Canada's Prohibition against Anti-Competitive Collusion: The New Rapprochement with U.S. Law

Canada’s Prohibition against Anti-Competitive Collusion:

The New Rapprochement with U.S. Law

Richard Janda* and Daniel Martin Bellemare**

Noting that Canadian cartel law has been revi-
talized by the Supreme Court of Canada’s recent
decision in R. v. Nova Scotia Pharmaceutical So-
ciety, the authors compare the current state of
Canadian law with that of the United States.
Although the rule of reason/per se distinction
characteristic of American law is not precisely
reproduced in Canada, the authors conclude that
there is now a very close analogy between the
approaches in the United States and Canada.
Used with some caution, United States case law
on per se cartel offences should now be persua-
sive authority in Canada. In particular, the authors
offer an interpretation of the Canadian concept of
“moderate market power,” arguing that in naked
price-fixing and market division cases, the pres-
ence of more than de mininis market power can
usually be inferred from the behaviour in issue. In
these egregious cases, no elaborate evidence res-
pecting relevant market definition or structure is
required. In sum, rather than having bright line
distinctions between (1) rule of reason and per se
offences and (2) presence and absence of market
power, Canadian cartel law is characterized by a
sliding scale. But naked price fixing and market
division lie far toward the per se-offence/more-
than-de miuimis-market-power side of the scale.
Having explored the contours of the criminal,
offence of cartelization under the Competition
Act, the authors conclude by analysing the rela-
tionship among criminal, civil and administrative
law remedies for anti-competitive collusive be-
haviour. They argue that there is now greater
scope for civil law enforcement through injunc-
tive relief and damages, and note that the Compe-
tition Tribunal has signalled an era Qf active
administrative control of abuse of dominant posi-
tion. The criminal sanction therefore usually
should be reserved for those activities that are
most inherently anti-competitive: naked price-
fixing and market division.

k Ia lumi~re du nouvel essor que l’arrt R. c.
Nova Scotia Pharmaceutical Society a donn6 au
droit canadien en mati~re de complots, les auteurs
nous Iivrent une 6tude comparative du droit cana-
dien et du droit amricain en la mati~re. Bien que
la distinction amrricaine entre la r~gle per se et la
r~gle de la raison ne soit pas reprise telle quelle
en droit canadien, les auteurs en arrivent i Ia con-
clusion que les droits canadien et amricain se
rapprochent beaucoup. La jurisprudence amri-
caine qui traite d’infractions per se en matire de
complots peat done, avee une certaine prudence,
tre citre d~sormais devant les tribunaux cana-
diens. Plus particulirement, les auteurs offrent
une interpretation de la notion canadienne de
o puissance commerciale moyenne >> et prten-
dent que dans la jurisprudence oa il est question
de fixation de prix non drguisre ou de partage du
march6, l’existence d’une puissance commerciale
plus que minime peut se drduire du comporte-
ment des parties. Dans ces cas flagrants, il n’est
gu~re utile de prsenter des preuves relativement
4 Ia difinition et A Ia structure du march6. En
somme, en droit canadien il n’existe pas de dis-
tinction claire et nette entre (1) Ia rgle per se et
la r~gle de la raison et (2) la presence ou l’ab-
sence de puissance commerciale, mais plut6t une
gradation de l’un a l’autre. Par contre, la fixation
de prix non drguise et le partage du march6 se
situent davantage du c6t6 des infractions per se et
d’une puissance commerciale qui est plus que
minime.

A Ia suite de leur analyse de l’infraction rela-
tive aux complots de ]a Loi sur la concurrence,
les auteurs examinent le rapport entre les recours
criminels, civils et administratifs. Selon eux, les
recours civils en injonction et en dommages ont
maintenant une port~e plus large. Ils constatent
6galement que le Tribunal de la concurrence
semble vouloir jouer un r6le actif, au niveau des
contrrles administratifs, en mati~re d’abus de
position dominante. I1 faudrait done limiter les
sanctions criminelles aux pratiques les plus anti-
concurrentielles: Ia fixation de prix non drguisre
et le partage du march6.

* Director, Centre for the Study of Regulated Industries, Faculty of Law, McGill University.
**Avocat, Barreau du Quebec.
The authors would like to thank Chris Green,.Patrick Healy, Rod Macdonald and Martin Bood-

man for their helpful comments.
McGill Law Journal 1993
Revue de droit de McGill
To be cited as: (1993) 38 McGill L.J. 620
Mode de rdfrrence: (1993) 38 R.D. McGill 620

1993]

ANTI-COMPETITIVE COLLUSION

Synopsis

Introduction
1.

The Background to the Contemporary Canadian Cartel Prohibition
A. The Monopoly of Criminal Law in Canadian Antitrust
B. The Record of Criminal Law Enforcement
C. Reform Efforts
D.
E. Why Criminal Law Remains
F. When Criminal Law, When Civil Law?

Interpretation of the Stage I Amendments by the Courts

II. The American Approach to Section I of the Sherman Act: Per se and

Rule of Reason
A. The Rule of Reason
B. The Per Se Rule
1. Price-fixing
2. Market Division
3.
4. Group Boycott

Tying Arrangements

C. Summary

LI. An Interpretation of the Canadian Law on Anti-Competitive

Collusion
A. The Interpretation of Section 45 in Nova Scotia Pharmaceutical

Evidence of Anti-competitive Behaviour

1. Evidence Respecting Market Structure
2.
3. Mental Element
4.

The Application of the Supreme Court’s Decision at Trial
a. Market Definition
b. The Structure/Behaviour Framework
c.
Summary of Criminal Law Enforcement of Section 45
B. Civil Law Enforcement of Section 45 through Section 36
C. Reviewable Practices under Part VIII of the Competition Act

The Necessary Mens Rea

5.

Conclusion

Introduction

Since the beginnings of antitrust law, the prohibition of cartel activity has
been its central feature. Indeed, it has been the one prohibition to attract univer-
sal praise from across the spectrum of economic thought –
be it structuralist

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[Vol. 38

or Chicago-School consumer welfare.’ But whereas this prohibition has spawned
considerable enforcement activity in the United States, Canadian law until very
recently remained largely ineffective. The law’s formulation seemed at best ten-
tative and at worst vacuous. And unlike in the United States, Canada only had
a criminal law instrument to address anti-competitive collusion. Courts imposed
an extremely high burden of proof on the prosecution and were prepared to enter-
tain the most brazen of defences –
e.g. that price-fixing was undertaken for the
“public benefit.”3

However, it would now seem that Canadian competition law has come of
age, and with it our approach to cartels. The modernization of the Competition
Act4 expanded the range of instruments available to address collusive behaviour.
Civil and administrative remedies are now available. And perhaps most impor-
tantly, the Supreme Court of Canada has not only upheld the constitutional valid-
ity of the new scheme –
but has also
placed interpretation of that scheme on a sound economic footing. In particular,
the R. v. Nova Scotia Pharmaceutical Society decision has ensconced a “partial
rule of reason” approach to criminal prosecutions that should also clarify the
approach to parallel civil law actions, as we hope to explain in this article.’

something that was seriously in doubt –

For instance, Robert Bork, who is largely critical of American antitrust interventionism, asserts
that “without doubt thousands of cartels have been made less effective and other thousands have
never been broached because of the overhanging threat of this rule [the per se illegality of anti-
competitive collusion]. Its contributions to consumer welfare over the decades have -been enor-
mous” (The Antitrust Paradox: A Policy at War with Itself(New York: Basic Books, 1978) at 263).
Richard Posner is similarly lavish in his praise: “[The elimination of the formal cartel … is an
impressive, and remains the major, achievement of American antitrust law” (Antitrust Law: An
Economic Perspective (Chicago: University of Chicago Press, 1976) at 39). However, for a rare
contrasting view see C. Leslie, “Achieving Efficiency through Collusion: A Market Failure
Defense to Horizontal Price-Fixing” (1991) 81 Cal. L. Rev. 243. For a description of approaches
to antitrust law drawn from “Chicago-School economics” – of which Bork and Posner are leading
exponents –
and a contrast with “traditional” or “structuralist” approaches, see E.M. Fox & L.A.
Sullivan, “Antitrust – Retrospective and Prospective: Where are We Coming From and Where are
We Going” (1987) 62 N.Y.U. L. Rev. 936.
2From 1970 to 1983, there were 29 convictions and 17 non-convictions in cases prosecuted
under the conspiracy provision. See P.K. Gorecki & W.T. Stanbury, The Objectives of Canadian
Competition Policy, 1888-1983 (Halifax: The Institute for Research on Public Policy, 1984) at 22.
3See the dissenting opinion of Laskin C.J.C. in R. v. Aetna Insurance Co., [1978] 1 S.C.R. 731
at 734-35,75 D.L.R. (3d) 332 [hereinafter Aetna cited to S.C.R.], rev’g (1975), 12 N.S.R. (2d) 362,
62 D.L.R. (3d) 447 (N.S.S.C.(A.D.)), aff’g (1974), 12 N.S.R. (2d) 416, 52 D.L.R. (3d) 30
(N.S.S.C.(T.D.)). It should be noted that Laskin C.J.C.’s criticism of the judgment at first instance
was not shared by the majority, which took a somewhat different view of the evidence adduced
at trial. The Aetna case is discussed more fully below, infra note 28 and accompanying text.
4Competition Act, R.S.C. 1985, c. C-34, as am. by R.S.C. 1985 (1st Supp.), c. 27, ss. 187, 189,
R.S.C. 1985 (2d Supp.), c. 19, Part II, R.S.C. 1985 (3d Supp.), c. 34, s. 8, R.S.C. 1985 (4th Supp.),
c. 1, s. 11, R.S.C. 1985 (4th Supp.), c. 10, s. 18, S.C. 1990, c. 37, ss. 29-32, S.C. 1991, c. 45, ss.
547-550, S.C. 1991, c. 46, ss. 590-594, S.C. 1991, c. 47, ss. 714-717, S.C. 1992, c. 1, ss. 44-46,
145, S.C. 1992, c. 14, s. 1, S.C. 1993, c. 34, ss. 50-51 [hereinafter the Act].

5R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606, 93 D.L.R. (4th) 36, 43 C.P.R.
(3d) 1 [hereinafter Nova Scotia Pharmaceutical cited to S.C.R.]. The Supreme Court of Canada
dismissed the appeal from the Nova Scotia Supreme Court, Appeal Division (1991), 102 N.S.R.
(2d) 222, 80 D.L.R. (4th) 206 (N.S.S.C.(A.D.)), setting aside a judgment of the trial division
(1990), 98 N.S.R. (2d) 296, 73 D.L.R. (4th) 500 (N.S.S.C.(T.D.)), allowing the appellants’ motion
to quash the indictment. The decisions of the Supreme Court of Canada and the lower court are

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ANTI-COMPETITIVE COLLUSION

Given NAFTA and the long history of American antitrust enforcement, it
would be an aberration for Canadian antitrust law to be fundamentally different
from that in the United States. Increasingly, antitrust enforcement requires coop-
eration and parallel review in the two jurisdictions.6 Furthermore, the United
States’ case law, for all its twists and turns, complete with attendant controversy,
offers a remarkable pool of experience and sophisticated analysis. It would be
inconceivable for Canadians to ignore this resource.7

It is thus opportune, given the new vitality of Canadian cartel law, to con-
sider how it now stands in relation to U.S. law. In particular, the “partial rule
of reason” approach formulated by Gonthier J. in Nova Scotia Pharmaceutical
draws explicitly on the distinction in American law between anti-competitive
conduct that is per se illegal and conduct that is subject to a rule of reason! The
object of this paper is to show that the Canadian and American approaches are
now very similar and that, with appropriate caution, U.S. case law is now avail-
able as persuasive authority in Canadian collusion litigation. We also aim to
identify, more or less in schematic form, where criminal prosecution now stands
in relation to parallel civil and administrative remedies, noting that there is now
wide scope for private enforcement through civil litigation.

This paper is divided into three parts. The first part sketches out the back-
ground to the contemporary Canadian cartel prohibition. The second part
reviews the Aminerican approach for purposes of comparison. The third part sets
out an interpretation of the Canadian “partial rule of reason” approach, placing
it within the context of criminal, civil and administrative remedies and drawing
on the American experience.

I. The Background to the Contemporary Canadian Cartel Prohibition

A. The Monopoly of Criminal Law in Canadian Antitrust

The emphasis in Canada upon criminal prosecution for competition law
offences is something of a historical anomaly.9Although the original Anti-

well described elsewhere in this special issue (see P.S. Crampton & J.T. Kissack, “Recent Devel-
opments in Conspiracy Law and Enforcement: New Risks and Opportunities” (1993) 38 McGill
L.J. 569). Moreover, particular aspects of this decision will be discussed below.

6See G.N. Addy, “International Coordination of Competition Policies” (Paper delivered to the
HWWA-Institut ftir Wirtschaftsforschung-Hamburg, Hamburg, 9-11 October 1991) [unpublished).
See also C. Goldman et al., “International Mergers and the Canadian Competition Act” (Working
Paper for the Ontario Centre for International Business, International Business and Trade Law Pro-
gramme, 1993) at 54. Although the Competition Act, supra note 4, s. 1.1, explicitly aims to “main-
tain and encourage competition in Canada,” a number of its provisions have extraterritorial effect:
ss. 45(5) and (6) (“export cartels”); s. 46.1 (“foreign directives”); s. 82 (“foreign judgments”); s.
83 (“foreign laws and directives”); s. 84 (“refusal to supply by foreign supplier”).

71t might be argued that a rapprochement of American and Canadian antitrust law is not only
expedient but is also compelled by the existence of a “market” for antitrust enforcement. For an
analogous argument see R. Daniels, “Should Provinces Compete? The Case for a Competitive Cor-
porate Law Market” (1991) 36 McGill L.J. 130. Whereas situs of incorporation decisions may be
driven in some measure by forum-shopping for the best corporate law regime, it would be difficult
to make out the case that differing antitrust regimes are a significant factor influencing decisions
to locate businesses in Canada or the United States. However, significantly different antitrust
regimes could become a trade irritant, as is evidenced by American complaints concerning alleg-
edly feeble antitrust enforcement by Japan.

SNova Scotia Pharmaceutical, supra note 5 at 650.
9For a brief review of the history of Canadian competition legislation, see B. Dunlop, B.

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[Vol. 38

Combines Act of 1889,0 which enacted the antecedent of the current cartel pro-
hibition, was criminal law legislation, successive federal governments in the
early part of this century attempted to put competition law on an administrative
law footing. The Combines Investigation Act of 1910, the Combines and Fair
Prices Act in conjunction with the Board of Commerce Act of 1919, and the
Dominion Trade and Industry Commission Act of 1935 were all designed to
allow for administrative supervision of competition through a board structure
and through behavioural remedies.” This flurry of legislative activity gave rise
to an important line of cases restricting the scope of the federal trade and com-
merce power. In the Re Board of Commerce Act” and Reference re Dominion
Trade and Industy Commission Act,’3 the Privy Council and Supreme Court of
Canada respectively found the relevant pieces of legislation ultra vires Parlia-
ment as trenching upon provincial property and civil rights jurisdiction.” By
contrast, the 1923 Combines Investigation Act, 5 which marked a return to the
criminal law approach, was upheld by the Privy Council as a valid exercise of
the criminal law power. 6 Interestingly enough, parallel efforts in the United
States to emphasize the civil law and administrative enforcement of antitrust
legislation encountered no such constitutional difficulties. 7 In Canada, the crim-
inal law remained the only significant enforcement mechanism up to the 1970s.
section 1 of the 1889 Anti-Combines Act

The original cartel prohibition –

was a model of equivocation and clumsy grammar:

1. Every person who conspires, combines, agrees or arranges with any other per-
son, or with any railway, steamship, steamboat or transportation company,
unlawfully, –
(a) To unduly limit the facilities for transporting, producing, supplying, storing
or dealing in any article or commodity which may be a subject of trade or
commerce; or –

(b) To restrain or injure trade or commerce in relation to any such article or

commodity; or –

(c) To unduly prevent, limit, or lessen the manufacture or production of any

such article or commodity, or to unreasonably enhance the price thereof; –

McQueen & M. Trebilcock, Canadian Competition Policy (Toronto: Canada Law Book, 1987) at
42-47.

IAn Act for the Prevention and Suppression of Combinations Formed in Restraint of Trade, S.C.

1889, c. 41 [hereinafter Anti-Combines Act].

“Combines Investigation Act, S.C. 1910, c. 9 (subsequently R.S.C. 1970, c. C-23); Combines
and Fair Prices Act, S.C. 1919, c. 45; Board of Commerce Act, S.C. 1919, c. 37; Dominion Trade
and Industry Commission Act, S.C. 1935, c. 59.

t2[1922] 1 A.C. 191, 60 D.L.R. 513, [1922] 1 W.W.R. 20 (P.C.) [hereinafter Board of Commerce

cited to A.C.].

suant to the Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, s. 92(13).

13[19361 S.C.R. 379, [1936] 3 D.L.R. 607, 66 C.C.C. 177.
“‘The provincial legislatures have authority over property and civil rights within a province pur-
‘5S.C. 1923, c. 9.
16Proprietary Articles Trade Association v. Canada (A.G.), [1931) A.C. 31 (P.C.). The Federal
Parliament has jurisdiction over criminal matters pursuant to the Constitution Act, 1867, s. 91(27).
‘7See specifically Clayton Act, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. 12-27
(1988)) and Federal Trade Commission Act, 38 Stat. 717 (1914) (codified as amended at 15 U.S.C.
41-51 (1988)). For a comparative account of the development of Canadian and U.S. competition
legislation, see B. Cheffins, “The Development of Competition Policy, 1890-1940: A Re-
evaluation of a Canadian and American Tradition” (1989) 27 Osgoode Hall L.J. 449.

1993]

ANTI-COMPETITIVE COLLUSION

(d) To unduly prevent or lessen competition in the production, manufacture,
purchase, barter, sale, transportation or supply of any such article or com-
modity; or in the price of insurance upon person or property, –

Is guilty of a misdemeanor and liable, on conviction, to a penalty not exceeding
four thousand dollars and not less than two hundred dollars, or to imprisonment
for any term not exceeding two years; and if a corporation, is liable on convic-
tion to a penalty not exceeding ten thousand dollars and not less than one thou-
sand dollars.’8

Soon after its adoption, the provision was made part of the Criminal Code and
in 1900, the word “unlawfully” was eliminated from the introductory clause and
eventually the split infinitives were fused together. 9 Although in 1960 the pro-
vision was re-incorporated into the Combines Investigation Act,2″ it remained
essentially unchanged until the reform of 1975.21

B. The Record of Criminal Law Enforcement

The antitrust jurisprudence of the Supreme Court of Canada has always
been preoccupied with the meaning of the word “unduly.” The prevailing inter-
pretation of that word can be traced back to a decision rendered at the beginning
of the century by the Ontario Court of Appeal. In R. v. Elliott, ” the president

18Supra note 10, s. 1.
19Section 1 of the 1889 Anti-Combines Act was re-enacted as s. 520 of the Criminal Code, S.C.
1892, c. 29, sch. II. Interestingly enough, in 1899, a unique amendment to the Criminal Code
amended s. 520 to strike out the words “unduly” and “unreasonably” –
the only successful attempt
to eliminate the word “unduly” (An Act to amend the Criminal Code, 1892, with respect to Com-
binations in restraint of Trade, S.C. 1899, c. 46). Less than a year later, however, An Act further
to amend the Criminal Code, 1892, S.C. 1900, c. 46, all but undid the previous year’s work by rein-
corporating all uses of the word “unduly” so as to produce the following wording:

520.(1) Every one is guilty of an indictable offence and liable to a penalty not exceed-
ing four thousand dollars and not less than two hundred dollars, or to two
years’ imprisonment, or, if a corporation, is liable to a penalty not exceeding
ten thousand dollars and not less than one thousand dollars, who conspires,
combines, agrees or arranges with any person or with any railway, steamship,
steamboat or transportation company –
(a) to unduly limit the facilities for transporting, producing, manufacturing,
supplying, storing or dealing in any article or commodity which may be
a subject of trade or commerce; or

(b) to restrain or injure trade or commerce in relation to any such article or

commodity; or

(c) to unduly prevent, limit, or lessen the manufacture or production of any

article or commodity, or to unreasonably enhance the price thereof; or

(d) to unduly prevent or lessen competition in the production, manufacture,
purchase, barter, sale, transportation or supply of any such article or com-
modity, or in the price of insurance upon person or property.

(2) Nothing in this section shall be construed to apply to combinations-of work-
men or employees for their own reasonable protection as such workmen or
employees.

From 1892 until 1960, the provision remained in the Criminal Code.

20Supra note 11.
21By virtue of An Act to amend the Combines Investigation Act and the Criminal Code, S.C.
1960, c. 45, s. 21, the then s. 411 of the Criminal Code was repealed and reintroduced as s. 32 of
the Combines Investigation Act (ibid.), in which form it remained until the 1975 and 1986 amend-
ments.

22(1905), 9 O.L.R. 648 (C.A.) [hereinafter Elliott].

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of the Ontario Coal Association was charged under section 520 of the Criminal
Code3 with having used the association to achieve control over the sale of coal
at both wholesale and retail levels so as to fix prices. The Court ruled that a pre-
vention or lessening of competition does not constitute an offence unless it is
done “wrongly, .improperly, excessively, inordinately.”24 This definition of the
word “unduly” was adopted by the Supreme Court of Canada throughout the
century and was usually supplemented by a test of “virtual monopoly.”‘ The
effect of this interpretation was to impose a heavy burden of proof upon the
prosecution to demonstrate monopolistic market power and anti-competitive
effect – what in American law would be recognized as a full-blown “rule of
reason.” In Canada, unlike in the United States, such a rule of reason was appli-
cable to every conspiracy in restraint of trade, including horizontal price-
fixing.26 However, a stubborn line of lower court cases, while recognizing the
need to prove “undue” restraint of competition, did attempt to play down and
even ignore the virtual monopoly test.27

23Section 520 of the Criminal Code became s. 32 of the Combines Investigation Act, supra note
11. In Nova Scotia Pharmaceutical, supra note 5 at 648, Mr. Justice Gonthier proceeds to a sum-
mary of the evolution of the conspiracy provisions of Canadian competition legislation.
24EIliott, supra note 22 at 662, Osler J.
25Weidmnan v. Shragge (1912), 46 S.C.R. 1, 2 D.L.R. 734 [hereinafter Weidman cited to
S.C.R.], gave rise to two somewhat different approaches to the term “unduly.” Although Duff
J. may not have intended to formulate a strict test, his reasons were the basis of the “virtual
monopoly” approach: “I have no hesitation in holding that as a rule an agreement having for
one of its direct and governing objects the establishment of a virtual monopoly in the trade in
an important article of commerce throughout a considerable extent of territory by suppressing
competition in that trade, comes under the ban of the enactment” (ibid. at 37). Anglin J., on
the other hand, chose simply to reiterate the approach in Elliott: “[D]oes it …. however advan-
tageous or even necessary for the protection of the business interests of the parties, impose
improper, inordinate, excessive, or oppressive restrictions upon that competition the benefit of
which is the right of every one? The King v. Elliott” [supra note 22] (Weidman, ibid. at 42-43).
These two “definitions” of “unduly” were bothemployed in subsequent Supreme Court of Can-
ada decisions: Stinson-Reeb Builders Supply Co. v. R., [1929] S.C.R. 276 at 278, [1929] 3
D.L.R. 331, Mignault J.; Container Materials Ltd. v. R., [1942] S.C.R. 147 at 158-59, [1942]
1 D.L.R. 529, Kellock J. [hereinafter Container Materials cited to S.C.R.]; R. v. Howard Smith
Paper Mills Ltd., [1957] S.C.R. 403 at 410, 426, 8 D.L.R. (2d) 449, Kellock J. and Cartwright
J. (Cartwright J. stressed the virtual monopoly idea, however) [hereinafter Howard Smith
Paper Mills cited to S.C.R.]; Aetna, supra note 3 at 748, Ritchie J.; Atlantic Sugar Refineries
Co. v. Canada (A.G.), [1980] 2 S.C.R. 644 at 659, 115 D.L.R. (3d) 21, Pigeon J. [hereinafter
Atlantic Sligar cited to S.C.R.].
26This approach was abandoned in the Nova Scotia Pharmaceutical case (supra note 5) dis-
cussed below. In particular Mr. Justice Gonthier stated that: “The application of s. [45(l)(c)] of the
Act does not presuppose such a degree of market power, as [s. 45(2)] clearly enunciates. Parties
to the agreement need not have the capacity to influence the market. What is more relevant is the
capacity to behave independently of the market, in a passive way” (ibid. at 654).

