The Competitor : Canada Competition / Antitrust Blog by Stikeman Elliott Lawyers & Attorneys

Section 74.01(1)(b) of the Competition Act makes it civilly reviewable conduct, among other things, to make a representation to the public in the form of a statement regarding the performance a product or service that is not based on an “adequate and proper test thereof”, the proof of which lies on the person making the representation. Under section 74.1(1)(c) of the Act, the Competition Tribunal or the courts may make orders prohibiting the conduct in question, requiring the issuance of corrective notices, requiring the payment of restitution to affected customers, and/or requiring the payment of up to $10 million in an “administrative monetary penalty” or “AMP” (for a first such “offence”, and up to $15 million thereafter). The Commissioner sought orders against Rogers seeking all four remedies, including an order to pay the maximum AMP of $10 million.

Rogers argues that a $10 million AMP is unconstitutional because penalties of that magnitude are essentially criminal fines, but under section 74.1 of the Competition Act they are awarded after a civil trial. The various aspects of criminal procedure that protect defendants, such as requiring the Crown to prove its case beyond a reasonable doubt, are lacking under section 74.1 proceedings. 

In addition, Rogers is also asking the court to strike down section 74.01(1)(b) of the Competition Act which requires companies to make “adequate and proper” tests of a product’s performance before making advertising claims, arguing that the provision violates its right to freedom of expression under s. 2(b) of the Canadian Charter of Rights and Freedoms.

Interestingly, these same questions were previously addressed by the Competition Tribunal in its 2006 decision in the case of Commissioner of Competition v. Gestion Lebski Inc. et al (CT-2005/007). The Tribunal held that the “adequate and proper test” provision infringed the respondents’ rights to freedom of expression under section 2(b) of the Charterin that it penalized representations that could be true, on the ground that they were not based on a prior adequate and proper test. Turning to the question of whether the infringement was justified in a free and democratic society under section 1 of the Charter, the Tribunal held that no evidence had been led on the basis of which it could find that paragraph 74.01(l)(b) constituted minimal impairment of the right to freedom of expression. The provision therefore failed the Oakes test for justification of Charter infringements in that case and was found to be of no force or effect. 

The AMP (which at the time was limited to a maximum of $200,000), on the other hand, was found by the Tribunal to be of a magnitude that was not penal in nature, and which was consistent with the stated aims of civil penalties to encourage compliance and to deter prohibited conduct. The Tribunal also found that since the proceedings were civil in nature, and the AMP is not a “true penal consequence” (if unpaid, AMPs are collected by civil means as a debt due to the Crown; failure to pay the AMPs is not a criminal offence). The AMPs in question in that case were found to violate neither section 11 nor section 7 of the Charter.

The Tribunal’s constitutional rulings expressly applied to that case alone, however, since under Supreme Court of Canada precedent (Nova Scotia (Workers’ Compensation Board) v. Martin), only the courts can rule definitively on constitutional questions while administrative tribunal rulings on such issues have effect only in the case at hand.

Moreover, the maximum AMP in question in the Rogers case increased in 2009 from $200,000 to $10 million. In addition, the views of the courts on constitutional questions can have precedential value. The courts’ views of Rogers’ constitutional claims stands, accordingly, to have important ramifications for the ability of the Commissioner to seek multi-million dollar AMPs in respect of non-criminal conduct, as well as for the Competition Act requirement that advertisers conduct “adequate and proper” tests prior to making performance claims. Although not at issue in this case, depending on its outcome, the ability of the Commissioner to seek AMPs of up to $10 million for “abuse of dominance” (also a civilly reviewable practice under the Competition Act) may also come into question.

• Restriction on Exclusivity: In proposed amendments to the Exemption order for new media broadcasting undertakings1,  to be published later this year, no person operating under that order will be allowed to offer programming designed primarily for conventional television on an exclusive (or otherwise preferential) basis in a manner that is dependent on a consumer’s subscription to a specific mobile or retail internet service. However, to encourage innovation in programming, exclusivity may be offered for programs created specifically for new media platforms (e.g., content designed specifically for mobile phones). A notice of consultation will be published, calling for comments on the draft regulations.
   
• Programming Services Must Be Independently Available: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments that will include a provision that all programming services must be made available to independent broadcasting distribution undertakings (BDUs) on a stand-alone basis. Therefore, vertically integrated firms will not be allowed to use their most popular programming services to encourage sales of less valuable programming.
   
• ”No Head Start” Rule: Before the end of 2011, the CRTC will issue a notice of consultation containing draft regulatory amendments stating that, whenever a programming undertaking is ready to launch a new pay or specialty service, it will be obligated to make that service available to all BDUs. If a commercial agreement between the parties cannot be reached, the CRTC will be able to manage the dispute and impose rates. The “no head start” rule will also apply to television programming distributed on new media distribution platforms (including mobile phones and retail internet).
   
• “Code of Conduct” for Commercial Interactions: The CRTC concluded that there was a potential for abuse of market power by vertically integrated entities, and imposed a code of conduct to ensure no party “uses its market power to engage in anti-competitive behaviour”. The code of conduct, which establishes the guidelines for commercial arrangements between BDUs, programming undertakings and new media exempt undertakings, is attached as Appendix 1 to the CRTC’s decision. The CRTC noted that it would refer to the principles in the Code of Conduct when making determinations on complaints or other applications.
   
• Penalties for Non-Compliance: In “appropriate case[s]”, the CRTC said that it would impose financial remedies on non-compliant entities in the form of orders to pay amounts into a fund for the “benefit of the Canadian broadcasting system”.

As noted above, several of the new restrictions will be implemented though regulatory amendments, and will be subject to further consultation before they are set out in their final form. The Competition Bureau has not commented on the CRTC’s decision.

1. This order applies to, among others, Bell, Rogers, Shaw, and Quebecor Media.