Companies that exit market could still be on competition hook, Canadian court says

31 January 2017 9:55am

27 March 2015. By Richard Vanderford.

Companies can be sanctioned for abusing a dominant position even if they have left the market, a Canadian court has ruled, allowing an enforcement action from the country’s Competition Bureau to go forward against Direct Energy.

The law does not let a company shield itself by selling the offending business, Justice Donald J. Rennie of the Competition Tribunal said in a decision made public Friday.

Rennie rejected arguments from Direct Energy, a Houston-based company that sells energy to homes and businesses, that it could not be sued over actions taken by a smaller business unit, because it had sold that unit and vowed not to re-enter the market.

“The matter is not moot,” Rennie said.

Rennie’s decision means the Competition Bureau can continue to pursue a $15 million case over actions Direct Energy allegedly took in connection with a water heater rental business.

Though the decision centers on a relatively esoteric market, it could have important implications for companies sued for abuse of dominance.

The Competition Bureau claims that Direct Energy allegedly made policies to lock in customers of its water heater rental business in a bid to stop them from switching to competitors.

The case had been set to go to trial this March. In July 2014, Direct Energy sold its stake in the water heater rental business to EnerCare, a rival, and promised in a contract with the company not to re-enter the market for eight years.

Direct Energy said that the divestiture should kill the bureau’s suit, because the Competition Act section on abuse of dominance says it applies to companies that “control” a market, not companies that once did.

Rennie said that Direct Energy’s position would allow companies to sell off offending business units on the eve of trial to escape law enforcement. “Dominance could be perpetuated by engaging in a series of divestitures,” Rennie said. “This could not have been Parliament’s intention.”

Direct Energy’s contract with EnerCare could, for example, be changed or even nullified if Direct Energy were to just buy EnerCare, Rennie said.

Rennie said that whether he actually finds Direct Energy has violated the law will depend on evidence presented in the future.

“This decision is an important development, as it means that the commissioner can proceed with an abuse of dominance application even if the entity alleged to have abused its dominant position has exited the market,” Competition Bureau head John Pecman said in a statement.

Pecman said the bureau believes that Direct Energy “profitably engaged in the alleged anti-competitive behavior for a significant period of time” and hopes for a quick resolution.

Direct Energy spokeswoman Jessica Mahaffey said that the company had just received the decision and is evaluating options.

Reliance, another player in the water heater rental market, agreed earlier to pay a $5 million penalty and contribute $500,000 to the bureau’s investigative costs in order to settle the case.

EnerCare, which bought the Direct Energy unit, has said in writing it would discontinue Direct Energy’s allegedly anticompetitive practices, according to the bureau.

Joh Sung-Wook Interview