THE COMPETITION TRIBUNAL File No. CT-2003-009 Registry Document No. • &\ OOLb B
BETWEEN: ALLAN MORGAN AND SONS LTD. Applicant
- and-LA-Z-BOY CANADA LIMITED Respondent
STATEMENT OF GROUNDS AND MATERIAL FACTS MATERIAL FACTS La-Z-Boy's Business 1. La-Z-Boy manufactures and sells upholstered and leather furniture. Its product line includes occasional chairs, stationary sofas, love seats, sofa beds and sectionals. The most prominent feature of a La-Z-Boy product is its "recliner" feature.
2. La-Z-Boy's furniture is sold throughout Canada by predominantly three types of retail furniture dealers: (a) those who display and co-mingle La-Z-Boy products with products manufactured by La-Z-Boy competitors; (b) those who devote an area of their store to the exclusive display ofLa-Z-boy products but also sell, in other store locations, products manufactured by La-Z-Boy competitors; and (c ) those who operate retail furniture stores devoted exclusively to the sale of the La-Z-Boy line of products in a "La-Z-Boy Furniture Gallery". WWLIB:314566.2\120055-00016
2 3. Before 1997 all La-Z-Boy dealers were permitted access to the full line of furniture manufactured by La-Z-Boy regardless of the extent to which La-Z-Boy products were displayed in the dealer's store. La-Z-Boy, at its own expense, provided all dealers with catalogues that depicted the full line of La-Z-Boy products available to the public, books indicating the fabric coverings with which a product could be upholstered and a price list for the full line of all La-Z-Boy products.
La-Z-Boy's Reorganization 4. In 1997 La-Z-Boy undertook a program to reorganize its dealer network. The reorganization was intended to resolve a number of concerns including: (a) customer related problems that resulted from the fact that furniture ordered from photographs depicted in catalogues and upholstered in fabrics selected from an upholstery book were, when delivered, different from what a customer expected since the customer had not actually viewed the product d:[splayed in a showroom; (b) confusion related to submitted orders that sought to acquire a specific product in a fabric in which it was not available; and (c) the considerable expense incurred by La-Z-Boy in providing all of its dealers w:[th product catalogues, upholstery books, and price lists for the full line of products manufactured and sold by La-Z-Boy.
WWLIB:314566.2\120055-00016
3 5. La-Z-Boy reorganized its dealer network into the following categories: (a) motion chair dealers; (b) major upholstery dealers; and ( c) full line dealers who were required to dedicate between 5000 square feet to 8000 square feet of their total floor area for the display of La-Z-Boy products in exclusive in-store gallery settings or in a store that sold exclusively La-Z-Boy products.
6. Full line dealers were provided full access to all La-Z-Boy products. However, dealers in the motions chair category or major upholstery category were permitted access to only the line of La-Z-Boy products they elected to display on their showroom floor. Those dealers, in tum, were only provided catalogues, fabric samples and price sheets restricted to the products to which they were entitle access.
7. The creation of the different categories of dealers permitted La-Z-Boy to avoid the expense with which it had been previously burdened in supplying all dealers with catalogues, fabric books and price lists of its full line of products. It also substantially reduced the number of orders that were mistakenly submitted for pieces of furniture a customer desired to be upholstered in fabrics that were not available for that particular piece of furniture.
WWLI8:314566.2\120055-00016
4 Fair Dealing 8. Additionally, the change in policy eliminated customer dissatisfaction once catalogue orders were filled. By limiting a dealer to only products it carried and displayed on its showroom floor, customers were able to view the product so that when it was delivered the customer received what it expected.
9. The changes in policy La-Z-Boy adopted and the creation of the different categories of dealers were applied equally and evenly to all furniture dealers who carried the La-Z-Boy line of products.
10. All dealers could apply to be considered full line dealers if they chose to do so. In those circumstances the dealer would be entitled to access to the full line of La-Z-Boy products.
11. La-Z-Boy has never restricted its dealers from displaying competitors products co-mingled with the dealers after furniture inventory except for dealers who were required to devote an area of their store to the exclusive display of La-Z-Boy products. But even in those instances La-Z-Boy did not prohibit the display of competitors products in other locations in that store.