27See R. v. Northern Electric Co., [1955] O.R. 431 at 469, [1955] 3 D.L.R. 449 (H.C.), McRuer
J.: “However, I do not think it is essential to the Crown’s case to show a monopoly or virtual
monopoly”; R. v. Abitibi Power & Paper Co. (1960), 36 C.P.R. 188 at 238, 36 C.R. 96 (Que. Q.B.)
[hereinafter Abitibi Power cited to C.P.R.], Batshaw J.: “I conclude, therefore, that it cannot be
accepted as our law that only those conspiracies are illegal that completely eliminate or virtually
eliminate all competition”; R. v. Electrical Contractors’ Assn., [1961] O.R. 265 at 279, 37 C.P.R.
1 (C.A.), Laidlaw J.A.: “The fact that the co-conspirators did not have the power to completely
or substantially control the business in question is immaterial. Such power of control is not an ele-
ment of the offence and the absence of such control is not an answer to a charge under s.

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ANTI-COMPETITIVE COLLUSION

The evidentiary straightjacket imposed by the Supreme Court’s interpreta-
tion of the term “unduly” is well illustrated by the decision rendered by the
same court in Aetna.2″ In this case, the Court maintained the decision of the trial
judge, who had found that Aetna Insurance and 72 co-conspirators did not
lessen competition unduly by fixing the price of fire insurance on property
located in Nova Scotia.29 Using the Nova Scotia Board of Underwriters as a
price-fixing vehicle throughout the 1960s, the accused had adopted rates to be
charged for fire insurance. The price-fixing agreement was plain and involved
competitors who together collected between seventy-one per cent and eighty-
three per cent of the premiums in Nova Scotia.

Mr. Justice Ritchie, in expressing the view of the majority, confirmed the
need for evidence of a virtual monopoly and followed the approach of the trial
judge, who had inquired into the effects of the agreement upon competition in
the insurance industry in Nova Scotia. Ritchie J. rejected the contention of the
Attorney General of Canada that the agreement lessened competition substan-
tially, inter alia, because he found that the members of the Board when making
price decisions had regard to the prices of competing insurers, that competitors
had expanded within the market and that competition had not been virtually
eliminated. The position of the majority of the Court of Appeal, that once a
price-fixing agreement affects an important part of an industry it limits compe-

411(1)(d)”; R. v. McGavin Bakeries Ltd. (No. 6), [1951] 3 W.W.R. (N.S.) 289 at 317, 13 C.R. 63
(Alta. S.C.(T.D.)), McBride J.: rejecting the contention “that the common design of an unlawful
agreement under s. 498(d) must be a monopoly or virtually a monopoly”; R. v. Aluminum Co.
(1976), 29 C.P.R. (2d) 183 at 193 (Que. Sup. Ct.), Rothman J.: “I conclude that s. 32(1)(c) does
not require the Crown to establish that the agreement would eliminate all competition or create a
monopoly”; R. v. Chatwin Motors Ltd. (1978), 37 C.P.R. (2d) 156 at 160 (B.C.S.C.), Ruttan J., fol-
lowing Abitibi Power (ibid.): “it is sufficient to establish that the agreement would have the effect
of lessening competition substantially [as opposed to] the virtual extinction or elimination of com-
petition” (aff’d (1978), 7 B.C.L.R. 171, 40 C.P.R. (2d) 106 (C.A.), aff’d [1980] 2 S.C.R. 64, 23
B.C.L.R. 130); R. v. Canadian Coat & Apron Supply Ltd., [1967] 2 Ex. C.R. 53 at 63, 2 C.R.N.S.
62, Gibson J.: .’Undueness’ is not a term of art and must be applied in all cases in its meaning
as a word of the vernacular. It is not restricted in its application to those agreements only, which
if carried into effect would give the parties to it the power to carry on their business virtually with-
out competition, that is a virtual monopolization situation”; R. v. Browning-Ferris Industries of
Winnipeg.(1974) Ltd. (1980), 56 C.P.R. (2d) 257 at 261 (Man. Q.B.), Hunt J.: “It is not incumbent
upon the Crown to prove a monopoly.” See also R. v. British Columbia Television Broadcasting
System Ltd. (1980), 52 C.P.R. (2d) 47 (B.C.S.C.) [hereinafter British Columbia Television Broad-
casting]; R. v. Canadian General Electric Co. (1977), 15 O.R. (2d) 360 at 397-98, 75 D.L.R. (3d)
664 (H.C.); R. v. Anthes Business Forms Ltd. (1974), 19 C.C.C. (2d) 394 at 442-43, 16 C.P.R. (2d)
216 (Ont. H.C.), aff’d (1975), 10 O.R. (2d) 153, 20 C.P.R. (2d) 1 (C.A.), aff’d [1978] 1 S.C.R.
970, 28 C.P.R. (2d) 33n; R. v. B.C. Professional Pharmacists’ Society (1970), 64 C.P.R. 129 at
146-47 (B.C.S.C.).

28See supra note 3.
291tid.
30The accused were charged with price-fixing in the city of Halifax. Yet Mr. Justice Ritchie and
the trial court assumed that the Province of Nova Scotia was the relevant geographic market for
the purpose of evaluating the economic consequences of the agreement. Interestingly, in the last
paragraph of his opinion, Mr. Justice Ritchie mentions that the outcome might have been different
had the geographic market consisted in the city of Halifax: “As I have indicated at the outset, I
am of opinion that the charge here laid is one relating to the fire insurance industry as a whole
within the Province and it is not made out by proving that a particular group within the industry
have agreed with each other to abide by rates promulgated by the Board” (ibid. at 752).

McGILL LAW JOURNAL

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tition unduly by itself, was deemed to be inconsistent with the statutory require-
ment of “undueness.”

Beyond confirming the virtual monopoly approach, the Aetna case created
a second major obstacle to the enforcement of the cartel provision.3′ Despite a
vigorous dissent by Laskin C.J.C., the majority held that the Crown must prove
not only intent to enter into a price-fixing agreement, but also intent to lessen
competition unduly. This “double intent” requirement created an extraordinarily
high evidentiary burden for the Crown.32

Thus, beginning with the decision of the Court of Appeal of Ontario in
Elliott, the main line of conspiracy cases has treated the cartel provision as
requiring elaborate proof of concentrated market structure, substantial anti-
competitive effects, and intent to produce those anti-competitive effects. Ulti-
mately, the restricted ambit of the law gave impetus to legislative reform.

C. Reform Efforts

The 1969 Interim Report on Competition Policy of the Economic Council
of Canada marked a significant turning point in the approach to competition
law and set the agenda for subsequent reform.33 The improvement of economic
efficiency was taken to be the sole objective of competition law and complete
reliance on the criminal law was taken to be one of the main obstacles to
achieving that objective.’ A principal recommendation of the Interim Report
was that large areas of jurisdiction, including review of mergers and monop-
olies, be transferred to an administrative tribunal having the power to control
impugned behaviour. Of course, this reform agenda ultimately depended upon
a change in the Supreme Court of Canada’s interpretation of the federal trade
and commerce power –
a change that was confirmed in the 1989 General
Motors of Canada Ltd. v. City National Leasing decision.35 The reorientation

1970, c. C-23.

31At the time, the relevant provision was s. 32(I)(c) of the Combines Investigation Act, R.S.C.
32In Aetna, supra note 3, there were two somewhat contradictory statements by Mr. Justice Rit-
chie concerning the intent requirement. At one point, he stated: “It is not seriously contested that
one of the purposes envisaged in the organization of the Board was that its members should agree
among themselves to provide insurance at the same rate or price, but the sole question is whether
this agreement was entered into in order to prevent or lessen competition ‘unduly”‘ (ibid. at 774).
At another point, he stated: “The burden lying upon the Crown in this case is to establish beyond
a reasonable doubt first, that the respondents intended to enter into a conspiracy, combination,
agreement or arrangement and, secondly, that that conspiracy, combination, agreement or arrange-
ment if it were carried into effect would prevent or lessen competition unduly” (ibid. at 748). Any
ambiguity caused by the second statement was clarified by Mr. Justice Pigeon, who rendered the
double intent requirement even more explicit in Atlantic Sugar: “I find it abundantly clear that,
applying this test to the facts found by the trial judge, it is impossible to say that he erred in law
when coming to the conclusion that the Crown had failed to prove an agreement to lessen com-
petition unduly” (supra note 25 at 659).
33Economic Council of Canada, Interim Report on Competition Policy (Ottawa: Queen’s Printer,
34This point was subsequently emphasized in L.A. Skeoch & B.C. McDonald, Dynamic Change
and Accountability in a Canadian Market Economy (Ottawa: Minister of Consumer and Corporate
Affairs, 1976) at 39-40. See also Robert Bork, who wrote in 1978 “the only legitimate goal of anti-
trust is the maximization of consumer welfare” (supra note 1 at 7).

1969) [hereinafter Interim Report].

35[1989] 1 S.C.R. 641, 58 D.L.R. (4th) 255 [hereinafter City National Leasing cited to S.C.R.].

1993]

ANTI-COMPETITIVE COLLUSION

.of competition law that had been blocked in the Board of Commerce case
became possible.36

Despite the shift in focus toward administrative law signalled by the
Interim Report, that report did not recommend abandoning the use of criminal
law altogether. Drawing on the American classification of certain practices as
per se illegal, the report recommended maintaining a strict and clear criminal
prohibition against those practices “inimical to the public interest,” namely:

(1) collusive’ arrangements between competitors to fix prices (including bid-
rigging on tenders); (2) collusive arrangements between competitors to allocate
markets; (3) collusive arrangements between competitors to prevent the entry into
markets of new competitors or the expansion of existing competitors; (4) resale
price maintenance; (5) misleading advertising. 37

The first three of these overlap precisely with the conspiracy provision that was
always part of Canadian criminal law. Arguably, resale price maintenance is
analogous in constituting evidence of collusion.31

In 1976, Parliament adopted a first set of amendments to the Combines
Investigation Act which included important amendments to the cartel provi-
sion.39 In particular, two amendments tackled the virtual monopoly test and the

In that decision, the Supreme Court of Canada held that s. 31.1 of the amended Combines Inves-
tigation Act (supra note 11) was intra vires the federal Parliament as a valid exercise of the federal
trade and commerce power (Constitution Act, 1867, supra note 14, s. 91(2)), specifically as leg-
islation referring to “general” trade and commerce (see the origin of federal jurisdiction over “gen-
eral” trade and commerce in Citizens’ Insurance Company of Canada v. Parsons (1881), 7 A.C.
96 at 113 ,(P.C.), Sir Montague Smith). For a further discussion of City National Leasing, see P.
Hogg, Constitutional Law of Canada, 3d ed. (Toronto: Carswell, 1992) at 535-36.

36Supra note 12.
37Supra note 33 at 101-02.
38See R.-Pitofsky, “Why Dr. Miles was Right” (1984) Regulation 27.
39See An Act to amend the Combines Investigation Act and the Bank Act and to repeal an Act
to amend an Act to amend the Combines Investigation Act and the Criminal Code, S.C.
1974-75-76, c. 76, especially s. 14(1). This legislation was supplemented in 1986 by a legislative
endorsement of the use of circumstantial evidence to prove tacit agreement –
in effect a legislative
amendment to reverse Atlantic Sugar (supra note 25); see An Act to establish the Competition Tri-
bunal and to amend the Combines Investigation Act and the Bank Act and other Acts in conse-
quence thereof, R.S.C. 1985 (2d Supp.), c. 19., s. 30(1). The section now reads as s. 45 of the cur-
rent Competition Act:

45.(1) Every one who conspires, combines, agrees or arranges with another person
(a) to limit unduly the facilities for transporting, producing, manufacturing,

supplying, storing or dealing in any product,

(b) to prevent, limit or lessen, unduly, the manufacture or production of a

product or to enhance unreasonably the price thereof,

(c) to prevent or lessen, unduly, competition in the production, manufacture,
purchase, barter, sale, storage, rental, transportation or supply of a prod-
uct, or in the price of insurance on persons or property, or

(d) to otherwise restrain or injure competition unduly,
is guilty of an indictable offence and liable to imprisonment for a term not
exceeding five years or to a fine not exceeding ten million dollars or to both.
(2) For greater certainty, in establishing that a conspiracy, combination, agree-
ment or arrangement is in contravention of subsection (1), it shall not be nec-
essary to prove that the conspiracy, combination, agreement or arrangement,
if carried into effect, would or would be likely to eliminate, completely or vir-

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[Vol. 38

double intent mens rea requirement. Henceforth, it would no longer be neces-
sary to demonstrate that competition was or would be totally eliminated by anti-
competitive collusion or that the conspirators intended to lessen competition
unduly. Yet the word “unduly” remained part of the new framework.

tually, competition in the market to which it relates or that it was the object
of any or all of the parties thereto to eliminate, completely or virtually, com-
petition in that market.

(2.1) In a prosecution under subsection (I), the court may infer the existence of a
conspiracy, combination, agreement or arrangement from circumstantial evi-
dence, with or without direct evidence of communication between or among
the alleged parties thereto, but, for greater certainty, the conspiracy, combina-
tion, agreement or arrangement must be proved beyond a reasonable doubt.
(2.2) For greater certainty, in establishing that a conspiracy, combination, agree-
ment or arrangement is in contravention of subsection (1), it is necessary to
prove that the parties thereto intended to and did enter into the conspiracy,
combination, agreement or arrangement, but it is not necessary to prove that
the parties intended that the conspiracy, combination, agreement or arrange-
ment have an effect set out in subsection (1).

(3) Subject to subsection (4), in a prosecution under subsection (1), the court shall
not convict the accused if the conspiracy, combination, agreement or arrange-
ment relates only to one or more of the following:
(a) the exchange of statistics;
(b)
(c)
(d) the definition of terminology used in a trade, industry or profession;
(e) cooperation in research and development;
(]) the restriction of advertising or promotion, other than a discriminatory

the defining of product standards;
the exchange of credit information;

restriction directed against a member of the mass media;

(g) the sizes or shapes of the containers in which an article is packaged;
(I)
(i) measures to protect the environment.

the adoption of the metric system of weights and measures; or

(4) Subsection (3) does not apply if the conspiracy, combination, agreement or
arrangement has lessened or is likely to lessen competition unduly in respect
of one of the following:
(a) prices,
(b) quantity of quality of production,
(c) markets or customers, or
(d) channels or methods of distribution,
or if the conspiracy, combination, agreement or arrangement has restricted or
is likely to restrict any person from entering into or expanding a business in
a trade, industry or profession.

(5) Subject to subsection (6), in a prosecution under subsection (1) the court shall
not convict the accused if the conspiracy, combination, agreement or arrange-
ment relates only to the export of products from Canada.
Subsection (5) does not apply if the conspiracy, combination, agreement or
arrangement
(a) has resulted in or is likely to result in a reduction or limitation of the real

(6)

value of exports of a product;

(b) has restricted or is likely to restrict any person from entering into or

expanding the business of exporting products from Canada; or

(c) has prevented or lessened or is likely to prevent or lessen competition
unduly in the supply of services facilitating the export of products from
Canada.

In a prosecution under subsection (1), the court shall not convict the accused
if it finds that the conspiracy, combination, agreement or arrangement relates

(7)

1993]

ANTI-COMPETITIVE COLLUSION

The amendments, particularly as regards the virtual monopoly test, were
designed to change the interpretation given to the word “unduly” by the
Supreme Court of Canada.’ Thus, one legitimately would have expected that
the definition of the word “unduly” would be reconsidered according to the new
legislation.

D.

Interpretation of the Stage I Amendments by the Courts

Unfortunately, the message did not reach the country’s courtrooms. In
prosecutions commenced after the coming into force of what is now subsection
45(2) of the Competition Act,41 courts either ignored that provision or referred
to it without reconsidering the meaning of the word “unduly.” In at least four
cases where charges were laid for offences committed after January 1976, Brit-
ish Columbia Television Broadcasting,42 R. v. Dave Spear Ltd.,4 3 R. v. B.C. Fruit
Growers Association 4 and R. v. Southam-Thomson Newspapers,45 no mention
was made of the new subsection and reliance was placed on the definition of the
word “unduly” found in Container Materials, Howard Smith Paper Mills and
Aetna.’ In all four cases the accused were acquitted and the scope of subsection
45(2) was never discussed.

In three other cases, namely Mediacom Industries Inc. v. R.,47 Tank Lining
Corp. v. Dunlop International Ltd.,5 and R. v. Canada Packers Inc.,49 the courts
referred to subsection 45(2) and came to the conclusion that “[t]he new section

only to a service and to standards of competence and integrity that are reason-
ably necessary for the protection of the public
(a) in the practice of a trade or profession relating to the service; or
(b) in the collection and dissemination of information relating to the service.
(7.1) Subsection (1) does not apply in respect of an agreement or arrangement

(8)

between banks that is described in subsection 49(1).
Subsection (1) does not apply in respect of a conspiracy, combination, agree-
ment or arrangement that is entered into only by companies each of which is,
in respect of every one of the others, an affiliate.

For the purposes of clarity, all references to s. 32(1)(c) in the Nova Scotia Pharmaceutical decision
will be subsequently identified in this text as references to s. 45.

4As Mr. Justice Vallerand pointed it out in Pavilion Chasse etpeche (440) Inc. v. Sumner Sports
Inc., [1990] R.J.Q. 1863 at 1871, 72 D.L.R. (4th) 317 (C.A.) [hereinafter Sumner Sports cited to
D.L.R. (translation)]: “Finally, I would like to point out that the 1976 amendment to the Act … was
clearly intended, perhaps in response to a suggestion by the Supreme Court of Canada …. to atten-
uate a jurisprudential interpretation of ‘unduly’ which some might describe as too liberal” (ibid.
at 327).

4 1See supra note 4.’
42Supra note 27.
43(1986), 11 C.P.R. (3d) 63 (Ont. H.C.).
44(1985), 11 C.P.R. (3d) 183 (B.C.S.C.) (part of the offence was committed prior to 1976).
45(28 October 1983), (Ont. S.C.) [unreported].
46See supra notes 3, 25.
41(1982), 36 O.R. (2d) 281, 63 C.P.R. (2d) 75 (H.C.), aff’d (1982), 37 O.R. (2d) 91, 68 C.P.R.
(2d) 285 (C.A.), leave to appeal den’d (1988), 44 N.R. 242 (S.C.C.) [hereinafter Mediacom Indus-
tries cited to O.R.].

48(1982), 40 O.R. (2d) 219, 68 C.P.R. (2d) 162 (C.A.) [hereinafter Tank Lining Corp. cited to

O.R.].

41(1988), 19 C.P.R. (3d) 133 (Alta. Q.B.) [hereinafter Canada Packers].

McGILL LAW JOURNAL

[Vol. 38

did not bring an alteration, but rather a clarification of the existing law.”50 In
Mediacom Industries, Mr. Justice Labrosse of the Ontario High Court of Justice
went so far as to rule that the addition of subsection 45(2) was aimed at confirm-
ing the views of Kellock and Cartwright JJ. in Howard Smith Paper Mills con-
cerning the meaning of the word “unduly.”5

In R. v. Manigo Inc., the Quebec Superior Court mentioned subsection
45(2) and stated that the test was whether the parties had substantial control
over the market. 2 Although this test seems different from that elaborated by the
Supreme Court of Canada, the Court did not depart explicitly from the previous
case law. Furthermore, the Court in fact found that the defendants had a monop-
oly over the sale of the product in issue.

Finally, in Sumner Sports,53 the Quebec Court of Appeal analysed para-
graph 32(l)(c) (now 45(1)(c)) in light of the appellant’s argument that a market
division agreement was to be deemed per se illegal. In support, the appellant
cited American case law under section 1 of the Sherman Act.’ Mr. Justice Val-
lerand, however, rejected this argument, noting that Parliament had elected to
maintain the word “unduly” within the offence created by subsection 45.55

E. Why Criminal Law Remains

The reform to Canadian competition law that ultimately emerged through
the 1975 and 1986 amendments produced a hybrid of criminal and administra-
tive law and followed the general contours of what was recommended by the
Economic Council of Canada’s Interim Report.56 One can only wonder whether

50Mediacom Industries, supra note 47 at 288, Labrosse J., followed in Canada Packers, ibid. at

181, Lomas J. See also Tank Lining Corp., supra note 48 at 231.

51Mediacom Industries, ibid. at 287-88. See Howard Smith Paper Mills, supra note 25.
52(14 January 1988), Perc6, District de Gasp6 110-27-00902-858, J.E. 88-174 (Sup. Ct.) at 12,
Jourdain J.: “La jurisprudence constante est A l’effet que pour conclure A une diminution ‘indue’
de la concurrence, la preuve doit ddmontrer que les parties 4 une entente exergaient un degr6 de
contrble substantiel sur le march&”

53Supra note 40.
541n particular, appellants (ibid. at 324) relied on U.S. v. Topco Associates Inc., 405 U.S. 596
(1971) [hereinafter Topco Associates]. See Sherman Act, 26 Stat. 209 (1890) (codified as amended
at 15 U.S.C. 1-7 (1988)). Section 1 of the Act reads: “Every contract, combination in the form
of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states,
or with foreign nations, is declared to be illegal …”
55See Suuner Sports, ibid. at 327: “But, as I have said, the amendment did not remove the term
‘unduly’ from the text of the Act and therefore a minimum of evidence is always necessary which
means that the trial judge must consider the facts of the case. Thus the American notion of illegal
per se does not apply.” As is developed further below, this ruling of Mr. Justice Vallerand is argu-
able. A comparative analysis of s. 1 of the U.S. Sherman Act (ibid.) and s. 45 of the Competition
Act (supra note 4) shows that the presence of the word “unduly” in the conspiracy section of the
Canadian statute does not in principle preclude the implementation of per se rules of illegality. In
the United States, Congress elected to forbid “every” agreement in restraint of trade. But the U.S.
Supreme Court rejected a literal interpretation of the law and ruled instead that in order to contra-
vene s. 1 an agreement must lessen competition unduly, giving rise to the rule of reason. When
the application of a rule of reason to every arrangement proved to be impracticable and self-
contradictory in certain cases (notably price-fixing and market division), the U.S. Supreme Court
created per se rules as an exception to the rule of reason.
56Supra note 33. Bill C-256, Competition Act, 3d Sess., 28th Parl., 1971, s. 16(1), would have

1993]

ANTI-COMPETITIVE COLLUSION

the survival of criminal sanctions was based on inertia or the fear of attacks on
the constitutional validity of attempting to apply the trade and commerce
power.57 Now that the constitutional validity of the legislation and the Compe-
tition Tribunal seems beyond reproach, both from the standpoint of the division
of powers and from the standpoint of the Canadian Charter of Rights and Free-
doms,5 it is unclear in fact whether there is any residual rationale for invoking
criminal law.

In the end, it would seem impossible to abstract entirely from the sense that
there is an element of moral blameworthiness attributable to the most egregious
forms of anti-competitive collusion. Some of the early legislative debate con-
cerning cartel activity focused on the analogy between price-fixing and theft.59
In the post-Chicago-School world,6′ this may seem naive and quaint. But there
remains an element of truth in the connection made to that other “economic
crime,” and the analogy is also revealing as concerns the respective roles for
criminal law and other methods of deterrence.

