Canada (Commissioner of Competition) v. Canada Pipe Company Ltd.

Canada (Commissioner of Competition) v. Canada Pipe Company Ltd.
Court (s) Database
Federal Court of Appeal Decisions
Date
2006-06-23
Neutral citation
2006 FCA 233
File numbers
A-106-05
Notes
Reported Decision
Decision Content
Date: 20060623
Docket: A-106-05
Citation: 2006 FCA 233
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
Commissioner of Competition
Appellant
and
Canada Pipe Company Ltd./Tuyauteries CanadaLtée
Respondent
Heard at Ottawa, Ontario, on February 7 and 8, 2006.
Judgment delivered at Ottawa, Ontario, on June 23, 2006.
REASONS FOR JUDGMENT BY: DESJARDINS J.A.
CONCURRED IN BY: LÉTOURNEAU J.A.
PELLETIER J.A.
Date: 20060623
Docket: A-106-05
Citation: 2006 FCA 233
CORAM: DESJARDINS J.A.
LÉTOURNEAU J.A.
PELLETIER J.A.
BETWEEN:
Commissioner of Competition
Appellant
and
Canada Pipe Company Ltd./Tuyauteries CanadaLtée
Respondent
REASONS FOR JUDGMENT
DESJARDINS J.A.
[1] This is an appeal from a decision of the Competition Tribunal ("Tribunal"), dated February 3, 2005, dismissing the application by the Commissioner of Competition ("Commissioner" or appellant) under sections 77 and 79 of the Competition Act (reported as 2005 Comp. Trib. 3). The Commissioner sought an order against Canada Pipe Company Ltd. ("Canada Pipe" or respondent), to prohibit the respondent from engaging in the practice of several purported anti-competitive acts leading to an abuse of dominant position under section 79, as well as to prohibit the respondent from continuing to engage in the practice of exclusive dealing under section 77. This case also involves a cross-appeal by Canada Pipe, which is dealt with in separate reasons.
[2] This is the first time this Court has the opportunity to consider the tests for exclusive dealing and abuse of dominant position established respectively by sections 77 and 79 of the Act. Both of these provisions, generally speaking, authorize the Tribunal to make orders prohibiting a dominant firm from engaging in conduct that has had, is having or is likely to have the effect of substantially lessening competition. While the Act has been in force since 1986, and the Tribunal has elaborated its perspective on the requirements of sections 77 and 79 in several cases, these provisions have not to date been interpreted by any Canadian court.
[3] The conduct at issue in this case consists of a "loyalty rebate" program offered by the respondent and known as the Stocking Distributor Program (SDP). Under the SDP, distributors of the respondent's cast iron drain, waste and vent (DWV) products obtain significant rebates and discounts in return for stocking only cast iron products produced by the respondent. These distributors are free to stock other companies' DWV products which are not made of cast iron.
[4] According to the Commissioner, Canada Pipe is a dominant firm with respect to the product markets relevant in this case. Furthermore, the Commissioner asserts, the SDP constitutes both a practice of exclusive dealing with exclusionary effects and a practice of anti-competitive acts, and it is likely to have the effect of substantially lessening competition in the markets for DWV products by impeding the entry and expansion of competitors. The respondent contends, by contrast, that it exercises no market power in relation to the relevant product markets, when the latter are properly defined. Moreover, according to the respondent, the SDP is neither exclusionary nor anti-competitive, but rather is a voluntary, non-exclusive, incentive-based program which encourages competition between DWV distributors, is compatible with competition on the merits between suppliers and is supported by valid business justifications.
[5] The Tribunal dismissed the Commissioner's application, based upon the following findings. With respect to the alleged abuse of dominant position under section 79, the Tribunal held that: (i) there are three relevant product markets, and six geographic markets, and the respondent substantially controls all these markets; (ii) the Stocking Distributor Program (SDP) is a practice, but does not qualify as an "anti-competitive act"; and (iii) the Commissioner had not demonstrated that the SDP had substantially lessened or prevented competition. With respect to the allegation of exclusive dealing contrary to section 77, the Tribunal found that: (i) the SDP can be characterized as a practice of exclusive dealing; (ii) the respondent is a major supplier of the products in the relevant markets; and (iii) there was insufficient evidence to establish that the SDP had impeded entry or expansion of firms, or that it is having any other exclusionary effect on the market, or that it has caused or is likely to cause a substantial lessening of competition.
