Documentation

U9/03/2004 16:48 4168693411 THE COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as a.ncnded. AND IN THE MATTER OF an Application by Quinlan's ofHuntsvill~ Inc. for relief pursuant to sections 75, 103.l and 104 of the Competition Act.

BETWEEN: QUINLAN'S OF HUNTSVILLE INC. COM?ETIT10N nmmN ~il - and- T!UBi.Z.NAL DE 1.1\ G.XlWim!ENCE P F R I 0 i SEP ;; '2004 B FRED DEELEY IMPORTS LTD. D I carrying on business as REG::;J aA1t - tU:GlSTRA1?.e T DEELEY HARLEY-DAVIDSON CANADA ---;;TT~~~; ~NT. -, Respondent SUPPLEMENTA L WRITTEN REPRESENTATIONS OF THE APPLICANT FOR INTERIM RELIEF PURSUANT TO SECTION 104 OF THE COMPETITION ACT

September 3, 2004 Rueter Scargall Bt,nnett LLP 200 King Street West Suite 1701 ToJ:onto, Ontaric:· M5H 3T4

R11bert Rueter LSUC l':o.: 17089A Telephone: (4li:i) 869~3363 Facsimile: ( 416) 869-341 l

RUETER SCARGALL BENN PAGE 03/21 File No: CT-·2004/009

89/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 04/21 Andy Chan LSUC Nc1.: 45906P Telephone: (416) 869-3532 Facsimile: (416) 869-3411

Solicitors for the Applicant Quinlan's of Hun.11sville Inc.

TO: The Registrar The Competition Tribunal The Thomas D'Arcy McGee Building 90 Sparks Street, Suite 600 Ottawa, ON K1P 5B4

Telephone number: (613) 957-7851 Facsimile number: (613) 952-1123

AND TO: Seumas Woods Blake Cassels & Graydon LLP Commerce Court West l 99 Bay Street Toi-onto, Ontario MSL lA9

Solicitors for Fred Deeley Imports Ltd.

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ff9/03/2004 16:48 4168693411 THE COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as anended. AND IN THE MATTER OF an Application by Quinlan's of Huntsvill:; lnc. for relief pursuant to sections 75, 103.l and 104 of the Competition Act.

BETWEEN: QUINLAN'S OF HUNTSVILLE INC. Applicant - and -FRED DEELEY IMPORTS LTD. ca.rrying on business as DEELEY HARLEY-DAVIDSON CANADA

Respondent SUPPLEMENTAL WRITTEN REPRESENTATIONS OF THE APPLICANT REQUESTING INTERIM RELIEF PURSUANT TO SECTION 104 OF THE COMPETITION ACT

PART I - THE APPLICATION FOR AN INTERIM ORDER 1. These are supplemental representations of Quinlan's in support of its request for an interim order pursuant section 104 of the Competition Act, R.S.C. 1985, c.C-34, as amended (the "Act") that the Respondent FDI be required to accept Quinlan's as a

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RUETER SCARGALL BENN PAGE 05/21 File No: CT·2004/009

09/03/2004 16:48 41GB593411 customer of Harley-Davidson ("H-D'i) products on usual trade terms until there has been a final determination of Quinlan's application pursuant to section 75 of the Act.

PART II - THE FACTS 2. These submissions are supplemental to the wrl.tten representations filed on behalf of the Applicant July 15, 2004 which included a review of the facts at paragraphs 5 to 30, and submissions respecting the request for an interim order at paragraphs 38 t1> 47 of the vvritten representations. The following supplemental submissions will a.jdress the evidence filed with the Tri.bunal subsequent to the July 15, 2004 written rep.res1::.ntations. Refusal to Deal 3. Since July 31, 2004 when Quinlan's Dealership Agreement en.dee:, FDI has refused to supply H-D motorcycles to Quinlan's. An order for motorcycles was submi.tted August 9, 2004 and FDI has made clear that it will not supply them. Exhibit "A" to tne cross-examination of B. Green Cross-exeminati.on of B. Green, Q. 324-325.

