Tribunal File No. CT-2002-004 THE COMPETITION TRIBUNAL p R f 0 I D l u E I BETWEEN: D RE ;STR \ - REGISlRAIRE I OTTAWA, ONT. IQ t~9 THE COMMISSIONER OF COMPETITIOlL-----------Applicant - and-SEARS CANADA INC. Respondent
FURTHER WRITTEN SUBMISSIONS OF THE RESPONDENT, SEARS CANADA INC.
(Re Section 74.01(5) of the Competition Act)
Ogilvy Renault Barristers and Solicitors 200 King Street West, Suite 1100 Toronto, Ontario MSH 3T4 Counsel for the Respondent, Sears Canada Inc.
DOCSTOR: 823007\l
- 11 -INDEX
PART I - OVERVIEW ................................................................................................................. 1 PART II - THE ISSUES ............................................................................................................... 2 PART III - SUBMISSIONS OF SEARS .................................................................................... 3 1) ELEMENTS OF THE LEGAL TEST AND THE REQUIRED ANALYSIS ........................................... 3 a) Introduction: ................................................................................................................... 3 b) Legislation to be strictly and restrictively interpreted: .................................................. 3 c•1 1 "A rep res en ta t.z on as to pri.c e " : ..................................................................................... . 5 d) "That is false or misleading": ........................................................................................ 6 e) "Jn a material respect": ................................................................................................. 8 j) "The general impression ... shall be taken into account": .......................................... 10 g) The ordinary citizen: ..................................................................................................... 12 2) "SAVINGS" MESSAGES ....................................................................................................... 12 3) THE PURPOSE OF THE ADVERTISEMENTS ........................................................................... 14 4) SEARS' CREDIBILITY .......................................................................................................... 15 5) THE ELIMINATION OF THE 2-FOR PRICE IN 2001 ................................................................ 16 6) THE FALL 2000 AUTOMOTIVE REVIEW .............................................................................. 20 7) THE CHARACTERISATION OF THE TIRES AS "PruvA TE LABEL" AND "SHOPPING" GOODS ... 21 8) THE ABSENCE OF HARM AND THE ABSENCE OF THE PERCEPTION OF HARM ...................... 23 PART IV -CONCLUSION RE SECTION 74.01(5) ............................................................... 25
Tribunal File No. CT-2002-004 THE COMPETITION TRIBUNAL BETWEEN: THE COMMISSIONER OF COMPETITION Applicant - and-SEARS CANADA INC. Respondent FURTHER WRITTEN SUBMISSIONS OF THE RESPONDENT, SEARS CANADA INC.
(Re Section 74.01(5) of the Competition Act) PART I - OVERVIEW 1. These further Written Submissions are filed in response to the Commissioner of Competition's (the "Commissioner") Written Reply Argument, served Friday, June 25, 2004 (the "Commissioner's Written Reply") and address the Commissioner's submissions on subsections 74.01(5) and (6) of the Competition Act (the "Act").
2. These further Written Submissions are made and filed pursuant to the Orders of the Competition Tribunal made June 11, 2004 and June 30, 2004.
3. As stated at paragraph 165 of Sears' Written Submissions served and filed on June 17, 2004, Sears relies on subsection 74.01(5) in the alternative to its primary position that its regular prices for the Tires met the "time test" requirement of section 74.01(3).