[6] The Commissioner appeals from the Tribunal's decision.
[7] Broadly stated, the appeal challenges two aspects of the Tribunal's conclusions: first, the finding with respect to substantial lessening of competition for the purposes of both sections 77 and 79, and second, the finding concerning exclusionary effects under section 77 or anti-competitive acts under section 79. The cross-appeal by Canada Pipe, which concerns the Tribunal's conclusions as to the definition of the relevant product markets and the issue of market power for the purpose of paragraph 79(1)(a), is discussed in separate reasons, as stated earlier.
[8] In order to facilitate the reading of these reasons, I include the following table of contents:
Table of Contents Para.
I. Facts [9]
II. Legislative framework [15]
III. Issues [23]
IV. Analysis [25]
(A) For the purposes of paragraph 79(1)(c), did the Tribunal err in its determination with respect to whether the SDP has had, is having or is likely to have the effect of preventing or lessening competition substantially? [29]
(1) The legal test under paragraph 79(1)(c) [35]
(2) Application of the statutory test for paragraph 79(1)(c) [45]
(3) The Tribunal's paragraph 79(1)(c) decision [49]
(4) Conclusion with respect to paragraph 79(1)(c) [58]
(B) For the purposes of paragraph 79(1)(b), did the Tribunal err in its determination with respect to whether the SDP constitutes an "anti-competitive act"? [59]
(1) The legal test under paragraph 79(1)(b) [63]
(2) The Tribunal's paragraph 79(1)(b) decision [74]
(3) The valid business justification and paragraph 79(1)(b) [84]
(4) Conclusion with respect to paragraph 79(1)(b) [92]
(C) For the purposes of subsection 77(2), did the Tribunal err in its determination with respect to whether the SDP has the result that competition is or is likely to be lessened substantially? [93]
(D) For the purposes of subsection 77(2), did the Tribunal err in its determination with respect to whether the SDP is likely to impede entry or expansion of a firm or a product in a market or have any other exclusionary effect in a market? [96]
V. Conclusion [100]
I. FACTS
[9] The respondent is a Canadian company based in Hamilton, Ontario, which produces and sells through its Bibby Ste-Croix division ("Bibby") cast iron drain, waste and vent (DWV) products. DWV products are used in a wide variety of structures to carry waste and drain water, and to vent plumbing systems. There are three components to a cast iron DWV system: pipe, fittings and mechanical joint (MJ) couplings (collectively, "DWV products").
[10] There are currently two domestic manufacturers of cast iron DWV products: Bibby and Vandem Industries ("Vandem"). Bibby manufactures cast iron DWV pipe and fittings, and imports MJ couplings from its sister companies in the United States. Vandem, which was founded in 1997 (according to the Tribunal; the respondent claims it was 1999, but little turns on this fact) by two former officers of Bibby, manufactures DWV pipe and imports fittings and couplings. The only Canadian manufacturer of MJ couplings is Rollee Industrial Products (1987) Ltd., but it is not a major player. In addition, there are a limited number of other Canadian importers of cast iron DWV products, who generally import from the United States and the Far East (mainly China and India). Imports of cast iron DWV products for all of Canada, including imports by Bibby and Vandem, represented 5% of total sales in 2002. The respondent is the only company in Canada that manufactures and sells a full range of cast iron DWV products.
[11] Distributors buy DWV products from the suppliers (either manufacturers or importers), and in turn sell to the building, mechanical or plumbing contractors involved in construction or renovation projects. Distributors generally carry DWV pipe and fittings made of various materials; cast iron DWV products usually represent only a small proportion of their inventory and sales. In Canada, there are three major distributors, all with national presence: Wolseley Canada Inc., EMCO Ltd, and Crane Supply. There are also small distributors, some of whom are members of buying groups in order to improve their bargaining power and obtain volume discount advantages.