WWLIB:314566.2\120055-00016
5 Morgan Furniture 12. Morgan Furniture was classified as a motion chair dealer. Therefore, La-Z-Boy provided Morgan Furnitu.re with extracts from its catalogue, price sheets and fabric samples relating only to the products Morgan Furniture displayed on its floor. Morgan furniture has the same access to La-Z-Boy's line of products on the same level as enjoyed by all motion chair dealers.
13. Morgan Furniture was not restricted from taking the necessary steps to be considered a full line dealer or acquiring access to any furniture it wished to display for sale on its showroom floor. Morgan Furniture could have addressed any concern it may have had with product availability by simply taking the necessary steps to display the furniture on its floor.
14. In recent years, the volume of product that Morgan Furniture purchased from La-Z-Boy has declined. From 1998 to 2001, the volume of La-Z-Boy products which Morgan Furniture sold declined from 250 to 80 pieces of furniture. Despite this decline in sales, La-Z-Boy continued to fulfill its obligations and supplied product information for the items displayed by Morgan Furniture on its floor.
15. As a result of the limited number of La-Z-Boy products sold by Morgan Furniture it was no longer econom[cally practical for La-Z-Boy to continue to permit Morgan Furniture to remain a La·-Z-Boy dealer. For this reason, on August 27, 2002, La-Z-Boy advised Morgan Furniture that it was terminating Morgan Furniture's right to sell La-Z-Boy products effective December 31, 2002. WWLIB:314566.2\120055-00016
6 Effect of La-Z-Boy's decision to terminate on Morgan Furniture's business 16. La-Z-Boy's decision to terminate Morgan Furniture's right to sell its products did not substantially affect Morgan Furniture's business. Morgan Furniture's business was declining when Morgan Furniture was a dealer of La-Z-Boy products.
17. The products at i~,sue are upholstered and leather furniture that may contain the recliner feature. Customers seeking to purchase upholstered and leather furniture do not treat La-Z-Boy products as distinct products and are willing to accept substitutes.
18. There are numerous suppliers of high end upholstered and leather furniture that contain the recliner feature in the market from whom Morgan Furniture can and does acquire similar products for sale to its customers.
La-Z-Boy's Position in the Market 19. La-Z-Boy products are only differentiated from other suppliers on the basis of its proprietary name and tra:iemark. La-Z-Boy has been successful in creating a strong reputation for its products. But La-Z-Boy does not occupy such a dominant position in the market that a dealer of furniture is prevented from carrying on business unless it has access to La-Z-Boy products. There are numerous low and high end furniture dealers of upholstered and leather forniture that contain the recliner feature that carry on business without access to the supply of La-Z-Boy furniture. WWL18:314566.2\!20055-00016
7 Competition Among Furniture Suppliers in the Market 20. There is sufficient competition among suppliers of upholstered and leather furniture that contain the recliner feature. In addition to La-Z-Boy, other furniture manufacturers whose furniture offer the recliner feature include, but are not limited to, El-Ran, Palliser, People-Lounger, Catnapper and Lane.
21. Morgan Furniture has carried lines of furniture possessing the recliner feature offered by La-Z-Boy's c,Jmpetitors. All of the above-noted product lines are available to Morgan Furniture should it choose to pursue them.
Effect on Competition ir the Market 22. The public's access to La-Z-Boy products has not been diminished by La-Z-Boy's decision to terminate its relationship with Morgan Furniture. La-Z-Boy products are available in the market s:::rved by Morgan Furniture at a La-Z-Boy Furniture Gallery, the Island Furniture Store ar d Sears Department Store. La-Z-Boy is also in the process of securing a fourth dealer.
23. La-Z-Boy products and similar products offered for sale by La-Z-Boy's competitors remain in anple supply for sale to the public. Competition at reasonable market prices in the mar:rnt place has not been detrimentally affected by the termination of La-Z-Boy's relationship with Morgan Furniture. WWLIB :314566.2\120055-00016
8 APPLICATION PURSUANT TO SECTION 75 24. Morgan Furniture seeks an Order pursuant to section 75 of the Act directing that La-Z-Boy accept La-Z-Boy Furniture as a customer and dealer of La-Z-Boy products on the usual trade terms.
