Exam 32: Restrictive Trade Practices

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

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

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

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

The Commissioner of Competition and Research

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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