“MSRP” (manufacturer’s suggested retail price) and “dealer may sell for less” are phrases commonly seen in advertising. These statements are intended to establish a supplier’s compliance with the price maintenance provisions found in Canada’s Competition Act (the “Act”). However, recent changes to the Act have left some Canadian suppliers wondering whether they are now free to enter into minimum resale price maintenance (“RPM”) agreements with their customers.
What is ‘price maintenance’? Resale price maintenance refers to an act by a supplier (which can be a promise, a threat or an agreement) by which the supplier prevents its customers from re-selling a product below the supplier’s desired minimum price. It also refers to a situation where a supplier refuses to sell to, or discriminates against, a reseller due to the reseller’s low pricing policy. These practices have traditionally been viewed as being anti-competitive in nature. More recently, however, both Canada and the U.S. appear to be embracing the notion that not all price maintenance activities inhibit competition. It is important to distinguish price maintenance from price fixing conspiracy, which is an agreement between competitors to fix prices, allocate markets or restrict output. Price fixing conspiracy is a criminal offence in Canada, attracting fines of up to $25 million and prison terms of up to 14 years.
Is price maintenance illegal in Canada? Not anymore. Until recently, price maintenance constituted an indictable offence under the Act, punishable by fines and imprisonment of up to 5 years. The provision was broadly worded to include all price maintenance activities, regardless of their effect. However, this criminal provision was repealed by amendments to the Act which came into effect in March, 2009.
Does this mean that minimum RPM’s are now permitted in Canada? Not quite. The Act contains a new provision which deals with price maintenance, but it is now a civilly reviewable practice with a significantly narrowed scope. Under the new provision, a business may be ordered to stop engaging in price maintenance only where the practice has had, or will be likely to have, an “adverse effect on competition” in the relevant market. To date, the Competition Tribunal has not publicized any decision or alternative case resolution on the new provision which would be instructive as to how it will be interpreted. Presumably, the Tribunal will look at factors such as market entry/exit, scope of product availability and changes in product price, product quality and warranty coverage.
What are the current penalties for price maintenance? The Competition Bureau has no ability to impose a fine for price maintenance. The Competition Bureau may make an order of prohibition, ordering a business engaged in price maintenance to stop the practice.
What’s the bottom line? While price maintenance is no longer a criminal offence, the practice is not without risk as it remains civilly prohibited where it proves to have anti-competitive effect. Businesses with high market share are most at risk. Before entering into minimum RPM’s, a business would be wise to seek legal advice to assess its risk and exposure.
Trina Fraser is a partner with BrazeauSeller.LLP. Trina's practice focuses on business and commercial law, Internet and e-commerce law, trade-mark law and commercial litigation. She negotiates and drafts a wide range of business agreements, including agreements of purchase and sale, intellectual property licenses, commercial leases, franchise agreements, non-competition and non-disclosure agreements and marketing/distribution agreements. Trina regularly advises her business clients with respect to the regulation of promotional contests. Trina is also a registered trade-mark agent.
To contact Trina Fraser call 613-237-4000 ext. 232 or e-mail firstname.lastname@example.org
For more information about Trina and BrazeauSeller.LLP, visit www.brazeauseller.com