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  • 1. Competition Bureau Canada: Du Pont Performance Elastomers Fined $4 Million for its Role in an International Price Fixing Agreement OTTAWA, ONTARIO--(Marketwire - July 19, 2007) - The Competition Bureau announced today that Du Pont Performance Elastomers L.L.C. (DPE) pleaded guilty and was fined $4 million by the Superior Court of Justice in Ottawa for its role in an international conspiracy to fix prices of polychloroprene rubber. Under section 45 of the Competition Act, it is a criminal offence to agree with competitors to fix prices or share markets. Polychloroprene rubber, a specific type of synthetic rubber, is used in the manufacture of a wide range of consumer products in the automotive, adhesive and construction industries, such as hoses, transmission belts and cables. It is also known as chloroprene rubber, polychloroprene, PCP or neoprene. "The Competition Bureau protects consumers and businesses against price fixing agreements and does not hesitate to prosecute any business, whether located in Canada or abroad, that engages in these illegal activities affecting the Canadian market," said Denyse MacKenzie, Senior Deputy Commissioner of Competition. "Price fixing agreements harm Canadian businesses and consumers by forcing them to pay higher prices for the goods and services they purchase." From August 1999 to April 2002, DPE and co-conspirators agreed to fix the prices of polychloroprene rubber sold in the North American market. Although it is difficult to quantify the impact of this conspiracy on the Canadian market, the sales of this product were approximately $50 million for the relevant period and DPE's share of the market represented approximately 70%. Copies of the documents filed before the Superior Court of Justice are available on the Competition Bureau's Web site or from the Court Registry
  • 2. (Court file number 0730300). The Competition Bureau is an independent law enforcement agency that promotes and maintains fair competition so that all Canadians can benefit from competitive prices, product choice and quality services. It oversees the application of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.
  • 3. The Competition Bureau CBC News Online | May 26, 2004 What is it? The Competition Bureau was set up by the federal government to ensure that the "Canadian marketplace operates in a fair and competitive manner." Its job is to administer and apply the rules and regulations contained in the following pieces of legislation: • The Competition Act. • The Consumer Packaging and Labelling Act. • The Textile Labelling Act. • The Precious Metals Marking Act. What does it do? Put simply, the Competition Bureau is there to respond to consumer complaints about issues such as false advertising and unfair pricing practices. If enough people complain that a product does not perform as advertised, the bureau may investigate. Or, if there are complaints by individuals or companies that a company – or group of companies – is trying to control the price of a product, the bureau may get involved. An example of this is the periodic investigation the board conducts into collusion in the setting of gasoline prices. It also often gets involved when one company buys another. An example would be when a media company buys another media company. If the sale leaves the buying company with, for instance, two television stations in the same market, the bureau might approve the sale only if the buying company sells one of those stations. The Competition Bureau also issues consumer warnings from time to time through news releases and on its website. Examples of these are warnings about work-at-home schemes that promise substantial income and "bait and switch" promotions, in which a store may advertise a certain product as being on sale, but when you get to the store that product is "not available" and you are encouraged to buy another – more expensive – model. How is it organized? The Competition Bureau is made up of seven branches: • The Fair Business Practices Branch was set up to promote fair competition in the marketplace by discouraging deceptive business practices and by encouraging the provision of sufficient information to enable informed consumer choice. It is the largest branch of the Competition Bureau. The vast majority of complaints – such as misleading advertising and price-fixing – received by the bureau go to this branch. • The Civil Matters Branch investigates competition cases that may wind up before the Competition Tribunal, such as complaints that a company is abusing its dominant position in the marketplace, or when a firm restricts which companies it will do business with. • The Communications Branch publicizes the work of the bureau. • The Competition Policy Branch advances the bureau's interests in international co- operation, negotiations and policy development. It provides economic advice and expertise. • The Compliance and Operations Branch is responsible for the development of the bureau's compliance program, the enforcement policy, communications and public education. • The Criminal Matters Branch investigates allegations of criminal offences including conspiracy to fix prices, price discrimination and predatory pricing, price maintenance and bid rigging. • The Mergers Branch deals with mergers of companies.
