Competition compliance risks during the COVID-19 crisis: Increased scrutiny of price-gouging and business collaboration
Burtley G. Francis and David Slipp
During this unprecedented period of social isolation and economic uncertainty brought about by the COVID-19 pandemic, businesses are rapidly re-structuring their operations and adjusting their practices in order to comply with federal and provincial health and safety directives. However, it is important for businesses (particularly, manufacturers, suppliers, and retail vendors) to ensure that appropriate systems are maintained to ensure gaps are not created which allow or encourage engaging in anti-competitive conduct.
The Competition Bureau in its March 20, 2020 statement promised increased vigilance against anti-competitive conduct under the federal Competition Act during this period.1 In addition to the federal regime, businesses must now also be mindful of an additional layer of regulation at the provincial level associated with the declaration of states of emergency by Provincial governments.
This article highlights two particular compliance risks: pricing offenses and business collaboration.
Pricing offence: Price-gouging
Under normal circumstances, scarcity of supply coupled with higher demand would expectedly lead to increased prices for consumers (as increased acquisition costs for inventory in the supply chain are passed through to consumers in the form of higher retail prices). However, during this trying time, consumers (as well as regulators and government officials) are hyperaware of price increases and actions which could be considered taking advantage of the situation (i.e. price-gouging).
Businesses should be aware that increasing prices during a declared state of emergency could be an offence in some provinces. For example:
- In Nova Scotia, under the Emergency Management Act it is an offense to charge higher prices for food, clothing, fuel, equipment, medical or other essential supplies or for the use of property, services, resources or equipment during a declared state of emergency.2 A person found guilty of price-gouging would face fines (up to $10,000 for individuals, $100,000 for companies); or imprisonment of up to six months; or both.3 Additionally, the court has discretion to increase the fine by an amount equal to the financial benefit that was acquired by the guilty party.4
- Ontario, by emergency order announced on March 28, 2020 that it would issue fines of up to $500,000 and seek imprisonment for up to one year for those charging unfair prices for “necessary goods” namely5:
- Masks and gloves used as personal protective equipment in relation to infections;
- Non-prescription medications for the treatment of the symptoms of the coronavirus;
- Disinfecting agents intended for cleaning and disinfecting objects or humans; and
- Personal hygiene products, including soap products and paper products.
Pricing offence: Price maintenance
It is an offense under the Competition Act, to influence upward or discourage a reduction of a product’s retail price.6 Price maintenance may occur when a supplier prevents a customer from selling a product below a minimum price by means of a threat, promise or agreement. It may also occur when a supplier refuses to supply a customer or otherwise discriminates against them because of their low pricing policy.
The pressure to maintain a certain level of resale prices may also come from customers of a supplier. As an example, a retailer may try to induce their supplier to (i) discourage the supplier’s other customers (i.e. competing retailers) from selling certain products below an established (profitable) price or; (ii) refuse to supply competing retailers who are selling the product at a lower price than the inducing customer. In that case, the inducing customer would be protected from competition and market prices for consumers remain higher than they otherwise would have been.
Suppliers and retailers should be cognizant of the potential for greater fallout from even the suggestion of price maintenance at this time. There have been recent reports in the media of individuals stocking up on popular items and reselling them at a substantial profit. Retailers should consider putting simple safeguards in place, such as quantity limits, to avoid being caught up in the gravity of a negative media story or to prevent accusations of contributing to another’s misdeeds.
Business collaboration
Under the Competition Act, discussions between competing businesses relating to (i) fixing, maintaining, increasing or controlling prices, (ii) allocating sales, territories, customers or markets, or (iii) fixing, maintaining, controlling, preventing, lessening or eliminating the supply of a product are severely scrutinized and may violate the criminal conspiracy provisions of the Act.7 There are other activities which also garner anti-competitive concerns, and may result in review under the civil provisions of the Act.8 Generally, these would include agreements or arrangements between members that are likely to prevent or lessen competition substantially.
Amid supply shortages for essential products, however, collaboration among businesses to secure their respective supply chains is of benefit to the wider public. Recognizing this, following its initial statement in March the Competition Bureau released a further statement on April 8, 2020 stating that good faith collaboration between competitors, such as the formation of buying groups to strengthen purchasing power will not be treated as actionable form of competitor collaboration at this time.9 However, such collaborations should be taken only to ensure access to the “necessities of life for all Canadians”.
Businesses should be very aware, though, that the Competition Bureau will have “zero tolerance” for any attempts to abuse this flexibility. The Competition Bureau will not be lenient in its enforcement against collaboration by competitors aimed at maintaining their profitability.
To assist businesses avoid engaging in prohibited collaboration, the Competition Bureau has established a team dedicated to assess and provide guidance to businesses seeking to collaborate. Interested parties can contact the Competition Bureau by emailing CB-COVID19-BC@canada.ca.
Conclusion
The COVID-19 pandemic is unprecedented in modern history and is having wide-reaching social and economic effects. The Competition Bureau of Canada will be increasingly alive to claims of collusion between parties to increase the price of goods and services. At the same time, there will be increased leniency for businesses to collaborate with each other in good faith in order to deliver the supplies Canadians need during this period of supply shortages and uncertainty. Retailers should check for any provincially-instituted restrictions on price increases before deviating from a product’s normal selling point.
1 Statement from the Commissioner of Competition regarding enforcement during the COVID-19 coronavirus situation, March 20, 2020.
2 Section 16.
3 Section 23.
4 Section 23A.
5 Ontario Protecting Consumers from Price Gouging
6 Section 76(1).
7 Section 45.
8 Section 90.1.
9 Competition Bureau statement on competitor collaborations during the COVID-19 pandemic, April 8, 2020.
This article is provided for general information only. If you have any questions about the above, please contact a member of our Competition Law group.
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