4. Two parts orders were submitted by Quinlan's, one on Au.gust 6 and another on August 9, 2004. These orders included parts needed to perfonn warranty ;ervicc and other repairs on H-D motorcycles brought into Quinlan 1 s for service. The normal. rule is that FDI delivers parts orders to its dealers the ne:xt day. This is important to enable timely repair of the customer's .motorcycles. When the parts order had failo:d to arrive five days after the order was sub.mittcd, Quinlan)s parts employee. Debbie Payne, contacted FDI on August 11, 2004 to try to get them to send the parts so that the warranty 4

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09/03/2004 16:48 4168693411 RUETER SCARGALL BENN PAGE 07121 repairs could be perfonned. FDI's parts employee, Cheryl, would not agree to supply the parts. When one of Quinlan's customers, Don Ford, contacted FDI direcdy to determine why FDI would. not provide Quinlan's with the required parts to perform the warranty repairs on his motorcycle, FDI instructed Mr. Ford to take his motorcycle t(l the H-D dealer in Barrie, Ontario rather than to Quinlan's. Mr. Ford lives in Huntsville. Barrie is 12.5 kilometers from Huntsville. August 20, 2004 Affidavit of J. Quinlan, paras. l 0 and l l 5. Another customer of Quinlan'~~ Stan Belford also contacted FDI regarding its refusal to fiH Quinlan's parts order, which prevented Quinlan's from obtainine a part for Mr. Belford's H·D motorcycle. Mr. Belford was advised by John Kerr of FDJ that he should take his motorcycle to the H-D dealer in Barrie, which is apptoximatel;1 2\4 hours drive from where Mr. Belford lives. \Vh.en Mr. Belford refused and stated he wished to deal with Quinlan~s, Kerr advised Mr. Belford that FDI would. not supply the parts to Quinlan's. Kerr suggested Mr. Belford take his motorcycle to the H-D dealer near Sudbury instead, about 1.5 hours away from Mr. Belford. As an inducemen1, Kerr said that FDI would give Mr. Belford the part and install it for him, free of charge. (The part and installation. was not a warranty claim). Mr. Belford has been a customer of Qui.nlan's for over 15 years. He has bought three Harley-Davidson motorcycles from Quinlan's. August 20, 2004 Affidavit of}. Quinla.n, para. 12 6. Long after the parts were ordered by Quinlan's on August 6 and 9, FDl delivered some of them to Quinlan's between August 20 and 24, but by then) the cw:tomers had

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09/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 08/21 taken away their motorcycles because Quinlan's could not get the parts needed to repair their motorcycles on a timely basis. Cross-examination of J. Quin.Ian, Q. 642-645, 660-661, Q. 737-738 7. Meanwhile in a letter dated August 26, 2004 to all H-D dealers, Mr. Green directed: "Given that Quinlan's and Robinson are no longer author.iz(:d Harley-Davldson retailers, your Retailer Agreement prohibits you from providing them with any new or used Harley-Davidson motorcycles or otl1er Harley-Davidrnn products. Please let us know if either Quinlan's 01 Robinson attempt to obtain any Harley-Davidson products from you." (emphasis added)

By this letter, FDl ensured that Quinlan's was absolutely prevented from ob1.aining any H-D products including parts needed for repairs from the only other possi.blc source available. In doing so, FDI put Quinlan's in a more disadvantaged po;ition than independent motorcycle repair shops, which coul.d always obtain parts and other H-D products from H-D dealers. August 24, 2004 letter from B. Green, Exhibit 4 to the cros~-cxamination of B. Green, Cross EJ1.amination Brief, Tab E

Cross-examination of B. Green, Q. 379-387, 390

8. In his Affidavit sworn August 16, 2004, Mr. Green stated that FDJ has .. continued to supply Quinlan's with warranty and service parts and accessories''. At the time that Affidavit was sworn, this statement was not true. Quinlan's had placed it~1 orders for parts on August 6 and August 9, including the parts needed for the warranty work on Mr. Ford's motorcycle and the part for Mr. Belford's motorcycle. FDI refused to send them