  • 4. What is the Competition Tribunal? It's the body that hears complaints the Competition Bureau decides require further investigation. Normally, only the bureau decides which cases will go before the tribunal. But in a limited number of situations – such as matters regarding refusal to deal, tied selling, exclusive dealing and market restrictions – private parties are allowed to apply directly to the tribunal to be heard. The tribunal has the power to impose fines and issue orders – such as forcing a company to publish notices correcting its false advertising. The tribunal can also issue interim orders against a company while a complaint is still being investigated. What are some examples of decisions the bureau has released? In November 2003, HMV Canada filed a complaint against electronics retailer Best Buy Canada and TGA Entertainment over the distribution of the Rolling Stones Four Flicks DVD set. HMV argued a deal between Best Buy and TGA making Best Buy the only retailer to carry the product contravened the Competition Act by denying access to supply of a product and reducing competition at the retail level. The bureau dismissed the complaint, ruling that lots of Rolling Stones material was available at many retailers. On May 31, 2002, the Competition Tribunal found that an Edmonton-based company – PVI International – made false or misleading claims about a "gas-saving" device it sold. The company claimed the Platinum Vapour Injector saved drivers up to 22 per cent in fuel costs. The tribunal ordered the company's two owners to pay fines of $25,000 each. It also ordered the company to stop making its claims about the product for 10 years. In the spring of 1996, following a series of gasoline price increases, several people complained to the board that there was a national conspiracy to fix gas prices. The board investigated and concluded that retail gas prices across the country rose in accordance with the rise in the price of crude oil. The board also found that "while gasoline prices may arguably respond quicker to crude oil price increases than decreases, the response is so quick that any cost to consumers was negligible. Third, there are competitive reasons for similar pricing in local markets and evidence gathered in these inquiries suggest that gasoline markets are competitive." High gasoline prices is one of the most common complaints the bureau deals with. It has investigated the issue several times – and has always concluded that market forces are responsible for fluctuations in the price of gas. Between Oct. 26, 1999, and March 30, 2000, the bureau fined several international drug and chemical companies almost $7 million for their involvement in an international price fixing scheme involving bulk vitamins.
  • 5. Competition Bureau Canada: Telemarketer Fined $1 Million 30 May 2007 The Competition Bureau announced today that Michael Mouyal, 53, of Montreal, has been fined $1,000,000 for his role in a deceptive telemarketing scam that generated over $136-million in deceptive sales during a six-year period. In addition, Mr. Mouyal received two years probation, 240 hours of community service and a 10-year prohibition order. Mouyal operated the scam under a number of names -- Commercial Business Supplies; Merchant Transaction Supplies; Merchant Supply Services and International Business Directories The Court of Quebec at the Palais de Justice in Montreal rendered the sentence, following an investigation by the Competition Bureau under the deceptive telemarketing provisions of the Competition Act. The scam operated from boiler rooms in Toronto, Montreal, and St. John's, Newfoundland and Labrador. As part of the scam, not-for-profit organizations, businesses and government agencies in Canada, the United States and the United Kingdom were contacted by telemarketers who claimed to be their regular supplier of office supplies or business directories and were calling to renew previous orders from the victims. The scam was based on creating the false and misleading impression that a previous business relationship existed between the telemarketing operation and its victims. Businesses would then receive overpriced office supplies or virtually useless business directories that they would not have ordered were it not for the false and misleading representations. "Everyone is a potential target of deceptive telemarketing," said Raymond Pierce, Deputy Commissioner, Competition Bureau. "Individuals engaged in deceptive telemarketing are warned that the Bureau will continue to combat this criminal activity through rigorous investigation and prosecution of those involved." The following individuals and corporations have already plead guilty and were sentenced: Justin Pold, 39, Montreal; Randolph Misiurak,
  • 6. 41, Montreal; Stephane Ouellet, 42, Montreal; Charles McCulloch, 39, Toronto; Francois Lefort, 38, Montreal; 153595 Canada Inc.; 162013 Canada Inc.; 162014 Canada Inc.; 174440 Canada Inc.; M.M. International Business Directories Ltd.; and 3350550 Canada Inc. The Competition Bureau is an independent law enforcement agency that promotes and maintains fair competition so that all Canadians can benefit from competitive prices, product choice and quality service. It oversees the application of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.
  • 7. ECMC41 COMPETITION POLICY AND LAW IN CANADA 1889 – Act for the Prevention and Suppression of Combinations Found in Restraint of Trade – established a criminal offence 1910 – Combines Investigation Act / Restrictive Trade Practices Commission 1986 Competition Act and Competition Tribunal Act Purpose is to maintain and encourage competition in Canada and to promote the efficiency and adaptability of the Canadian economy….
  • 8. Competition Tribunal - a quasi-judicial commission with authority to seize documents, examine witnesses, order written statements, and make decisions about cases brought before it (up to 4 judges from Federal Court + 8 other members for a 7-year term). 3-5 members hear every application to tribunal. Decisions can be appealed to Federal Court of Appeal). Competition Bureau, with Commissioner of Competition (formerly Director of Investigation and Research) – initiates inquiries and conducts investigations.
  • 9. Criminal matters: - collusive arrangements (conspiracy) - resale price maintenance - bid rigging - misleading advertising - price discrimination - predatory practices Civil matters: - mergers and monopolies - refusal to deal - abuse of dominant position many “reviewable practices” small number of cases relative to U.S. Penalties: fines, imprisonment, loss of tariff protection, loss of patent protection, prohibition orders, divestiture (mergers) Fines historically low Now detailed enforcement guidelines on some issues: mergers, price discrimination, abuse of dominant position, etc.