[12] Contractors buy DWV products from distributors for construction projects upon which they bid. The bidding process is highly competitive, and contractors will try to obtain the best price possible in order to make their bids attractive. Although contractors may have some leeway in deciding what material to use in construction they will generally buy the type of DWV product that has been specified by the architect or mechanical engineer.
[13] The SDP was introduced by Bibby in January 1998. In contrast to the volume-based rebate programs typical in the industry, the SDP is premised on exclusivity, not the volume of purchases. Under the SDP, distributors of Bibby's DWV products obtain quarterly and yearly rebates as well as significant point-of-purchase discounts, in return for stocking only Bibby-supplied cast-iron DWV products. These distributors are free to stock other companies' DWV products which are not made of cast iron, but must purchase all three cast iron DWV products exclusively from the respondent. There are no signed contracts for the SDP: distributors can join at any time, and receive the quarterly and yearly rebates for each completed calendar quarter or year. Distributors who choose not to participate in the SDP are permitted to purchase products from Bibby, albeit at higher prices. There are no restrictions on the resale of cast iron DWV products purchased by distributors who participate in the SDP.
[14] The SDP discounts consist of point-of-sale discounts (for example, 55% of list price for stocking distributors, compared to 94% for non-stocking distributors), as well as quarterly and annual rebates (in 2002, the quarterly rebates were 7, 15 and 9 percent on pipe, fittings and MJ couplings respectively, and the annual rebate was 4 percent for all products). The point-of-sale discount and the rebates vary from one region to another. Any distributor can participate in the SDP, so long as a threshold minimum purchase is made; once this threshold is met, the rebates and discounts are the same for the given region, regardless of the size of the distributor's purchase. As a result, the SDP allows small- and medium-sized distributors to access the same prices as large distributors. The discount is applied at the time of purchase, so long as the distributor has committed to participating in the program, and is not reimbursable even if the distributor leaves the program. Except for losing the rebates, there are therefore no penalties attached to opting out of the SDP.
II. LEGISLATIVE FRAMEWORK
[15] Three legislative provisions govern the issues to be decided in this appeal, namely sections 77, 78 and 79 of the Act. These sections set out the various elements that must be proven by the Commissioner to establish exclusive dealing and abuse of dominant position, and provide some relevant statutory definitions.
[16] With respect to an alleged abuse of dominant position, the requisite elements for an order are described in subsection 79(1):
Prohibition where abuse of dominant position
79. (1) Where, on application by the Commissioner, the Tribunal finds that
(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,
(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and
(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,
the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.
Ordonnance d'interdiction dans les cas d'abus de position dominante
79. (1) Lorsque, à la suite d'une demande du commissaire, il conclut à l'existence de la situation suivante :
a) une ou plusieurs personnes contrôlent sensiblement ou complètement une catégorie ou espèce d'entreprises à la grandeur du Canada ou d'une de ses régions;
b) cette personne ou ces personnes se livrent ou se sont livrées à une pratique d'agissements anti-concurrentiels;
c) la pratique a, a eu ou aura vraisemblablement pour effet d'empêcher ou de diminuer sensiblement la concurrence dans un marché,
le Tribunal peut rendre une ordonnance interdisant à ces personnes ou à l'une ou l'autre d'entre elles de se livrer à une telle pratique.
[17] Subsection 79(4) further specifies that possible superior competitive performance must be considered in making the requisite determination under subsection 79(1) concerning competition:
Superior competitive performance
79. (4) In determining, for the purposes of subsection (1), whether a practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of superior competitive performance.
Efficience économique supérieure
79. (4) Pour l'application du paragraphe (1), lorsque le Tribunal décide de la question de savoir si une pratique a eu, a ou aura vraisemblablement pour effet d'empêcher ou de diminuer sensiblement la concurrence dans un marché, il doit évaluer si la pratique résulte du rendement concurrentiel supérieur.