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B'3/03/2004 15:48 41585'33411 RUETER SCARGALL BENN PAGE 0'3/21 even when Quinlan's parts empl.oyee contacted them August 11, 2004 to tty to get the parts. That is where the matter stood on August 16, 2004 when. Mr. Green swore his Affidavit. In cross-examination Mr. Green admitted: "396 Q. Okay. So what we've got is we've got Mr. Quinlan's afidavit and what he's saying is that Mr. Ford had warranty work~ there was a part that was needed for it, the order was sent in, it's part of either the August 6th order or the August 9th orde.r, and by August l l 1 h it had not bee:i received. Correct?

A. Correct 397 Q. And so Debbie, Quinlan's parts person, contacted your employee Cheryl trying to get the part. Still didn't get it, correct?

A. Jt would appear so. 398 Q. And indeed hadn't been received by the date that you •;wore your affidavit, August 16 1 h, correct? A. That s1::erns to be."

Affidavit of B. Green. sworn August I 6, 2004, para ..1 3 Cross-examination of B. Green, Q. 396-405

Ample Supply 9. There is the implication in paragraphs 24 to 26 of Mr. Green's affidavit sworn August 16, 2004 to the effect that all of FDI' s supply of motorcycles has been allocated to its dealers and therefore, FDI will be harmed by an order requiring FDJ to supply Quinlan's. This implication is not borne out by the facts. Far from there be.in.g short supply of H-D motorcycles, there is currently oversupply. Presently l 4% •)f the 2004 model year H-D motorcycles remain unsold on tbe dealer floor. There are el:;o 2003 and

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09/03/2004 16:48 4168593411 RUETER SCARGALL BENN PAGE 10/21 possibly 2002 model year motorcycles stiH unsold. In addition, the 2005 model year motorcycles have started arriving for saJe at dealer showrooms already for over :1 month. Cross-examination of B. Green, Q. 2 ll-213, 218-225 10. This means there are approximately 1400 to 1500 unsold, new 2004, 2003 and possibly 2002 model. year motorcycles in FDI dealer inventory. The dealer north of Toronto in Richmond .Hill alone has 20 unsold new 2003 Harley-Davidson motorcycles, and 70 unsold new 2004 H-D motorcycles on his floor. Cross-examination of B. Green, Q. 216-224 11. In addition FDI increased the number of 2005 model year motorcycles it ordered from the factory by 1400, which rep.resents an incr.ease of 15% ove.r the number of 2004 mode.ls ordered last year. Cross-examination of B. Green, Q. 240-246 12. The percentage of non-current carryover in Harley-Davidson dealer in'1entory has gone up in the last couple of years. In addition, FDI has i.ncreased the numher of 2005 model year motorcycles above the number it originally ordered, by 300 unit~. It did this about a month and a half ago well after detennin.ing the number and type of motorcycles to "lock-in" with the factory in Uhited States in March 2005~ based on consul':ations with its regional sales Staff and its dealers. A1.1gust 16, 2004 Affidavit of .B. Green, paras. 2.1 and 22 Cross-examination ofB. Green, Q. 247-248 and Q. 303-305

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09/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 11/21 13. Mr. Green's admissions in cross-exami.nation as to this over-supply b1 the past and the substantially increased supply of 2005 models and new 2004 models is inconsistent with the implication in his Affidavit of August 16, 2004 to the ,effect that there is no available supply to provide to Quinlan's under an inte.rim ord1;~r without harming FDI and its dealers because all of the motorcycles ordered by FDI have been allocated to dealers. Further, it was not possible to probe the credibility of FDI's contention in this regard because FDI refused to produce its 2005 model year allocation plan so it was not possible to compare the number of motorcycles actually allocated to dealers against the number of motorcycles ordered by FDI from Harley-Davidson in United States. Cross-examination ofB. Green, Q. 307 14. In the past few months, many H-D dealers in Ontario have req .iested and subsequently received reductions from FOi in .respect of their 2005 H-D n.lodel year motorcycle allotments because they we.re left with unsold non-current new H-0 motorcycles on their showroom floors, which they must still sell. Also, the H·D Dealers Association for Ontario .recently put forth a proposal contemplating H-D dealers to poo.I their H·D motorcycles and make them available for sale to other H-D dealers, in order to better deal with the problem of oversupply. Augu~t 20, 2004 Affidavit of J. Quinlan, para. S

