Deck 32: Restrictive Trade Practices

Question 1

Restrictive trade practices subject to the Competition Act

A) relate to dealings between a firm and its competitors.
B) may apply to services as well as goods.
C) may include both private and public takeovers.
D) are reviewable by the Competition Tribunal on a non-criminal basis.
E) All of the responses are correct.

Answer 1

E

Question 2

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. If the advertisement was intended to read "8 kilometres to a litre" instead of the "80 kilometres to a litre," and Cisco immediately placed a correcting advertisement in the next issue of the magazine, he would not be in violation of the Competition Act.

Answer 2

True

Question 3

A provincial government wants to widen Highway 2. There are three road construction companies in the region qualified to bid on the project. The companies agree that only one company will bid and then the work will be divided amongst the three contractors. What is this an example of?

A) Bid-rigging.
B) Exclusive dealing.
C) Misleading or false advertising.
D) Abuse of dominant position.
E) Specialization agreements.

Answer 3

A

Question 4

Thane Direct Canada Inc. sold Abtronic muscle stimulation devices that claimed to result in weight loss and muscle toning. Thane had not done any research to validate these claims. Consumers reported the device was ineffective. What action could be brought under the Competition Act?

A) Bid-rigging.
B) Exclusive dealing.
C) Misleading or false advertising.
D) Abuse of dominant position.
E) Specialization agreements.

Question 5

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money-back guarantee. Because Cisco offered the goods on a 30-day money back trial, the goods need not perform as described in the advertisement.

Question 6

What might be the ground for an action brought by United Parcel Service against Canada Post?

A) Bid-rigging.
B) Exclusive dealing.
C) Misleading or false advertising.
D) Abuse of dominant position.
E) Specialization agreements.

Question 7

Which type of law is the Competition Act?

A) Criminal law.
B) Regulatory law.
C) Civil law.
D) Criminal and regulatory law.
E) Criminal, regulatory and civil law.

Question 8

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. Unless proper testing was done to substantiate the claim of 80 kilometres to a litre, a failure of the goods to perform as stated would constitute false or misleading advertising.

Question 9

The Chartered Accountants Society, the governing body of chartered accountants, has set regulations to govern the activities of its members. Which of the following regulations do not violate the Competition Act?

A) Members may advertise only in the telephone yellow pages and in approved trade journals.
B) A tariff of fees establishes minimum amounts to be charged to clients for specified services.
C) Advertising may not discuss prices or offer any price discounts to the public.
D) The Society may allow
C)A.'s to agree as to the provision of certain specified services within a particular geographic area.

Question 10

A municipality wishes to reconstruct eight kilometres of its roads. The four road contractors in the area secretly agree that only one contractor would bid (and would bid high) on the project, and later the successful bidder would divide up the work amongst them by subcontract, two kilometres each. This bid would constitute

A) double ticketing.
B) conspiracy.
C) a restrictive trade practice.
D) bid-rigging.
E) collusion.

Question 11

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. False or misleading advertising of goods is an offence under the Competition Act.

Question 12

Which of the following are not reviewable activities under the Competition Act?

A) Promotional prize contests
B) Double-ticketing
C) Tied selling
D) Price stabilization
E) None of the examples are correct.

Question 13

Violations of provisions of the Competition Act may be addressed in which of the following ways?

A) Injured parties may sue for damages suffered and, under the penalty provisions, may recover up to three times the amount of damages in some circumstances.
B) When a reviewable activity has been confirmed, the Competition Tribunal may order its cessation or apply another legislated remedy.
C) An activity will only be held to be a violation if it is shown that the particular activity has the effect or the established purpose of substantially lessening or eliminating competition in an area.
D) Violations would not be subject to prosecution if they relate to goods sold by a monopoly at prices under the control of a government commission.
E) All of the responses are correct.

Question 14

The Insecto Co. advertised on television its product, the "Fly-Bye," a sheet of sticky paper that attracted and then glued flies to its surface. The advertising claimed that the product would catch up to 100 flies per hour for six hours or the purchase price of $9.99 would be refunded.

A) The Insecto Co. must test at least 95% of its products for its claim to be valid.
B) Insecto Co. may be prosecuted under the Competition Act if one local distributor were selling Fly-Byes for $10.99.
C) If Insecto Co. were to sell Fly-Byes to hardware stores for resale it may continue to advertise and price the product at $9.99.
D) A hardware store that advertises a two-day promotion on Fly-Byes for $5.99 must provide shoppers with a "rain cheque" if it mistakenly did not order enough goods.
E) Insecto Co. may be prosecuted under the Competition Act if one local distributor were selling Fly-Byes for $10.99 and if a hardware store advertised a two-day promotion on Fly-Byes for $5.99.