[18] The term "anti-competitive act", which is a requisite element pursuant to paragraph 79(1)(b), is not defined in the Act. However, section 78 provides, under the heading "Definition", a non-exhaustive illustrative list of eleven anti-competitive acts:
Definition of "anti-competitive act"
Définition de « agissement anti-concurrentiel »
78. (1) For the purposes of section 79, "anti-competitive act", without restricting the generality of the term, includes any of the following acts:
78. (1) Pour l'application de l'article 79, « agissement anti-concurrentiel » s'entend notamment des agissements suivants :
(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market;
a) la compression, par un fournisseur intégré verticalement, de la marge bénéficiaire accessible à un client non intégré qui est en concurrence avec ce fournisseur, dans les cas où cette compression a pour but d'empêcher l'entrée ou la participation accrue du client dans un marché ou encore de faire obstacle à cette entrée ou à cette participation accrue;
(b) acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;
b) l'acquisition par un fournisseur d'un client qui serait par ailleurs accessible à un concurrent du fournisseur, ou l'acquisition par un client d'un fournisseur qui serait par ailleurs accessible à un concurrent du client, dans le but d'empêcher ce concurrent d'entrer dans un marché, dans le but de faire obstacle à cette entrée ou encore dans le but de l'éliminer d'un marché;
(c) freight equalization on the plant of a competitor for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;
c) la péréquation du fret en utilisant comme base l'établissement d'un concurrent dans le but d'empêcher son entrée dans un marché ou d'y faire obstacle ou encore de l'éliminer d'un marché;
(d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;
d) l'utilisation sélective et temporaire de marques de combat destinées à mettre au pas ou à éliminer un concurrent;
(e) pre-emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market;
e) la préemption d'installations ou de ressources rares nécessaires à un concurrent pour l'exploitation d'une entreprise, dans le but de retenir ces installations ou ces ressources hors d'un marché;
(f) buying up of products to prevent the erosion of existing price levels;
f) l'achat de produits dans le but d'empêcher l'érosion des structures de prix existantes;
(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or to eliminate him from, a market;
g) l'adoption, pour des produits, de normes incompatibles avec les produits fabriqués par une autre personne et destinées à empêcher l'entrée de cette dernière dans un marché ou à l'éliminer d'un marché;
(h) requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor's entry into, or expansion in, a market;
h) le fait d'inciter un fournisseur à ne vendre uniquement ou principalement qu'à certains clients, ou à ne pas vendre à un concurrent ou encore le fait d'exiger l'une ou l'autre de ces attitudes de la part de ce fournisseur, afin d'empêcher l'entrée ou la participation accrue d'un concurrent dans un marché;
(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor;
i) le fait de vendre des articles à un prix inférieur au coût d'acquisition de ces articles dans le but de discipliner ou d'éliminer un concurrent;
(j) acts or conduct of a person operating a domestic service, as defined in subsection 55(1) of the Canada Transportation Act, that are specified under paragraph (2)(a); and
j) à l'égard des exploitants d'un service intérieur, au sens du paragraphe 55(1) de la Loi sur les transports au Canada, les agissements précisés à l'alinéa (2)a);
(k) the denial by a person operating a domestic service, as defined in subsection 55(1) of the Canada Transportation Act, of access on reasonable commercial terms to facilities or services that are essential to the operation in a market of an air service, as defined in that subsection, or refusal by such a person to supply such facilities or services on such terms.
k) le fait pour l'exploitant d'un service intérieur, au sens du paragraphe 55(1) de la Loi sur les transports au Canada, de ne pas donner accès, à des conditions raisonnables dans l'industrie, à des installations ou services essentiels à l'exploitation dans un marché d'un service aérien, au sens de ce paragraphe, ou de refuser de fournir ces installations ou services à de telles conditions.