Theft might be conceived, somewhat ironically, as a practice that circum-
vents orderly markets through unilateral appropriation of value without bar-
gaining.6′ Inasmuch as widespread theft could eliminate certainty as to what
could be bargained about in the market, and would divert resources into the
preservation of possessions, it would produce massive inefficiencies. These
inefficiencies are not only of the allocative variety, because that presumes the
existence of a well-functioning market. They are also inefficiencies relating to
under-utilization of the market. Another way of describing these theft-related

followed quite closely the recommendation of the Interim Report respecting the adoption of a per
se standard for collusion offences. Indeed, there was a more specific itemization of species of col-
lusive arrangements and no attempt to evaluate whether such arrangements restricted competition
“unduly.” Ultimately this provision was unable to withstand attacks from the business community,
which claimed that it would apply to de minimis and uncolourable practices.

57 0n the issue of criminal liability under competition law, see B. McDonald, “Criminality and
the Canadian Anti-Combines Laws” (1965) 4 Alta. L. Rev. 67. For a review of the recent enforce-
ment record, see C. Goldman, “The Competition Bureau’s New Focus: Increased Risks for Indi-
viduals under the Competition Act” (1992) 13:2 Can. Comp. Pol. Rec. 33.

5SPart I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982,

c. 11 [hereinafter Charter].

59Gorecki & Stanbury, supra note 2.
6See discussion supra note 1.
6 1R.A. Posner discusses the economic justification for the legal prohibition against theft in the
context of discussing the tort of conversion, in the Economic Analysis of Law, 3d ed. (Boston: Lit-
tle, Brown and Co., 1986) at 192. As he writes:

These torts, and the corresponding list of crimes, involve not a conflict between legit-
imate (productive) activities but a pure, coerced transfer of wealth to the defendant,
occurring in a setting of low transaction costs. Such conduct is inefficient because it
violates the principles developed in earlier chapters that, where market transaction
costs are low, people should be required to use the market if they can and to desist from
the conduct if they can’t.

For a discussion of the analogy between theft and price-fixing, see Crampton & Kissack, supra
note 5 at 586, where the authors go so far as to suggest that competitive-restricting agreements
have more serious economic effects than those associated with theft or fraud and thus might ulti-
mately give rise to a greater perception of blameworthiness. However, the link between blamewor-
thiness and negative economic consequences is far from obvious.

REVUE DE DROIT DE McGILL

[Vol. 38

inefficiencies is that there is lack of confidence in the market; there is insuffi-
cient trust in the orderliness of free and open bargaining.

Some might take the goal of the law relating to theft to be to maximize
deterrence so as to enhance confidence in the market and to promote its utili-
zation.62 The criminal law need not provide the only or even the best deterrent.
Let us put to one side ways of reducing the initial incentive to steal (e.g. reduc-
ing poverty). An expeditious and reliable restitutionary scheme, especially if
coupled with exemplary damages (e.g. treble damages) as a means of offsetting
the probability of escaping compensation and of stimulating private litigation,
could in principle serve the purpose.63 However, an efficient restitution scheme
would not fully address the moral blameworthiness of theft. The act of theft, not
just its consequences, deserves censure. While a restitutionary scheme may sig-
nal moral reprobation, it is not designed to delimit what is beyond the pale.
Criminal law is the vehicle for that purpose. Thus, even if we were able to
develop workable schemes of civil or administrative deterrence of theft, and
even if we concluded that a criminal sanction provided comparatively ineffect-
ive deterrence, we would be wrong to abandon a criminal sanction for theft. The
existence of the criminal sanction as a formal public pronouncement against
theft, together with the criminal trial process that can lead to public identifica-
tion and punishment of criminal behaviour, serves a purpose whatever its effec-
tiveness in deterring crime. We are saying: “This behaviour is sufficiently
wrong that it requires public sanction. You are a wrongdoer, and as a wrongdoer
you have placed yourself against the whole community, for which you will be
punished.”‘

Is anti-competitive collusion like theft in the sense that it is morally blame-
worthy, and if so is it morally blameworthy for similar reasons? The thief takes
another’s property without consent. The participant in a cartel appropriates
wealth from consumers with their consent, but with consent that is vitiated by
the elimination of choice. However, vitiation of consent, which may have civil
law consequences, does not ordinarily carry with it the degree of moral blame-
worthiness attached to crime. Can it be that collusion gives rise to an egregious
form of vitiated consent, analogous say to consent obtained through criminal
fraud?65

62See G. Ezorsky, ed., Philosophical Perspectives on Punishment (Albany: State University of
New York Press, 1972) at 186ff. See also, C. Tollefson, “Ideologies Clashing: Corporations, Crim-
inal Law and the Regulatory Offence” (1991) 29 Osgoode Hall L.J. 705 at 715.
63See Chrysler Canada Ltd. v. Canada (Competition Tribunal), [1992] 2 S.C.R. 394 at 407, 92
D.L.R. (4th) 609 [hereinafter Chrysler cited to S.C.R.], where Mr. Justice Gonthier makes the fol-
lowing comment about the relation between the criminal and civil law provisions of the Compe-
tition Act: “The same concern for the proper long-term functioning of the free market lay at the
very heart of the enactment of Part VIII in 1986. Civil remedies can be more finely attuned and
stand a better chance of leading to lasting compliance with the CA [Competition Act] than criminal
convictions.”

inal sanctions, see N. Walker, Why Punish? (Oxford: Oxford University Press, 1991).

64On the relationship between utilitarian and retributivist rationales for the imposition of crim-
65See the “false pretences” provisions of the Criminal Code, R.S.C. 1985, c. C-46, ss. 361 and
following, as well as Part X of the Criminal Code dealing with fraudulent transactions related to
contracts and trade.

1993]

ANTI-COMPETITIVE COLLUSION

Market pricing is premised upon a free alignment of demand and supply.
The consumer is drawn to make purchases in the market and consent to prices
established there on the basis that price reflects cost and demand. Beyond caus-
ing allocative inefficiency by breaking down that alignment, naked cartel
arrangements are egregious inasmuch as they attack the foundation for consent
in the market. In principle, price-fixing of any individual product or service will
disturb the relative demand and pricing for every other product and service. The
more generalized the phenomenon of price-fixing, the less the notions of “cost”
and “demand” have any practical meaning. Furthermore, the fixed price mas-
querades as a market price in two ways. First, there is no disclosure of the way
in which it is set. Second, because there is a plurality of actors, there is an
appearance of competition. In this sense, a fixed price is analogous to a fraud-
ulent price.’

Of course, it could be replied that unlike in the case of fraud, the disclosure
of price-fixing would not fundamentally change consumer behaviour. The key
piece of information, i.e. price, is disclosed and consumers will respond to that
information according to the elasticity of their demand. Perhaps if price-fixing
were disclosed, this would cause consumers to boycott or would undermine car-
tel stability.67 However, the Organization of Petroleum Exporting Countries
(OPEC) was a disclosed cartel that survived for a considerable period.6″ Occa-
sionally, cartels formed in response to claims of “cut-throat competition” are
disclosed as well.69

Yet even disclosed cartels are premised upon manipulation of relatively
inelastic demand. The consumer is understood to be vulnerable, having few
options in the face of fixed prices, and that vulnerability is to be exploited.7″ The
freedom of the market is abused and indeed negated. In short, price-fixing takes

66An analogy might also be pursued to insider trading. The insider trades not only on the pos-
session of information that is generally concealed, but also on the fact that others rely upon the
transparency of the market to participate in the market and enter into transactions with the insider.
The culpability of the act can only be understood when the second element is taken into account.
The insider is a special kind of free rider on public confidence in the market –
a free rider who
manipulates the vulnerability inherent in that confidence.

67Interestingly enough, it is often argued that cartel arrangements are inherently unstable given
the considerable incentive for cartel members to cheat on cartels. However, where consumers are
prone to accept advertised prices as reflecting an outcome of competition, they may exert less pres-
sure upon cartel members to defect. This in turn can foster cartel stability; see W.B. Erickson,
“Price-Fixing Conspiracies: Their Long-Term Impact” (1975-76) 24 J. of Ind. Econ. 189.

68Note that Canadian export cartels are exempt from criminal liability unless their cartel behav-
iour affects the Canadian export market –
i.e. whatever its effect is on foreign consumers: see ss.
45(5), (6). One must question this “beggar thy neighbour” approach. Indeed the current legislation
repealed s. 32(5)(d) of the Combines Investigation Act, supra note 31, which provided that the
exemption for export cartels did not apply where the cartel “has lessened or is likely to lessen com-
petition unduly in relation to a product in the domestic market.”

69See.Ontario Salt Co. v. Merchant Salt Co. (1871), 18 Gr. 540 (Ch. C.). The historical dimen-
sions of this case are explored elsewhere in this special issue; see W.E.B. Code, “The Salt Men
of Goderich in Ontario’s Court of Chancery: Ontario Salt Co. v. Merchants Salt Co. and the Judi-
cial Enforcement of Combinations” (1993) 38 McGill L.J. 517.

70Here an analogy might be drawn to criminal breach of trust or to the setting of criminal interest

rates (Criminal Code, ss. 336, 347).

McGILL LAW JOURNAL

[Vol. 38

the market –

advantage of a public good –
and exploits a vulnerability that
comes from use of and reliance upon that public good. Indeed, at the outset of
Gonthier J.’s analysis of section 45 in Nova Scotia Pharmaceutical, there is an
important assertion that “[c]ompetition is presumed by the Act to be in the pub-
lic benefit.”‘ Competition itself, rather than the positive consequences of com-
petition, is deemed worthy of protection. The fact that anti-competitive collu-
sion manipulates that public good is the normative basis for its criminal
prohibition.72

From the foregoing it would appear that the criminality of anti-competitive
collusion depends upon an economic context –
a generalized market economy.
Cartel behaviour would not be in the same way blameworthy if market relations
were not our principal means of redistributing social wealth. Similarly, in the
absence of private property, theft would have little or no meaning. But crimina-
lization cannot be explained simply as an instrument for promoting the market.
Rather, given a market, certain extreme manipulations of that market take on
criminal blameworthiness.

F. When Criminal Law, When Civil Law?

To this point the discussion has only attempted to identify arguments for
the criminal blameworthiness of anti-competitive collusion without attempting
to specify which cases of such collusion are sufficiently egregious to justify lay-
ing criminal blame as opposed to proceeding under civil or administrative rem-
edies.73 However, it should be noted that the problem of distinguishing the most
egregious cases is not particular to anti-competitive collusion. Criminal fraud
and criminal breach of trust have been alluded to previously. Not all cases of
fraud or breach of trust attract criminal liability.

Just as there might be practical, instrumental reasons for proceeding to
seek a civil remedy in a particular case of theft rather than a criminal remedy,

71Supra note 5 at 650.
721t should be noted that the Supreme Court of Canada, as a general-matter, has characterized
the conduct regulated by the Competition Act as lacking in moral blameworthiness. As the Court
has described it, some of this conduct is made criminal for strictly instrumental reasons so as to
control its negative economic consequences; see Thomson Newspapers Ltd. v. Canada (Director
of Investigation and Research), [1990] 1 S.C.R. 425 at 510, 67 D.L.R. (4th) 161, LaForest J., and
R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154 at 216-23, 8 C.R. (4th) 145, Cory J. [here-
inafter Wholesale Travetl. However, while the Act as a whole surely can be characterized this way,
s. 45 stands out, in Mr. Justice Gonthier’s words (Nova Scotia Pharmaceutical, supra note 5 at
649), as “not just another regulatory provision” but rather one that “remains at the core of the crim-
inal part of the Act.” Together with bid-rigging (s. 47), which is an extreme form of price-fixing,
the cartel prohibition regulates conduct not only for its economic consequences, but also because
of its inherent culpability.
73For a useful discussion of the relationship between criminal and civil sanctions for antitrust
violations, see P. Areeda & D. Turner, Antitrust Law: An Analysis of Antitrust Principles and Their
Application, vol. 2 (Boston: Little, Brown, 1978) at 26-36. See also Ky P. Ewing Jr, “The View
from the Department of Justice: Some Thoughts on Pricing Questions” (Dallas: Department of Jus-
tice, Antitrust Division, 1980) at 13: “Before and after Gypsum, the Antitrust Division proceeded
criminally only against what we believed to be deliberate violations. Consequently, we have sought
indictments only when the evidence demonstrated that the purpose of the conspiracy was to
achieve an anti-competitive restraint. This, of course, satisfies the Gypsum standard.”

19931

ANTI-COMPETITIVE COLLUSION

so too there are practical, instrumental reasons why one might seek a civil rem-
edy under section 36 or an administrative remedy under section 79 in particular
cases of cartel behaviour.74 For example, a prosecutor must take account of the

74For the purposes of future discussion, it is worthwhile to set out the text of these particular

provisions. Section 36 of the Competition Act reads:

36.(1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part VI, or
(b) the failure of any person to comply with an order of the Tribunal or

another court under this Act,

may, in any court of competent jurisdiction, sue for and recover from the per-
son who engaged in the conduct or failed to comply with the order an amount
equal to the loss or damage proved to have been suffered by him, together
with any additional amount that the court may allow not exceeding the full
cost to him of any investigation in connection with the matter and of proceed-
ings under this section.

Sections 78 and 79 of the Act on “Abuse of Dominant Position” read as follows:

78.

For the purposes of section 79, “anti-competitive act”, without restricting the
generality of the term, includes any of the following acts:
(a) squeezing, by a vertically integrated supplier, of the margin available to
an unintegrated customer who competes with the supplier, for the pur-
pose of impeding or preventing the customer’s entry into, or expansion
in, a market;

(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 elim-
inating the competitor from, a market;

(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;

(d) use of fighting brands introduced selectively on a temporary basis to dis-

cipline or eliminate a competitor,

(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;

(t) buying up of products to prevent the erosion of existing price levels;
(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;

(h) requiring or inducing a supplier to sell only or primarily to certain cus-
tomers, or to refrain from selling to a competitor, with the object of pre-
venting a competitor’s entry into, or expansion in, a market; and

(i) selling articles at a price lower than the acquisition cost for the purpose

of disciplining or eliminating a competitor.

79.(1) Where, on application by the Director, the Tribunal finds that

(a) one or more persons substantially or completely control, throughout Can-

ada 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.

(2) Where, on an application under subsection (1), the Tribunal finds that a prac-
tice of anti-competitive acts has had or is having the effect of preventing or

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differing burdens of proof to be met. Nevertheless, the central consideration
should be to identify the most serious forms of anti-competitive collusion as
meriting criminal prosecution, leaving the civil and administrative remedies as
the default regime. In attempting to work out how to deploy the range of instru-
ments arrayed under Canadian competition law, the antitrust regime of the
United States offers a useful point of comparison. This is so for two reasons.
First, the American regime has long contained a mixture of criminal, civil and
administrative approaches. Second, American courts have developed a doctrine
respecting conspiracy in restraint of trade that distinguishes between practices
that are illegal per se and those that are subject to a “rule of reason.” The former
are acts inherently contrary to the ban on restrictive practices. The latter are sub-
ject to a more fine-grained analysis of their origin, purpose and effect. The dis-
tinction between per se and rule-of-reason analysis may thus help to identify
practices subject to stricter criminal law scrutiny. We turn first to a summary of
the American rule-of-reason/per se distinction and then to its applicability in
Canada in light of the Nova Scotia Pharmaceutical decision. In outlining the
American approach to section 1 of the Sherman Act, our objective is to highlight
the most important and recent decisions in order to facilitate a comparison with
the “partial rule of reason” test formulated by Gonthier J.

II. The American Approach to Section 1 of the Sherman Act: Per se and

Rule of Reason

In the United States, the judiciary has long used two separate methods for
assessing the competitive impact of a specific practice under section 1 of the

lessening competition substantially in a market and that an order under sub-
section (1) is not likely to restore competition in that market, the Tribunal
may, in addition to or in lieu of making an order under subsection (1), make
an order directing any or all the persons against whom an order is sought to
take such actions, including the divestiture of assets or shares, as are reason-
able and as are necessary to overcome the effects of the practice in that mar-
ket.
In making an order under subsection (2), the Tribunal shall make the order in
such terms as will in its opinion interfere with the rights of any person to
whom the order is directed or any other person affected by it only to the extent
necessary to achieve the purpose of the order.
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.

(3)

(4)

(5) For the purpose of this section, an act engaged in pursuant only to the exercise
of any right or enjoyment of any interest derived under the Copyright Act,
Industrial Design Act, Patent Act, Trade-marks Act or any other Act of Par-
liament pertaining to intellectual or industrial property is not an anti-
competitive act.

(6) No application may be made under this section in respect of a practice of anti-

competitive acts more than three years after the practice has ceased.

(7) No application may be made under this section against a person

(a) against whom proceedings have been commenced under section 45, or
(b) against whom an order is sought under section 92
on the basis of the same or substantially the same facts as would be alleged
in the proceedings under section 45 or 92, as the case may be.

1993]

ANTI-COMPETITIVE COLLUSION

Sherman Act:75 per se analysis and rule-of-reason analysis. It is thus important
to outline the origin and scope of each rule.76

A. The Rule of Reason

Although the Sherman Act appears to contain far more absolute prohibi-
tions against anti-competitive behaviour than Canada’s cartel provision, this
absolute language has never been applied literally. The rule of reason, which
moderated the strictness of the Sherman Act’s explicit terms, is not a recent
innovation in American antitrust law. It was developed by the United States
Supreme Court at the beginning of the century in a case brought by the govem-
ment against the oil industry pursuant to sections 1 and 2″ of the Sherman Act.
In Standard Oil Company of New Jersey v. U.S.,7″ it was decided that the expres-
sions “restraint of trade” and “monopoly” had to be interpreted in light of their
meaning at common law79 as well as in light of American law in force when
Congress enacted the Sherman Act.”0 As to section 1 of the Sherman Act, the
majority of the Court came to the conclusion that it aims only at “undue restraint
of interstate or foreign commerce.” [emphasis added]s’ Thus, whereas the word
“unduly” was explicitly part of the Canadian legislation, it was read into the
Sherman Act by the United States Supreme Court. This gave rise to what was
termed “the standard of reason”” and was deemed to be the appropriate analysis
in spite of the fact that section 1 forbids “every” conspiracy in restraint of
trade. 3

Although in Standard Oil the Court set down the rule-of-reason approach
to section 1 of the Sherman Act, the decision provided little indication of the
parameters for the required inquiry. In Chicago Board of Trade v. U.S.,” Mr.

75Supra note 54.
76For a detailed analysis of the analytical approaches used under s. 1 of the Sherman Act, see
T.A. Piraino, “Reconciling the Per Se and Rule of Reason Approaches to Antitrust Analysis”
(1991) 64 S. Cal. L. Rev. 685.

77Section 2 of the Sherman Act, supra note 54, reads:

Every person.who shall monopolize, or attempt to monopolize, or combine or conspire
with any other person or persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall be deemed guilty of a felony,
and, on conviction thereof, shall be punished by a fine not exceeding $10,000,000 if
a corporation, or, if any other person, $350,000, or by imprisonment not exceeding
three years, or by both said punishments, in the discretion of the court.

78221 U.S. 1 (1910) [hereinafter Standard Oil].
79Mr. Justice White (ibid. at 56) referred, inter alia, to Mogul Steamship Co. v. McGregor,

[1982] A.C. 25 (H.L.).

8As Mr. Justice White wrote: “It’s certain that those terms, at least in their rudimentary mean-
ing, took their origin in the common law, and were also familiar in the law of this country prior
to and at the time of the adoption of the act in question” (ibid. at 51).

“Ifbid. at 59-60.
82Ibid. at 60.
83Supra note 54. For further discussion of “the standard or reason,” see U.S. v. American
Tobacco, 221 U.S. 106 at 179-80 (1911) [hereinafter American Tobacco], and discussion in W. Let-
win, Law and Economic Policy in America: The Evolution of the American Antitrust Act (New
York: Random House, 1965) at 253-65, as well as E. Kintner, Federal Antitrust Law (Cincinnati:
Anderson Publishing, 1980) at 350-54.

84246 U.S. 231 (1918) [hereinafter Chicago Board of Trade].

McGILL LAW JOURNAL

[Vol. 38

Justice Brandeis took the position that a rule-of-reason analysis mandates a
careful consideration of the objective and effect of an agreement before it is
deemed unlawful. Thus, a court must consider whether the evidence shows an
agreement whose effects are either pro-competitive or anti-competitive.”

The rule-of-reason approach is the default regime under section 1 of the
Sherman Act.86 It also applies to the section 2 monopolization offence and to
merger review.87 For example, in the case of monopolization, a strict rule-of-
reason approach includes proof of the following elements:
(i) “monopoly power”88 within a relevant market;
and
(ii) “the willful acquisition or maintenance of that power as distinguished from
growth or development as a consequence of a superior product, business
acumen, or historic accident.” 9

This makes it necessary, first, to adduce evidence regarding the relevant market,
i.e. the product over which the defendant(s) is said to have control (“product
market”) and the territory where such control is claimed to exist (“geographic
market”).90 Second, it must be shown that the defendant has market power
within the relevant market. Usually this is done by measuring the market share

85 As Mr. Justice Brandeis stated in Chicago Board of Trade, ibid. at 238:

Every agreement concerning trade, every regulation of trade, restrains. To bind, to
restrain, is of their very essence. The true test of legality is whether the restraint
imposed is such as merely regulates and perhaps thereby promotes competition or
whether it is such as may suppress or even destroy competition. To determine that ques-
tion the court must ordinarily consider the facts peculiar to the business to which the
restraint is applied; its condition before and after the restraint was imposed; the nature
of the restraint and its effects, actual or probable. The history of the restraint, the evil
believed to exist, the reason for adopting the particular remedy, the purpose or end
sought to be attained, are all relevant facts. This is not because good intention will save
an otherwise objectionable regulation or the reverse; but because knowledge of intent
may help the court to interpret facts and predict consequences.

8 6For recent decisions of the United States Supreme Court applying a rule-of-reason analysis
under s. 1 of the Sherman Act (supra note 54), see inter alia: F.T.C. v. Indiana Federation of Den-
tists, 476 U.S. 447 (1986) [hereinafter Indiana Federation of Dentists]; Northwest Wholesale Sta-
tioners v. Pacific Stationery and Printing Co., 105 S. Ct. 2613 (1985) [hereinafter Pacific Station-
ery]; National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma,
468 U.S. 85 (1984) [hereinafter University of Oklahoma]; Broadcast Music Inc. v. Columbia
Broadcasting System Inc., 441 U.S. 1 (1978) [hereinafter Broadcast Music]; Continental T.V. Inc.
v. G.T.E. Sylvania, 433 U.S. 36 (1977) [hereinafter G.T.E. Sylvania].
87 For the applicability of the rule of reason to s. 2 (supra note 77), see U.S. v. Grinnell Corp.,
384 U.S. 563 (1966) [hereinafter Grinnell] (monopolization), and Brown Shoe Co. Inc. v. U.S., 370
U.S. 294 (1962); U.S. v. Philadelphia National Bank, 374 U.S. 321 (1963) [hereinafter Philadel-
phia National Bank]; U.S. v. General Dynamics Corporation, 415 U.S. 486 (1974) (mergers).

“t Grinnell, ibid. at 570. The Supreme Court defined monopoly power as “the power to control
prices or exclude competition” (ibid. at 571 citing United States v. du Pont & Co., 351 U.S. 377
at 391 (1956)). For two articles discussing the issue of market definition and market power, see
R. Pitofsky, “New Definition of Relevant Market and the Assault on Antitrust” (1990) 90 Colum.
L, Rev. 1805; W.M. Landes & R.A. Posner, “Market Power in Antitrust Cases” (1981) 94 Harv.
L. Rev. 937.

89Grinnell, ibid. at 570-71.
90Pitofsky, supra note 88 at 1810.

