PREDATORY PRICING CLAIM DOES NOT FLY WITH

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PREDATORY PRICING CLAIM DOES NOT FLY WITH FEDERAL COURT IN CASE
INVOLVING FREE ONLINE AVIATION EXAM GUIDES
Adam Mizera*
LEGER ROBIC RICHARD, Lawyers
ROBIC, Patent & Trademark Agents
Centre CDP Capital
1001 Square-Victoria – Bloc E – 8th Floor
Montreal, Québec, Canada H2Z 2B7
Tel.: (514) 987-6242 - Fax (514) 845-7874
E-mail: [email protected] – Web Site: www.robic.ca
Canada's Federal Court recently ruled that offering free on-line Canadian
aviation exam guides did not constitute an act of predatory pricing under
Canada's Competition Act, R.S.C., 1985, c. C-34. (Culhane v. ATP Aero
Training Products, 2004 FC 535 (April 6, 2004, O’Keefe, J.; appeal filed on June
28, 2004)).
Facts
The plaintiff, Michael Culhane, is an author and a publisher of a group of
aviation publications, including practice exam guides available for sale on
the plaintiff’s website, in paper or electronic format.
The defendant, ATP Aero Training Products (hereinafter “ATP”) is also a
publisher and distributor of aviation books and exam guides. The guides were
sold for a price until 1997. However, in the early 1990s, some guides were
given away with orders. After 1997, ATP began offering free on-line guides on
the internet in exchange of the e-mail address of the website visitor.
The plaintiff claimed that the availability of free on-line examinations was the
cause of a decrease in sales of the plaintiff’s competing publications. For
example, the plaintiff was offering online exams for prices ranging between
$19.95 and $24.95 and including the provision of exam results to the user
within 48 hours. A required textbook was also made available at an additional
cost. On the other hand, the defendant’s on-line exams were graded
automatically for free with results sent to the user instantly, with suggestions of
other useful publications to consult.
© LEGER ROBIC RICHARD / ROBIC, 2004
* Lawyer and Engineer of the law firm LEGER ROBIC RICHARD, g.p. and of the patent and
trademark agency firm ROBIC, g.p. Published at [2004] World Internet Law Report. Publication
274.18.
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Issues
Did the conduct of the defendant amount to predatory pricing under the
Competition Act?
Did the defendant unlawfully interfere with the plaintiff’s economic interests?
Findings
In order for the defendant to be held liable for predatory pricing, the plaintiff
had to establish that:
1) the defendant is engaged in a business;
2) the defendant is engaged in a policy of selling products;
3) pursuant to the policy, the products are being sold at prices which are
unreasonably low;
4) the policy has the effect or tendency of substantially lessening competition
or eliminating a competitor; and
5) the defendant's unreasonably low pricing causes loss or damage to the
plaintiff.
Since the exam guides had been previously sold for a price, the Court found
that ATP engaged in a policy of selling products, even though they were
being provided free of charge since 1998. Furthermore, given that there are
certain costs associated with the production and placement of the products
on a website, providing the manuals free of charge suggests that the sale
price (at no cost) is an unreasonably low one. Since this free offer was to be
maintained for an indefinite amount of time, the Court stated that the longer
the price decrease lasts, the more suspect it becomes. ATP’s price reduction
was also suspect since it was offensive in nature, and not in reaction to a
price decrease implemented by the plaintiff.
However, the Court found that there was no evidence that the defendants
had a design to substantially lessen competition or to eliminate the plaintiff.
Among other arguments, the defendant testified that the free on-line guides
were used as a marketing tool to increase the sale of other products.
Furthermore, in the Court’s opinion, the plaintiff did not clearly establish that
the ATP’s actions caused loss or damages to the plaintiff, as the drop in sales
appeared to be influenced by a number of other external factors not
imputable to the defendant.
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In order to establish a claim of unlawful interference with the economic
interests of the plaintiff, the latter also had to establish: (1) interference with
the plaintiff's trade or business; (2) unlawful means; (3) intent to injure the
plaintiff; and (4) actual injury. The court found that none of the requirements
of this tort were met.
Comment
The court’s decision illustrates the risks associated with the use of free on-line
promotional materials in marketing strategies. Although the predatory pricing
claim was rejected in the present case due to lack of evidence of intent of
lessening competition, one can consider alternate scenarios in which
sufficient evidence could be produced to maintain the claim. In situations
involving products that have been previously sold for a price, the decision
shows that giving away the same products as internet freebies could be
construed as selling at an unreasonable low price and possibly become an
act of predatory pricing under the Competition Act.
ROBIC, un groupe d'avocats et d'agents de brevets et de marques de
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intangibles.
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