[19] With respect to exclusive dealing, a statutory definition is provided in sub-section 77(1):
Definitions
77. (1) For the purposes of this section,
"exclusive dealing" means
(a) any practice whereby a supplier of a product, as a condition of supplying the product to a customer, requires that customer to
(i) deal only or primarily in products supplied by or designated by the supplier or the supplier's nominee, or
(ii) refrain from dealing in a specified class or kind of product except as supplied by the supplier or the nominee, and
(b) any practice whereby a supplier of a product induces a customer to meet a condition set out in subparagraph (a)(i) or (ii) by offering to supply the product to the customer on more favourable terms or conditions if the customer agrees to meet the condition set out in either of those subparagraphs;
Définition
77. (1) Les définitions qui suivent s'appliquent au présent article.
« exclusivité »
a) Toute pratique par laquelle le fournisseur d'un produit exige d'un client, comme condition à ce qu'il lui fournisse ce produit, que ce client :
(i) soit fasse, seulement ou à titre principal, le commerce de produits fournis ou indiqués par le fournisseur ou la personne qu'il désigne,
(ii) soit s'abstienne de faire le commerce d'une catégorie ou sorte spécifiée de produits, sauf ceux qui sont fournis par le fournisseur ou la personne qu'il désigne;
b) toute pratique par laquelle le fournisseur d'un produit incite un client à se conformer à une condition énoncée au sous-alinéa a)(i) ou (ii) en offrant de lui fournir le produit selon des modalités et conditions plus favorables s'il convient de se conformer à une condition énoncée à l'un ou l'autre de ces sous-alinéas.
[20] Sub-section 77(2) sets out the elements required to be proven for an order to issue with respect to a practice of exclusive dealing:
Exclusive dealing or tied selling
77. (2) Where, on application by the Commissioner or a person granted leave under section 103.1, the Tribunal finds that exclusive dealing or tied selling, because it is engaged in by a major supplier of a product in a market or because it is widespread in a market, is likely to
Exclusivité ou ventes liées
77. (2) Lorsque le Tribunal, à la suite d'une demande du commissaire ou d'une personne autorisée en vertu de l'article 103.1, conclut que l'exclusivité ou les ventes liées, parce que pratiquées par un fournisseur important d'un produit sur un marché ou très répandues sur un marché, auront vraisemblablement :
(a) impede entry into or expansion of a firm in a market,
a) soit pour effet de faire obstacle à l'entrée ou au développement d'une firme sur un marché;
(b) impede introduction of a product into or expansion of sales of a product in a market, or
b) soit pour effet de faire obstacle au lancement d'un produit sur un marché ou à l'expansion des ventes d'un produit sur un marché;
(c) have any other exclusionary effect in a market,
c) soit sur un marché quelque autre effet tendant à exclure,
with the result that competition is or is likely to be lessened substantially, the Tribunal may make an order directed to all or any of the suppliers against whom an order is sought prohibiting them from continuing to engage in that exclusive dealing or tied selling and containing any other requirement that, in its opinion, is necessary to overcome the effects thereof in the market or to restore or stimulate competition in the market.
et qu'en conséquence la concurrence est ou sera vraisemblablement réduite sensiblement, le Tribunal peut, par ordonnance, interdire à l'ensemble ou à l'un quelconque des fournisseurs contre lesquels une ordonnance est demandée de pratiquer désormais l'exclusivité ou les ventes liées et prescrire toute autre mesure nécessaire, à son avis, pour supprimer les effets de ces activités sur le marché en question ou pour y rétablir ou y favoriser la concurrence.
[21] A parallel structure and logic is readily apparent between the requisite elements for exclusive dealing under ss.77(2) and abuse of dominant position under ss.79(1). First, both provisions require an initial determination that the firm in question occupies a position of dominance: subsection 77(2) refers to a "major supplier of a product in a market", while paragraph 79(1)(a) requires that "one or more persons substantially or completely control. . . a class or species of business". Second, both provisions call for the identification of a particular type of conduct, namely a practice of exclusive dealing with an exclusionary effect in the case of ss.77(2), and a practice of anti-competitive acts in the case of ss.79(1). Third, both provisions require a finding of actual or likely substantial lessening of competition.
[22] While I would not conclude that the legal tests applicable under these two provisions would necessarily produce identical results in all cases, this parallel structure suggests that an overlapping analysis is to be expected.