1993]

ANTI-COMPETITIVE COLLUSION

of the defendant; a high market share (e.g. over seventy per cent)9 provides evi-
dence, prima facie, that the defendant has market power although countervail-
ing evidence may be introduced. 2 Finally, there is an assessment as to whether
the defendant(s) gained market power through legitimate or illegitimate trade
practices.9 3

91Domed Stadium Hotel Inc. v. Holiday Inns Inc., 732 F.2d 480 at 489 note 11 (5th Cir. 1984).
See also Grinnell, supra note 87 at 571, where the defendant company and its affiliates were found
to possess monopoly power by controlling 87% of the relevant market.

92In two decisions, Canada (Director of Investigation and Research) v. Nutrasweet Co. (1990),
32 C.P.R. (3d) 1 at 31 (Comp. Trib.) [hereinafter Nutrasweet], and Canada (Director of Investiga-
tion and Research) v. Laidlaw Waste Systems Ltd. (1992), 40 C.P.R. (3d) 289 at 325 (Comp. Trib.)
[hereinafter Laidlaw], the Competition Tribunal used this analytical approach in assessing whether
the relevant defendants had “control” over “a class or species of business” for the purposes of s.
79(1) of the Competition Act (see text to provision, supra note 74). For a comparative analysis of
Canadian and American Law regarding monopoly, see D.M. Bellemare, “La Loi sur la concur-
rence” (Montreal: Congr~s du Barreau du Qu6bec, 1992) at 243.

93Mergers are reviewed both under s. 1 of the Sherman Act (supra note 54) and s. 7 of the Clay-
ton Act (supra note 17); see U.S. Department of Justice Merger Guidelines, Antitrust & Trade Reg.
Rep. (BNA) No. 1559, April 2, 1992. Courts use the same methodology to assess the anti-
competitive impact of mergers under these two sections. As in the case of s. 2 monopolization, the
boundaries of the market must first be defined. Then, pursuant to the ruling of Mr. Justice Brennan
in Philadelphia National Bank, supra note 87 at 363, it must be decided if the market share of the
parties raises a presumption that the merger “[will] lessen competition substantially or will tend
to create a monopoly.” As Brennan J. elaborated in full, justifying aprimafacie case approach in
light of legislative history:

This intense congressional concern with the trend toward concentration warrants dis-
pensing, in certain cases, with elaborate proof of market structure, market behavior, or
probable anticompetitive effects. Specifically, we think that a merger which produces
a firm controlling an undue percentage share of the relevant market, and results in a
significant increase in the concentration of firms in that market, is so inherently likely
to lessen competition substantially that it must be enjoined in the absence of evidence
clearly showing that the merger is not likely to have such anticompetitive effects
(ibid.).

Such an approach was confirmed in several recent cases: Hospital Corporation of America v.
F.T.C., 807 F.2d 1381 (7th Cir. 1986) [hereinafter Hospital Corporation of America]; F.T.C. v.
Elders Grain Inc., 868 F.2d 901 (7th Cir. 1989); F.T.C. v. University Health Inc., 938 E2d 1206
(11th Cir. 1991).

In order to reverse the presumption of illegality, defendants may supply economic evidence tend-
ing to demonstrate that the market share achieved through the merger does not provide market
power, e.g. evidence as to the absence of entry barriers (U.S. v. Baker Hughes Inc., 908 F.2d 981
(D.C. Cir. 1990); U.S. v. Calmar Inc., 612 F. Supp. 1298 (D.N.J. 1985); U.S. v. Waste Management
Inc., 743 F.2d 976 (2d Cir. 1984)), the failing economic condition of one party (F.T.C. v. Harbour
Group Investments L.P. (1990) 2 Trade Cases 64912; F.T.C. v. Warner Communications Inc., 742
F.2d 1156 (9th Cir. 1984); U.S. v. Greater Buffalo Press Inc., 402 U.S. 549 (1971); Citizen Pub-
lishing Co. v. U.S., 394 U.S. 131 (1969); International Shoe Co. v. F.T.C., 280 U.S. 291 (1930)),
or the realization of efficiencies, such as economies of scale (W. Adams & J.W. Brock, “Antitrust
and Efficiency: A Comment” (1987) 62 N.Y.U. L. Rev. 1116; T.J. Muris, “The Efficiency Defense
Under Section 7 of the Clayton Act” (1980) 30 Case W. Res. L. Rev. 381; A.A. Fisher & R.H.
Lande, “Efficiency Considerations in Merger Enforcement” (1983) 71 Cal. L. Rev. 1580). The
prima facie rule of illegality enunciated in Philadelphia National Bank (ibid.) was adopted by the
Competition Tribunal in Canada (Director of Investigation and Research) v. Hillsdown Holdings
(Can.) Ltd. (1992), 41 C.P.R. (3d) 289 at 314 (Comp. Trib.), in the context of an application made
by the Director of Investigation and Research under s. 92 of the Competition Act against a merger
completed in the rendering industry in Ontario. See also D.M. Bellemare, The Relevance of the
Structure-Conduct-Performance Paradigm to Horizontal Merger Analysis Under the Competition

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In sum, the rule of reason compels the trial judge to undertake an exhaust-
ive investigation of the economic environment in which the agreement in
restraint of trade took place. This often requires the presentation of complex
economic studies and analyses. Also relevant under section 1 of the Sherman
Act is the motivation or state of mind of the parties to the agreement. Section
1 is enforced through criminal prosecution as well as civil actions. Violation of
section 1 is a felony giving rise to a fine and imprisonment. In addition, the
Attorney General and private parties may bring civil actions under section 4 of
the Clayton Act for recovery of treble damages. They may also seek injunctive
relief under sections 15 and 16 of the Clayton Act. In criminal proceedings mens
rea must be established.94 However in civil proceedings no proof of mens rea
is required – only a showing of either “unlawful purpose or an anti-competitive
effect.”” s

B. The Per Se Rule

Whereas the rule of reason applied to conspiracies in restraint of trade is
the general or default rule,96 over the years courts have concluded that certain
types of conduct are inherently anti-competitive and therefore would not be
open to justification.97 Thus, the courts have created, as an exception to the gen-
eral rule of reason test, per se rules of illegality for certain types of conduct –
in part for reasons of administrative efficiency.9 8 These practices are: price-
fixing, market division, tying arrangements and group boycott.99 However, the
per se rule is not enforced uniformly in the sense that somewhat different evi-

Act (LL.M. Thesis, McGill University, 1991). In another decision, Canada (Director of Investiga-
tion and Research) v. Southam Inc. (1992), 43 C.P.R. (3d) 161 (Comp. Trib.), on appeal, No.
A-1093-92 (F.C.A.), the Tribunal did not mention the prima facie rule. However, it should be noted
that the Director supplied market share data only with respect to the Vancouver Courier merger:
DIR v. Southam Inc. et al. Notice of Application and Statement of Grounds and Material Facts,
CT-90/I, November 29, 1990, paragraphs 67 and 70. No such information was supplied as to the
North Shore News merger or the Real Estate Weekly merger.
941n U.S. v. U.S. Gypsum Co., 438 U.S. 422 at 444 (1978) [hereinafter U.S. Gypsum], Mr. Justice
Burger defined the relevant mens rea as “action undertaken with knowledge of its probable con-
sequences.”

95Ibid. at 436 note 13.
96Arizona v. Maricopa County Medical Society, 457 U.S. 332 at 343 (1982) [hereinafter Mar-

icopa County Medical Society]; Broadcast Music, supra note 86 at 8.

97For a contrary view as to the inherent anti-competitiveness of cartel behaviour, see Leslie,

98Stevens J. explained the rationale for per se offences in Maricopa County Medical Society,

supra note 1.

supra note 96 at 343-44:

The costs of judging business practices under the rule of reason, have been reduced by
the recognition of per se rules. Once experience with a particular kind of restraint
enables the Court to predict with confidence that the rule of reason will condemn it,
it has applied a conclusive presumption that the restraint is unreasonable. As in every
rule of general application, the match between the presumed and the actual is imper-
fect. For the sake of business certainty and litigation efficiency, we have tolerated the
invalidation of some agreements that a fullblown inquiry might have proved to be rea-
sonable. [citations omitted]

99Northern Pacific Railway Co. v. U.S., 356 U.S. I at 5 (1957) [hereinafter Northern Pacific

Railway].

1993]

ANTI-COMPETITIVE COLLUSION

dentiary standards are applied depending upon the type of practice involved. We
will review in turn each practice subject to a per se rule.

1.

Price-fixing

Although rivalry among competing firms may take several forms,”u price
competition is crucial to the workings of the market. Price-fixing, which by def-
inition involves no new economies of scale or gains in productive or dynamic
efficiency, is inherently inconsistent with a free market system.’0′ Not surpris-
ingly, therefore, since the coming into force of the Sherman Act, courts have
been very strict in their interpretation of the antitrust statute when confronted
with price-fixing agreements.

For instance, in U.S. v. Trenton Potteries Co.,”re the Court rejected the
defendants’ contention that a price-fixing agreement falls under section 1 of the
Sherman Act only if the price fixed or agreed upon is unreasonable. Rather, Mr.
Justice Stone concluded that price-fixing was inherently unreasonable: “The
aim and result of every price-fixing agreement, if effective, is the elimination
of one form of competition. The power to fix prices, whether reasonably exer-
cised or not, involves power to control the market and to fix arbitrary and unrea-
sonable prices.”‘ 3

Consequently, the Court declared “price-fixing illegal as a matter of
law.”’13” In particular, there is no need to prove that the defendants had market
power. 5 It is sufficient to prove that the defendants had fixed prices and that
interstate commerce was affected.'”

Subsequently, in U.S. v. Socony-Vacuum Oil Co., 7 the Court applied this
per se rule to an agreement that had a direcf effect on price without strictly
speaking fixing price. In that case, a group of vertically-integrated oil compa-

1tFor a discussion of the various non-price dimensions to competition, see National Society of
Professional Engineers v. U.S., 435 U.S. 679 at 695 (1978) [hereinafter National Society of Pro-
fessional Engineers].

I01Market division may, in fact, have more significant anti-competitive consequences. As one
author writes: “In fact, horizontal territorial allocations arguably have a greater anticompetitive
effect than horizontal price fixing. Price fixing eliminates only price competition among compet-
itors, but horizontal market division eliminates all competition” (Piraino, supra note 76 at 721 note
161).

102 273 U.S. 392 (1927) [hereinafter Trenton Potteries]. In that case, twenty individuals and
twenty-three corporations, with control over 82% of the manufacture and distribution of vitreous
pottery fixtures in the United States were charged with price-fixing and exclusive dealing (ibid. at
394).

‘ 3lbid. at 399.
141bid at 400. Mr. Justice Stone cited some early cases (for instance, U.S. v. Trans-Missouri
Freight Association, 166 U.S. 290 (1897); U.S. v. Joint Traffic Association, 171 U.S. 505 (1898);
Addyston Pipe & Steel Co. v. U.S., 175 U.S. 211 (1899); Swift & Co. v. U.S., 196 U.S. 375 (1905);
Maple Flooring Association v. U.S., 268 U.S. 563 (1925); Cement Manufacturers’ Protective Asso-
ciation v. U.S., 268 U.S. 588 (1925)) in an attempt to show that the rule of reason enunciated in
Standard Oil (supra note 78) did not apply to price-fixing.

’05University of Oklahoma, supra note 86 at 100.
’06Topco Associates, supra note 54; U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) [here-
inafter Socony-Vacuum Oil]; Trenton Potteries, supra note 102. In the case of criminal prosecution,
it is also necessary to prove mens rea beyond a reasonable doubt.

“O7lbid.

McGILL LAW JOURNAL

[Vol. 38

nies had purchased surplus oil refined by independent refiners within two dis-
tinct interstate markets, therefore creating upward pressure on oil prices.’I8

After Socony-Vacuum Oil the United States Supreme Court applied the per
se rule to both direct and indirect price-fixing agreements. A broad range of
practices have now been categorized as price-fixing by the Court, including
establishing minimum or maximum fee schedules,” 9 entering into “credit-
fixing” arrangements,” 0 and agreeing not to include prices in bids. The last
example offers an illustration of how far the per se rule against price-fixing
extends. In National Society of Professional Engineers,”‘ those sections of a
professional Code of Ethics forbidding engineers from submitting competitive
bids for engineering works were deemed to be in per se violation of section 1
of the Sherman Act.”2 Engineers were not allowed to discuss their fees until
selected by the client. Although not a price-fixing agreement strictly speaking,
the Code did prevent engineers from competing against each other on the basis
of price for their professional services.

However, two recent cases illustrate that the per se rule against price-fixing
is not to be applied mechanically. Broadcast Music”‘ posed the question

‘As Mr. Justice Douglas explained for the Court: ‘”An agreement to pay or charge rigid, uni-
form prices would be an illegal agreement under the Sherman Act. But so would agreements to
raise or lower prices whatever machinery for price-fixing was used” (ibid. at 222).

t09See e.g. Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) [hereinafter Goldfarb], where
it was decided that a mandatory minimum-fee schedule for real estate transactions infringed s. I
of the Sherman Act. The Court noted that “[a] purely advisory fee schedule issued to provide guide-
lines, or an exchange of price information without a showing of an actual restraint of trade, would
present us with a very different question” (ibid. at 781). Chief Justice Burger pointed out that the
Court was faced with a “naked agreement” which unquestionably affected prices (ibid. at 782).
Even if not mentioned expressly in the decision, the Court applied the per se rule. In another case,
Maricopa County Medical Society, supra note 96, the Court reviewed the legality of a maximum-
fee schedule established by two county physician organizations for fees recoverable from insurers
of insurance plans. Invoking the longstanding tradition of “enforcement of the per se rule against
price-fixing” (ibid. at 347), the Court condemned this scheme with the same vigor as the minimum-
fee schedule deemed unlawful in Goldfarb: “But the fee agreements disclosed by the record in this
case are among independent competing entrepreneurs. They fit squarely into the horizontal price-
fixing mold” (ibid. at 357).

“See also Catalano Inc. v. Target Sales Inc., 446 U.S. 643 (1980), which concerned the proper
rule of analysis to be applied to a “credit-fixing” agreement. The Court extended the per se rule
against price-fixing to an arrangement among beer wholesalers whereby they agreed no longer to
provide credit on beer purchased by beer retailers. As a result, customers had to pay in advance
or upon delivery. The “interest-free credit” allowed to beer retailers prior to the agreement was con-
sidered by the Court to be integral to the price of beer: “It is virtually self-evident that extending
interest-free credit for a period of time is equivalent to giving a discount equal to the value of the
use of the purchase price for that period of time. Thus, credit terms must be characterized as an
inseparable part of the price” (ibid. at 648).

t”Supra note 100.
112 As Stevens J. wrote for the Court:

In this case we are presented with an agreement among competitors to refuse to discuss
prices with potential customers until after negotiations have resulted in the initial selec-
tion of an engineer. While this is not price fixing as such, no elaborate industry analysis
is required to demonstrate the anticompetitive character of such an agreement. … On
its face, this agreement restrains trade within the meaning of I of the Sherman Act
(ibid. at 692-93).

It3Supra note 86.

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ANTI-COMPETITIVE COLLUSION

whether it was per se illegal for the owners of copyrighted musical composi-
tions to pool their rights within two associations (ASCAP and BMI) which in
turn issued “blanket licenses” to television networks. Mr. Justice White, for the
majority, ruled that the blanket licenses did not constitute price-fixing stricto
sensu and should be subject to a rule-of-reason analysis given the specific con-
text in which they were issued.’
In looking at that context, the majority con-
cluded that what was granted under a blanket license constituted a different
product than the rights to an individual musical composition protected under
copyright law. Blanket licenses were usually issued to television networks for
a flat rate. Authors or composers were not forbidden from dealing individually
with television networks in licensing their’own compositions. Furthermore,
blanket licenses were found to be a more practical means for licensing rights to
compositions than a series of individual contracts with composers. In such a
context, a rule-of-reason analysis was adopted.” 5

The second case, University of Oklahoma,”6 concerned an agreement
among member universities of a collegiate association aimed at limiting the
number of football games each member could broadcast. The purpose of limit-
ing television broadcasts was to prevent a decrease in live attendance at univer-
sity stadia. Mr. Justice Stevens concluded that this type of agreement would
ordinarily fall within the ambit of the per se rule.”7 Yet he decided that it should
be subject to a rule-of-reason analysis because of the special characteristics of

“4Among the factors considered by Mr. Justice White in applying the rule of reason were the
following: (1) the Department of Justice had submitted an amicus curie brief to the effect that in
this context, the blanket licenses should not be considered price-fixing (ibid. at 14-15); (2) prior
litigation initiated by the Department of Justice had culminated in consent decrees governing the
issuance of blanket licenses and binding upon ASCAP and BMI (ibid. at 10-13); and (3) blanket
licenses were sanctioned by U.S. copyright laws and seemed to be the most practical way for copy-
right owners to license musical compositions (ibid. at 15-16). This last point comes close to what
Canadians would recognize as a regulated industry exemption. Hence Broadcast Music does not
fundamentally challenge the per se approach to direct and indirect price-fixing agreements. For
descriptions of the regulated industry exemption in Canada, see D.M. Bellemare, “Les secteurs
rrglementds'” in S. Bourque, ed., La nouvelle loi sur la concurrence (Montreal: Yvon Blais, 1989)
153; R.J. Roberts, Roberts on CompetitionlAntitrust: Canada and the United States, 2d ed.
(Toronto: Butterworths, 1992) at 435-45.

” 5 The Broadcast Music case does not constitute a reconsideration of the per se rule against
price-fixing. As a former Deputy Assistant Attorney General in the Antitrust Division has written:
“The Court, however, did not signal a retreat from use of the per se rule, or offer a new framework
for analysing pricing cases. Rather, the Court, in essence, accepted the arguments made by the
defendants and the Justice Department, that blanket licensing was simply not price fixing in the
classic sense” (Ewing, supra note 73 at 5). But see contra, Piraino: “The Court’s broad language
in BMI can be viewed as establishing a wholly new approach to Section 1 conduct. The Court
required a threshold competitive analysis even for horizontal price fixing, which had been the most
firmly established of all per se conduct” (supra note 76 at 696).

“6 Supra note 86.
” 7 As Mr. Justice White wrote:

By participating in an association which prevents member institutions from competing
against each other on the basis of price or kind of television rights that can be offered
to broadcasters, the NCAA member institutions have created a horizontal restraint –
an agreement among competitors on the way in which they will compete with one
another. A restraint of this type has often been held to be unreasonable as a matter of
law (ibid. at 99).

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[Vol. 38

the industry.”‘ In any event, the practice was considered illegal under a rule of
reason analysis. Furthermore, it should be emphsized that the per se rule is still
enforced against price-fixing in all other industries where no special circum-
stances warrant a different approach.” 9

The per se rule of illegality against price-fixing applies not only to horizon-
tal price-fixing, but also to vertical price-fixing, i.e. resale price maintenance. 2 ‘
It is per se illegal for a manufacturer to impose a resale price on a wholesaler
or for a wholesaler to do the same to a retailer.’

2.

Market Division

Market division –

an agreement among competitors whereby participants
agree to operate their businesses within different territories –
is arguably more
anti-competitive than price-fixing because it eliminates all forms of competi-
tion, not only price competition. 22 The perse rule applicable to price-fixing has
also been applied to market division under section 1 of the Sherman Act.” As
applied to market-division agreements, the rule is broad in scope and extends
to agreements to operate separate lines of commerce, 24 as well as to arrange-
ments to divide up customers. a5 Two leading cases have laid the foundation for
the approach of the Supreme Court of the United States in recent years: Topco
Associates 26 and Palmer.27 Although these were civil rather than criminal

“18Mr. Justice White continued:

This decision is not based on a lack of judicial experience with this type of arrange-
ment, on the fact that the NCAA is organized as a nonprofit entity, or on our respect
for the NCAA’s historic role in the preservation and encouragement of intercollegiate
amateur athletics. Rather, what is critical is that this case involves an industry in which
horizontal restraints on competition are essential if the product is to be available at all
(ibid. at 100-01).

119See e.g. F.T.C. v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990) [hereinafter
Trial Lawyers Ass’n]; Palmer v. BRG of Georgia Inc., 110 S. Ct. 401 (1990) [hereinafter Palmer].
12Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988); Monsanto Co.
v. Spray-Rite Service Corp., 465 U.S. 752 (1984); Dr. Miles Medical Co. v. John D_ Park & Sons
Co., 220 U.S. 373 (1911). Unlike horizontal price-fixing, vertical price-fixing is not unambigu-
ously anti.competitive. See Bork, supra note 1, c. 14; W.S. Comanor, “Vertical Price-Fixing, Ver-
tical Market Restriction and the New Antitrust Policy” (1985) 98 Harv. L. Rev. 983; C. Green,
Canadian Industrial Organization and Policy, 3d ed. (Montreal: McGraw-Hill Ryerson, 1989) at
340-47.
121Resale price maintenance is also per se illegal in Canada under s. 61 of the Competition Act
(supra note 4) but subject to a number of defences, including a loss-leader defence and a decreased
service defence. See, inter alia, R. v. Must de Cartier Canada Inc. (1989), 27 C.P.R. (3d) 37 (Ont.
Dist. Ct.); R. v. Shell Canada Products Ltd. (1989), 24 C.P.R. (3d) 501 (Man. Q.B.); R. v. Sony
of Canada Ltd. (1987), 16 C.P.R. (3d) 50 (Ont. Dist. Ct.); R. v. Epson (Can.) Ltd. (1987), 19 C.P.R.
(3d) 195 (Ont. Dist. Ct.); R. v. North Sailing Products Ltd. (1987), 18 C.P.R. (3d) 497 (Ont. Dist.
Ct.); R. v. George Lanthier & Fils Lt~e (1986), 12 C.P.R. (3d) 282 (Ont. Dist. Ct.); R. v. Sunoco
Ic.

(1986), 11 C.P.R. (3d) 557 (Ont. Dist. Ct.), aff’d (1988), 28 C.P.R. (3d) 287 (Ont. C.A.).

which a rule-of-reason analysis must be applied (G.T.E. Sylvania, supra note 86 at 42).

122Supra note 101.
123This kind of combination must be distinguished from “non-price vertical restrictions” to
124Hartford-EnIpire Co. v. U.S., 323 U.S. 386 (1945).
125U.S. v. Suntar Roofing Inc., 897 F2d 469 (10th Cir. 1990) [hereinafter Suntar Roofing].
126Supra note 54.
127Supra note 119.

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ANTI-COMPETITIVE COLLUSION

cases, the per se rule against market division has been enforced in the same
manner in criminal antitrust prosecution.’

In Topco Associates, the Court invalidated a scheme providing for exclu-
sive licensing of Topco products to regional supermarket chains. Each member
of Topco Associates, a cooperative purchasing agent owned by the retailers, was
assigned a specific territory within which it was authorized to sell Topco prod-
ucts on an exclusive basis. The Supreme Court applied the per se rule despite
the fact that the agreement aimed at restricting competition for a specific brand
of product; i.e. the agreement concerned “intrabrand competition,” not “inter-
brand competition.” Furthermore, Mr. Justice Marshall made clear that a
market-division agreement need not be accompanied by a price-fixing agree-
ment to be unlawful per se.”9

The per se illegality of market division was restated in Palmer-.3 Unlike
the licensing agreement in Topco Associates, the licensing agreement in Palmer
comprised a “revenue-sharing formula.” The largest American provider of state
bar courses, HBJ, had concluded an agreement with its main competitor in
Georgia, BRG, for the supply of its materials. To that end, IIBJ granted BRG
an exclusive sale license in Georgia; in turn, each agreed not to compete against
the other in Georgia or in any other state of the union where HBJ was doing
business. Soon thereafter the price of bar review materials jumped dramati-
cally.’ The Court ruled that the agreement was per se illegal under section 1
of the Sherman Act.’32 Significantly, the Court relied on its previous decision in
Topco Associates and declined to endorse the view of the lower courts that a per
se violation of section 1 occurs only if competitors had previously competed
against each other within the territories covered by the market-division agree-
ment.”‘

3.

