Can you set your customer’s selling price? Jun 28, 2013

Businesses such as manufacturers have long had what they considered a legitimate interest in the prices that sellers within their chain of distribution established to resell products. Public policy in Canada for decades disagreed with that perspective, and the Competition Act prohibited the practice. Indeed, it was a criminal offence to, by means of “promise, threat or agreement”, prevent resale of products at a price lower than a minimum established by the first seller of the product (usually a manufacturer).

Economists have in recent years offered varying opinions on the effectiveness and appropriateness of enforcing or prohibiting resale price maintenance. Enforcing minimum resale pricing schemes on downstream sellers discourages innovation that can lead to efficiencies and lower prices that benefit ultimate consumers.

Amendments introduced to the Competition Act in March, 2009 removed the criminal prohibitions of resale price maintenance, replacing them with a civil regime. The Competition Bureau can now treat a resale price maintenance practice as a reviewable matter, and can by means of an order prohibit the practice on a case by case basis if it determines there is a resulting adverse effect on competition. However, the Tribunal has no authority to impose fines.

An upstream seller can avoid the effects of the new provision if it can establish that any resale price is merely suggested, and the downstream customer will experience no negative impact in the business relationship if the suggestion is ignored. And, the new provisions apply only to supplier-customer relationships. Horizontal pressures to establish prices are not dealt with in the Act.

So – does this mean resale price maintenance is no longer illegal in Canada? Likely yes, but that doesn’t necessarily mean it’s legal either, based on the Tribunal’s ability to review the practice to determine if adverse effect on competition can be established. Business managers facing this circumstance would be well advised to seek legal advice before setting out on a course of resale price maintenance.