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09/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 12/21 15. Where FDI requires additional. new H-D motorcycles from 1-I-D headquarters .in Milwaukee, it is able to obtain extra supply. Moreover, H-D dealers have the ab.ility to order whatever makes and models it wants within the H-D family of motorcycle products. Cross-examination of B. Green, Q. 303 & 309 16. From time to time in the past, Quinlan's has obtained further H-D motorcycles from FDI or other dealers beyond FDI' s a.llocation to fill orders from customer!·. August 20, 2004 Affidavit of J. Quinlan, para .. 3 17. While FDI suggests that it will not be able to supply H-D mot<:ircydes to Quinlan's because of strict adherence with its cur.rent business plan and business model, neither document was produced, des.p ite req.. ucst. Similarl.y, FDI has refused to produce its 2005 H-D product allocation plan.

August .16, 2004 Affidavit of B. Green, paras. 16 and 18 Cross-exami.nation of B. Green, Q. 257-258, 294-295

18. There is no harm, difficulty or. expense in having FDI supply H-D motorcycles to Quinlan's on an interi.m basis pending a dete.rrnination of the merits of Quinlan's application under section 75 of the Act. Not only are H-D dealer motorcycle allocations constantly modified on an ongoing basis as a result of changing economic conditions or other factors facing H-D dealers, but there is currently excess supply of H-D products in Ontario as demonstrated by the unsold H-D motorcycles across the province. August 20, 2004 Affidavit of J. Quinlan, para. 6 10

09/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 13/21 The Relevant Market jn which Harley-David!lon Motorcycles Compete 19. The statistics quoted by Mr. Green in paragraphs 8 and 9 of his July 2 l, 2004 affidavit are problematic because they fail to assess the dominance of H-D motc:1rcycles in the proper market segment in which it competes. The statistics quoted by Mr. Green as the total sales in the market incl.ude large numbers of motorcycles in categorie3 in which there are no H-D models sold. The statistics quoted by Mr. Green are for motorcycles of 651 cc engine displacements and up. However, Harley-Davidson makes no n:.otorcycles whatsoever in the ran.ge of 651 to 850 cc which is the port.ion of the market in which Japanese and European. motorcycles manufacturers are dominant. Furthermore, only a very small. portion ofH-D motorcyc.lcs are .in the displacement category of Jes.''· than 1100 cc. August 20, 2004 Affidavit of J. Quinlan, para. 14 Cross-Examination ofB. Green, Q. 110-111

20. There is only one H-D model made which is in the category of les:s than 1l OOccs and Mr. Green admitted in cross-examination that this particular H-D model known as the Sportster 883, represents only the "smaller portion" of the 15 to 16 percent of H-D models sold. Mr. Green was unable to give the actual number of Sportster :i83 models sold by FDI, notwithstanding this infonnation had been requested from him. Taki.ng Mr. Green's contention at face value., if "the smaller portion of 15 to 16 percent of Sportsters" means less than half, it woul.d mean that something less than 7.5% of H-D motorcycles are of an engine displacement less than 1100 cc. This market category of less than. 1100 cc is the market category in which the Japanese and. European motorcycle m11nufacturers concentrate and predominate. H-D, by contrast, concentrates almost entiirely on the l l

