CT-2017-002 THE COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as amended; AND IN THE MATTER OF an arrangement between HarperCollins Publishers LLC, Hachette Book Group Inc., Verlagsgruppe Georg von Holtzbrinck GMBH, Holtzbrinck Publishers, LLC d/b/a Macmillan, Simon & Schuster Inc. and Apple Inc.;
AND IN THE MATTER OF an application by the Commissioner of Competition pursuant to section 90.1 of the Competition Act.
B E T W E E N: THE COMMISSIONER OF COMPETITION Applicant
- and - HARPERCOLLINS PUBLISHERS L.L.C., and HARPERCOLLINS CANADA LIMITED
RESPONDENTS’ NOTICE OF MOTION (for Summary Dismissal of the Application)
TAKE NOTICE THAT the Respondents will make a motion to the Competition Tribunal at such date, time, and location as the Tribunal directs.
THE MOTION IS FOR THE FOLLOWING RELIEF: 1. An Order dismissing the Application by the Commissioner of Competition (the “Commissioner”) against the Respondents HarperCollins Publishers L.L.C. (“HarperCollins US”) and HarperCollins Canada Limited (“HarperCollins Canada”) (collectively, “HarperCollins”), dated January 19, 2017 (the “Application”), with prejudice;
Respondents (Moving Parties)
- 2 - 2. The costs of this motion and of the Application; and 3. Such further and other relief as counsel may request and the Competition Tribunal (the “Tribunal”) deem just.
4. This motion is made without attornment to or acceptance of the jurisdiction of the Tribunal over this proceeding and the Respondents.
THE GROUNDS FOR THIS MOTION ARE: 5. In his Application, the Commissioner seeks “an order pursuant to subsection 90.1(1) of the Competition Act:
(a) prohibiting the Respondents from doing anything under the Arrangement (as defined below in paragraph 1 of the Statement of Grounds and Material Facts) for a period of 10 years […]”;
6. Paragraph 1 of the Application contains the Commissioner’s definition of the alleged “Arrangement,” which is described as follows: in 2010, HarperCollins US, “along with other major publishers and a retailer entered into an anti-competitive arrangement (the “Arrangement”) to collectively alter the business model and raise retail prices in respect of the sale of E-books to consumers” (emphasis in the Application);
7. Paragraph 2 of the Application asserts that the “Arrangement was formed in the United States between HarperCollins [US], Hachette Books Group Inc. [(“Hachette”)], Verlagsgruppe Georg von Holtzbrinck GMBH, Holtzbrinck Publishers, LLC d/b/a/ Macmillan [(“Macmillan”)], Simon & Shuster Inc. [(“Simon & Shuster”)] and Apple Inc. [(“Apple”)]” (emphasis and definitions added);
8. Paragraphs 21-22 of the Application further allege that: […] The Arrangement provided for a shift from wholesale agreements, where retailers control retail prices and have the ability to offer consumers discounts, to agency agreements, where publishers control the retail price and have the ability to bar price discounting [for e-books]. The Arrangement also provided for an MFN clause and pricing tiers in the agreements […].
The Arrangement was formed in the United States through a series of communications among the US Publishers either directly or indirectly through Apple. The Arrangement was
- 3 - implemented, first in the United States and then in Canada, by way of agency agreements entered into by publishers and E-book retailers. (emphasis added)
9. The Commissioner’s Application has two fundamental flaws on its face, each of which provides a separate, independent and sufficient ground on which the Application should be summarily dismissed;
The Tribunal Lacks Jurisdiction 10. As a threshold matter, the Application should be dismissed because the Tribunal lacks jurisdiction to grant the relief requested by the Commissioner;
11. This Tribunal’s jurisdiction is delimited by section 8(1) of the Competition Tribunal Act, R.S.C. 1985, c.19 (2nd Supp.), which provides that the Tribunal “has jurisdiction to hear and dispose of all applications made under Part […] VIII of the Competition Act […];”
12. While the Commissioner has purported to seek an order pursuant to section 90.1 of Part VIII of the Act in the Application, it is clear as a matter of statutory interpretation that section 90.1 applies only to arrangements or agreements formed (entered into) in Canada;
13. It is a fundamental presumption of Canadian statutory interpretation that Parliament does not intend its laws to apply outside of Canada, absent the use of clear language to the contrary. Section 90.1 of the Act contains no language providing for its extraterritorial application;
14. Moreover, when it is interpreted in the context of other provisions in the Act, including sections 45, 46 and 83 of the Act (and the Act as a whole), it is clear that the reach of section 90.1 is limited to agreements or arrangements between or among competitors that are entered into in Canada;
15. The Arrangement impugned by the Commissioner in his Application, however, is alleged to have been formed in the United States by five U.S. entities and a German entity;
16. There is nothing in section 90.1 or elsewhere in the Act which authorizes the Tribunal to make any order against persons outside Canada, such as HarperCollins US;
17. The purported Arrangement lies outside the ambit of section 90.1, and therefore is beyond the Tribunal’s jurisdiction;
- 4 - 18. In addition, the principles of international comity support the conclusion that the Tribunal lacks jurisdiction over the Arrangement alleged by the Commissioner;
19. As described further below, all of the parties alleged by the Commissioner to have been part of the Arrangement, including HarperCollins US, have been and currently are subject to the jurisdiction and continuing Final Judgments of the United States District Court for the Southern District of New York (the “SDNY Court”);
