Exam 32: Restrictive Trade Practices

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.

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

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.

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

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

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

Activities of sellers relating to the distribution and sale of products

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

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

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

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

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

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

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 Act.

What was the ground for the action brought by United Parcel Service against Canada Post?

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

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.

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 oversale 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.

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.