Price Maintenance Under the Canadian Competition Act

This Practice Note discusses resale price maintenance in Canada under section 76 of the Competition Act, R․S․C․ 1985, c․ C-34․ It summarizes the three types of price maintenance, their necessary elements, exceptions, enforcement, and remedies․ This Note also discusses how manufacturers suggested retail price (MSRP) and minimum advertised price (MAP) policies are treated under section 76 and the Competition Bureaus enforcement approach to price maintenance․

Maintained Resource Type Practice notes Jurisdiction Federal (Canada) Related Content

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Introduction

Resale price maintenance (RPM) is a business practice where a supplier sets or influences the price at which a reseller can sell its products․ In Canada, RPM is regulated under section 76 of the Competition Act, R․S․C․ 1985, c․ C-34․ This section prohibits suppliers from engaging in conduct that influences upward or discourages the reduction of the price at which a reseller sells its products․ This Practice Note provides an overview of the key provisions of the Competition Act relating to RPM and discusses the types of RPM, its necessary elements, exceptions, enforcement, and remedies․ This Note will also consider the Competition Bureaus approach to enforcing the RPM provisions of the Competition Act․

The Competition Act has undergone several amendments since it was first enacted in 1985․ These amendments have clarified the law relating to RPM and have provided the Competition Bureau with greater tools to enforce the Act․ In 2009, Canada removed its per se criminal prohibition on RPM, replacing it with a civil framework under the Competition Act; This move shifted the focus from criminal penalties to a more flexible and nuanced approach to regulating RPM․ The Competition Act now provides a civil framework for addressing RPM, enabling the Competition Bureau to investigate and take action against suppliers who engage in prohibited RPM practices․

The Competition Act is designed to promote competition in the Canadian economy and to protect consumers from anti-competitive practices․ RPM can harm competition by reducing the ability of resellers to compete on price․ This can lead to higher prices for consumers and can limit the choices available to them․ The Competition Act seeks to prevent such harm by prohibiting suppliers from engaging in RPM practices․

Types of Price Maintenance

The Competition Act identifies three types of price maintenance⁚ (1) minimum resale price (MRP) policies, (2) manufacturers suggested retail prices (MSRP) policies, and (3) minimum advertised price (MAP) policies․ Each type of price maintenance involves different methods of setting or influencing prices, and each can raise concerns under the Competition Act․

Minimum resale price (MRP) policies involve a supplier setting a minimum price at which resellers can sell its products․ For example, a supplier might require resellers to sell its products at a price no lower than $10․ MRP policies are generally considered to be the most egregious form of price maintenance because they directly restrict the ability of resellers to compete on price․ The Competition Act prohibits suppliers from imposing MRP policies on resellers․

Manufacturers suggested retail prices (MSRP) policies involve a supplier suggesting a retail price at which resellers can sell its products․ For example, a supplier might suggest a retail price of $20 for its product, but resellers are not required to sell it at that price․ MSRP policies are not inherently prohibited under the Competition Act․ However, suppliers must be careful to avoid engaging in conduct that could be interpreted as influencing resellers to adhere to the suggested price․ For example, a supplier could run afoul of the Competition Act if it threatens to withhold supplies from resellers who sell its products below the MSRP․

Minimum advertised price (MAP) policies involve a supplier setting a minimum price at which resellers can advertise its products․ For example, a supplier might require resellers to advertise its products at a price no lower than $15․ MAP policies are also subject to scrutiny under the Competition Act․ While a supplier can set a minimum advertised price, it must be careful to avoid engaging in conduct that could be interpreted as influencing resellers to adhere to the minimum advertised price․ For example, a supplier could run afoul of the Competition Act if it threatens to withhold supplies from resellers who advertise its products below the MAP․

Elements of Price Maintenance

To establish a violation of the price maintenance provisions under section 76 of the Competition Act, it is necessary to demonstrate certain elements․ These elements are crucial in determining whether a supplier’s actions constitute prohibited price maintenance․ The Competition Bureau, in its enforcement guidelines, provides guidance on these elements, which are outlined below․

Firstly, it must be shown that a producer or supplier has engaged in conduct that influences upward or discourages the reduction of the price at which a customer or other person resells the product․ This element requires evidence that the supplier has taken some action to influence the reseller’s pricing decisions․ This influence can be achieved through various means, such as agreements, threats, promises, or any like means․ For instance, a supplier might threaten to cut off supply to a reseller if they do not adhere to a specific price point․