20. It would offend international comity for this Tribunal to assert jurisdiction and entertain the relief sought by the Commissioner in his Application, the terms of which are more expansive than and not consistent with the terms of the Final Judgments of the SDNY Court;
21. Accordingly, the Application should be dismissed; No “Existing or Proposed” Arrangement 22. The second ground for summary dismissal of the Application is that section 90.1(1) of the Act empowers the Tribunal to make remedial orders only in respect of arrangements or agreements among competitors which are “existing or proposed”;
23. Regardless of whether the impugned Arrangement ever existed (which HarperCollins denies), there can be no doubt that no such Arrangement currently exists or is proposed;
24. Although the Commissioner alleges that the Arrangement “continues to target vigorous competition and low prices in the retail market for E-books only” and purportedly “continues to this day in Canada,” there is no factual basis for that allegation;
25. On the contrary, as a result of civil proceedings brought by the United States of America in the SDNY Court all of the alleged parties to the purported Arrangement, HarperCollins US, Hachette, Macmillan, Simon & Shuster and Apple, as well as Penguin (another U.S. publisher not alleged by the Commissioner to have been part of the Arrangement), currently are (and have for years been) subject to binding Final Judgments in the SDNY Court that prohibit the existence of the Arrangement;
26. Moreover, in February 2014, the alleged publisher parties to the Arrangement and/or Canadian affiliates of those parties, including HarperCollins Canada, entered into a Consent Agreement that was registered with the Tribunal on February 7, 2014 (the “First Consent Agreement”) in which, among other things, those respondents agreed (a) not to restrict, limit or impede an e-book retailer’s ability to set, alter or reduce the Retail Price (as
- 5 - defined therein) of any e-book sold to consumers in Canada for a period of 18 months (beginning to run 40 days after registration of the First Consent Agreement); and (b) not to enter into any agreement with an e-book retailer that contains a Price MFN (as defined therein) for a period of four years and six months from the date of the First Consent Agreement’s registration;
27. The terms of the First Consent Agreement were said by the Commissioner to remedy any concerns about impact on competition;
28. The existence of the First Consent Agreement makes it clear that there was no arrangement (as alleged or otherwise) at least as of the date of the First Consent Agreement;
29. In any event, there can be no doubt that there currently is no “existing or proposed” Arrangement in view of the new Consent Agreements entered into by the respondents to the First Consent Agreement (except for HarperCollins Canada), as well as by Apple, all registered with the Tribunal on January 19, 2017 (collectively, the “2017 Consent Agreements”);
30. The 2017 Consent Agreements follow a successful challenge to the First Consent Agreement by Canadian e-book retailer Rakuten Kobo Inc. (“Kobo”), which led to the rescission of the First Consent Agreement, with the consent of the Commissioner, in June 2016;
31. Kobo has filed a challenge to the 2017 Consent Agreements in the Federal Court, including on the grounds that there is no basis for the Commissioner’s conclusion that there is an “existing or proposed” arrangement;
32. Faced with the Final Judgments in the SDNY Court and the Canadian Consent Agreements, it may be the Commissioner’s position that the purported Arrangement continues to exist today in Canada because HarperCollins Canada and other Canadian publishers have agency agreements in place with Canadian retailers, like Kobo;
33. But if that is the Commissioner’s position, it improperly conflates the mere existence of vertical agreements, which cannot themselves run afoul of section 90.1 of the Act, and the existence of a horizontal agreement or arrangement among competitors, which may;
34. It is clear as a matter of statutory interpretation that, in the absence of an existing horizontal agreement or arrangement among Canadian publishers (and, clearly, none exists), existing vertical agency agreements between a publisher and a retailer cannot be the subject of a remedial order by the Tribunal under section 90.1 of the Act;
- 6 - 35. The Application should therefore be summarily dismissed; 36. Competition Act, R.S.C. 1985, c. C-34, including, inter alia, sections 45, 46, 83 and 90.1; 37. Sections 8 and 9 of the Competition Tribunal Act, R.S.C. 1985, c.19 (2nd Supp.); 38. Rules 2(1), 5, 83 and 89 of the Competition Tribunal Rules, SOR/2008-141; and 39. Such further and other grounds as counsel may advise and the Tribunal may permit. THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of the motion:
1. The pleadings and proceedings regarding e-books before the Tribunal and in the United States, all on the public record; and
2. Such further and other evidence as counsel may submit and the Tribunal consider. Dated: March 6, 2017
Katherine L. Kay Phone: (416) 869-5507 Fax: (416) 947-0866 Email: kkay@stikeman.com
Danielle K. Royal Phone: (416) 869-5254 Email: droyal@stikeman.com
Mark E. Walli Phone: (416) 869-5577 Email: mwalli@stikeman.com
Counsel for the Respondents
STIKEMAN ELLIOTT LLP 5300 Commerce Court West 199 Bay Street Toronto, Ontario M5L 1B9
- 7 - TO: DEPARTMENT OF JUSTICE CANADA Competition Bureau Legal Services Place du Portage, Phase 1 nd 50 Victoria Street, 22 Floor Gatineau, Quebec K1A 0C9
John Syme Alex Gay Esther Rossman Katherine Johnson
Tel: (819) 953-3903 Fax: (819) 953-9267