Question 15

What was the ground for the action against Sears Canada and its advertisements that stated "Save 45%. Our lowest price of the year on Touring '2000' tires"?

A) Bid-rigging.
B) Exclusive dealing.
C) Misleading or false advertising.
D) Abuse of dominant position.
E) Specialization agreements.

Question 16

When Bubbles Brewery Inc. agreed with Suds Brewers Ltd. to produce and bottle their beer in identical long-necked, clear glass bottles, distinct from the brown bottles used by the rest of the brewing industry

A) both brewing companies may be subject to conviction under the Competition Act for lessening competition.
B) both companies may be convicted only if it can be proven that their agreement would likely completely eliminate competition in their market.
C) neither company could ever be convicted if it exports all its product.
D) the Competition Act does not apply because this is an exempt activity.
E) All of the responses are correct.

Question 17

Where a review indicates a business activity has been in restraint of competition, the Competition Tribunal will

A) issue a rectification order.
B) issue a criminal indictment.
C) issue a summary conviction.
D) issue a pro tempore injunction.
E) issue a forfeiture order.

Question 18

The Commissioner of Competition and Research

A) is appointed by the National Research Council to investigate appropriate research activities to receive government funding.
B) must investigate any alleged violations of the Competition Act.
C) is not required to obtain a search warrant prior to entering onto private property to search and seize evidence.
D) presides over the Competition Tribunal and assigns work to its members.
E) None of the responses are correct.

Question 19

Activities of sellers relating to the distribution and sale of products

A) constitute offences if they include selling products at a lower price in one part of the country than in others.
B) may include the provision by sellers of a non-obligatory suggested retail price for its products.
C) may not include the refusal to supply goods to buyers who repeatedly sell them at cost.
D) may discriminate among non-competing buyers.
E) may discriminate among non-competing buyers and may include the provision by sellers of a non-obligatory suggested retail price for its products.

Question 20

The enforcement of the Competition Act

A) is subject to proof on the balance of probabilities.
B) requires investigation of any allegation of violation made by any private individual.
C) permits entry by the Commissioner of Competition on the premises of any person who may have evidence related to an enquiry.
D) empowers the Competition Tribunal to make rectification orders in investigations of restrictive trade practices.
E) All of the responses are correct.

Question 21

As a federal law, the Competition Act applies uniformly across Canada.

Question 22

Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. The agreement between Buns Bakery and Peggy is an agreement in restraint of trade.

Question 23

Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. Both Buns Bakery and Peggy's Grocery would appear to have acted in violation of the Competition Act by entering into their agreement.

Question 24

The investigation of reviewable practices and rectification orders made pursuant to those investigations under the Competition Act are procedures in the area of criminal law.

Question 25

Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Stony Hardware was selling the wrenches as a "loss leader."

Question 26

Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month. The agreement is lawful because any sale of goods for a price less than the price printed on the package would mean that Buns Bakery was falsely advertising the price of the product.

Question 27

Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Budget Wrench Co. need not sell additional supplies of wrenches to Stony Hardware, because it was selling the wrenches as a loss leader.

Question 28

A manufacturer says the following to a retailer: "Sell these goods at whatever price you desire, but should you sell for less than $50 we shall supply you no more." Such a statement is legal.

Question 29

Buns Bakery sold bread and cakes to Peggy's Grocery under an agreement whereby Peggy would not retail the goods for less than the price printed on the wrapper of the products. By their agreement, Buns Bakery would provide Peggy's Grocery with an extra 5% discount at the end of each month, based upon the volume sold at the stipulated retail price during the month.
The agreement is an enforceable agreement between Buns Bakery and Peggy because Buns Bakery can show consideration in the form of the 5% discount for Peggy's promise to sell at a fixed price.

Question 30

Regulation of trade practices is a matter of provincial jurisdiction.

Question 31

A Canadian firm with a highly desirable line of pharmaceutical products offers "all or nothing" to a distributor in Africa. The distributor covets one particular vaccine only but reluctantly takes the line of products in order to get the vaccine. The Canadian company has broken the law.

Question 32

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb." He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-80 kilometres to a litre of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. For the Crown to successfully obtain a conviction against Cisco under the Competition Act, it must prove that the goods do not perform as claimed, and that Cisco was responsible for the misleading advertisement.

Question 33

A breach of the Competition Act confined to one province is a matter to be heard before a District or County Court of that province.

Question 34

Chief among the aims of the Competition Act is to prohibit conspiracies in restraint of trade, and in their place, to promote combinations within trade.

Question 35

Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Loss leader advertising constitutes misleading advertising under the Competition Act.

