling at a higher price than advertised
• Bait-and-switch selling
• Failure to disclose chances and value of prizes in a contest • Failure to base contests on skill or random chance
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cost or uses other means to drive out a competitor or otherwise restrict competition, that is predatory pricing and is also reviewable. Under the Act this is referred to as abuse of dominant position.
Mergers and Acquisitions There is a growing trend today towards mergers and acquisitions. This can lead to less competition on the one hand but can also, through economies of scale, create a more efficient business. A main objective of the Competition Act and its supporting legislation is to balance these considerations. Where businesses of any size have merged through the acquisition of assets or the purchase of shares so that competition is substantially lessened, the Competition Tribunal has the power to review the acquisition and order, among other things, the dissolution of the resulting corpora- tion. When the merger is with a supplier, a competitor, or a customer, the merger will be in more danger of being disallowed as substantially lessening competition than if the merger is with an unrelated business. Table 5.5 provides a summary of matters reviewable by the Competition Tribunal.
Predatory pricing is also reviewable by tribunal
The goal is to balance the loss of competition against increased efficiency
Tribunal can review mergers and acquisitions
Mitsubishi (Accused), Her Majesty the Queen (Prosecutor) in a trial before the Ontario Superior Court of Justice.
This case involves a conspiracy by representatives of several corporations to restrict production and fix the price of graphite electrodes in world markets. These electrodes are important components used in steel foundries. One of the major corporations involved in Canada was UCAR, and Mitsubishi Corp. owned 50 per- cent of UCAR US. A representative of Mitsubishi was seconded to UCAR US and participated in meetings and otherwise was involved in the conspiracy. UCAR US sent memos and instructions to its Canadian subsidiary set- ting out policies and instructions with respect to the implementation of the agreement. The companies that were the major conspirators in violation of section 46(1) of the Competition Act were UCAR and SGL AG, and they were fined $11 million and $12.5 million after making guilty pleas, but this action is against Mitsubishi for violation of section 21(1) of the Criminal Code, which makes it a crime to aid or abet the commission of such a crime. The court had to determine whether the conduct of Mitsubishi and its representative violated this section of the Criminal Code, and also what an appropriate pen- alty would be.
Although it was clear that Mitsubishi itself did not sell the graphite electrodes in Canada, was not a principal party in the conspiracy, and had no direct involvement in it, its representative was at the meetings and had knowl- edge of the conspiracy. That knowledge is imputed to the representative’s employer, Mitsubishi. The American affili- ate sent instructions to its Canadian subsidiary with respect to the implementation of the agreement. Although the company willingly submitted to the Canadian courts and cooperated with the investigation, the conspiracy in question had a serious impact on the Canadian economy, and the company was found guilty of aiding and abetting the commission of that offence. Mitsubishi was fined $1 million. The fine imposed was economically significant and calculated to send a message to others that such anticom- petitive behaviour would not be tolerated.
This case illustrates not only that such conspiracies in restraint of trade, while tempting in a business sense, will not be tolerated in Canada, but also that even those only marginally connected with the offence may still be guilty of aiding and abetting and be subject to significant fines. Even being aware of the conspiracy and implementing policies that support it, while not directly participating, will still result in significant penalties.
Case Summary 5.6 R. v. Mitsubishi corp.14