Competition Tribunal rejects commissioner's challenge to Visa and MasterCard rules

Background

Then-Commissioner Melanie Aitken brought the case as part of her commitment to use the tools available to the Competition Bureau following significant amendments to the Competition Act passed in March 2009. Following a formal inquiry launched in April 2009, the commissioner commenced an application before the tribunal in December 2010, alleging that Visa and MasterCard were engaged in price maintenance contrary to Section 76 of the Competition Act. The commissioner asked the tribunal to order the respondents not to implement, enforce or continue any agreement that would influence upwards, or discourage the reduction of, the prices paid by merchants for credit card network services in Canada.

Arguments

The commissioner argued that the agreements between the credit card companies and the acquiring financial institutions work to influence upwards or discourage the reduction of prices charged by merchants because merchants would have paid lower prices without the contractual restraints placed on them by the financial institutions which issue credit cards and agree to pay the merchants for the credit card transaction. The commissioner argued that the respondents supply a credit card network service indirectly to merchants through financial institutions, and the respondents indirectly place obligations on the merchants that have the effect of price maintenance. Finally, the commissioner argued that there is an adverse effect on competition because of the restraints placed on merchants. Through contractual agreements, merchants cannot decline premium cards that carry higher transaction fees for merchants or impose a surcharge on customers that wish to pay by credit card.

The respondents argued that the commissioner mischaracterised the nature and purpose of their operating rules, which they argued were intended to ensure that merchants cannot subject cardholders to unexpected surcharges or decline their cards. The respondents argued, among other things, that there was no resale of the products they supply.

Decision

Section 76 of the Competition Act empowers the tribunal to make an order against a person who "extends credit by way of credit cards or is otherwise engaged in a business that relates to credit cards" when the tribunal finds that such person has directly or indirectly:

"by agreement, threat, promise or other like means… influenced upward or… discouraged the reduction of, the price at which the person's customer or any other person to whom the product comes for resale supplies or offers to supply or advertise a product within Canada."

Before issuing an order, the tribunal must also be satisfied the conduct has had, is having or is likely to have an adverse effect on competition.

The tribunal ruled that "section 76 of the Competition Act requires a resale" and "the commissioner… had not established that the Respondents' customers resell the Respondents' products". Traditionally, resale price maintenance cases have focused on situations where a supplier of a product requires (or threatens them if they decline to do so) the retailers or wholesalers that resell its products to sell them at a certain (generally higher) price or risk some consequence. The tribunal confirmed in this case that there must be a direct resale of what is being supplied by the party targeted by the commissioner.

The tribunal announced that in the event that its legal analysis of Section 76's scope was incorrect, its reasons will include a detailed alternative analysis. The tribunal concluded that when it assumed the respondents had engaged in price maintenance as alleged by the commissioner, the rule imposed by the respondents that prohibited merchants from imposing a surcharge on consumers who paid by credit card did in fact result in an adverse effect on competition.

However, the tribunal noted it would have nonetheless declined to issue the order sought by the commissioner that would have prevented the enforcement of the respondents' various merchant restrictions. Rather, the tribunal noted that the "proper solution to the concerns raised by the commissioner is a regulatory framework". Pointing to experiences in other jurisdictions, the tribunal noted that consumer complaints would eventually, and likely "sooner than later", lead to regulatory intervention.

Comment

This decision is the second consecutive decision in which the tribunal has adopted a narrow interpretation of the Competition Act in rejecting a case brought by the commissioner.

In April 2013 the tribunal rejected the commissioner's abuse of dominance case against the Toronto Real Estate Board, holding that the conduct did not fall within the scope of Section 79 of the Competition Act.(2) The commissioner is appealing that decision.

The commissioner's case against the credit card companies was widely seen as a novel application of Section 76, given the complex relationships between the credit card companies, the financial institutions that issue the cards, the merchant acquirers that supply the credit card services directly to the merchants and the merchants. The commissioner has 30 days to file an appeal, and the tribunal's clear signal that a regulatory fix is more appropriate than a judicial order may influence that decision.

For further information on this topic please contact Kevin Ackhurst or Stephen Nattrass at Norton Rose Canada LLP by telephone (+1 416 216 4000), fax (+1 416 216 3930) or email ([email protected] or [email protected]).

Endnotes

(1) Commissioner of Competition v Visa Canada Corporation, CT 2010-010. A summary of the decision was issued pending release of the full reasons.

(2) Commissioner of Competition v Toronto Real Estate Board, 2013 Comp Trib 9 (CT-2011-003).