Tying Arrangements

A tying arrangement may be defined as an agreement providing for the
supply of a product or service conditional on the purchase of a second, product
or service, i.e. tying the sale of one item to the purchase of another one.”3 The

128See Suntar Roofing, supra note 125 at 473, citing Topco Associates, supra note 54.
129 Topco Associates, ibid. at 609 note 9.
13Supra note 119.
13 11bid. at 402.
132The Court wrote in a per curiam decision, “agreements between competitors to allocate ter-
133″[S]uch agreements are anticompetitive regardless of whether the parties split a market within
which both do business or whether they merely reserve one market for one and another for the oth-
ers” (ibid. at 403).

ritories to minimize competition are illegal …” (ibid.).

134In Northern Pacific Railway, Mr. Justice Black defined tying arrangements in these words:
“For our purposes a tying arrangement may be defined as an agreement by a party to sell one prod-
uct but only on the conditiofi that the buyer also purchases a different (or tied) product, or at least
agrees that he will not purchase that product from any other supplier” (supra note 99 at 5). In Can-
ada, “tied selling” is in principle subject to s. 45 and is also a restrictive trade practice reviewable
by the Competition Tribunal under part VIII, s. 77(2) of the Competition Act (supra note 4). See
Canada (Restrictive Trade Practices Commission) v. BBM Bureau of Measurement (1981), 60
C.P.R. (2d) 26 (Restrictive Trade Practices Comm.).

McGILL LAW JOURNAL

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principal objection to tying arrangements is that they can be used to extend mar-
ket power over one product into market power over another product –
an
objection known as the “leverage theory.”‘ 35 However, there is considerable
controversy surrounding whether and under what circumstances tying arrange-
ments are indeed anticompetitive.’ 36 Thus, even if the American courts have
repeatedly mentioned that tying arrangements are to be evaluated under a per
se illegality rule,’37 the rule is implemented differently than in the case of price-
fixing or market division. In order for a tying arrangement to exist, two separate
product markets must be involved.’38 The per se rule applies where the defend-
ant possesses a degree of market power in the tying product (i.e. the main prod-
uct). As the Court specified in Northern Pacific Railway, tying arrangements
“are unreasonable in and of themselves whenever a party has sufficient eco-
nomic power with respect to the tying product to appreciably restrain free com-
petition in the market for the tied product.”’39 By contrast no proof of market
power is required in price-fixing or market-division cases. However, the test for

135See L. Kaplow, “Extension of Monopoly Power through Leverage” (1985) 85 Colum. L. Rev.
515. See also Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984) [hereinafter Jef-
ferson Parish Hospital], where a hospital entered into an exclusive dealing arrangement with a firm
providing anesthesiological services. Thus, the hospital’s patients undergoing surgery were com-
pelled to retain the anesthesiological services of the firm selected on an exclusive basis. As a result,
anesthesiological services were tied to hospital services. The Court mentioned that for a tying
arrangement to be per se illegal, the defendant must possess “market power” in the tying product
(ibid. at 13-14). In this context market power is assimilated to “forcing” or “leverage.” In the
Court’s words: “Our cases have concluded that the essential characteristic of an invalid tying
arrangement lies in the seller’s exploitation of its control over the tying product to force the buyer
into the purchase of a tied product that the buyer either did not want at all, or might have preferred
to purchase elsewhere on different terms” (ibid. at 12). The same approach was followed in East-
man Kodak Co. v. Image Technical Services Inc., 112 S. Ct. 2072 at 2080-81 (1977) [hereinafter
Kodak]. Kodak was sued by Independent Service Organizations under both ss. 1 & 2 of the Sher-
man Act for illegal tying arrangements and monopolization of the market for the supply of replace-
ment parts and services for certain equipment manufactured by Kodak. As to the first claim, it was
alleged that Kodak was tying the supply of replacement parts for its photocopiers and micrographic
equipment to aftermarket service for such equipment. In other words, Kodak refused to supply
parts unless the customer also used Kodak’s maintenance or repair services. The Court ruled that
the absence of market power in the equipment market does not imply, per se, that Kodak cannot
have market power either in the part or service market. As explained by Mr. Justice Blackmun,
“[t]hus, contrary to Kodak’s assertion, there is no immutable physical law –
no ‘basic economic
reality’ –
insisting that competition in the equipment market cannot coexist with market power
in aftermarkets” (ibid. at 2084).

136See Bork, supra note 1 at 396-98; Posner, supra note 1 at 177-83.
137International Business Machines Corp. v. U.S., 298 U.S. 131 (1936); International Salt Co.
v. U.S., 332 U.S. 392 (1947); Northern Pacific Railway, supra note 99; Jefferson Parish Hospital,
supra note 135; Kodak, supra note 135.

138Kodak, ibid. at 2079-80 (discussing whether service and parts for Kodak’s photocopiers and
micrographic equipment are two separate product markets); Jefferson Parish Hospital, ibid. at
18-25 (discussing whether hospital services and anesthesiologica services are two distinct mar-
kets).
139Supra note 99 at 6. In Northern Pacific Railway, sale and lease contracts for land entered into
by a railroad company, whereby products manufactured on these lands had to be carried through
the railway system of the company, were deemed to be subject to a per se rule analysis because
the said railroad company had “substantial economic power” in the tying product (i.e. land own-
ership) (ibid. at 7). The Court also pointed out that a substantial amount of interstate commerce
had to be affected (ibid. at 3).

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ANTI-COMPETITIVE COLLUSION

market power over the tying product does not appear to be as stringent as in the
case of a merger or monopoly, where it must be demonstrated that there is or
is likely to be an ability to charge supra-competitive prices in a specific mar-
ket.

40

4.

Group Boycott

A group boycott or concerted refusal to deal14′ prevents one or several
firms from competing in the market and can decrease price competition. Indeed,
where a group boycott affects price competition, it is a form of price-fixing. The
United States Supreme Court has consistently held that group boycotts are per
se illegal. la However, the precise range of behaviour falling within the ban on
group boycotts is unclear, as is the antitrust standard applicable to such con-
duct. 41 Where there is evidence that a group boycott has an effect on pricing,
a strict per se rule applies, as in price-fixing and market-division cases. Where
there is no obvious price effect, a middle-range standard is applied similar to
that in tying-arrangement cases.

The case of U.S. v. General Motors Corp.”4 offers an example of a group
boycott to which a strict per se rule was applied. 45 A group of Los Angeles area
General Motors (“GM”) dealers complained to GM upper management that

14See discussion supra note 93.
141A unilateral refusal to deal can be challenged under s. 2 of the Sherman Act; see Aspen Skiing
Co. v. Aspen Highlands Skiing Corp., 105 S. Ct. 2847 (1985). In Canada, see s. 75 of the Com-
petition Act (supra note 4) and Chrysler Canada Ltd. v. Canada (Competition Tribunal) (1989),
27 C.P.R. (3d) 1 (Comp. Trib.), aff’d (1991), 38 C.P.R. (3d) 25, 129 N.R. 77 (F.C.A.), as well as
Canada (Director of Investigation and Research) v. Xerox Canada Inc. (1990), 33 C.P.R. (3d) 83
(Comp. Trib.).

142Trial Lawyers Ass’n, supra note 119; Indiana Federation of Dentists, supra note 86; Pacific
Stationery, supra note 86; U.S. v. General Motors Corp., 384 U.S. 127 (1966) [hereinafter General
Motors].

143See Pacific Stationery, ibid. at 2619: “Exactly what types of activity fall within the forbidden

category is, however, far from certain.”

’44Supra note 142.
‘4 5See also Trial Lawyers Ass’n, supra note 119, which concerned a strike organized by an asso-
ciation of criminal lawyers seeking an increase in the legal fees paid by the District of Columbia
to lawyers representing criminal defendants unable to afford a lawyer. At one point, most of the
lawyer members of the association refused to take cases and the courts became paralysed. There-
after, the District of Columbia surrendered: the legal fees were increased and the lawyers’ strike
ended. The Federal Trade Commission filed a complaint against the association charging that the
group boycott organized by the association was an “unfair method of competition” under s. 5 of
the Federal Trade Commission Act (supra note 17). The group boycott was declared to constitute
a per se violation of s. 1 of the Sherman Act. The Court did not engage in an analysis of market
power –
although defendants probably had market power because of the type of professional ser-
vice involved. But here, as in the General Motors case (ibid.), there was evidence that the activities
of those who participated in the group boycott actually succeeded in raising prices: “The agreement
among the CJA lawyers was designed to obtain higher prices for their services and was imple-
mented by a concerted refusal to serve an important customer in the market for legal services and,
indeed, the only customer in the market for the particular services that CIA regulars offered” (Trial
Lawyers Ass’n, ibid. at 422-23). Thus, the group boycott orchestrated by the association was ana-
lysed as a form of price-fixing to which a strict per se rule applied; as Stevens J. wrote for the
Court, “this case involves not only a boycott but also a horizontal price-fixing agreement …” (ibid.
at 436 note 19).

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[Vol. 38

other local GM dealers were selling cars to discounters. The discounters were
selling the same GM models near the complainants’ outlets at lower prices.
Pressure by the discontented dealers prompted GM management to enjoin GM
dealers from selling cars to discounters. The company also established enforce-
ment mechanisms to ensure compliance with the promise not to deal with dis-
counters. Discounters were thus cut off from selling GM models in the Los
Angeles area.’46

The Court declared the scheme a per se violation of section 1 of the Sher-
man Act. The Court did not engage in an analysis of the market power of any
defendant and did not hesitate to apply a per se rule even if the purpose of the
agreement was to reduce intrabrand competition. Having concluded that the
agreement affected price competition, the Court held that it was found to be ille-
gal per se. 147

The Supreme Court’s decision in Pacific Stationery,14 on the other hand,
offers an example of where a strict per se rule was not applied to an arrange-
ment akin to a group boycott.19 That case concerned a collective decision made
by retailers of a buying group (in the form of a cooperative) to expel a retailer
from that group without providing rules allowing the expelled member to chal-
lenge the expulsion. The Court decided that a qualified rule-of-reason analysis
was required because the boycott was not facially anti-competitive. The kind of
economic harm produced by previous group boycotts that had been deemed per

146As Mr. Justice Fortas noted writing for the Court:

We have here a classic conspiracy in restraint of trade: joint, collaborative action by
dealers, the appellee associations, and General Motors to eliminate a class of compet-
itors by terminating business dealings between them and a minority of Chevrolet deal-
ers and to deprive franchised dealers of their freedom to deal through discounters if
they so choose (General Motors, ibid. at 140).

147 Fortas J. continued: “We note, moreover, that inherent in the success of the combination in
this case was a substantial restraint upon price competition –
a goal unlawful per se when sought
to be effected by combination or conspiracy. … And the per se rule applies even when the effect
upon prices is indirect …” (ibid. at 147).

14SSupra note 86.
149See also Indiana Federation of Dentists, supra note 86, in which an association of dentists
located mainly within three local areas of the State of Indiana adopted a policy of not supplying
X-rays to dental insurers. Dental health insurers requested X-rays from dentists as part of a mea-
sure to constrain payments made under dental insurance plans. The Federal Trade Commission
filed a complaint against the Indiana Federation of Dentists under s. 5 of the Federal Trade Com-
mission Act (supra note 17) alleging an “unfair method of competition.” The Court ruled that the
practice of the dentists could be considered a group boycott, yet not subject to aper se rule of anal-
ysis under s. I of the Sherman Act. Referring to Pacific Stationery (ibid.), Mr. Justice White stated
that in order for the per se rule to apply to a group boycott, the boycotting group must have market
power: “[T]he category of restraints classed as group boycott is not to be expanded indiscrimi-
nately, and the per se approach has generally been limited to cases in which firms with market
power boycott suppliers or customers in order to discourage them from doing business with a com-
petitor –
a situation obviously not present here” (Indiana Federation of Dentists, ibid. at 458).
As in Pacific Stationery, there was no evidence that the refusal to submit X-rays had contributed
to the inflation of dentists’ claims under insurance dental plans. In spite of that, the practice was
considered a violation of s. 1 of the Sherman Act (supra note 54) under a rule-of-reason analysis
and, accordingly, an “unfair method of competition” pursuant to s. 5 of the Federal Trade Com-
mission Act.

1993]

ANTI-COMPETITIVE COLLUSION

se illegal was not present.5 It should be stressed that there was no evidence
showing that the collective decision of the cooperative members to expel Pacific
Stationery had had any influence on prices of office supplies. In the circumstan-
ces, the Court required evidence that “the cooperative possesses market power
or exclusive access to an element essential to effective competition” before it
would trigger the per se rule against group boycotts.’ 51

In sum, group boycotts that affect prices are analysed under the same strict
per se rule applied to price-fixing and market-division agreements. Absent an
effect on prices, courts apparently require evidence that the defendants have a
degree of market power as in tying-arrangement cases.

C. Summary

The two analytical approaches used to assess the legality of combinations
in restraint of trade under section 1 of the Sherman Act are the rule of reason
and the per se rule. The rule of reason is the general approach to which the per
se rule provides specific exceptions. 152 The application of a rule of reason will
require introduction of evidence pertaining to the definition of the market (i.e.
“product” and “geographic” market), market structure, and anti-competitive
consequences and may require proof of the intention of the parties and their jus-
tification for entering into the agreement. Thus, a rule of reason analysis gen-
erally involves a significant burden of proof.

Certain trade practices are reviewed under a per se rule. These practices
are: price-fixing, market division, tying arrangements and group boycott. As to
price-fixing and market division, such agreements violate section 1 of the Sher-
man Act if two evidentiary conditions are met: the agreement fixes prices
(directly or indirectly) or divides markets and the agreement affects interstate
commerce. Price-fixing and market division are the only practices deemed to be
anti-competitive in and of themselves, i.e. to which a strict per se rule is
applied. 153

150See Pacific Stationery, ibid. at 2619:

Cases to which this Court has applied the per se approach have generally involved joint
efforts by a firm or firms to disadvantage competitors … In these cases the boycott often
cut off access to a supply, facility or market necessary to enable the boycotted firm to
compete … and frequently the boycotting firms possessed a dominant position in the
relevant market.
15’Ibid. at 2620-21.
152As the Court stated in Pacific Stationery: “Rule of reason analysis guides the inquiry …” (ibid.

at 2616).

153However see Broadcast Music and University of Oklahoma, both supra note 86, discussed
above in text accompanying notes 113, 116. These decisions appear to draw a distinction, like that
suggested by Robert Bork, between “naked” and “ancillary” restraints. See Bork, supra note 1 at
263:

The rule should be restated so that it is illegal per se to fix prices or divide markets
(or to eliminate rivalry in any other way) only when the restraint is “naked” –
that is,
only when the agreement is not ancillary to cooperative productive activity engaged in
by the agreeing parties. Only then is the effect on the agreement clearly to restrict out-
put.

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[Vol. 38

A qualified or partial per se rule applies to tying arrangements and group
boycotts where some evidence regarding the defendant’s market power may be
required. In tying-arrangement cases, it must be established that the defendant
has sufficient economic power in the tying product to compel purchase of the
tied product. The treatment of group boycotts is more confused. If the practice
is deemed to be a conventional group boycott as defined in the case law and is
proved to have affected prices, a strict per se rule applies. In all other situations,
the court will require evidence that the boycotting firms have market power.

III. An Interpretation of the Canadian Law on Anti-Competitive Collusion

A. The Interpretation of Section 45 in Nova Scotia Pharmaceutical

We are now in a position to assess the “partial rule of reason” approach
developed by Mr. Justice Gonthier in the Nova Scotia Pharmaceutical case in
light of the American experience and in light of the appropriate role for criminal
sanctions in Canadian competition law.54 Gonthier J. develops the partial rule
of reason test as a response to the “void for vagueness” challenge under section
7 of the Charter. His judgment is therefore designed essentially to circumscribe
for the sake of the accused the range of criminally culpable anti-competitive acts
proscribed by section 45.55 This reasoning is parallel to the reasoning the
United States Supreme Court applied in the U.S. Gypsum case where it identi-
fied the species of “vicious will” requisite to attract criminal, rather than civil,
liability for breach of section 1 of the Sherman Act. 56 The goal of Mr. Justice
Gonthier’s interpretation of section 45 seems to be: (1) to identify clearly for the
accused what the issues are in the prosecution; (2) to avoid imposing a degree
of complexity in economic analysis that would render the provision unenforce-
able as criminal legislation; and (3) to focus the provision on significantly anti-
competitive collusion and not to extend it to innocent agreements or agreements
that have minimal anti-competitive effect. In framing the discussion that culmi-
nates in formulating a “partial rule of reason,” Mr. Justice Gonthier invokes the
“continuum between a per se rule and a rule of reason,” concluding that section
45 lies somewhere in between.’
In his view, the presence of the word “unduly”

’54For a brief review of the decision, see H. Wetston, “tvolution rrcente et enjeux du droit de
]a concurrence au Canada” Consommation et Corporations Canada, D-1088393-02 October 22,
1992 at pp. 5-11. As well, within this special issue, see Crampton & Kissack, supra note 5.

155Note that U.S. courts had refused the “void for vagueness” challenge to antitrust legislation,
most recently in U.S. Gypsum, supra note 94 at 439, where Chief Justice Burger cited with
approval Nash v. United States, 229 U.S. 373 at 376-78 (1913), and summarized the holding as
follows: “the indeterminacy of the Sherman Act’s standards did not constitute a fatal constitutional
objection to their criminal enforcement.”

156U.S, Gypsum, ibid. at 437.
157As Gonthier J. writes:

[Section 45] of the Act lies somewhere on the continuum between a per se rule and
a rule of reason. It does allow for discussion of the anti-competitive effects of the
agreement, unlike a per se rule, which might dictate that all agreements that lessen
competition attract liability. On the other hand, it does not permit a full-blown discus-
sion of the agreement, like a rule of reason would. Since “unduly” in [section 45] leads
to a discussion of the seriousness of the competitive effects, but not of all relevant eco-

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ANTI-COMPETITIVE COLLUSION

in the provision mandates an inquiry into the seriousness of economic effects –
an inquiry that is not necessary with respect to those activities subject to a per
se rule in the United States.

This way of framing the discussion risks giving rise to a certain degree of
confusion for two reasons. First, as we have seen, the American rule of reason/
per se distinction does not entail classifying a provision as lying somewhere on
a continuum. Rather, it is section 1 of the Sherman Act that encompasses a range
of activity lying on that continuum, and therefore the provision itself is some-
times deployed as a per se rule and sometimes as a rule of reason. Nothing pre-
vents interpreting section 45 according to a different degree of proof of market
power depending upon the type of activity in question. Indeed, as becomes clear
subsequently in the decision, Mr. Justice Gonthier favours precisely such an
interpretive range for section 45. Thus, he should not be read as having pre-
scribed a uniform “partial rule of reason” for all activity subject to section 45
scrutiny.

Second, one might imply from the focus of the word “unduly” that its pres-
ence in the Canadian statute and absence in the American statute establishes
conclusively that the American approach must differ from the Canadian
approach. 8 To the contrary, as we have seen, American courts themselves read
the word “unduly” into the Sherman Act, rejecting its literal interpretation.’59
Indeed, it was precisely because of this approach that American courts generally
applied a rule of reason to the Sherman Act. Those acts subject to per se pro-
such as horizontal price-fixing – were acts that were inherently
hibition –
unreasonable and anti-competitive (i.e. “unduly” restrictive of competition) and
thus represented a limiting case of the general rule of reason.1 ” Thus, it cannot
be said that the presence of the word “unduly” in the Canadian legislation com-
pels an approach that is different from that in the United States. It might be more
accurate to say that the American case law respecting the application of a per
se rule in certain contexts (e.g. tying arrangements, group boycotts) must be
applied with caution in Canada given that it is largely derived from civil law
enforcement (either damages or injunctive relief) under the Clayton Act. A strict
liability approach to the criminal prohibition that might flow from the applica-
tion of a per se rule would be inconsistent with Charter mens rea requirements,
as we shall see. Indeed, in this respect the American case law reaches a similar
conclusion, given that the per se rule is not applied identically in the criminal
there is an additional mens rea requirement in the criminal
and civil contexts –
context. Thus, when Gonthier J. arrives at the conclusion that section 45 might
be said to create a “partial rule of reason,’ ’61 he is seeking principally to identify
the scope of the evidentiary inquiry mandated by section 45. As he goes on to
explain, evidence must be adduced respecting two interrelated issues: (1) anti-

nomic matters, one may say that this section creates a partial rule of reason (Nova Sco-
tia Pharmaceutical, supra note 5 at 650).

15 8See also Nova Scotia Pharmaceutical, ibid. at 655.
159See Standard Oil, supra note 78 at 59-60; American Tobacco, supra note 83 at 179-80. See

text accompanying note 81.

IW6For instance, in the case of price-fixing, see Trenton Potteries, supra note 102.
16 1Nova Scotia Pharmaceutical, supra note 5 at 650.

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competitive behaviour and (2) a market structure predisposed to anti-
competitive consequences of such behaviour or rendered less competitive by the
behaviour. 62 By referring to a “partial rule of reason,” Mr. Justice Gonthier
forecloses the use of section 45 as a purely behavioural prohibition. Unlike in
the United States, some minimal degree of inquiry into market structure is also
mandated. In this sense, section 45 does not give rise to an absolute per se pro-
hibition against price-fixing and market division. 63 However, as we have seen,
some practices –
are subject to a
qualified per se rule in the United States. Evidence of market power is required
before the per se rule is applied.

tying arrangements and group boycotts –

1.

Evidence Respecting Market Structure

From the standpoint of competition law enforcement, evidence of
impugned behaviour can be difficult to gather; but in principle it involves the
same kinds of forensic considerations governing the proof of any other ctctus
reus and mens rea. On the other hand, evidence concerning market structure can
require considerable economic sophistication. Indeed, this was one of the ratio-
nales for having an expert tribunal deal with those reviewable practices that
require detailed analysis of market structure.”6 In the first place, the identifica-
tion of the relevant geographic and product/service market can be notoriously
difficult. Once the market has been identified, thorny issues can arise concern-
ing the appropriate method of measuring concentration,’65 the identification of
barriers to entry, the contestability of the market, 66 substitutability of products,
and cross-elasticity of demand. 67 A full-blown rule of reason – precisely what
Mr. Justice Gonthier seeks to avoid – would examine all of these matters in
seeking to discover whether the accused had market power. At its most elabo-
rate, a rule-of-reason analysis could also consider evidence that the impugned
practice was the result of “superior competitive performance” or that it gives
rise to countervailing efficiencies. 6 s

1621bid. at 651.
1631n the United States there is an “affecting commerce” test that operates as part of the general
interstate commerce test and is not strictly speaking part of antitrust law; see e.g. Socony-Vacuum
Oil, supra note 106 at 223-24. Given the Supreme Court of Canada’s interpretation of general head
of the trade and commerce power as applied to competition law (see the discussion of City National
Leasing, supra note 35), no such de minimis requirement must be met for constitutional purposes
in Canada. Instead, a threshold test of minimal market power test is applied as part of s. 45 of the
Competition Act.

164See NV. Grover, “The Competition Bill: The Courts or a Specialized Administrative Tribunal?”
in J.R.S. Prichard et al., eds., Canadian Competition Policy: Essays in Law and Economics
(Toronto: Butterworths, 1979) at 97-133.
165For instance, in the absence of revenue statistics, the determination of market share can prove

quite difficult. See Laidlaw, supra note 92 at 325-27.

