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THE UNIVERSITY OF BRITISH COLUMBIA

FACULTY OF LAW

FINAL EXAMINATION APRIL 12, 2018

—

09h00

LAW 464.001
Canadian Competition Law & Policy

Tougas & Wright

TOTAL MARKS: 90

TIME ALLOWED: 3 HOURS

A A Ak*************

NOTE: 1. This is an open book examination. Candidates may refer

only to print materials.

2. ANSWER ALL QUESTIONS.

THIS EXAMINATION CONSISTS OF PARTS A, B, C, D and E:

PART A —9 QUESTIONS (30 MARKS)

PART B —4 QUESTIONS (22 MARKS)
PART C —3 QUESTIONS (12 MARKS)
PART D —4 QUESTIONS (11 MARKS)
PART E —6 QUESTIONS (15 MARKS)

nb: IN THIS EXAMINATION,

“Act” means the Competition Act (Canada)

“Bureau” means the Competition Bureau
“Commissioner” means the Commissioner of Competition under the Act
All currency in Canadian dollars

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LAW 464, Section 1

Part A - FACT PATTERN

Two businesses previously formed a joint venture by incorporating a company called Zero
Emissions Inc. (“ZEI”) with operations in several countries, including money-losing
operations in Canada. ZEI produces solar-powered motorcycles in Canada and Europe. Upon
formation of ZEI, Leslie Bob Objects Inc., a private Ontario corporation (“LBOI”),
contributed equipment and cash. Betsy-Lou Finery Inc. (“BFF”), a private Saskatchewan
corporation, contributed know-how, a distribution network of dealers and cash. Last year,
the voting shares of ZEI became publicly traded. LBOI holds 19.9% of the voting shares of
ZEI, while BFF holds 36%. Jobo Co. Ltd. (“JBC”), a private Manitoba corporation, was
getting ready to aggressively produce solar-powered electric bicycles, but has decided to sell
its assets plus $95 million to ZEI instead. ZEI will issue 98 million shares to JBC, a joint
venture company of the Canadian federal govermnent, through a regulated Crown
corporation, and JBC’s controlling shareholder, Botzinger GmbH (“Botzco”), a private
German company controlled by the German government, resulting in shareholdings of 15%
for LBOI and 27.1% for BFF, who usually vote in tandem, and 34% for JBC (the
“Transaction”). JBC’s assets include know-how and sales outlets, customer contracts and
equipment. ZEI’ s counsel, Tanche, calls for advice and informs you that:

• None of the companies holds shares in any of the others.

• ZEI’s assets in Canada are valued at $399 million and its gross revenues from sales in,
from and into Canada are $71 million and its gross revenues from sales in and from
Canada are $36 million.
• ZEI’s enterprise value, as defmed under the Investment Canada Act, is $1 .815 billion.
• JBC’s assets in Canada are valued at $71 million (market value = $93 million), and the
gross value of the revenues from those assets from, in and into Canada is $28 million,
while its revenues from sales in and from Canada are $9 million.
• JBC will transfer all of its employees who wish to join ZEI. ZEI will eliminate
overlapping staff involved in sales and administration in their companies, and will
combine their research and development efforts. ZEI expects to increase output and lower
costs per unit of output in order to become profitable.

Your research reveals that, globally, there are many producers of motorcycles powered by
combustion engines; some are powered by various types of batteries but few are solar-
powered. Some of each type is produced in Canada. According to the trade journal “Healthy
Orbit”, ZEI has about 10% of worldwide solar-powered motorcycle production and 80% of
Canadian production, 90% of which is exported, and accounts for 36% of purchases in
Canada by revenue. A company in New Brunswick has the other 20% of Canadian
production, with 9% of sales in Canada and the rest to the United States. Sales into Canada
from 10 foreign sources make up the rest of Canadian purchases, with the two largest
accounting for 10% each. All ten sell combustion-powered motorcycles in Canada.

- All monetary values recorded on the most recent relevant audited financial statements.

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LAW 464, Section 1

Part A —9 Questions (30 Marks)

MARKS

2 1. Is the Transaction notifiable under the Act? Yes u No u

5 2. Discuss your answer to question 1 (whether and why notifiable).

2 3. Tanche thinics the Transaction is subject to notice or review under the

Investment Canada Act. Is she correct? Why or why not?