Secondly, it must be established that the supplier’s conduct has had an actual effect on the reseller’s price․ In other words, the supplier’s actions must have resulted in the reseller charging a higher price for the product than they would have otherwise․ This element requires evidence that the reseller’s price was indeed influenced upward by the supplier’s actions․ For example, if a reseller had previously sold a product at $10 but increased the price to $15 after a supplier’s intervention, this would provide evidence of an actual effect on the reseller’s price․

Finally, it must be shown that the supplier’s conduct has a substantial effect on competition․ This element requires evidence that the supplier’s conduct has a significant impact on the competitive landscape for the product in question․ This may involve assessing the market share of the supplier and the reseller, the number of competitors in the market, and the overall impact of the price maintenance on consumer choices and prices․ For example, if a supplier’s RPM conduct significantly reduces price competition and limits consumer choices, this could indicate a substantial effect on competition․

Exceptions to Price Maintenance

While the Competition Act generally prohibits price maintenance, there are certain exceptions where such practices may be permitted․ These exceptions provide flexibility for suppliers and resellers, allowing for certain legitimate business practices that do not harm competition; It is important to note that these exceptions are narrowly construed and require specific circumstances to apply․

One exception to the prohibition on price maintenance is for resale price maintenance agreements that are entered into for the purpose of protecting the quality or reputation of the product․ For example, a supplier of high-end luxury goods might require its resellers to maintain a certain level of service and exclusivity to protect the brand’s reputation․ In such cases, the price maintenance agreement must be reasonably necessary to achieve this legitimate purpose and must not have an anti-competitive effect on the market․

Another exception applies to price maintenance agreements that are entered into for the purpose of promoting the efficient distribution of the product․ For example, a supplier might require its resellers to maintain a certain inventory level or to provide certain promotional services to ensure the efficient distribution of the product․ In such cases, the price maintenance agreement must be reasonably necessary to achieve this legitimate purpose and must not have an anti-competitive effect on the market․

The Competition Act also allows for price maintenance agreements that are entered into for the purpose of promoting innovation or technological advancement․ For example, a supplier might require its resellers to promote the use of new technologies or to provide training on new products․ In such cases, the price maintenance agreement must be reasonably necessary to achieve this legitimate purpose and must not have an anti-competitive effect on the market․

It is important to note that the burden of proof rests on the supplier to demonstrate that a price maintenance agreement falls within one of these exceptions․ The Competition Bureau will scrutinize any price maintenance agreement to ensure that it meets the requirements of the exceptions and does not have an anti-competitive effect․

Enforcement and Remedies

The Competition Bureau is responsible for enforcing the Competition Act, including the provisions relating to price maintenance․ The Bureau can investigate suspected violations of the Act and can take action against suppliers who are found to be engaging in prohibited price maintenance practices․ The Bureau has a range of enforcement tools at its disposal, including the ability to issue cease and desist orders, to impose fines, and to seek injunctive relief․

The Competition Bureau has the authority to investigate any suspected violation of the Competition Act, including price maintenance․ The Bureau can conduct investigations based on complaints from consumers, competitors, or other interested parties․ The Bureau can also initiate investigations on its own initiative․ The Bureau has broad investigative powers, including the ability to issue subpoenas, to conduct inspections, and to seize documents․

If the Bureau determines that a supplier has engaged in prohibited price maintenance, it can take a number of enforcement actions․ The Bureau can issue a cease and desist order requiring the supplier to stop engaging in the prohibited conduct․ The Bureau can also impose administrative monetary penalties on the supplier․ These penalties can be significant, and they are intended to deter future violations of the Act․ In addition, the Bureau can seek injunctive relief from the courts to prevent the supplier from engaging in prohibited price maintenance practices in the future․

The Competition Tribunal is an independent body that has the authority to adjudicate disputes under the Competition Act․ The Tribunal can hear appeals from decisions of the Competition Bureau․ The Tribunal has the power to impose a range of remedies, including cease and desist orders, fines, and injunctive relief․ Private parties, such as competitors or consumers, can also bring actions before the Competition Tribunal․

The Competition Act provides a framework for the enforcement of price maintenance provisions in Canada․ The Competition Bureau has a range of enforcement tools at its disposal to ensure that suppliers comply with the Act and to protect consumers from anti-competitive practices․

Price Maintenance Under the Canadian Competition Act