III. ISSUES
[23] This appeal raises the following four issues:
(A) For the purposes of paragraph 79(1)(c), did the Tribunal err in its determination with respect to whether the SDP has had, is having or is likely to have the effect of preventing or lessening competition substantially?
(B) For the purposes of paragraph 79(1)(b), did the Tribunal err in its determination with respect to whether the SDP constitutes an "anti-competitive act"?
(C) For the purposes of subsection 77(2), did the Tribunal err in its determination with respect to whether the SDP has the result that competition is or is likely to be lessened substantially?
(D) For the purposes of subsection 77(2), did the Tribunal err in its determination with respect to whether the SDP is likely to impede entry or expansion of a firm or a product in a market or have any other exclusionary effect in a market?
[24] I will address each of these issues in turn. As the analysis of each issue depends heavily upon the Tribunal's particular findings and approach, I will summarize the Tribunal's decision in the context of my analysis of each question.
IV. ANALYSIS
[25] Before proceeding to an analysis of the issues listed above, a preliminary observation concerning analytic methodology and evidentiary limitations in the competition law context might be helpful. Each of the legislative provisions governing this appeal define a series of elements that must be proven in order to ground the particular order that is sought; if any of these elements is not established, the Commissioner's application must fail. Both section 77 and section 79 specify three distinct elements, and each of these elements is at issue in the appeal or cross-appeal in this case.
[26] The multi-element structures of sections 77 and 79 suggest that the applicable legal tests consist of several discrete sub-tests, each corresponding to a different requisite element. Indeed, this interpretation appears necessary to give effect to the "well-accepted principle of statutory interpretation that no legislative provision should be interpreted so as to render it mere surplusage" (R. v. Proulx, [2000] 1 S.C.R. 61 at para. 28; see also Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27 at para. 27). Each statutory element must give rise to a distinct legal test, for otherwise the interpretation risks rendering a portion of the statute meaningless or redundant.
[27] The difficulty arises, however, when the necessary distinct sub-tests are examined in light of the available evidence in a given case. In the abuse of dominance context, the economic concepts upon which the legal tests are based often cannot be readily extracted from the available evidence. For example, in many cases the foundational concept of market power cannot be established directly; instead, one must look to relevant indirect indicators. However, these indirect indicators are often relevant with respect to more than one element. As a result, the same evidence - for example, concerning barriers to entry, or market share - is potentially and unavoidably relied upon at several points in the analysis, in respect of different requisite elements. In its first abuse of dominance case, Canada (Director of Investigation and Research) v. NutraSweet Co. (1990), 32 C.P.R. (3d) 1 [NutraSweet], the Competition Tribunal noted that this difficulty "is pervasive in competition law because the relevant factors in the different statutory elements are rarely distinct and it is impossible not to draw on common factors whenever required" (p. 28).
[28] However, it is important that the correct approach to the overlapping use of supporting evidence in the competition context be properly understood, so as to avoid the interpretive danger of impermissible erosion or conflation of the discrete underlying statutory tests. Although a particular piece of supporting evidence may be employed as an indirect indicator in respect of more than one element, the elements themselves must remain conceptually distinct. I will return to this point in my analysis of the questions at issue in the appeal at bar.
(A) For the purposes of paragraph 79(1)(c), did the Tribunal err in its determination with respect to whether the SDP has had, is having or is likely to have the effect of preventing or lessening competition substantially?
[29] I begin my analysis with the issue of substantial lessening of competition for the purposes of paragraph 79(1)(c), for it is on this question that I am most clearly convinced that this Court's intervention is required. My conclusion in this regard follows directly from an interpretation of the governing statutory language. In short, I have concluded that the Tribunal erred in law in its analytic approach with respect to the legal test applicable under paragraph 79(1)(c).