Question 36

An appeal from an order of the Competition Tribunal lies with the Federal Court of Appeal.

Question 37

Cisco developed a carburetor for automobiles, which he called the "CiscoCarb". He advertised the carburetor in a national automobile magazine in a full-page advertisement under a caption that read: "Proven Performance-2.5 gallons /60 miles of gas in any car." The advertisement offered the carburetor for $100 on a 30-day, money back guarantee. Cisco would not have violated the Competition Act, because his performance claim was made in a unit of measurement other than metric.

Question 38

Budget Wrench Co. sold its wrenches to a variety of retail outlets at $1 each. Stony Hardware purchased a large quantity of the wrenches and used them over a six-month period as a special advertised sale item, priced at 25 cents each. Budget Wrench Co. requested Stony Hardware to stop selling its wrenches as a "special" sale item, but Stony Hardware refused to do so. Loss leader selling is an offence under the Competition Act.

Question 39

Under the Competition Act, restrictive trade practices are prohibited in dealings between a firm and its competitors, as well as in dealings between a firm and its customers.

Question 40

If a corporation attempts to fix base prices for its goods by setting up separate wholly owned corporations in each region to do the selling of those goods at a fixed price, the conspiracy of these corporations to do so with the parent may not be attacked under the Competition Act.

Question 41

Describe the scope and powers of the Competition Tribunal to enforce the provisions of the Competition Act.

Question 42

Subsection 45(2) of the Competition Act enumerates certain activities which are exempt from the Act in certain circumstances. Describe these activities and indicate in which circumstances they do not violate the Act.

Question 43

Country Haven Stables Ltd. was engaged in the business of boarding horses and providing horseback riding facilities and instruction. Lucy, the owner and operator of the stables, had built up her business over a number of years by acquiring horses and building facilities as she was able. The business had become quite successful and had grown to a considerable size. Lucy found her need for equestrian products growing as rapidly as her business. As a result, she contacted Fairbanks Saddlery Co., a manufacturer of saddles, harnesses and other related equipment as well as equestrian health care and grooming products. She inquired about supplying her stable needs and shortly thereafter a business arrangement with Fairbanks was entered into. Many of Lucy's customers expressed an interest in purchasing equestrian products and equipment at her stable for their own needs. As Lucy saw a potential business opportunity developing in the establishment of a retail outlet, she set up and promoted a retail shop on her premises, which she stocked with Fairbanks products. The products were then marked-up and sold to the public. Approximately thirty kilometres away from Lucy's stable was "Horse Habits," a large, well-established equestrian supply store that had been in operation for over 15 years. Horse Habits was also a customer of Fairbanks and, upon discovering Lucy's store, contacted Fairbanks to object to the establishment of another retail outlet selling Fairbanks products at lower prices.
Shortly thereafter two representatives of Fairbanks made a visit to Lucy's shop. During the visit the parties had a friendly social conversation about the equestrian business and products in general. No mention was made of the complaint or of prices or Country Haven's pricing policy, nor did the Fairbanks representatives check any of the prices at which Lucy was selling items in her shop. However, immediately following their visit, the representatives wrote a letter to Country Haven advising that sales would be discontinued because of a Fairbanks company policy which stated that:
"Fairbanks Saddlery does not sell direct to the consumer nor to riding schools, stables or blacksmiths, but only to legitimate retail outlets that carry sufficient inventory to service customers in their area."
Lucy was not aware of this policy and maintained that it had never been brought to her attention previously, nor was it mentioned when the Fairbanks representatives visited Lucy's store.
a. What issues does this fact situation present?
b. What course of action may Lucy take, if any?
C.P.R. (3d) 389.
a. The case is meant to explore the issues of resale price maintenance and refusal to supply goods. If the seller can be shown to be in any way directly or indirectly attempting to influence the price at which its goods are resold it will be in violation of the Act. Here, the supplier is refusing to supply goods to the stable on the stated grounds that it sells only to legitimate retail outlets and not to end users. A close look at the facts, however, suggests that there may be other motives for the refusal to supply. The fact that the stated policy does not appear to have been brought to the attention of the buyer or previously enforced indicates that it may be meant to deflect the true motives.
The supplier, not wishing to jeopardize its long-standing relationship with a large buyer, is responding to the complaint in order to protect its own business interests. Whether Country Haven Stables maintains a policy of selling the goods at lower prices is unclear on the facts. The Country Haven store is a legitimate retail outlet, however, and may set prices as it sees fit. The supplier may not refuse to sell to it to prevent the buyer from reselling at lower prices unless the buyer makes a practice of loss leadering. In this case, the supplier is relying on the unfounded objections of its major customer to cease supplying the stable and, thereby, protect its own interests. If the manufacturer is acting on the information that a low-price policy is maintained at the stable, it may not refuse to sell on that basis. The court in this case decided, however, that if the supplier was refusing to sell on another basis; namely, to protect its relationship with a major customer, there is no prohibition in law of such an action. There was insufficient evidence to prove beyond a reasonable doubt that a low-price policy was the grounds for the refusal. The actions of the supplier, therefore, were not in violation of the Act.
b. The buyer may make a complaint to the Commissioner of Competition under the Competition Act. The Commissioner may then investigate the complaint and gather evidence. If the Commissioner finds satisfactory evidence of a violation, he or she may deliver the evidence to the Attorney-General of Canada to bring criminal charges or may bring the matter to the Competition Tribunal.