4 4. Assuming the Transaction is notifiable, name (a) all the types of

notification filings that could be made with or required by the Bureau, (b)
the party or parties responsible for filing, and (c) what type of filing you
would recommend and the basis of your recommendation.

2 5. The parties decide to proceed with all the Transaction. You submit filings
to the Bureau. The Bureau advises you, on the day after you have
notified the Bureau, that the Transaction have been classified as
“complex”. Your client intends to complete the Transaction in 5 days.
Advise Tanche of the parties’ ability to complete the Transaction in that
time frame and what steps the Bureau might take to prevent it?

8 6. Assuming the Transaction are notifiable and the Commissioner applies to

block the Transaction, before whom would he bring his application? What
arguments would you raise to convince the Tribunal that the Transaction
should proceed to completion as notified and what might the Bureau
argue? If there are issues to resolve, what advice would you give to
Tanche?

1 7. The parties have delayed completing the Transaction and over one year
has passed since the filing of information with the Bureau because the
German government says it is not subject to the Competition Act. Will the
parties have to start the notification process again? Why or why not?

3 8. Finally, the parties complete the Transaction. Six months later, the Bureau
receives complaints from (1) a competitor to ZEI, whose prices have
plummeted since the Transaction, (2) motorcycle riders who have been
injured while using ZEI’s products, and (3) consumers regarding the
similarity of prices for solar-powered motorcycles in every region of
Canada. The Bureau calls you to advise of the complaint. Advise Tanche.

3 9. Name the parties than can avoid a merger filing requirements under Part
IX or a Tribunal order under Part VIII of the Act due to the regulated
conduction doctrine and explain why.

End ofPartA

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LAW 464, Section 1

Part B —4 Questions (22 Marks)

Elbonia, a small country in Europe, accounts for over 95 percent of the world’s supply of a
“high-tech” product known as widgets. There are three independent Elbonian producers, X, Y
and Z. X has a world-wide market share of about 70% followed by Y (2 0%) and Z (5%). A
Canadian firm, EH?, accounts for most of the remaining 5% of world supply. Barriers to entry
to the widget production are high. X and Y sell widgets in most countries, including Canada,
but Z does not (Z instead choses to sell only in Europe). X, Y and Z are members of a trade-
association called the Elbonian Widget Makers Association (EWMA). For years, the EWMA
has promoted the development of widget technology and encouraged its members to exchange
research and development studies. At the 2018 annual association meeting in Elbonia,
members of the EWMA agree to contribute an aggregate amount of $100 million to an R & D
fund. The president of the EWMA suggests it would be reasonable for members to recoup this
investment by adding an R&D fee of $50 to each widget sold for export from Elbonia.
Representatives of X, Y and Z nod their heads after hearing this. In the coming months X and
Z add a R&D fee of $50 to each widget sales. Y does not, but revises its widget price list with
prices increasing on average by about $40.

MARKS

12 Bi In view of the new R&D fees and price increases, the Bureau launches an
investigation into the conduct of EWMA members under Sections 45(1)
and 90.1 of the Act. Have X, Y or Z violated either of these provisions?
Briefly explain your reasoning.

2 B2 X (but not Y or Z) has a 100%-own Canadian subsidiary called XCAN.

XCAN is not privy to the workings of the EWMA, but imposes an R & D
fee on Canadian customers at the suggestion of its parent X. Can XCAN
be criminally liable for a conspiracy in Canada?

3 B3 After news breaks of the Bureau investigation into the conduct of EWMA
members, a law firm in Toronto starts a putative class action on behalf of
widget customers based on Section 45 of the Act, naming the EWMA, X,
XCAN, Y and Z as defendants. In the pleading, the firm alleges that
customers of EH? [who is not alleged to be a co-conspirator] also paid too
much as a result of the conspiracy. Is such a claim allowed?

5 B4 EH? approaches the EWMA and asks if it will share R & D know-how
that is critical to success in the widget industry. EH? offers to make a
financial contribution or pay license fees. However, the EWMA refuses.
EH? lodges a complaint under the abuse of dominance provisions with the
Bureau. Putting aside the question of whether the Bureau has jurisdiction
to pursue EWMA and its members, is EH?’s complaint well founded?
What other information would you need to evaluate the merits of such
complaint?