[30] Before this Court, the appellant argued that the Tribunal erred in law in its interpretation of paragraph 79(1)(c) and failed to apply the correct legal test. The appellant argued that the statutory language - and in particular the use of the relative concept "lessening" - mandates an assessment of the effect of the impugned practice on competition in the relevant markets, which can only be properly accomplished by comparing the competitiveness of the relevant markets in the presence and absence of the impugned practice. The appellant submitted that the correct legal test for assessing competitive effects therefore involves a "but for" analysis: would markets - in the past, present or future - be substantially more competitive but for the impugned practice? Or, in other words, but for the impugned practice, would markets be characterized by greater price competition, choice, service or innovation than exists in the presence of this practice? The Tribunal thus erred, the appellant contended, in that its assessment of substantial lessening of competition focussed virtually exclusively on the narrow question of whether the SDP prevented entry or switching of suppliers, or in other words, whether a substantial level of competition continued to exist in the relevant market. Rather, the Tribunal should have considered the broader question of whether the SDP impeded or hindered the competition that would otherwise exist if the program were absent from the market.
[31] In response, the respondent submitted two main arguments challenging the Commissioner's proposed "but for" test. First, the respondent argued that the "but for" test was a "novel approach", which the Commissioner had never before advocated before the Tribunal, either in this case or in prior proceedings under section 79. As a result, the respondent contended, the appellant is precluded from introducing this new argument at the appellate level. In this regard, the respondent cited this Court's comments in Gravel and Lake Services Ltd. v. Bay Ocean Management Inc. (2002), 298 N.R. 369, 2002 FCA 465 at para. 8, SMX Shopping Centre Ltd. v. Canada (2003), 314 N.R. 365, 2003 FCA 479 at para. 32, and Naguib v. Canada (2004), 317 N.R. 88, 2004 FCA 40 at para. 7 for the proposition that a new argument may not be raised for the first time on appeal if the responding party would be prejudiced by having had no opportunity to adduce evidence that could, if accepted, defeat the argument. In this case, the respondent maintained that the record contains little or no evidence to establish the likely characteristics of the necessary hypothetical "but for" market. Moreover, Canada Pipe would have argued its case very differently had it had notice at the Tribunal level of the Commissioner's new "but for" test; in particular, it would have retained experts to model the hypothetical comparator markets that would exist "but for" the SDP.
[32] Second, or in the alternative, the respondent asserted that the Tribunal adopted the correct, well-established approach in its determination under paragraph 79(1)(c), and properly considered all relevant factors. The Tribunal reached its conclusion by carefully exercising its considerable expertise in appraising and weighing the relevant factors, and the respondent argued that since its conclusion on this question of mixed law and fact was not unreasonable, this Court should not interfere.
[33] Although initially appealing, the respondent's first argument cannot be sustained, for several reasons. The legal principle cited by the respondent, with respect to the impropriety of an appellate court considering an entirely new argument which had not been raised below and in relation to which additional evidence is required, is indeed well-established: see, for example, Tordenskjold (The) v. Horn Joint Stock Co. of Shipowners (1908), 41 S.C.R. 154; R. v. Perka, [1984] 2 S.C.R. 232 at 240; R. v. Keegstra, [1995] 2 S.C.R. 381 at para. 26; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559 at para. 58. However, this principle is inapplicable in the instant case, for the appellant's argument is not in fact "entirely new" (Perka, supra at 240). As I explain further below, although the Competition Tribunal has not used the "but for" wording in its previous cases, this wording appears in Enforcement Guidelines on the Abuse of Dominance Provisions issued by the appellant, and the substance of this legal test has been articulated and applied by the Tribunal in prior decisions. The respondent thus had ample notice of this argument. Moreover, the primary concern underlying the general prohibition - namely, that the evidentiary record is insufficient to support the new argument (Keegstra, supra at para. 26) - also does not apply in this case, for the Commissioner bears the burden of establishing each statutory element; if insufficient evidence exists to meet the "but for" test, no order will issue.