25. Section 75 of the Act provides as follows, 75. (1) where, on application by the Commissioner or a person granted leave under seci:ion 103.1, the Tribunal finds that
(a) a person ts substantially affected in his business or is precluded from carrying on business due to his inability to obtain adequate supplies of product anywhere in a market on usual trade terms,
(b) the person referred to in paragraph (a) is unable to obtain adequate supplies cf the product because of insufficient competition among suppliers of the product in the market,
(c) the person referred to in paragraph (a) is willing and able to meet the usual trade tern ls of the supplier or suppliers of the product,
( d) the produ:;t is in ample supply, and (e) the refusal to deal is having or is likely to have an adverse effect on competiti1)n in a market,
the Tribunal may order that one or more suppliers of the product in the market accept the person as a customer within a specified time on usual trade terms unless, within the specified time, in the case of an article, any customs duties on the article are removed, reduced or remitted and the effect of the removal, reduction or remission is to place the person on an equal footing with other persons who :rre able to obtain adequate supplies of the article in Canada.
(2) For the purposes of this section, an article is not a separate product in a market or.ly because it is differentiated from other articles in its class by a trade-mark, proprietary name or the like, unless the article so differentiated occupies such a dominant position in that market as to substantidly affect the ability of a person to carry on business in that class of articles unless the person has access to the article so differentiated.
WWLIB:3 J 4566.2\120055-000J 6
9 (3) For the purposes of this section, the expression "trade terms" means terms in respect to payment, units of purchase and reasonable technical and servicing requirements.
(4) In considering an application by a person granted leave under section 103 .1, the Tribunal may not draw any inference from the fact that the Commissioner has or has not taken any action in respect of the matter raised by the application.
26. The tribunal will exercise its discretion to make an Order pursuant to section 75 when it is satisfied that all of the elements contained in paragraphs 1 (a) to (e) are satisfied.
27. The elements required to make a section 75 Order are clearly not satisfied by Morgan Furniture's Application. The following points in the Respondent's Statement of Material Facts establish 1:hat Morgan Furniture is not entitled to an Order under section 75, (a) Morgan Furniture's business has not been substantially affected by its inability to obtain adequate supplies of upholstered and leather furniture that may 1~ontain the recliner feature anywhere in the market, (b) there is sufficient competition among suppliers of upholstered and leather furniture :hat may contain the recliner feature, and (c) La-Z-Boy's decision to terminate its relationship with Morgan Furniture has not effected competition of upholstered and leather furniture that may contain the recliner feature in the market.
28. In relation to the foregoing, La-Z-Boy refers to the Affidavit of Mark Wiltshire, sworn on December 30, 2003. WWLIB:3 J4566.2\120055-00016
10 Dated at Windsor, in the Province of Ontario this -15_ day of July, 2004 MYR~C. //t)'~ • WILS NWA LKER LLP Barristers and Solicitors P.O. Box 1390 300-443 Ouellette Avenue Windsor, Ontario N9A6R4 Telephone: (519) 977-1555 Facsimile: (519) 977-1565 (LSUC # 13823F-1B)
Solicitors for the Respondent To: Deborah L.J. Hutchings Mcinnes Cooper 5th Floor, Baine Johnston Centre 10 Fort William Place P.O. Box 5939 St. John's, NL A IC 5X4 (709) 722-8254 (709) 722-1763 Fax
Solicitors for the Applicant To: The Registrar The Competition Tribunal The Thomas D' Arey McGee Building 600-90 Sparks Street Ottawa, Ontario K 1P 5B4 (613) 957-7851 (613) 952-1123 Fax
To: Allan Morgan aind Sons Ltd. Birch Hills, Bay Roberts, Nfld. P.O. Box 430 Clarke's Beach, Nfld. AOA 1W O (709) 786-2100 (709) 786-6403 Fax
WWLJB:314566.2\120055-00016
ALLAN MORGAN AND SONS LTD. v LA-Z-BOY CANADA LIMITED
STATEMENT OF GROUNDS AND MATERIAL FACTS
MYRON W. SHULGAN, Q.C. KRISTINA SAVI-MASCARO WILSON,WALKER LLP Barristers & Solicitors 300 - 443 Ouellette Avenue P.O. Box 1390 Windsor, Ontario N9A 6R4 Telephone: (519) 977-1555 Facsimile: (519) 977-1565 LSUC: 13823F-1B LSUC: 46513-D
Solicitors for the Appellant (Respondent) File #120055-16 /saf WWLIB:309169. l\120055-00016
Court File No.: CT-2003-009 THE COMPETITION TRIBUNAL