166For an example of the difficulty in identifying whether a market is in fact contestable, see M.
Levine, “Airline Competition in Deregulated Markets: Theory, Firm Strategy and Public Policy”
(1987) 4 Yale J. Reg. 393.
167Although Gonthier J. lists these factors separately from the issues of market definition (Nova
Scotia Pharmaceutical, supra note 5 at 653) as part of the “market structure” inquiry, the last two
in particular are embraced by the exercise of defining the relevant market. See L.A.W. Hunter,
“The New Merger Provisions of the Competition Act – Certainty or a Random Walk” [1987]
Meredith Mem. Lect. 219.
t68Evidence of “superior competitive performance” can be raised under s. 79(4) review for abuse

1993]

ANTI-COMPETITIVE COLLUSION

How does Gonthier J. avoid a full-blown rule of reason if an inquiry into
market structure is mandated? Part of the answer turns on his definition of “mar-
ket power,” which he defines as “the ability to behave relatively independently
of the market.” ’69 According to Gonthier J., one can behave relatively independ-
ently of the market without necessarily having the capacity to influence the mar-
ket. This latter capacity betokens “substantial or complete control” and is char-
acteristic of a “dominant position,” abuse of which is reviewable under section
79.17 Gonthier J. goes on to assert that only a “moderate amount of market
power” need be shown, and refers subsequently to “minimal market power” and
“some showing of market power..’
. By contrast, in those American tying and
group boycott cases that apply a qualified per se rule, the threshold test for mar-
ket power is not characterized as a test of “minimal” or “moderate” market
power.’72 This would indicate that Gonthier J.’s “partial rule of reason” is not as
strict as the per se rule applicable to price-fixing and market division in the
United States, but less qualified than the test applicable to tying and group boy-
cotts.

According to the microeconomic model that still forms the foundation of
industrial organization texts, firms under the equilibrium conditions of perfect
competition cannot influence the market by raising price or restricting supply.73
They are price-takers facing a flat demand curve. To have market power is to
face a downwards-sloping demand curve and thus to be able profitably to

of dominant position (see supra note 74), while evidence of countervailing efficiencies can be
raised under s. 96 merger review. Within the so-called “structure-conduct-performance” paradigm
elaborated by Joe Bain, these latter considerations fall under “performance”; see J.S. Bain, Indus-
trial Organization (New York: Wiley, 1959). Mr. Justice Gonthier only explicitly takes account of
structure and conduct factors. Indeed, he appears to rule out considering at least efficiency gains
when he states: “Considerations such as private gains by parties to the agreement or counterbal-
ancing efficiency gains by the public lie … outside of the inquiry under s. [45]. Competition is pre-
sumed by the Act to be in the public benefit. The only issue is whether the agreement impairs com-
petition to the extent that it will attract liability” (Nova Scotia Pharmaceutical, ibid. at 649-50).
On a narrow reading, this passage is merely a restatement of the Howard Smith Paper Mills deci-
sion (supra note 25 at 426), excluding as it does arguments that the public benefits from the price
stability of a cartel. It may not, therefore, exclude performance arguments that go to the compet-
itive consequences of the behaviour in issue.

169Nova Scotia Pharmaceutical, ibid. at 653.
170 See Gonthier J.’s discussion of s. 79, ibid. at 654. In contrast, the Competition Tribunal has
taken a more orthodox view of s. 79 in Laidlaw, supra note 92. In discussing the meaning of “sub-
stantial or complete control of a market,” the Tribunal held that “[m]arket power in the economic
sense is the power to maintain prices above the competitive level without losing so many sales that
the higher price is not profitable” (ibid. at 325). Thus, it would now seem that there is some poten-
tial for confusion arising out of Mr. Justice Gonthier’s obiter respecting s. 79. Whereas the Tribunal
had equated the inquiry into “substantial or complete control” with an inquiry into market power,
Gonthier J. implies that more than mere market power must be found under s. 79. However, his
usage of the term “market power” differs from that of the Tribunal. The Tribunal’s definition of
“market power” involves precisely that ability to influence the market (prices) that Gonthier J.
reserves for “control.” Nevertheless, in the result the analysis is -the same.

1’7 Nova Scotia Pharmaceutical, ibid. at 654, 655.
172See text accompanying notes 134-151.
173Discussions of the traditional microeconomic model can be found in F.M. Scherer, Industrial
Market Structure and Economic Performance, 3d ed. (New York: Rand McNally, 1990); Green,
supra note 120.

McGILL LAW JOURNAL

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restrict output and raise price relative to the conditions that would prevail in a
competitive market. According to this model, it seems difficult to divorce the
ideas of market power and market influence as Gonthier J. has done.74

However, a less idealized and more practical view of market behaviour
lends credence to Gonthier J.’s usage of the term “market power.” Market
imperfections make it possible for producers in a relatively competitive market
to exploit brand loyalty, informational deficiencies and transaction costs
incurred in switching to a lower-cost competitor so as to be insulated to some
degree from the market.’75 Indeed, Gonthier J. goes so far as to suggest that this
limited form of market power involves a “capacity to behave independently of
the market, in a passive way.” [emphasis added] 76 Under relatively short-term
circumstances, a competitor may be able to behave independently of the market
using an established customer base without being able to “influence” the market
as a whole. The key appears to be that where anti-competitive collusion is not
grounded on the ability to act independently, “collusion” might in fact be com-
petition enhancing (e.g. a horizontal merger between two small competitors
allowing the emergence of a stronger new competitor) or likely to dissolve
under competitive pressures (i.e. as business is lost to cheaper competitors who
are not following suit). Whereas the exploitation of relative independence from
the market begins to suggest criminal culpability, the absence of such indepen-
dence negates criminal culpability.

It is important to emphasize the extent to which Mr. Justice Gonthier is
innovating here, although his innovation has statutory support. As we have seen,
the old case law of the Supreme Court of Canada was characterized by a full-
blown rule of reason according to which it was often necessary to demonstrate
a “virtual monopoly.”’77 Gonthier J.’s decision finally gives effect to the 1975
amendment to the Competition Act that provided:

45(2) For greater certainty, in establishing that a conspiracy, combination, agree-
ment or arrangement is in contravention of subsection (1), it shall not be

1741t is worth noting that in the Howard Smith Paper Mills decision (supra note 25 at 426), Mr.
Justice Cartwright had linked the idea of lessening competition “unduly” to the state of being “vir-
tually unaffected by the influence of competition.”
175Mr. Justice Gonthier cites the Abitibi Power case (supra note 27) in support of the moderate
or minimal market power approach (Nova Scotia Pharmaceutical, supra note 5 at 654). In Abitibi
Power, Batshaw J. took issue with the “virtual monopoly” approach characteristic of cases like
Howard Smith Paper Mills (ibid.) and asserted that it was not necessary to show extinguishment
of competition to meet the test of the Act (Abitibi Power, ibid. at 236-39). For economic literature
supporting a finding of anti-competitive market conditions where there is less than outright “mar-
ket power,” see O.E. Williamson, “Antitrust Enforcement: Where It’s Been, Where It’s Going”
(1983) 27 St. Louis U. L.J. 289; O.E. Williamson, “Assessing Vertical Market Restrictions: Ram-
ifications of the Transaction Costs Approach” (1979) 127 U. Pa. L. Rev. 953 (arguing for a stra-
tegic behaviour or transaction costs approach to issues of market power). For a general analysis
of differing market models with special emphasis on the concept of “raising rivals’ costs,” see M.
MacCrimmon & A. Sadanand, “Models of Market Behaviour and Canadian Competition Law:
Exclusive Dealing” (1989) 27 Osgoode Hall L.J. 709. See also Pitofsky, supra note 88 at 1810-11,
where the author emphasizes that “market power” may exist even in the absence of high market
share.

176Nova Scotia Pharmaceutical, ibid. at 654.
177See supra note 25 and accompanying text.

1993]

ANTI-COMPETITIVE COLLUSION

necessary to prove that the conspiracy, combination, agreement or arrange-
ment, if carried into effect, would or would be likely to eliminate, com-
pletely or virtually, competition in the market to which it relates or that it
was the object of any or all of the parties thereto to eliminate, completely
or virtually, competition in that market.178

The test of moderate market power evidencing the ability to act relatively inde-
pendently of the market establishes a new and lower burden of proof upon the
Crown.

–

Furthermore, while it is no simple task to establish the ability of the
accused to act relatively independently of the market, the evidentiary burden
will not be as high as in abuse of dominant position cases. 179 For example, rather
than looking for high concentration ratios –
something Gonthier J. expressly
puts to one side’
evidence might be offered of stable sales figures for the
firms engaged in anti-competitive behaviour. The central idea here is that an
agreement that arises from or results in a market structure characterized by a
merely de minimis reduction in competition is not to attract criminal liability.
In practical terms, a finding of “a moderate amount of market power” will
require two steps. First the relevant product and geographic market must be
identified –
although not with the degree of precision that would be necessary
to show substantial market power. For example, in the case of price-fixing or
market division, the product market contemplated by the anti-competitive
agreement provides a sufficiently precise definition of the market in issue.’8′
Second, some evidence of minimal ability to act independently of the market
must be adduced. With respect to the latter element, Gonthier J. gives a non-
limitative list of factors that may be relevant but does not suggest that evidence
must be adduced with respect to each of these factors. They include:

(1) the number of competitors and the concentration of competition, (2) barriers
to entry, (3) geographical distribution of buyers and sellers, (4) differences in the
degree of integration among competitors, (5) product differentiation, (6) counter-
vailing power and (7) cross-elasticity of demand. 1 2

Evidence on any of these points could establish a minimal threshold of ability
to act relatively independently of the market, as might evidence of switching
costs, brand loyalty or information deficiencies. One imagines that frequently
the simplest evidence to adduce will be evidence of moderate market concen-
tration.” 3 Most importantly, and as becomes clear from Gonthier J.’s discussion

178Supra note 4.
179The irony here is more apparent than real. Although it is true that the non-criminal provision
sets a higher burden of economic proof than the criminal law provision, this is because the criminal
law provision focuses essentially on inherently injurious behaviour rather than the control of anti-
competitive effects of behaviour that might be benign in other contexts. Indeed, s. 79 frequently
will address market structure rather than anti-competitive behaviour, as is evidenced by the fact
that there is a provision for a divestiture remedy in s. 79(2).

80As Gonthier J. writes: “[Mlany factors other than market share are relevant” (Nova Scotia

Pharmaceutical, supra note 5 at 653).

8’lSee Bork, supra note 1 at 269: “Very few firms that lack power to affect market prices will
be sufficiently foolish to enter into conspiracies to fix prices. Thus, the fact of agreement defines
the market.”

182Nova Scotia Pharmaceutical, supra note 5 at 653.
183While evidence of moderate market concentration will frequently be the simplest evidence to

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of the behavioural element of the offence, the requisite degree of precision in
identifying a market structure that is prone to restricted competition will depend
on the seriousness of the anti-competitive behaviour in issue.

In this respect, the “partial rule of reason” closely resembles the trade-off
between market structure and behaviour that distinguishes practices subject to
rule of reason or per se analysis in the United States. But the approaches are not
identical; there are two important differences. First, the partial rule of reason
always appears to require proof of market power, unlike a pure per se rule –
although the “market power” in issue is the ability to act independently of the
market, not the ability to raise prices unilaterally as in U.S. law. Second, the par-
tial rule of reason gives rise to a gradient moving from lower to higher degrees
of proof of market power rather than a bright line distinction between behaviour
requiring proof of market power (rule of reason) and behaviour that does not.”s

2.

Evidence of Anti-competitive Behaviour

The behavioural element of the section 45 offence relates to the likely
effect of the agreement among those possessing a minimum degree of market
power. Gonthier J. insists that evidence of the actual effects of an agreement,
although offering “good guidance” as to the anti-competitive nature of the
agreement, is not the critical factor.’85 Rather, the agreement is to be evaluated
on its own terms and classified according to the sort of injurious consequences
likely to flow from such an agreement. This approach is consistent with the
mens rea test that Gonthier I. subsequently outlines; the relevant subjective ele-
ment is intent to enter into an agreement, not intent to produce a given set of
consequences. There is.to be an “objective” determination that the likely effect
of the agreement would be to lessen competition.

Gonthier J. signals the set of factors listed in subsection 45(4) as indicating
“impermissible fields” of agreement.’86 Thus, agreements having the likely con-
sequence of restricting competition as regards (a) price, (b) quantity or quality
of production, (c) markets or customers, (d) channels or methods of distribution,
are illegal even where the agreement relates to matters that are otherwise within
a permissible field of agreement listed in subsection 45(3) (e.g. exchange of sta-
tistics, definition of product standards, etc.). One might go so far as to say, fol-
lowing Gonthier J.’s reasoning, that agreements relating directly to price-fixing,
restriction of supply, quality restrictions, market division, or exclusive distribu-

adduce, it deserves emphasis that Gonthier J. never asserts that such evidence must be adduced –
indeed, he writes that other factors will be relevant (ibid.). Nor is there any bright line cut-off for
minimal concentration levels. Gonthier J. explicitly states that “[a] particularly injurious behaviour
may also trigger liability even if market power is not so considerable” (ibid. at 657). It is thus ques-
tionable that any market share threshold can or should be gleaned from the “partial rule of reason”
formulated by Mr. Justice Gonthier. See contra Crampton & Kissack, supra note 5 at 571, 592-93,
619, although the authors characterize their 35% threshold as a “rule-of-thumb.”

‘ 841t should be recalled that there is in the United States an “affecting commerce” test for “more
than de mininmis control” flowing from the commerce clause and not from antitrust law; see supra
note 163.

185Nova Scotia Pharmaceutical, supra note 5 at 656.
t861bid. at 656.

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ANTI-COMPETITIVE COLLUSION

tion are inherently likely to lessen competition. Such agreements could be char-
acterized as presumptively illegal subject to the minimal market power require-
ment. This comes very close to per se illegality for the most egregious types of
anti-competitive behaviour, notably price-fixing and market division. 7

Mr. Justice Gonthier takes an additional step toward harmonizing Canadian
law with the American per se rule when he returns to the relationship between
the market structure and behaviour. Gonthier J. indicates that it is “the combi-
nation of the two [factors] that makes a lessening of competition undue”; but he
is clear that “[m]any combinations are possible.”‘ 8 On the one hand, the more
likely it is that the behaviour in question will injure competition, the less sub-
stantial need be the proof of market power.’89 Such behaviour lies close to the
per se rule side of the spectrum. On the other hand, the more dramatic the pre-
existing market power, the stricter the scrutiny of an agreement that is less
inherently anti-competitive. 9 ‘ Such behaviour lies close to the rule-of-reason
side of the spectrum.

Gonthier J. confirms that inherently injurious behaviour lies close to the
per se side of the spectrum by asserting that, in some instances, the agreement
itself can give rise to or enhance market power. 9’ The instances cited by Gon-
thier J. are “price-fixing,” through which competitors who separately have no
pre-existing market power can create and exploit joint market power, and
“market-sharing” (i.e. market division), through which competitors agree to
withdraw from competing and thus grant each other market power 92 Gonthier
J. had been careful to note at the outset of his analysis that the structure-
behaviour framework “should not be seen as a rite of passage” and that “the
determination of whether an agreement unduly restricts competition involves an
examination not only of market structure and firm behaviour separately, but also
of the relationship between them.”’93 In cases where the behaviour in issue cre-
ates market power, there is no point in mechanically following a two-step
structure-behaviour test. It becomes more logical to identify the nature of the
agreement (e.g. price-fixing, market division) and then to ask whether the par-
ties together, through the agreement, were likely to achieve a moderate degree
of market power. Thus, for example, an attempt at price-fixing by two shoe
stores in downtown Montreal, though inherently suspicious, might be unlikely
to achieve any market power because of the number of competitors not party to
the agreement to whom customers would have easy access without incurring
any appreciable cost. 94 Even in this case, however, the situation might be dif-

‘871t bears repeating that Gonthier J. had explicitly disavowed a pure per se approach (ibid. at

655).

‘Ibid. at 657.
189As Gonthier J. writes: “A particularly injurious behaviour may also trigger liability even if

market power is not so considerable” (ibid.).

’90As Gonthier J. explains: “Market power may also exist independently of the agreement, in

which case any anti-competitive effect of the agreement will be suspicious” (ibid.).

191Ibid.
192Ibid.
193Ibid. at 652.
194Robert Bork gives the example of price-fixing within a law firm partnership, noting not only
that the law firm faces considerable rivalry and has no market power, but also that the common

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ferent if, for example, the two parties to the agreement had control over a dis-
tinctive brand. Given the nature of the agreement, the evidentiary burden as
regards market power would be low, although more than de minimis control
must exist. One way of putting this is that mere folly is not criminally culpable;
agreements that will dissolve under competition are not the subject of section
45.195

A corollary to this latter conclusion is that the less inherently anti-compet-
itive the behaviour, the less likely is criminal prosecution. After all, the stricter
the evidentiary burden under the structural side of the analysis, the more diffi-
cult it will be to prove the elements of the offence beyond a reasonable doubt.
This corresponds to the observation that in the United States, criminal prosecu-
tion rarely takes place for behaviour subject to a rule of reason. Rather, civil or
administrative remedies are sought in such circumstances. One can safely con-
clude, therefore, that the categories of behaviour subject to a strict per se anal-
ysis in the United States –
correspond to
the subset of conduct most likely to attract criminal liability in Canada. How-
ever, in Canada, more explicitly than in the United States, proof of such behav-
iour must be supplemented by evidence of minimal market power so as to dem-
onstrate that the agreement was not of minor importance or without significant
effect.

price-fixing and market division –

The relationship between the structural and behavioural elements of the
section 45 offence might be summarized according to Figure 1.196 Along the

pricing arrangement gives rise to efficiencies for the firm (Bork, supra note 1 at 265).

195Gonthier J.’s use (Nova Scotia Pharmaceutical, supra note 5 at 655, 656) of the EC examples
from the European Communities, namely de minimis agreements that fall outside Article 85 of the
Treaty Establishing the European Economic Community, 25 March 1957, 298 U.N.T.S. 11 [here-
inafter Treaty of Rome] and block exemptions from Article 85 of the Treaty of Rome, is somewhat
misleading given that Article 85 is not enforced as criminal law. Nevertheless, one must recall that
s. 45 can be enforced as civil law, as is discussed below.
196Ve note that another interpretation is possible although in our view such an interpretation is
less desirable and less consistent with Gonthier J.’s explicit reasoning. It is conceivable that the
“moderate market power” test sets an upper ceiling on the degree of market power that must be
proved with respect to all forms of behaviour subject to scrutiny under s. 45. This would mean
inevitably that the courts would attempt to read certain behaviour out of the ambit of s. 45, for
example in cases involving vertical restrictions, joint ventures or exchange of price information –
i.e. cases not subject to a pure per se rule in the U.S. Yet s. 45 itself is drafted so as to have an
apparently wide behavioural ambit and explicitly to include exchange of statistics, definition of
product standards and environmental protection measures. To exclude, say, vertical restrictions
would be to place a most strained construction upon s. 45. It seems inconceivable that courts would
apply a minimal market power test in such cases. Furthermore, Mr. Justice Gonthier himself
emphasizes the wide range of combinations of degrees of market power and types of injurious
behaviour. He even goes so far as to say, speaking of the relationship between structural and beha-
vioural factors, that “[m]arket power may exist independently of the agreement, in which case any
anti-competitive effect of the agreement will be suspicious” (Nova Scotia Pharmaceutical, ibid. at
657). Here he does not qualify “market power” as minimal or moderate. Where there is full-fledged
market power, less inherently anti-competitive behaviour may become suspicious. Behaviour that
might not be suspicious where there is only minimal market power becomes suspicious where there
is full-fledged market power. Thus, it would seem sensible to conclude that there is a range of
behaviour subject to more than a partial rule of reason that nevertheless comes within the ambit
of s. 45.

1993]

ANTI-COMPETITIVE COLLUSION

Figure 1: Anti-competitive collusion attracting criminal liability

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Behaviour

behaviour axis one finds agreements that are to diffening degrees inherenfly
anti-competitive, ranging from least to most competitive. Along the market
structure axis one finds differing degrees of market power ranging from mini-
mal market power (an ability to act relatively independently of the market),
through substantial market power (an ability to influence price), to monopoly
control. The curve prescribes the level of proof of market power corresponding
to differing degrees of injurious behaviour. The area below the curve falls out-
side criminal liability whereas the area above the curve corresponds to criminal
liability. As the degree of proof required under the market structure element of
the offence rises from proof of minimal market power to proof of substantial
market power, the partial rule of reason becomes a full-blown rule of reason.
Although Mr. Justice Gonthier excludes the application of a pure per se
rule under section 45, there are in the Competition Act two other criminal pro-
hibitions against collusive behaviour which, by parity of reasoning, are subject
to a per se rule. Neither the prohibition against bid-rigging (section 47) nor the
prohibition against resale price maintenance (section 61) include the word
“unduly.” After the failed attempt in Bill C-256 to redraft section 45 so as to cre-
ate an explicit per se prohibition against certain collusive practices (namely
price-fixing, market division, supply restrictions, exclusive distribution, group
boycott), only bid-rigging reappeared as a per se offence in the 1975 Stage I
amendments. 97 It is understandable that there would be a heightened element of
criminal culpability involved in bid-rigging given the necessarily fraudulent
nature of the practice. 98 It is somewhat more surprising that resale price main-

t97Bill C-256, supra note’56, s. 16(1).
9

R. v. Coastal Glass & Aluminum Ltd. (i984), 8 C.P.R. (3d) 46 at 58, i7 C.C.C. (3d) 313
(B.C.S.C.), aff’d (1986), 11 C.P.R. (3d) 391, 27 C.C.C. (3d) 289 (B.C.C.A.), where the judge

.See

.

REVUE DE DROIT DE McGILL

[Vol. 38

tenance has long been a per se offence.’99 It should be noted, however, that sub-
section 61(10) contains a number of specific defences. Where the product is
sold (a) as an advertising loss-leader, (b) at a loss to sell other products, (c)
using misleading advertising, or (d) without adequate levels of service being
provided, the defendant will not be found guilty. Thus, resale price maintenance
is not a pure per se offence because a number of countervailing factors can be
considered. Nevertheless, absent one of the specific defences, resale price main-
tenance is deemed inherently anti-competitive and is not subject to a minimal
market power requirement.

3.

Mental Element

The structure-behaviour framework is designed to identify the actus reus
of the section 45 offence. In a sense, the presence of the word “unduly” triggers
the deployment of that framework in order to identify whether the behaviour in
question is sufficiently injurious to give rise to criminal culpability. As a crim-
inal offence, however, section 45 requires some proof of intent. It is notable that
although Gonthier J. cites Wholesale Travel –
a case that concerned one of
the misleading advertising provisions of the Competition Act –
he does not
choose to classify section 45 as a regulatory offence.2″‘ The culpability lies in
having the mens rea to do the act, not in the negligent failure to observe what
is mandated by a regulatory scheme. It is safest to conclude that section 45 pro-
scribes conduct more akin to “true crime” rather than to a regulatory offence.’

It is interesting to compare the interaction between the actus reus of the
offence and the requisite level of mens rea under American and Canadian law.
As we have seen, in the United States it is the presence of a mens rea require-
ment that distinguishes the burden of proof in the criminal context from the civil.

referred to bid-rigging conduct as “reprehensible” and that such a bid was “a fraud and unneces-
sarily and dishonestly increases the costs to an [owner].”

199For a critique of the prohibition on resale price maintenance, see H. Marvel & S. McCafferty,
“Resale Price Maintenance and Quality Certification” (1984) 15 Rand J. Econ 384; H. Marvel &
S. McCafferty, “The Welfare Effects of Resale Price Maintenance” (1985) 28 J. of L. & Econ. 363.
However, the Economic Council of Canada did praise the ban on resale price maintenance as
efficiency-enhancing (Interim Report, supra note 33 at 64).