Question 44

Sunseeker Airlines Inc. offered weekly charter flights to several destinations in Florida. Its aircraft on the Miami route had a 250-seat capacity. From past experience Sunseeker knew that approximately 10% of passengers who booked seats would not show up, which meant it could reserve 275 passengers for the Miami flight.
In late December it appeared that sales were not progressing well for the late January flights. The sales managers decided to have a seat sale in order to fill up the flights. Accordingly, advertisements were prepared and appeared in three major national newspapers on the first weekend in January offering the seat sale for the January 20^th departure. The sale price offered was $149 rather than the regular fare of $219. Beatrice saw the seat-sale advertisement in the Sunday newspaper. Not realizing that the airline was open for booking on Sunday, she did not call until Monday morning. At that time, she was told by the booking agent that the January 20^th flight was fully booked. Beatrice was offered a flight on the following Saturday departure, January 27, at $219. At the time of running the seat-sale advertisement Sunseeker had 3 actual seats available or 27 open reservations available considering the over sale factor. The newspaper advertisement cost over $12,000.
Discuss the issues raised by these facts. What are the rights and obligations of the airline in undertaking marketing activities?
C.P.R. (3d), 392, this case looks at the practice of "bait-and-switch" selling. On these facts, the airline did not have sufficient seats remaining on the flight in order to meet demand at the reduced price. When customers called shortly after reading the advertisement, they were informed that the sale was "full" and offered a seat at a higher price. This practice is an offence under the Competition Act unless certain defences can be met. There is no evidence that the airline undertook to ensure that adequate seats would be available to meet reasonably anticipated demand for the seat-sale price. To the contrary, it is apparent that the airline knew it had insufficient seats since the revenue which could be generated by filling the empty seats at sale prices was only $4,023 and the advertising costs were over $12,000. A reasonable explanation for such action is that Sunseeker hoped to make a large number of sales at the higher, regular fare once it induced potential customers to call.
The airline may be prosecuted for violations of the Competition Act for its bait-and-switch selling practices and will be subject to fines and/or an order to cease such activity if convicted. The investigation process may be triggered by consumer complaints that the practice is occurring. The facts lend little support for any defences to the alleged violation. Sunseeker took no steps to ensure adequate supply, no events beyond its control prevented it from doing so and it could not help but anticipate demand when advertising in three national newspapers. Moreover, Sunseeker did not attempt to provide customers with seats on later flights at the sale price but tried to sell seats at the higher fare.

Question 45

The Competition Act provides the right to maintain a common law civil action in certain circumstances. Discuss how this may arise and the course such an action may take.

Question 46

Describe the operation of the reviewable activity "bait and switch."

Question 47

Meat Packers Inc. was a producer of beef and beef by-products that operated a facility outside a large city. The site of the production facility was scheduled to become part of a new six-lane highway. The facility had been expropriated for the highway and Meat Packers had to vacate the premises. It was unable to locate suitable alternative premises on short notice. Meat Packers, therefore, decided to acquire the business of a competitor and shipped all of its equipment to the newly acquired facility. The two companies merged their operations and carried on under the name of Meat Packers Inc. The meat packing industry was currently in a slump, the result of a decline in consumption of red meat. As a result, there was excess capacity throughout the market area. All of the major competitors were located within the same geographic area. All of these factors were keeping meat prices low. When the Commissioner of Competition received notice of the acquisition, he ordered that Meat Packers Inc. divest itself of the competitor's business pursuant to s. 45 of the Competition Act. Meat Packers wishes to oppose the order. Discuss the arguments it will raise in opposition and indicate how you think the situation would be resolved.
C.P.R. (3d) 289.

Question 48

The trade practices restricted under the Competition Act have arisen as a reflection of values of our political and economic society. Discuss the reasons for the existence of regulation of various practices and raise any concerns you may have with regard to competition regulation.