09/03/2004 15:48 4158593411 RUETER SCARGALL BENN PAGE 14/21 market segment 1100 CC and larger. According to Mr. Green's testimony, ~1omething more than 92.5% of H-D motorcycles sold in Canada are in this category. August 2.0, 2004 Affidavit of J. Quinlan, para. \ 4 Cross-examination of B. Green, Q. 100-103, Q. 110-1J2

21. Statistical data from the Motorcycle and Moped Industry Counsel 1'"MMIC'1 obtained by Mr. Quinlan shows that H-D motorcycles represent 46% of alt rr.otorcycles sold in Ontario with engine displacement greater than 950 cc. The remaining 54% of motorcycles with engine displacement greater than 950 cc, are spread among 11 other motorcyc.le manufacturers~ principally Japw1ese and European. These pr:>ducts arc generally viewed as "knock-offs" or imitations of the H-D product. H-D alo1\e, representing 46% of the sales in this market segment, holds a unique and overwhelming market position in this large engine motorcycle market segment in Ontario and Canada. August 20, 2004 Affidavit of J. Quinhm, para. 17 Cross-examination of B. Green, Q. 16.1-164

22. According to the statistical data marked as Exhibit "B" to Mr. Green's Affidavit sworn July 21, 2004, FDI's own data shows that FDI occupies 58% of the motorcycle market in which it competes. Mr. Green testified that from his statistics in Ex)ibit "B' 1 to his Affidaviti all H-D motorcycles sold in the period for which these statistics were recorded, we.re sold into the market segments classified in this data as "Custo1.n/Classic~' and "Touring". The data in Exhibit "B" showed that there were a total of 5,618 motorcycles of all brands sold during the period in question in these two categories. It also showed that H-D motorcycles constituted 2,397 of that total figure. Thh means that

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09/03/2004 1D:48 RUETER SCARGALL BENN PAGE 15/21 Harley-Davidson sales represents 58% of all sales during the period in question. in the only two .market segments in which H-D motorcycles were sold. Whether FDl's market share of the r.elevant market segment in which it competes is 58%~ as M~. Green's statistics show, or 46% as the statistics obtained by Mr. Quinlan show, either way it represents a significant dominance since the market segment is shared by FDI with at least 11 other motorcycle manufacturers. Exhibit "B" to the Affidavit ofB. Gree.n sworn July 21, 2004 Cross-examination ofB. Green. Q. 139-144

23. In paragraph 12 of Mr. Green's July 21, 2004 Affidavit, he referred to a Globe and Mail article of an interview with FD l's CEO Don James and quoted the qncsti.on and answer, but the answer quoted is somewhat out of context to what Mr. James a.ctually said in direct response to the interviewer's question set out in paragraph 12 of Mr. Green's Affidavit. The actual text of the article is as follows: .. Vaughnn: It seems the Japanese manufacturers who d.ominat1! the global motorcycle business have finally figured out how to make a motorcyc.le that looks and evens 5ounds like a Harley. Are they going io give you some serious competition thi.s time?

Jarnes: lmitatio.n is the biggest form of flattery. If Badey-Davidson hasn't pioneered it, we've been the flag bearer for every heavyweight motorcycle cruiser design in today's market.. .. »

Exhibit "D'' to the Affidavit of B. Green 24. In cross-examinatio.n. Mr. Green agreed that the answer of Mr. James quoted above was ''probably true". July 20, 2004 Affidavit of B. Green, para. 12 13

09/03/2004 15:48 4158593411 E;ichibit "D" to the Affidavit of B. Green Cross-examination of B. Green, Q. t 67-170

No Material Delay 25. FOi sent a letter to Quinlan's December 9, 2003 advising that it did not intend to renew the Dealer Agreement beyond July 31, 2004. Thereafter there resulted a series of communications between FDI, Quinlan's and thei.r respective counsel about rhe matter. There was correspondence from Quinlan's counsel December 29, 2003, a reply from FDrs counsel January 16, 2004, a meeting between the principals of FDI and Quinlan's January 23, 2004, further correspondence from FDT to Quinlan's February 112~ 2004. a response from Quinlan's counsel March 5, 2004 and a final meeting bi::twecn the principals of FDJ and Quinlan's on June 22~ 2004. This application was launched June 30, 2004 promptly following that June 22, 2004 meeting. Ctoss,examination of B. Green, Q. 407-410 Transcript ofthe re-examination of J, Quinla.n, Q. 869-879 June 26, 2004 Affidavit of J. Quinlan, para. 27