  • 10. CONSPIRACY AND BID-RIGGING “ to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof” 1886 – 2000 52 prosecutions. 41 guilty pleas or convictions. Fines of $178 million. Driving schools, pharmacies, ambulances, feed additives, fax paper, etc. Also participation in international cartels Tacit collusion is not, at this point, illegal Many strategic alliances are not a problem. See 1995 document on “Strategic Alliances under the Competition Act”.
  • 11. PRICE DISCRIMINATION - refers to sales to one firm at one price and to one of its competitors at a different price. Competitor in same product and geographic market - criminal law - only 3 convictions since 1984; fines from $15K to $50K - recommended to be included in civil review proceedings (Tribunal)
  • 12. PREDATORY PRICING - criminal indictment; up to 2 years in jail - engaging in a policy of pricing too low, in order to substantially lessen competition or eliminate a competitor - only 2 cases taken through to trial; but 550 complaints from 1980-1990. 382 complaints from 1994-1999 but no formal enforcement proceedings - Hoffman-LaRoche (drugs – giving out Valium for free to hospitals) and Consumers Glass (glass containers – disposable plastic cup lids deterring entry)
  • 13. There are predatory pricing enforcement guidelines: Two stage process of judgement 1. determine whether predatory pricing could have anticompetitive effects: define the market; look at market shares and concentration ratios, look at conditions of entry (cost advantage of incumbent, sunk costs) 2. look at prices in relation to costs: is P < AVC? (unreasonably low unless clear justification); is P>AVC but <AC (depends on circumstances) Moving to considering “avoidable costs”. If P < VC + avoidable product-specific fixed costs then…. Works better for multi-product firms Recommended for civil review proceedings
  • 14. ABUSE OF DOMINANT POSITION Reviewable Practices – Competition Tribunal When Does the Competition Act Apply? The abuse of dominant position sections of the Competition Act may apply when all of the following criteria are met: • The dominant firm or firms have market power — that is the ability to set prices above competitive levels. Relevant factors affecting market power include: the existence of barriers to entry, such as tariffs or government regulations that limit competition; a lack of substitute products; a lack of possible competitors; and a low level of innovation in the industry. • The dominant firm or firms engage in anti-competitive acts — business practices that are intended to reduce competition. These practices include: buying up a competitor's customers or suppliers; using "fighting brands" (discount brands) to discipline or keep out competitors; cutting off essential supplies to rival companies; using long-term contracts to stop customers from changing suppliers; and overstepping authority granted by intellectual property rights such as trade-marks and patents. • The anti-competitive acts have substantially lessened competition, or are likely to do so. This can happen when anti-competitive acts eliminate a rival or prevent such things as a rival's entry into a market, potential competition, product innovation and lower prices. The Competition Act's abuse of dominant position sections do not penalize a company that has captured a dominant
  • 15. share of the market because of its better performance. For additional detail regarding the Bureau's approach to enforcing these provisions, please refer to the Enforcement Guidelines on the Abuse of Dominance Provisions, available on the Bureau's Web site. Look at list of acts (on handout) considered to be “Abuse of Dominant Position”
  • 16. (a) independent gas stations that get gas from integrated suppliers (b) (c) using rival’s plant as a base point for freight charges (d) Imperial Oil and Shell – low-end retail outlets to discipline price-cutting independents in 1960’s and 70’s (j) and (k) introduced after Air Canada took over Canadian Airlines; refers to things like – operating routes at below avoidable costs, pre-empting airport facilities, or using a loyalty marketing program to prevent entry or expansion of a rival. Nutrasweet and Laidlaw as examples of abuse of dominant position
  • 17. MERGER PROVISIONS Acquisition of the whole or part of a business which is a competitor, a supplier or a customer if the merger is likely to lessen competition substantially Tribunal can order that merger be dissolved or order it not to proceed Tribunal must look at more than concentration ratios or market share Should also consider: (a) competition from foreign suppliers (b) whether the business taken over was likely to fail (c) availability of substitutes (d) barriers to entry (e) extent of effective competition after the merger (f) nature and extent of change and innovation in the market (g) whether or not there are offsetting efficiency gains from the merger (which would otherwise be unavailable) - draw diagram - 3 year time period after merger
  • 18. - firms can request an advance ruling
  • 19. - notification of a merger is necessary (in advance) if assets or gross revenue exceed $400 million or acquired firm has assets or gross revenue > $35 million - some mergers under other government departments - e.g. , banks, financial institutions, sometimes transportation
  • 20. Defining a market for purposes of considering effects of a merger Market is defined along product and geographic lines Product – Include firms that are producing close demand or supply substitutes (explain) Geographic – does an increase in price in one location affect the price in another? If so, both are in the same market.
  • 21. DECEPTIVE MARKETING PRACTICES - false or misleading representations - deceptive telemarketing - deceptive notice of winning a prize - double ticketing - operating a multi-level marketing plan - pyramid selling Criminal indictment, but also civil process to issue court orders to stop (e.g., bait and switch, sales above advertised price, misrepresentations)