Written by John McKeown
The Interaction between IP Rights and the Competition Act
Recent decisions of the Federal Court of Appeal and the Ontario Superior Court of Justice raise some concerns about the interaction between IP rights and the Competition Act.
The Facts
Digital marketing has transformed how consumers purchase cars. Though transactions between buyers and sellers are still conducted in person, much of the research is done online prior to the actual sale via research websites (“Digital Marketplaces”). Information available on these Digital Marketplaces will typically include, for each vehicle, the make, model, year, Vehicle Information Number, mileage and price, and photographs (collectively “Vehicle Listings”). Digital Marketplaces aggregate Vehicle Listings from several sources, including vehicle manufacturers, automobile dealers, private sellers, and the marketplace. Certain other businesses known as “Feed Providers” also receive Vehicle Listings from dealers and provide them to Digital Marketplaces.
Cargurus, Inc. (“Cargurus”) is a private company registered under the laws of Massachusetts. Its website has been active in the United States since 2007, and it entered the Canadian marketplace in May 2015 through a website at ca.cargurus.com”.
Trader Corporation (Trader) owns and operates an English and French Digital Marketplace at autotrader.ca and autohebdo.net respectively. Trader also offers “capture services” where its employees create Vehicle Listings for dealers. A Trader employee or contractor will visit the dealership to gather information and take photos of the vehicle. The listings can then be posted on Trader’s websites, and on the dealer’s own website. The listings can also be provided to other Digital Marketplaces through a licensing process.
Trader received complaints from dealers that their vehicles were appearing for sale on CarGurus’ website without their permission. In June 2015, Trader sent a letter to CarGurus alleging that CarGurus was “scraping” or “crawling” the Trader website.
The Ontario Superior Court of Justice Action
Trader and CarGurus could not agree on licence terms and Trader commenced an application asserting that CarGurus infringed Trader’s copyright in 196,740 photos taken under the Capture Service. Trader sought a declaration of copyright infringement and a permanent injunction restraining CarGurus from using Trader’s photos. Trader further claimed statutory damages under the Copyright Act.
Trader succeeded and the court issued a declaration that CarGurus infringed Trader’s copyright in 152,532 photos and awarded statutory damages payable by CarGurus to Trader for $305,064.
The Application to the Competition Tribunal
Part VIII of the Competition Act sets out the matters reviewable by the Tribunal, including restrictive trade practices that the Tribunal can review on application either by the Commissioner of Competition or by another person granted leave. Under section 75, the Tribunal has jurisdiction to review a situation where a person cannot obtain adequate supplies of a product on usual trade terms. If the test set out in that section is met, the Tribunal may order that one or more suppliers of that product accept the person as a customer.
Under section 77, the Tribunal can review the practices of exclusive dealing, tied selling, and market restriction. If the Tribunal finds these activities are occurring within the meaning of the section, the Tribunal may make orders prohibiting those practices.
Because of the copyright proceedings being launched, CarGurus removed over one million photographs it had obtained by crawling dealer websites. The lack of access to Trader’s inventory and the resulting decrease in page views and in advertising revenues were the basis for CarGurus’ application for leave before the Tribunal. CarGurus claimed that Trader engaged in anticompetitive conduct, including refusing to licence Trader’s Vehicle Listings to CarGurus on the usual trade terms, instructing third parties not to deal with CarGurus, and improperly asserting copyright.
The Tribunal found that CarGurus’ evidence lacked sufficient particulars and credibility. Given the weaknesses in CarGurus’ evidence, the Tribunal concluded it could not reasonably believe that CarGurus may be directly and substantially affected in its business by Trader’s conduct. Because of this finding the application for leave was dismissed.
The Federal Court of Appeal
Cargurus appealed from the Tribunal’s refusal to grant leave to the Federal Court of Appeal. The Court said that CarGurus provided the Tribunal with a set of “initial projections” and a set of “revised projections” purporting to show the impact of Trader’s alleged conduct. However, as noted by the Tribunal, the affidavit to which these projections were attached did not explain how and by whom these calculations were performed. Absent any background for these projections, the Tribunal could reasonably conclude that the evidence was neither sufficient nor cogent and that the forecasts used by CarGurus were speculative and only amounted to a mere possibility of substantial effect.
In the circumstances, the Tribunal reasonably found that the projections amounted to no more than a mere possibility of substantial effect and were speculative. As a result the appeal was dismissed.
Comment
This decision of the Federal Court of Appeal and the Ontario Superior Court of Justice raise concerns about the interaction between IP rights and the Competition Act. Generally, a competitor may use its IP rights to compel or prevent the use of goods and/or services only to the extent that it is not a part of anti-competitive conduct that is something more than the mere exercise of the IP right. While the proceedings alleging a breach of the Competition Act were not dealt with on substantive grounds they would have been decided on this basis.
John S. McKeown
Goldman Sloan Nash & Haber LLP
480 University Avenue, Suite 1600
Toronto, Ontario M5G 1V2
Direct Line: (416) 597-3371
Fax: (416) 597-3370
Email: mckeown@gsnh.com
These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
©2017 John S. McKeown
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