2Supra note 72.
20tThis conclusion is reinforced by the remarks of Gonthier J. at an earlier part of his judgment:
“[Section 45] remains at the core of the criminal part of the Act … [it] is not just another regulatory
provision” (Nova Scotia Pharmaceutical, supra note 5 at 649). See supra note 72.
202There is arguably a contradiction between the approach taken by Gonthier L and the Supreme
Court’s approach to mens rea in R. v. Vaillancourt, [1987] 2 S.C.R. 636 at 653, 47 D.L.R. (4th)
399, and R. v. Logan, [1990] 2 S.C.R. 731 at 743-44, 73 D.L.R. (4th) 40, where it was made clear
that those “very few” crimes carrying the highest degree of social stigma required proof of sub-
jective foresight. If the conduct proscribed by s. 45 falls into this special category, it should require
proof of full subjective intent. Nevertheless, Gonthier L’s opinion is defensible on the assumption
that the Vaillancourt crimes are only those at the hard core of the Criminal Code and that other
conduct –
even conduct that partakes of a degree of moral culpability analogous, say, to theft –
can be subject to a lesser mens rea requirement. The behaviour contemplated by s. 45 is both eco-
nomically injurious, like regulatory offences, and morally blameworthy, like true crimes. The mens
rea test Parliament has adopted is stricter than a due diligence test but not as strict as full subjective
intent. In essence, Gonthier J. arrives at the conclusion that the Charter does not preclude the cre-
ation of offences lying on the boundary of “true crimes.” For a discussion of Gonthier J.’s reasons
in this regard, see Crampton & Kissack, supra note 5 at 584-88.

19931

ANTI-COMPETITIVE COLLUSION

context. Although, in the civil context, section 1 of the Sherman Act bans behav-
iour subject to a rule of reason and not just behaviour subject to a per se rule,
behaviour subject to a rule of reason has only rarely given rise to criminal con-
viction.” 3 This result occurs not because behaviour subject to a rule of reason
cannot attract criminal liability as a matter of principle. Rather, it occurs
because it is quite difficult to establish mens rea where, on a rule of reason anal-
ysis, there might be market conditions under which the same sort of behaviour
would not give rise to criminal liability. To prove mens rea beyond a reasonable
doubt in the United States, one must show intention to enter into a conspiracy
together with knowledge of the probable consequences of the conspiracy. Thus,
where the actus reus is to be established according to a rule of reason, there is
a large zone of reasonable doubt as to knowledge of probable consequences.

In Canada, on the other hand, it is now clear that after Nova Scotia Phar-

maceutical, subsection 45(2.2) means what it says. As the subsection reads:

(2.2) For greater certainty, in establishing that a conspiracy, combination, agree-
ment or arrangement is in contravention of subsection (1), it is necessary to
prove that the parties thereto intended to and did enter into the conspiracy,
combination, agreement or arrangement, but it is not necessary to prove that
the parties intended that the conspiracy, combination, agreement or arrange-
ment have an effect set out in subsection (1).

Gonthier J. concludes that according to this provision, the Crown need not
establish subjective knowledge of probable consequences as part of the mens
rea requirement. One need simply establish that “the accused had the intention
to enter into the agreement and had knowledge of the terms of that agree-
ment.”2’1 As Gonthier J. describes, the consequences of the agreement are to be
assessed according to the standard of a reasonable business person:

[I]t would be a logical inference to draw that a reasonable business person who
can be presumed to be familiar with the business in which-he or she engages would
or should have known that the likely effect of such an agreement would be to
unduly lessen competition. Thus in proving the actus reus that the agreement was
likely to lessen competition unduly, the Crown could, in most cases, establish the
objective fault element that the accused as a reasonable business person would or
should have known that this was the likely effect of the agreement.20 5

In a sense, therefore, the somewhat higher burden on the Crown in Canada to
establish the actus reus of the section 45 criminal offence (proof of minimal
market power) is offset by a somewhat lower burden in establishing mens rea.
This conclusion can be summarized in the following table:

actus reus

mens rea

Canada
per se
+ minimal market power
intent to agree
+ knowledge of agreement
+ objective analysis of
consequences

United States
per se

intent to agree
+ knowledge of probable con-
sequences

Prosecutorial Discretion in Sherman Act Enforcement” (1978) 63 Cornell L. Rev. 405.

203See Areeda & Turner, supra note 73 at 30. See also, D. Baker, “To Indict or Not To Indict:
204Nov& Scotia Pharmaceutical, supra note 5 at 659-60.
2051bid. at 660.

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In practice, the results of criminal prosecutions ought to be virtually iden-
tical in the two jurisdictions. Whereas some proof of the likely anti-competitive
effect will be necessary to establish the actus reus in Canada, the same thing
will be needed to establish the mens rea in the United States –
conjoined with
subjective knowledge. It should even be marginally easier to obtain conviction
in Canada because once the actus reus is established, there is no subjective
defence based on ignorance of likely consequences. However, because of the
burden of proof beyond a reasonable doubt, those agreements caught by a strict
per se rule in the United States are also the agreements most likely to give rise
to criminal prosecution in Canada. In price-fixing and market division cases,
one can all but infer proof of minimal market power through proof of the agree-
ment. 6 In the United States, proof of the agreement goes a long way toward
proving intent to create anti-competitive effects. Thus, as concerns criminal
prosecution, those agreements subject to a strict pet” se rule in the United States
also prescribe the highest zone of risk of criminal prosecution in Canada,
although for somewhat different reasons.

4.

The Application of the Supreme Court’s Decision at Trial

The Supreme Court’s decision in Nova Scotia Pharmaceutical has already
received its first application –
not surprisingly in the trial decision of the Nova
Scotia Pharmaceutical case itself. 7 There Mr. Justice Boudreau reviewed over a
decade of negotiations (1974-86) between the accused, the “Society/Association,”
acting on behalf of approximately eighty per cent of Nova Scotia pharmacists, and
three providers of direct pay insurance plans in Nova Scotia, having between them
over 200,000 subscribers. The trial judge concluded that the accused did form a
combination, the effect of which was to lessen competition “seriously” for the sup-
ply of prescription drugs and pharmacists’ dispensing services.”03 In particular, the
Society/Association organized a series of boycotts of individual insurers’ direct-
pay plans in order to force acceptance of a tariff. In each case, these boycotts
achieved the intended result virtually overnight. However, Boudreau J. also con-
cluded that reasonable business persons in the position of the accused would not
necessarily have known that the effects of these actions were anti-competitive. 9
On that basis, he acquitted the Society/Association. We examine briefly this sur-
prising result in order to highlight what we take to be misapplications of the
Supreme Court of Canada’s framework of analysis for section 45.210

20 The Nova Scotia Pharmaceutical decision does not really cast direct light on the problem of
conscious parallelism –
i.e. parallel pricing in a tight oligopoly but absent an explicit price-fixing
agreement, However, one might extrapolate from Mr. Justice Gonthier’s reasons that parallelism
will be viewed with great suspicion where, as in an oligopoly, there is pre-existing market power.
Subsection 45(3) now specifies that whereas the existence of the agreement must be proved beyond
a reasonable doubt, it can be inferred from circumstantial evidence without any direct evidence of
communication between the parties. This enhanced ability to prove tacit agreements, together with
heightened scrutiny of the anti-competitive effects of market power, may now combine to overturn
the decision in Atlantic Sugar (supra note 25).

304 (S.C.T.D.) [hereinafter Nova Scotia Pharmaceutical (Trial Decision) cited to N.S.R.].

207R. v. Nova Scotia Pharmaceutical Society (No. 3) (1993), 120 N.S.R. (2d) 304, 332 A.P.R.
20Sbid. at 334.
2091bid. at 339.
21For a brief discussion of the decision, see Crampton & Kissack, supra note 5 at 601-02.

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ANTI-COMPETITIVE COLLUSION

a. Market Definition

Although the definition of the relevant product and geographic markets did
not prove to be particularly controversial in this case, nevertheless the method-
ology pursued by Boudreau J. was notable for its simplicity. He defined the mar-
ket, as that “which was the subject of discussions and negotiations between the
accused and the third party insurers. ‘. n It was entirely appropriate in a price-
fixing case to adopt the market definition used by the parties in their agree-
ment. 12 The whole thrust of Gonthier J.’s partial rule of reason is to avoid an
unrealistically high evidentiary burden on the Crown, especially in those cases
coming under a per se rule in the United States –
cases in which the accused
in any event has the most ample source of information. If the parties to the
agreement believed it made economic sense to fix prices for direct-pay insur-
ance in Nova Scotia, surely they cannot be heard to argue that this was not the
relevant market for their services. It would nevertheless have been helpful for
Mr. Justice Boudreau to link his streamlined approach to market definition with
the nature of the anti-competitive behaviour in issue.

–

b. The Structure/Behaviour Framework

Although Mr. Justice Gonthier had emphasized that the structure/behaviour
framework he outlined “should not be seen as a rite of passage, ’21 3 that is pre-
cisely the way in which Mr. Justice Boudreau seems to have viewed the task of
applying the Supreme Court’s analysis. Boudreau J. begins by defining the
product and geographic markets on the assumption that the definitional exercise
proceeds independently from the characterization of the behaviour in issue. He
then addresses the question of market structure, canvassing each and every one
of the factors Gonthier J. had mentioned as potentially relevant to this issue.214
Finally, he addresses the behaviour of the accused. Yet, Gonthier J. had empha-
sized in his discussion of the issue that some forms of anti-competitive behav-
are so egregious as to “trigger liability even if
iour –
market power is not so considerable. 2 The instant case concerned price-
fixing.216 Indeed, the facts relevant to establishing this behaviour were not in

notably price-fixing –

2 11Nova Scotia Pharmaceutical (Trial Decision), supra note 207 at 325.
212See Bork; supra note 1 at 269.
2 13Nova Scotia Pharmaceutical, supra note 5 at 652.
2141t is important.to emphasize that the factors applied mechanically by Boudreau J. in his anal-
ysis of market power were not enumerated by Gonthier J. for the purpose of setting out a test.
Rather, Gonthier J. sought to demonstrate that the kinds of considerations brought to bear in pre-
vious s. 45 cases – notably in R. v. J.W. Mills & -Son Ltd., [1968] 2 Ex. C.R. 275 at 307-08, 56
C.P.R. 1, aff’d [1971] S.C.R. 63, 14 D.L.R. (3d) 464 [hereinafter J.W. Mills cited to Ex. C.R.] –
gave sufficient precision to the word “unduly” for the purposes of s. 7 of the Charter, see Nova
Scotia Pharmaceutical, ibid. at 653. Indeed, the J.W. Mills methodology was applied prior to the
adoption of s. 45(2), which now makes clear that there is no need to establish the existence of a
virtual monopoly in order to find the accused liable under s. 45.

215Nova Scotia Pharmaceutical, ibid. at 657.
2161t should be recalled that maximum price-fixing is per se illegal in the United States; see Mar-
icopa County Medical Society, supra note 96. Note as well that in this case, there was clear evi-
dence that the maxinuin price was also the minimum price (i.e. the fixed price) (Nova Scotia Phar-
maceutical (Trial Decision), supra note 207 at 315). Furthermore, it should be recalled that group

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dispute.”7 This behaviour placed the accused within the zone of most suspect
conduct under section 45. Had Boudreau J. begun his analysis by characterizing
the behaviour in issue as triggering liability even where market power is not so
considerable, that would have simplified considerably the approach taken to the
finding of market power. In particular, once it was established that the Society/
Association was able to coordinate a group boycott by over eighty per cent of
the pharmacies in Nova Scotia,” 8 the analysis of market power was at an end.
This conclusion was reinforced by the existence of serious barriers to entry in
the form of provincial licensing requirements.” 9 Thus, there was no need to
explore mechanically the geographical distribution of buyers and sellers, differ-
ences in degree of integration among competitors, product differentiation, coun-
tervailing power or cross-elasticity of demand, especially given that the behav-
iour in issue attracts liability even where the market power is not consider-
able.22 Indeed, it is most surprising that Boudreau J. concludes that there was
only moderate, not excessive, market power in this case.22″ ‘ The market power
at issue in this case was far from being close to the line.

c. The Necessaty Mens Rea

Mr. Justice Boudreau’s application of the Nova Scotia Pharmaceutical
mens rea test is highly problematic. Having found that the accused had entered
into an agreement to restrict competition, he nevertheless concludes that the
“objective” element of the test was not met by the Crown. Boudreau J. writes:

I am not satisfied beyond a reasonable doubt that the accused, as reasonable busi-
ness persons familiar with the pharmacy business, would or should have known
all of the intricate and complicated effects of the various dealings between the
Society/Association, the member pharmacies, the Government Plan and the third
party insurers, which involved numerous and complicated negotiations, some
mandated by law, some not. In my opinion, the burden is on the Crown to establish
this critical element beyond a reasonable doubt and I am far from satisfied that this
is one of those cases where objective fault can be inferred as a matter of course
from the establishment of the actus reus.222

Boudreau J.’s conclusion flows from a series of fifteen factors that, in his view,
rendered the context of the case ambiguous. In particular, he notes that the proc-
ess of negotiating maximum allowable tariffs originated with a Government

such entry barriers.

boycotts affecting prices are per se illegal in the United States: see supra note 142 and accompa-
nying text.
217Nova Scotia Pharmaceutical (Trial Decision), ibid. at 307.
21Slbid.
2t9See Hospital Corporation of America, supra note 93 at 1387, for Posner J.’s discussion of
22In any event, the issues of geographical distribution of buyers and sellers, product differen-
tiation and cross-elasticity of demand were in essence settled by the definition of the relevant mar-
ket. Boudreau J. had put these issues to one side, having concluded that they belonged within the
analysis of market structure and undueness (Nova Scotia Pharmaceutical (Trial Decision), supra
note 207 at 325). In our view, it would have been more appropriate for the trial judge to conclude
that these factors need not be addressed in naked price-fixing cases.

2211bid. at 331.
2221bid. at 339.

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ANTI-COMPETITIVE COLLUSION

Plan covering drug costs for persons sixty-five and over.n Yet, the ongoing
process of negotiations was not the actus reus of the offence as Boudreau J.
determined it. Rather, the offence flowed from a series of successful “boycotts”
coordinated by the accused with a view to achieving (1) a forty-two per cent
increase in the maximum allowable dispensing fee –
a fee accompanying the
and (2) in several instances an
fulfilment of individual prescriptions –
increased maximum tariff.224 It is one thing to walk away from negotiations –
in this case, to say to the direct-pay insurer in question that it would be up to
that insurer to negotiate with individual pharmacies if an agreement could not
be reached collectively.21 It is quite another thing to organize a boycott of that
insurer using the umbrella of the Society/Association and thereby to fix a
price.

226

Even if these illegal boycotts took place as part of a bargaining process that
could have been conducted lawfully –
that is nei-
ther here nor there. The only issue Boudreau J. had to address was whether a
reasonable business person would or should have known that such boycotts
would have an anti-competitive effect. By formulating a question around the
much broader issue of drug tariff negotiations, Boudreau J. comes to the wrong
conclusion.

a questionable proposition –

One of the factors Boudreau J. mentions in finding the accused innocent
is, however, particularly troublesome. The trial judge notes that the Director of
Investigation and Research had been contacted in 1982 to give an opinion about
a proposed “master contract” respecting, inter alia, tariffs.2 7 At that stage, the

223Boudreau J.’s reference to the Nova Scotia Government Plan is problematic because the nego-
tiations with the third party insurers, although clearly influenced by the outcome of negotiations
with the Government, were not formally part of any regulatory scheme. This is underlined by the
fact that in 1984 the Society/Association demanded and received a maximum tariff schedule higher
than that under the Government Plan (ibid. at 320). Had the Nova Scotia Government chosen to
include the third party insurers within a common legislatively-mandated tariff negotiation, the
results of such a negotiation would not have been subject to scrutiny under the Competition Act.
Here, the Society/Association was ultimately free from liability in part because the trial judge
viewed the context as being akin to a regulatory context, thereby expanding beyond recognition
the ambit of the current regulated industry defence.

2241bid.
225The accused attempted to argue that the insurers in effect represented the public and were able
to use that bargaining power to gain reasonable maximum tariffs –
indeed that these dealings
“resulted in significant efficiencies in the distribution of prescription drugs and pharmacists’ dis-
pensing services to the public” (ibid. at 333). Boudreau J. quite rightly rejected this line of argu-
ment as lying outside the inquiry mandated by the Act, although he did suggest that efficiencies
arguments might be made on sentencing (ibid.). It is in any event dubious that the third party insur-
ers could be treated as surrogates for the public. They had the ability to pass increased costs along
to the public in the form of higher premiums, although this was somewhat constrained by the
public’s ability to opt out of such plans. Furthermore, to the extent that the pharmacists sought to
equalize their bargaining power with a third party insurer oligopoly, the policy of the Act is now
clear. Absent a specific exemption (as for trade unions), price-fixing combinations are not a per-
mitted vehicle for achieving improved –
bargaining power. Internal
growth, mergers or joint ventures can give rise lawfully to the efficiencies claimed by the Society/
Association.

in this case maximal –

226See Trial Lawyers Ass’n, supra note 119.
227Nova Scotia Pharmaceutical (Trial Decision), supra note 207 at 338.

McGILL LAW JOURNAL

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Director gave the opinion that the contract was illegal and so the Society/
Association decided instead to propose guidelines for agreements between the
insurers and individual pharmacies. Boudreau J. found that in acting this way,
the Society/Association “abided by the opinion given” by the Director.”2 The
trial judge appears to have concluded that this contact with the Director’s office
gave the impression that the negotiation process itself did not run afoul of the
combines legislation. The Director did not issue an opinion telling the Society/
Association that its negotiation of maximum tariffs on behalf of pharmacies was
illegal. Nor did the Director pursue any further immediate investigation
designed to determine whether the negotiations giving rise to the master con-
tract posed other anti-competitive problems. By that time, the Society/
Association had already engaged in a number of boycotts. The alleged anti-
competitive practices continued for another four years, and charges were laid
only on May 31, 1990. It is plain, on the one hand, that the accused must have
contemplated that their behaviour was problematic in light of the cartel prohi-
bition –
otherwise, why refer the matter to the Director? On the other hand,
more aggressive action from the Director was not forthcoming, which could
have led a reasonable business person to conclude that no illegal act had yet
been committed. In short, the trial judge appears to conclude that the Director
lulled the accused into believing that its acts were legal. 9 However, the relevant
question is not whether a reasonable business person might have been drawn
into believing that the acts were legal. Rather, the question is whether a reason-
able business person would have concluded that the acts would have anti-
competitive consequences. The Director’s failure to act more aggressively when
contacted about the “master contract” might have been a factor in sentencing,
but should not have been a factor in arriving at the verdict.20

5.

Summary of Criminal Law Enforcement of Section 45

In assessing the applicability of section 45 as a criminal law provision (as
distinct from the degree of certainty required for the civil law application of sec-
tion 45 via section 36), a rule of presumptive illegality for specific forms of anti-
competitive behaviour is joined with a test for minimal market power so as to
avoid conviction where the anti-competitive behaviour in issue has no signifi-
cant effect. In cases of price-fixing and market division, the agreement itself can
create this market power and thus, from an evidentiary standpoint, the Crown
need merely prove, for example, the participation of a significant set of actors.

2281bid.
229See PL. Warner & M.J. Trebilcock, “Rethinking Price-Fixing Law” (1993) 38 McGill L.J.
679 at 717-20, where the authors propose a formalized notification procedure that would provide
a safe harbour from criminal prosecution. In a sense, Boudreau J. concluded that the accused made
a good faith effort not only to comply with the law but also to notify the Director.
230Given the Director’s ambiguous prior involvement in the case, we question whether prosecu-
torial discretion was appropriately exercised in proceeding by way of indictment. As we discuss
below, this might instead have been an appropriate case for proceeding by way of information in
order to seek a prohibition order under s. 34(2). Upon issuance of an order accompanied by a find-
ing of guilt, the record of proceedings could have been used by the public to recover damages
under s. 36. Alternatively, the Attorney General of Canada might have brought a parens patriwe
action under s. 36, perhaps together with a claim for injunctive relief under s. 62.

19931

ANTI-COMPETITIVE COLLUSION

This is not a pure per se rule but rather a “per se +” rule or a “partial rule of
reason” because the significance of the anti-competitive activity (its “undue-
ness”) is to be assessed. Furthermore, to the extent that the behaviour in ques-
tion would require greater degrees of proof of market power and anti-
a full-blown rule of reason at the extreme – we stray
competitive effect –
from the criminal law context. Indeed, this corresponds to the American
approach exemplified in U.S. Gypsum indicating that criminal liability under
section 1 of the Sherman Act will involve a degree of culpability not necessarily
present in cases of civil liability under section 4 (damages) and section 16
(injunctive relief) of the Clayton Act.231

B. Civil Law Enforcement of Section 45 through Section 36

One of the most significant recent amendments to the Competition Act was
the creation of a civil remedy for any person who has suffered loss or injury as
a result of conduct contrary to Part VI of the Act –
including notably for our
purposes section 45. This amendment parallels the remedy available under sec-
tion 4 of the Clayton Act against conduct contrary to the Sherman Act –
includ-
ing notably for our purposes section 1. As we have seen, in the United States
the rule of reason/per se distinction is applied with full force in the civil context.
In that domain, the level of proof necessary to establish that an act was illegal
is proof on the balance of probabilities. In particular, the plaintiff must prove on
the balance of probabilities that the collusive behaviour in issue had an anti-
competitive effect causing injury to the plaintiff. The plaintiff need not prove on
the balance of probabilities that the defendant would have been convicted of a
criminal offence.232 Consequently, it is possible to claim damiges for behaviour
subject to a rule of reason –
behaviour that in principle is subject to criminal
prosecution in the United States but in practice would virtually never give rise
to a conviction.

Mr. Justice Gonthier nowhere addresses the application of his framework
for section 45 to the civil context under section 36. However, it seems safe to
conclude that agreements subject to the least stringent partial rule of reason
(price-fixing, market division) become subject to what is very close to a per se
rule in the civil context. One need only prove on the balance of probabilities that
the agreement created minimal market power –
something that can be inferred
from most price-fixing or market division agreements themselves. Furthermore,
like in the United States, as we move toward a rule-of-reason analysis, behav-
iour that might not attract criminal liability may nevertheless attract civil liabil-
ity; the act may be illegal without being so inherently injurious to competition

231See U.S. Gypsum, supra note 94 at 437 note 13. See also T.P. Sullivan, “Criminal Intent and
the Sherman Act: The Label Per Se Doesn’t Take Gypsum Away” (1980) 32 Hastings W. 499.
232This is in contrast to civil law cases where “a right or defence rests upon the suggestion that
a situation in which it must be established as reasonably probable that
the conduct is criminal” –
the crime was committed (Hanes v. Wawanesa Mutual Insurance Co., [1963] S.C.R. 154 at 162,
36 D.L.R. (2d) 178). See also Continental Insurance Co. v. Dalton Cartage Ltd., [1982] 1 S.C.R.
164 at 169, 131 D.L.R. (3d) 559; P. Glossop & J.T. Kennish, “Private Civil Actions in Canadian
Competition Law – Recent Developments” (1991) 6 E.C.L.R. 237 at 239. In these cases there was
no independent statutory tort claim akin to s. 36 of the Competition Act.

REVUE DE DROIT DE McGILL

[Vol. 38

to attain levels of criminal culpability detected through the criminal law bur-
den of proof. As Mr. Justice Gonthier notes, the word “unduly” provides protec-
tion for the criminal accused in assessing the offence from the standpoint
of the Charter.?3 All issues of vagueness are to be resolved in favour of the pre-
sumption of innocence. When it comes to civil damages, however, what is
at stake is compensation rather than culpability. Mens rea need not be proved.
Instead, the plaintiff must prove on the balance of probabilities that the collu-
sive behaviour in issue had an anti-competitive effect causing injury to the
plaintiff.234 Furthermore, although the criminal law definition of the actus reus
also specifies the act that can give rise to civil damages, the lowering of the
evidentiary burden in practice means that the civil sanction casts a wider
net.235

The evidentiary issues under section 36 are summarized in Figure 2. In
contrast to a finding of criminal liability, as summarized in Figure 1, given the
lower burden of proof in effect, the zone of per se analysis expands to cover
naked cartel arrangements, and the zone for a partial rule of reason expands to
cover agreements such as group boycotts or tying arrangements that may lie
outside a partial rule of reason for criminal law purposes. 6 With the exception
of resale price maintenance, for the reasons discussed above, 7 the scope of the
civil evidentiary burden in Canada should thus correspond quite closely to that
in the United States.