[34] As to the respondent's second argument, I am not persuaded that the Tribunal's error with respect to its determination under paragraph 79(1)(c) is one of mixed law and fact. The appellant's argument calls for an exercise of statutory interpretation, to determine whether the statutory language indeed mandates a particular analytic approach. As the Supreme Court of Canada noted in Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748 at para. 36 [Southam], questions of statutory interpretation "are generally questions of law", as such questions have "the potential to apply widely to many cases". In the case at bar, the Tribunal's actual appraisal and weighting of different factors - that is, the question of mixed law and fact - is a secondary question, arising only once it has been determined whether the correct legal test was applied. While the Tribunal has economics and competition law expertise in relation to the determinations of fact and mixed law and fact required for the application of the correct legal test, this is not sufficient to displace the expertise of this Court with respect to statutory interpretation itself. As this Court has previously determined - and indeed, the parties do not dispute - the Tribunal's conclusions on questions of law are to be reviewed on the standard of correctness: Commissioner of Competition v. Superior Propane, [2001] 3 F.C. 185 at para. 88 [Superior Propane].
(1) The legal test under paragraph 79(1)(c)
[35] In light of the appellant's argument, I must consider the correct statutory interpretation of paragraph 79(1)(c), which, for convenience's sake, I set out again:
79. (1) Where, on application by the Commissioner, the Tribunal finds that
. . .
(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,
79. (1) Lorsque, à la suite d'une demande du commissaire, il conclut à l'existence de la situation suivante :
. . .
c) la pratique a, a eu ou aura vraisemblablement pour effet d'empêcher ou de diminuer sensiblement la concurrence dans un marché,
[36] Two aspects of the scope of paragraph 79(1)(c) are immediately evident from the wording. First, the effect on competition is to be assessed by reference to up to three different time frames: actual effects in the past or present, and likely effects in the future. Second, the effect on competition which must be proven to ground an order prohibiting an abuse of dominance is one of substantial preventing or lessening. The requisite assessment is thus a relative one: it is not the absolute level of competition in a market which must be substantial, but rather the preventing or lessening of competition that results from the impugned practice must be substantial.
[37] The test mandated by paragraph 79(1)(c) is not whether the relevant markets would or did attain a certain level of competitiveness in the absence of the impugned practice, or whether the level of competitiveness observed in the presence of the impugned practice is "high enough" or otherwise acceptable. These are absolute evaluations, while the statutory language of "effect of preventing or lessening. . . substantially" clearly demands a relative and comparative assessment. In order to achieve the inquiry dictated by the statutory language of paragraph 79(1)(c), the Tribunal must compare the level of competitiveness in the presence of the impugned practice with that which would exist in the absence of the practice, and then determine whether the preventing or lessening of competition, if any, is "substantial". This comparison must be done with reference to actual effects in the past and present, as well as likely future effects. Only through such a comparative approach can the Tribunal determine, as the statutory provision requires, whether the impugned practice "has had, is having or is likely to have the effect of preventing or lessening competition substantially".
[38] The comparative interpretation described above is in my view equivalent to the "but for" test proposed by the appellant. Apart from its arguments concerning the evidentiary difficulties involved in the application of such a test at the appeal stage in this case, the respondent did not advance any reasons of principle or statutory interpretation as to why this approach to paragraph 79(1)(c) is incorrect or inappropriate. I would therefore endorse the formulation of the legal test proposed by the appellant: the question that must be assessed for the purposes of paragraph 79(1)(c) is, would the relevant markets - in the past, present or future - be substantially more competitive but for the impugned practice of anti-competitive acts?
[39] It is important to note that the "but for" wording appears in the Enforcement Guidelines on the Abuse of Dominance Provisions issued by the appellant, which Guidelines are expressly intended to "help the general public, business people and their legal and economic advisors to better understand. . . the general approach taken by the Competition Bureau to enforce these provisions" (see Competition Bureau, Enforcement Guidelines on the Abuse of Dominance Provisions (Industry Canada: Ottawa, 2001) at page 5). In describing the Commissioner's approach to assessing the effects of anti-competitive acts for the purposes of paragraph 79(1)(c), the Guidelines employ the "but for" wording (see page 19).
[40] The expression "but for" has also appeared in American antitrust jurisprudence. In ConcordBoat Corporation v. Brunswick Corporation, 207 F.3d 1039 at 1055 (8th Cir. 2000), the Court referred to the difficulty of constructing a hypothetical market:
Notwithstanding the complex natur