End of Part B

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LAW 464, Section 1

Part C —3 Questions (12 Marks)

MARKS

3 Cl The 2009 Amendments to the Act (some of which came into force only in
March 2010) removed the “undueness” requirement from Section 45(1).
Discuss whether the concept of “unduly” or “undueness” continues to
have any role in the Act or its enforcement in 2018.
***

4 C2 On what basis, if any, can a non-party challenge a consent agreement

between the Commissioner and a private party registered with the Tribunal
under Parts VII. 1 or VIII of the Act? Explain briefly with reference to the
relevant statutory provisions and case law.
***

5 C3 Discuss whether in future cases you expect there to be a realistic

opportunity for a respondent to raise a viable Section 79(5) defence to an
abuse of dominance application in view of the approach of the Federal
Court of Appeal (FCA) in its December 2017 decision in the TREB case
(paragraphs 176-180). Do you agree with the interpretation of the FCA to
that provision? Explain briefly.

End ofPartC

Part D —4 Questions (11 Marks)

Tramp Inc. (TRAMP) sells rulers online to Canadians through a website, www.Tramp.ca.
The first page of the website includes the following passage, added in 2017:
TRAMP Rulers Rule! They are the straightest and longest lasting in the country. Over
90% approval! Do not settle for the crooked rulers of Hill-R-EE.

The Bureau investigates the website under Part VII.1 of the Act. A 2016 UBC study found
that TRAMPS’ 30 centimeter rulers were as straight as other competitors, but that one out
of 10 of its one metre rulers contained a slight bend (compared with 1 out of 100 for Hill
R-EE rulers).

MARKS

4 Dl Assuming that the 2016 UBC study is authoritative, has TRAMP violated
Section 74.O1(l)(a) of the Act? Would it make a difference that the
Bureau was unable to identify anyone who bought a TRAMP ruler based
on the above-quoted passage of the website?

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LAW 464, Section 1

3 D2 The Bureau investigates the statement “Over 90% approval” with respect
to Section 74.02. The website has a ratings and comments section where
members of the public can anonymously rate the TRAMP rulers and leave
comments. It shows an average product rating of 9.1 out of 10 (across 80
users). TRAMP contends that this justifies the 90% approval statement. Is
there a violation of 74.02?

2 D3 Now suppose the facts of D2, where, after the Bureau’s investigation
starts, TRAMP conducts a telephone survey of British Columbia users
and more than 90% of the respondents said they were satisfied with the
performance of TRAMP rulers. Does this survey establish a valid defence
of that statement with respect to Section 74.01(1)?

2 D4 The comments section of the TRAMP website includes the following post:

“I go to architecture school in Canada. My Hill-R-EE rulers were made of

sawdust and kept breaking. Switched to TRAMP and now school is great
again.”

The Bureau investigation reveals that HILL-R-EE rulers were never made
of sawdust and that comment was not left by a Canadian architectural
student but by a Russian employed by an affiliated company of TRAMP
based in Moscow that is not involved in the ruler business. TRAMP
management denies that it had any knowledge that this individual left the
comment.

Is TRAMP responsible under Part VII. 1 of the Act by virtue of who it is

that left the comment?

End of Part D

Part E —6 Questions (15 Marks)

MARKS
2 1. Name three anticompetitive thresholds mentioned in the Act.

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LAW 464, Section 1

2 2. Which of the following are concepts unequivocally available for use in the
merger provisions of the Act? (Check as many as apply)

a. Regulated conduct doctrine. D

b. Ancillary restraints doctrine.
c. Failing firm doctrine.
d. None of the above. D

2 3. Which of the following is a “gun-jumping” issue?

a. Early termination under US antitrust lawD

b. Conspiracy under section 45
c. Forcing a dealer to stop discounting prices D
d. Completion of transaction before end of statutory waiting period c

2 4. Match the following into pairs (e. , a. and b.) leach has a match]

a. S SNIP e. Change in control

b. Quasi-structural remedy f. Price maintenance

c. Refusal to supply g. Market definition

d. Accept as a customer h. Grant of exclusive licence

e. Joint venture i. Refusal to deal

2 5. Which of the following pairs are not market structures? (Check all that
apply)

a. Monopoly and oligopsony.

b. Effective competition and oligopoly. 11
c. Monopsony and material price increase. []
d. Triopoly and perfect competition. C]
e. None of the above are market structures. C

5 6. Discuss whether and the extent to which the reason for refusing to supply
product differs under section 75 and section 76.

End of Part E

END OF EXAMINATION

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