23No’va Scotia Pharmaceutical, supra note 5 at 619. As Gonthier J. writes: “The word ‘unduly’
actually benefits the accused; even though it defies precise measurement, it is of common usage,
and denotes a sense of seriousness” (ibid.).
234This should be contrasted with the elements of the civil law tort of conspiracy; see Canada
Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., [1983] 1 S.C.R. 452 at
470-72, 145 D.L.R. (3d) 385 [hereinafter Cement Lafarge cited to S.C.R.].
2351n Industrial Milk Producers Assn. v. British Columbia (Milk Board), [1989] 1 .C. 463, 47
D.L.R. (4th) 710 (T.D.) [hereinafter Industrial Milk Producers cited to RC.], Madam Justice Reed
commented as follows on the relationship between the civil and criminal prohibitions against anti-
competitive collusion:

While it is true that the plaintiffs are suing on the basis of a civil cause of action,
pursuant to section [36] of the Competition Act, in my view this does not remove
them from the operation of the established jurisprudence. In order to have a civil
cause of action under section [36], one must prove the same elements which it is re-
quired to prove under section [45]. The fact situation on which a section [36] action
is founded will also constitute a criminal offence pursuant to section [45] (ibid. at
476).

This does not mean, however, that the same degree of economic proof of market structure will be
required in the criminal and civil law settings. It is one thing to prove moderate market power on
the balance of probabilities, but it is another thing to do so beyond a reasonable doubt although
the elements of the offence do not change. Here, Madam Justice Reed is simply noting that the reg-
ulated industry defence, available under the criminal law, remains available in the case of a civil
cause of action. See also Philippe Beaubien & Cie v. Canadian General Electric Co. (1976), 30
C.P.R. (2d) 100 at 142, [1976] C.S. 1459 (Que. Sup. Ct.) [hereinafter Philippe Beaubien cited to
C.P.R.], Nadeau J., emphasizing that in the civil law context the offence need only be proved on
the balance of probabilities.
236As we have discussed (see text accompanying notes 134-51) these practices are subject to
what one might call a partial per se rule in the United States. They were also left out of the set
of practices to be banned on a per se basis under Bill C-256, supra note 197.

237See supra notes 120, 121 and accompanying text.

1993]

ANTI-COMPETITIVE COLLUSION

671

Figure 2: Anti-competitive collusion attracting civil liability

Monopoly

…………………..

.-

costntil :::……

……….

Marmket
Structure

mak]et power

(independence).

Conglomerate mlerer Horiotal merger T
Research cooperation

Joint ventue

yi

ot SuppIly r”estriction

GupoyttExcbsive distnkeution Market divisin Rpl m..

Pzice’f.xing

Bid gln

Beuaviur

The section 36 civil remedy is potentially very important in adding to the
effectiveness of the prohibition against anti-competitive collusion. 23 s To date it
has been little explored, but if the pattern in the United States is any lesson, it
ought to become a major instrument for impugning anti-competitive prcieY
Not only is the burden of proof lower, but the difficulty of deploying scarce pro-
secutorial resources is circumvented.240 Private parties can become the monitor-
ing agency. Nor should one forget that although private parties may not be able

23SSee Glossop & Kennish, supra note 232. It must be acknowledged, however, that access to

treble damages adds significantly to the effectiveness of the civil remedy in the United States.

23T1o date the results of litigation have been less than conclusive. See Philippe Beaubien, supra
note 235 (civil action for damages brought under article 1053 Civil Code of Lowver Canada for the
i.e. before the enact-
breach of the criminal provisions of the former Combines Investigation Act-
ment of s. 36; damages’ of $150,000 were awarded); Cement Lafarge, supra note 234 (civil action
for damages brought under common law tort of conspiracy against defendants who had pleaded
guilty to charges under s. 32 of the Combines Investigation Act, i.e. before the enactment of s. 36;
the action was dismissed, inter alia, because the plaintiffs had been party to the anti-competitive
practices in issue). See R.D. B~langer & Associates Ltd. v. Stadium Corp. of Ontario (1991), 5
O.R. (3d) 778 (C.A.) [hereinafter R.D. Bdlanger]; Westfair Foods Ltd. v. Lippens Inc., [t990] 2
W.W.R. 42, 64 D.L.IR. (4th) 335 (Man. C.A.), leave to appeal denied (1990), 65 Man. R. (2d) 80n,
30 C.P.R. (3d) 209n (S.C.C.); B~rubd v. Makita Power Tools Canada Ltd. (1991), 47 F.T.R. 287,
40 C.P.R. (3 d) 108 (T.D.); 161364 Canada Inc. v. Gagne (1990), 33 C.P.R. (3d) 200 (Ont. H.C.);
Acier d’ armature RO Inc. v. Stelco Inc. (21 June 1989), Montreal 500-05-013224-843 (Que. Sup.
Ct.); Lokos v. Manford Ltd. (1990), 67 Man. R. (2d) 296, 33 C.P.R. (3d) 552 (Q.B.).

24The U.S. Supreme Court has acknowledged that plaintiffs seeking private damages under sec-
tion 4 of the Clayton Act “perform the office of a private attorney general” (Associated Contractors
of California Inc. v. California State Council of Carpenters, 459 U.S. 519 at 542 (1983)). For an
analysis of the role played by private civil actions for damages in the enforcement of U.S. antitrust
laws, see U.S. House of Representatives Judiciary Committee, Study of the Antitrust Treble Dam-
ages Remedy, 98th Congress (2nd session) February 1984.

McGILL LAW JOURNAL

[Vol. 38

to invoke section 92 of the Competition Act (anti-competitive mergers review-
able by the Competition Tribunal) as the basis for a civil action, section 45 bans
all agreements, including mergers, that lessen competition unduly.”4′ Thus, sec-
tion 36 opens the door to private actions against anti-competitive mergers.242
However, it remains unclear whether, under section 36, a private party
might proceed by way of injunction.243 In Industrial Milk Producers,’ Madam
Justice Reed noted this possibility without making a definitive pronouncement.
In that case, it was not necessary to resolve the issue. But Madam Justice Reed
did go so far as to refuse to strike out a claim for injunctive relief, saying that
whether section 36 read together with the Federal Court Rules and Federal
Court Act gave rise to equitable injunctive relief was “a debatable legal
issue.” 45 One might add that section 62 of the Competition Act stipulates that
nothing in Part VI “shall be construed as depriving any person of any civil right
of action.” 46 Thus, it may well be possible to join a claim for equitable injunc-
tive relief with a section 36 claim.247

In any event, it is possible for the Attorney General to seek only a prohi-
bition order by filing an information under subsection 34(2) of the Act. Proceed-
ings under subsection 34(2) are akin to a civil application for injunctive relief
but are in the nature of criminal proceedings.248 Since the outcome of such pro-
ceedings does not result in a criminal conviction carrying a penalty of fine or
imprisonment, the task of the prosecutor could be significantly less burdensome
than in the case of a section 45 prosecution.249 It may be especially appropriate
for the Attorney General to proceed in this way where the practices in issue are
subject to a rule of reason (e.g. vertical non-price agreements or exchanges of
price information).

24 1But see contra T.UA.C. (Local 500) v. Corporation d’acquisition Socanav-Caisse Inc., Mon-

treal 500-05-014157-893 (Que. Sup. Ct.).

24 2See D.M. Bellemare, “Les rdcents d6veloppements concemant les recours privds en droit de
la concurrence au Canada et aux ttat-Unis” in Diveloppements rdcents en droit commercial
(Cowansville, Que.: Yvon Blais, 1991).
2431n one case, Aca Joe International v. 147255 Canada Inc. (1986), 10 C.P.R. (3d) 301 at-305
(F.C.T.D.), the Federal Court Trial Division ruled out the possibility of injunctive relief without
giving reasons. But see Federal Court Act, R.S.C. 1985, c. F-7, s. 44, and N. Finkelstein & R.
Kwinter, Note, “Competition Act, R.S.C. 1985, 2nd Supp., C.19 – Section 36 and Claims to
Injunctive Relief’ (1990) 69 Can. Bar Rev. 298. It should be noted that Bill C-42 as well as C-13
(1977) would have added a specific injunctive relief provision to what is now s. 36. See Glossop
and Kennish, supra note 232 at 240-41.

244Supra note 235 at 487.
2451bid.
246Supra note 4.
247See Finkelstein & Kwinter, supra note 243.
248See R. v. Hemlock Park Co-operative Farm Ltd., [1974] S.C.R. 123,24 D.L.R. (3d) 688. See
also Roberts, supra note 114 at 471: “Prohibition orders are like injunctions.” Note also that s. 33
of the Competition Act (supra note 4) provides for interim injunctive relief; see Canada (A.G.) v.
Fleet Aerospace Corp. (1985), 5 C.P.R. (3d) 470, 21 C.C.C. (3d) 180 (F.C.T.D.).

249S. 34(7) of the Competition Act (ibid.) specifically mentions that in the case of proceedings
commenced under s. 34(2), “the procedure applicable in injunction proceedings in the superior
courts of the province shall, in so far as possible, apply.” This strongly suggests that the rules of
evidence governing civil actions are to be applied in the context of a motion for the issuance of
a prohibition order.

1993]

ANTI-COMPETITIVE COLLUSION

C. Reviewable Practices under Part VIII of the Competition Act

A discussion of the treatment of anti-competitive collusion under the Com-
petition Act would not be complete without considering the relationship
between criminal and administrative approaches, i.e. the interplay between sec-
tions 45 and 79 of the Competition Act. Some preliminary observations should
be made about the structure of Part VIII of the Competition Act and the place
of section 79 within it. Interestingly enough, the Act contemplates different
thresholds of market power as triggering the prohibition against different kinds
of practices or acts. In other words, the Act itself –
albeit outside the criminal
law context –
attempts to do what Mr. Justice Gonthier had suggested in Nova
Scotia Pharmaceutical: namely, to balance the type of practice or acts against
the level of proof of market power required.”

Part VIII reviewable practices –

those falling under the jurisdiction of the
Competition Tribunal –
are practices that are to be assessed and regulated in
light of their economic consequences.” Whereas intent is necessarily a centre-
piece of criminal law analysis, intent is at most an ancillary feature of Part VIII
analysis. The Competition Tribunal was explicit on this point in the Laidlaw
case, which dealt with abuse of dominant position contrary to section 79:
Proof of subjective intention on the part of a respondent is not necessary in order
to find that a practice of anti-competitive acts has occurred. Such intention is
almost impossible of proof in many cases involving corporate entities unless one
stumbles upon what is known as a “smoking-gun” … Section 79 of the Act pro-
vides for a civil proceeding and civil remedies. In that context corporate actors and
individuals are deemed to intend the effects of their actions. 2

This is true despite the fact that section 78, which lists examples of practices
subject to the section 79 prohibition, in most cases refers to the “purpose” of the
act (e.g. “acquisition by a supplier … for the purpose of impeding or preventing
the competitor’s entry” [emphasis added] 3). The intent element is even less
present in the other provisions of Part VIII concerning refusal to deal, consign-

25lThis, as we have seen, is consistent with the approach in the United States, where a “per se”
approach nevertheless requires a level of proof of market power in the case of tying arrangements,
for example; see Kodak, snpra note 135. However, findings of market power need not depend
solely upon finding significant market share. They can turn on an analysis of capacity to exclude
competition by raising rivals’ costs through switching costs, information costs, and opportunistic
behaviour by firms with an installed base; see S. Salop & T.G. Krattenmaker, “Anticompetitive
Exclusion: Raising Rivals’ Costs to Achieve Power over Price” (1986) 96 Yale L.J 209; Ordover,
Saloner & Salop, “Equilibrium Vertical Foreclosure” (1990) 80 Am. Econ. Rev. 127. However, see
contra, J. Lopatka & P. Godek, “Another Look at Alcoa: Raising Rivals’ Costs Does not Improve
the View” (1992) 35 J. of L. & Econ. 311.

251See Skeoch & McDonald, supra note 34 at 86 (noting the unnecessarily high burden of proof
beyond a reasonable doubt where what is in issue are economic consequences). See also Interim
Report, supra note 33.

252Laidlaw, supra note 92 at 342-43.
253Supra note 4, s. 78(b). In Nutrasweet, the Tribunal reviewed s. 78 and noted that:

A number of the acts share common features but, as recognized by the Director and the
respondent, only one feature is common to all: an anti-competitive act must be per-
formed for a purpose, and evidence of this purpose is a necessary ingredient. The pur-
pose common to all acts, save that found in para. 78(f), is an intended negative effect
on a competitor that is predatory, exclusionary or disciplinary (supra note 92 at 34).

REVUE DE DROIT DE McGILL

[Vol. 38

ment selling, exclusive dealing, market restriction, tied selling, delivered pricing
and mergers –
none of which contain reference to the purpose of the practice
or act, referring as they do only to economic consequences.5 4 Thus, an obvious
though important first point about proceeding under Part VIII rather than under
section 45 is that the difficult evidentiary issues associated with proof of mens
rea are avoided.

Section 79 is a general prohibition against the practice of anti-competitive
acts where such a practice is conducted by one or more persons with substantial
control of a class of business and where the practice is likely to lessen compe-
tition substantially. The proof of “substantial control” or “dominant position”
requires a straightforward finding of market power. As the Tribunal stated in the
Laidlaw decision:

In deciding whether a firm has substantial or complete control of a market, one
asks whether the firm has market power in the economic sense. Market power in
the economic sense is the power to maintain prices above the competitive level
without losing so many sales that the higher price is not profitable. It is the ability
to earn supra-normal profits by reducing output and charging more than the com-
petitive price for a product.5

With the exception of delivered pricing, each of the other provisions in Part VIII
requires a finding by the Tribunal that competition is or is likely to be substan-
tially lessened or that competition is insufficient to allow procurement of an
alternate source of supply. Strictly speaking, however, there need not be a find-
ing of market dominance for the Competition Tribunal to make an order under
these other provisions –
unlike the case under section 79. The merger provi-
sion, for example, creates a preventive remedy against anti-competitive market
structure whereas the abuse of dominant position provision creates a curative
remedy. One could postulate that section 79 requires clearer proof of market
power than do the other provisions of Part VIII. Nevertheless, there is often a
fine line between showing that a practice can substantially lessen competition
and showing that there is market power.

The Competition Tribunal’s jurisdiction to control abuse of dominant posi-
tion in effect re-assembles the whole of Canadian competition law according to
an administrative law model. In particular, the overlap with section 45 is virtu-
ally complete. Under section 79, where one or more persons who substantially
control a class or species of business engage in a practice of anti-competitive

Nevertheless, the Tribunal went on to note that:

The determination of an anti-competitive act, and particularly its purpose component,
is a difficult task. The Director submits that evidence of subjective intent (through ver-
bal or written statements of personnel of the respondent) or a consideration of the act
itself (the premise that a corporation can be taken to intend the necessary and foresee-
able consequences of its acts) can be used to establish purpose. The tribunal fimds noth-
ing objectionable in these submissions. In most situations, of course, the purpose of a
particular act will have to be inferred from the circumstances surrounding it (ibid. at
35-36).

Arguably, the Competition Tribunal has attenuated this purpose requirement in Laidlaw (ibid.).
254Thus, for example, there was no analysis of the purpose of the refusal to deal in the Chrysler
255Laidlaw, supra note 92 at 325.

case (supra note 63).

19931

ANTI-COMPETITIVE COLLUSION

acts having or likely to have the effect of lessening or preventing competition,
the Tribunal may make a range of different orders, including the divestiture of
assets or shares – which are forms of structural relief. Under section 45, every-
one who conspires with another person to restrain competition unduly is guilty
of an indictable offence and liable to imprisonment for a term not exceeding five
years or to a fine not exceeding $10 million or to both. The conduct subject to
sanction under section 45 is thus a subset of the conduct subject to an order
under section 79; section 79 has a broader ambit given that the conduct there
contemplated need not have taken place in concert with others.” Each of the
other practices and acts identified in Part VIII can in principle be subject to a
proceeding under section 79, and the other provisions do not make reference to
concerted action.

Both sections 45 and 79 make explicit reference to the possibility of alter-
nate proceedings by stipulating that where proceedings have been commenced
under one provision, they may not be commenced under the other.5 7 Conse-
quently, the question arises as to when proceedings are best commenced under
one or the other of these provisions for those cases that are covered by both.

The closer the behaviour in question is toward the per se or partial rule
of reason side of the spectrum, the more criminal prosecution is not only pos-
sible but justified.” Section 78, which lists possible types of anti-competitive
practices subject to scrutiny under section 79, does not include price-fixing,
market division, supply restriction or exclusive distribution, for example. It is
not that such agreements would not fall under the ambit of section 79 –
they
do. But the framework for proof of market power under section 79 is more
elaborate than the framework under section 45. On the other hand, the closer
the behaviour in question is to the rule of reason side of the spectrum, the more
appropriate are proceedings under section 79. Here, Competition Tribunal
expertise in assessing economic evidence becomes crucial. If a full-blown test
of market power and superior economic performance is to be undertaken, the
Competition Tribunal is better placed than are the superior courts or even
judges of the federal court sitting alone to weigh the technical issues. In the
grey zone of behaviour in the middle of the spectrum, there may be instances
where prohibition orders under section 34 will be easier to obtain. This may
be the case with vertical non-price agreements or exchange of price informa-
tion.

256Arguably, an illegal conspiracy that has not yet been carried out is not yet a “practice” for
the purposes of s. 79. Evidence of an agreement would be enough for the purposes of s. 45. It might
be argued, to the contrary, that those who attempt to carry out a conspiracy are engaging in a prac-
tice that is “likely to have” the effect of lessening competition. In any event, the typical pattern
of conspiracy prosecution involves evidence of fixed prices, market division, or supply restrictions
–

i.e. evidence of a practice..
25TCompetition Act, supra note 4, ss. 45.1, 79(7). Note also the overlap with s. 92, to which allu-
sion is made in the Laidlaw decision (supra note 92 at 338) and also in Nova Scotia Pharmaceu-
tical (supra note 5 at 645).

25SFor a legislative proposal aimed at narrowing and clarifying the zone of criminal liability
while rendering civil enforcement more effective, see Warner & Trebilcock, supra note 229 at
717-18.

McGILL LAW JOURNAL

[Vol. 38

Of course, only the Director of Investigation and Research has standing to
initiate proceedings before the Competition Tribunal. Private parties therefore
have no choice but to proceed under section 36 even in cases subject to a full-
blown rule of reason.

Conclusion

The law on anti-competitive collusion in Canada has finally escaped the
straitjacket imposed upon it by half-hearted legislative provisions and cautious
judicial decision-making. Despite some initial court skittishness with the 1975
and 1986 reforms to the Competition Act, the Nova Scotia Pharmaceutical case
now confirms that the “virtual monopoly” test and double intent mens rea
requirement are both things of the past. Furthermore, increased use of civil law
and administrative law sanctions against the broad range of anti-competitive
agreements will strengthen the effectiveness of the legislation and focus crim-
inal sanctions on the zone of inherently culpable conduct –
naked cartel and
market division agreements. After a century of false starts, Canada may finally
have found the appropriate mix of regulatory instruments to deal with “com-
bines.”

In this paper, we have set out an interpretation of the “partial rule of rea-
son” test formulated by Mr. Justice Gonthier in Nova Scotia Pharmaceutical.
Our interpretation is informed by a comparison with the U.S. case law –
it
being our judgment that Canadian law is now on a very similar footing to U.S.
law as developed in the interpretation of section 1 of the Sherman Act. The two
minor differences in approach –
the existence of a minimal market power
threshold in Canada and a somewhat stricter mens rea analysis in the United
States –
should not produce substantially different results in practice. This is
true all the more of civil law cases, where the lower burden of proof should all
but eliminate the nuances of difference.

By way of summary, Table I presents a comparison of the criminal, civil
and administrative law approaches to anti-competitive collusion in Canada. It is
worth noting that while there is virtually complete overlap in the range of
behaviour subject to these three approaches, there is nevertheless an implicit
division of labour as to the behaviour most appropriately addressed under each
rubric. This reflects differing sanctions, evidentiary burdens and levels of tribu-
nal economic expertise.

1993]

ANTI-COMPETITIVE COLLUSION

Table I: A Comparison of the Criminal, Civil, and

Administrative Law Approaches to Anti-Competitive Collusion

Criminal Law (s. 45)

Civil Law (s. 36)

Administrative Law (s. 79)

Sanctions

Up to $10 million fine
and/or 5 years in prison +
s. 34 prohibition orders

Damages + costs of
investigation and pro-
ceedings + perhaps
injunctive relief

Prohibition order + other
reasonable orders (e.g.
divestiture) necessary to
overcome anti-competi-
tive effects where prohibi-
tion insufficient

Locus
standi

A.-G. Canada on refer-
ence from the DIR (s. 23)

Any person who has suf-
fered loss

DIR

Competent
tribunal

.Federal Court and Supe-
rior Courts (s. 73)

Federal Court and Supe-
rior Courts

Competition Tribunal

evidence
of act

evidence
of intent

range of
behaviour
covered

sliding scale of market
power and injurious
behaviour with minimal
market power threshold
(proved beyond reason-
able doubt) – bid-rigging
(s. 47) and resale price
maintenance (s. 61) are
per se offences

intent to agree and knowl-
edge of agreement +
objective analysis of anti-
competitive conse-
quences beyond reason-
able doubt

any conspiracy, combina-
tion, agreement or
arrangement that pre-
vents or lessens competi-
tion in the production,
manufacture, purchase,
barter, sale, storage,
rental, transportation of a
product or the price of
property or person insur-
ance; or otherwise
restrains or lessens com-
petition

Proof of market power
and anti-competitive
behaviour on balance of
probabilities

sliding scale of market
power and injurious
behaviour with minimal
market power threshold
(proved on balance of
probabilities) – bid-
rigging (s. 47) and resale
price maintenance (s. 61)
are per se offences

proof of agreement on
balance of probabilities

persons deemed to intend
effects of actions

any practice that has had,
is having or is likely to
have the effect of pre-
venting or lessening com-
petition substantially in a
market

any conspiracy, combina-
tion, agreement or
arrangement that pre-
vents or lessens competi-
tion in the production,
manufacture, purchase,
barter, sale, storage,
rental, transportation of a
product or the price of
property or person insur-
ance; or otherwise
restrains or lessens com-
petition

appropriate
focus of
litigation

horizontal price-fixing and
market division + s. 34
prohibition orders against
tying and group boycott

the full range of anti-
competitive agreements
including mergers and
joint ventures

those anti-competitive
acts requiring proof of
substantial market power
(examples given in s. 78)

From the earliest days of Canadian competition policy, it has been argued
frequently that because this country has a relatively small economy, it is unre-
alistic to apply competition law strictly, if indeed at all.” Yet, with a growing

259For example, Gorecki points out that Canadian firms face the problem of having a small mar-
ket relative to scale economies: see Bureau of Competition Policy, Economies of Scale and Effi-

REVUE DE DROIT DE McGILL

[Vol. 38

emphasis upon developing the international competitiveness of Canadian firms,
and with cash-strapped governments discovering a predilection for market
instruments, competition law is likely to gain greater importance in the regula-
tory arsenal. At the core of competition law lies a ban on forms of anti-
competitive collusion that have no possible justification in countervailing effi-
ciencies. We have argued that after Nova Scotia Pharmaceutical, there are now
realistic evidentiary requirements that will allow for stricter, though not inflex-
ible, enforcement of this aspect of Canadian competition law.

cient Plant Size in Canadian Manufacturing Industries (Research Monograph No. 1) (Ottawa: Sup-
ply and Services Canada, 1976).