PART Ill - ARGUMENT AND LAW A Serious Question to be Tried 26. It is respectfully submitted that in considering the evidence on the application :for leave pursuant to subsection 103.l and in outlining brief .reasons for that decision in paragraph 7 of its Order, the Tribunal has considered and concluded that there is evidence upon which the Competition Tribunal hearing the section 75 application could conclude that each of the criteria in paragraph 7S(l)(a) inclusive to (e) of the Act has bee.n. met. It

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89/03/2004 16:48 4168693411 RUETER SCARGALL BENN PAGE 17/21 is submitted on this basis "a serious question to be tried" has already been demonstrated. Further, the evidence adduced in the Affidavits and cross~exarninations subsequent to the August 4, 2004 Order of the Tribunal overwhelmingly establishes that there. b a serious question to be tried. Competition Act, section. 75 Irreparable Harm 27. Submissions respecting irreparable harm are set forth in paragraph 44 of the Written Representations of Quinlan's dated July 15 1 2004. 28. FDI's refusal to supply Quinlan's with motorcycles has put it in. the P•Jsition that it has no 2005 ,model year motorcycles. The selling pe.riod for the 2005 model year motorcycles started in late July, when FDI comr.:nenced deli.vering these motorcycles to its dealers. FDI has not supplied any new motorcycles to Quinlan's. 29. Quin.lan's has built its business over 17 years as a motorcycle store :':el\ing H-D products. That is what it is known for. That is the reputation and relationship it has built with its customers. If it does not have H-D motorcycles to sell, its business ··elationship with its H-D customers is destroyed. Quinlan's H-D customers are not interested in purchasing a motorcycle in a different, sport, or sma11 engine market segment They are interested in purchasing a H-D motorcycle. August 20, 2004 Affidavit of J. Quinlan, para. 16-20 30. Quinlan's has been prevented from doing service work and warranty work for its existing Harley-Davidson customers because of FD I's refusal to supply parts on a timely 15

09/03/2004 15:48 4158b93411 RUETER SCARGALL BENN PAGE 18/21 basis. Furthennore, FDI has solicited Quinlan's customers to take their business to other FDI dealers, such as the situation w;th Mr. Ford and Mr. Belford described in paragraphs 8 to 13 of Jim Quinlan's Affidavit swam August 20, 2004. 31. Customers are adversely affected because they are prevented fron: going to Quinlan's for r.epair work and sales. lnstead they have to travel great distances to go to another FDI dealer located much farther away from them than Quinlan's. For example, Mr. Ford who lives in Himtsville two kilometers away from Quin.Ian's, was rnlicited by FDI to take his motorcycle to Barrie, l 25 kilometers away, when FDI refused to supply parts to Quinlan's so that they could perfonn warranty work on the new H-D 111otorcycle which he had purchased from Quinlan's. 32. FDI has told Jim Quinlan that the H-D Diagnostic Technician computer access .required to repair H-D motorcycles will be turned off as of August 3 l, 2004. Without access to the H-D Diagnostic Technician, Quinlan's will be prevented from providing repair services to its customers on their H-0 motorcycles. Both the customers and Quinlan's will be prejudiced by this. August 20, 2004 Affidavit of.T. Quinlan, para. 20·22 33. In cross-examination Jim Quinlan testified that Quinlan's will go out of business if FDI continues to refuse to supply it. This is so notwithstanding Quinlan's sells Honda products and used motorcycles which represent only about 35% of its gross revenue. Cross-examination of J. Quinlan, p. I 84. Q. 795. 797 June 26, 2004 Affidavit of J. Quinla.n, paras. 15, 19-21