The Competition Tribunal has ruled that arguments against Visa and MasterCard put forth by the Competition Bureau didn’t conform with specific section of the Competition Act.Michael Probst/The Associated Press
In legal brawls, verdicts often hinge on the most technical of terms.
Take the fight for a national securities regulator. Those in favour of a united body fought for 40 years, and when their case finally reached the Supreme Court of Canada, they were shot down because federalism rules trumped all others. No matter the strength of the arguments on either side, the provinces have the right to run their own individual regulators.
A similar scenario played out in the federal Competition Bureau's case against Visa Canada Corp. and MasterCard International Inc. While awaiting the ruling, lawyers wondered how the Competition Tribunal would interpret Section 76 of the Competition Act, knowing it could ultimately decide the fate of the case.
Section 76 is a long and convoluted text, but it deals with what is known as "resale price maintenance." In other words, it prevents manufacturers from fixing the prices at which retailers sell their goods.
An example: If Samsung (or any TV manufacturer) sells televisions to a wholesaler, who then sells them to a retailer, then Samsung can't tell the retailer to sell the TVs to consumers at specific prices.
In Tuesday's ruling, the tribunal decided that "Section 76 of the Competition Act requires a resale and that the Commissioner of Competition had not established that the Respondents' customers resell the Respondents' products." Case closed.
To really put a nail in the case's coffin, the tribunal went further. Section 76 was revised in 2009, changing price maintenance from a criminal offence to a civil one and adding language that stated price maintenance is illegal only if it has an adverse effect on competition.
Again, an example: If Cartier wants retailers to sell its luxury watches at elevated prices to maintain the brand's prestige, that might be okay under the act because it would be Cartier's own choice and does not necessarily effect broad competition in the market.
To determine if the bureau's allegations held any merit, the tribunal decided to rule on whether Visa and MasterCard's rules have an adverse effect on competition. And guess what? They do.
By forcing merchants to sign contracts that forbid them from implementing surcharges on each purchase made with a credit card, the tribunal found that "in that situation …there had been an adverse effect on competition."
But here's the tricky part: Even if Section 76 had applied, the tribunal still wouldn't have ruled against the credit card companies. It would have kicked the case back to the federal government in hope of achieving a new regulatory framework.
For now, the ruling may be a bit confusing for lawyers. Because this was the first case fought under the revised Section 76, the legal community wants to glean insight on how the tribunal interprets the new language. The decision document, however, was short and pithy, offering little colour about the tribunal's conclusion.
That means lawyers will have to wait a few weeks for the tribunal's detailed reasoning to become publicly available.
(Tim Kiladze is a Globe and Mail banking reporter.)
Return to Streetwise home page.
The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page.
Tim Kiladze