Loyalty Discounts and Rebates: A Commentary on Canada Pipe and Abuse of Dominance in Canada

Abstract

In this paper I will review the abuse of dominance provisions under the Competition Act1 (the "Act"), discuss the diverging approaches between the US and EU with respect to loyalty discounts and rebates, and critique the Federal Court of Appeal's decision in Canada (Commissioner of Competition) v. Canada Pipe Corporation Ltd.2 I will argue that while the US rebuttable presumption of legality with respect to loyalty discounts and rebates is preferable to the EU approach of near per se illegality, a detailed economic analysis of the market and the specific incentive program at issue should be made on a case-by-case basis. I will also argue that the Federal Court of Appeal's framework in Canada Pipe for assessing whether the impugned practice is anti-competitive is problematic. By limiting paragraph 79(1)(b) solely to an assessment of intent, practices that substantially lessen competition yet lack a predatory, exclusionary, or disciplinary purpose against competitors will not be caught. In my view, paragraph 79(1)(b) should involve a threshold balancing of whether the anti-competitive effects of a practice might outweigh its efficiency benefits. I will conclude that while the impugned practice in Canada Pipe was likely anti-competitive under paragraph 79(1)(b), it arguably did not amount to a substantial lessening of competition under paragraph 79(1)(c).