DOCSTOR: 823007\l
- 2 -PART II - THE ISSUES 4. The issues and arguments raised in the Commissioner's Written Reply and addressed herein are as follows: (a) The elements of the legal test established by section 74.01(5) and the approach to be taken by the Tribunal in determining that "a representation as to price is not false or misleading in a material respect";
(b) Whether the representations were false or misleading; ( c) If so, whether the misrepresentations were material, and in particular, (i) Whether savings messages are representations in issue in this proceeding; (ii) Whether testimony that Sears used its advertising to build its business supports a finding of materiality;
(iii) Whether the reduction in promotional sales that occurred as a result of lowering the regular price and dropping the "2 for" price level is evidence of materiality;
(iv) Whether the Sears Fall 2000 Automotive Review contains statements that support a finding of materiality;
(v) Whether the categorization of the Tires as "Private Label" goods and "Shopping" goods is helpful in determining materiality;
(vi) Whether Sears' credibility is a proper or useful factor in assessing whether any misrepresentations were materially false or misleading;
(vii) Whether the widespread use of ordinary selling price ("OSP") advertising is evidence of the materiality of any misrepresentation; and
(viii) Whether the absence of harm or the absence of a perception of harm is relevant to materiality.
- 3 -PART III - SUBMISSIONS OF SEARS 1) Elements of the Legal Test and the required Analysis a) Introduction: 5. It is respectfully submitted that the Commissioner has improperly characterized the nature and elements of the defence available under section 74.01(5) of the Act. She has done this chiefly by: (a) Relying on jurisprudential interpretations of superceded and more general misleading advertising provisions and by disregarding the nature of the particular provisions under consideration;
(b) Broadening her definition of what constitutes the "representation"; and (c) Failing to differentiate between the significance of the OSP advertising device generally and the materiality of any misrepresentation.
6. For ease of reference, subsections (5) and (6) of section 74.01 are set out below: (5) Subsections (2) and (3) do not apply to a person who establishes that, in the circumstances, a representation as to price is not false or misleading in a material respect.
(6) In proceedings under this section, the general impression conveyed by a representation as well as its literal meaning shall be taken into account in determining whether or not the representation is false or misleading in a material respect.
b} Legislation to be strictly and restrictively interpreted: 7. The authoritative text Sullivan and Driedger on the Construction of Statutes defines penal legislation as "legislation that creates offences punishable by fine, loss of freedom or curtailment of a privilege or right. Because of the potential for serious interference with individual rights, penal legislation is strictly construed".
-4-1 Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, (4 h ed.) (Markham: Butterworths, 2002) at 384.
8. This principle is also expressed in the following excerpt from Maxwell on Interpretation of Statutes, 12th ed., at p. 251, (a passage which was quoted by Justice Ritchie in Colet v. R., [1981) 1 S.C.R. 2 at 10): Statutes which encroach on the rights of the subject, whether as regards person or property, are subject to a strict construction in the same way as penal Acts. It is a recognised rule that they should be interpreted, ifp ossible, so as to respect such rights, and if there is any ambiguity the construction which is in favour of the freedom oft he individual should be adopted.
Cited in Pierre-Andre Cote, The Interpretation of Legislation in Canada (3d ed.) (Scarborough: Carswell, 2000) at 466-7.
9. In R. v. Mcintosh, Lamer J. wrote: As stated above, the overriding principle governing the interpretation of penal provisions is that ambiguity should be resolved in a manner most favourable to accused persons. Moreover, in choosing between two possible interpretations, a compelling consideration must be to give effect to the interpretation most consistent with the terms oft he provision ...
R. v. Mcintosh, [1995] l S.C.R. 686, at para. 38. 10. Although this proceeding does not concern a Criminal Code prov1s1on, subsection 74.01(3) does create an offence potentially punishable by both significant monetary penalties and "cease and desist" orders. In addition, a significant impact on the reputational interests of a respondent may be generated. Moreover, the impugned conduct can be, and was, investigated by measures more akin to those used to mount a criminal investigation than the procedures available to civil litigants. This proceeding also involves allegations of conduct which, at the Commissioner's election, could have been pursued under the "criminal track" enforcement regime.
- 5 -11. It follows that the relevant provisions should be strictly and restrictively construed in the same way as penal legislation.
c) "A representation as to price": 12. In these proceedings, the Commissioner brought her Application under subsection 74.01(3) of the Act. She has not proceeded under subsection 74.01(1). While subsection (1) deals generally with "a representation to the public that is false or misleading in a material respect", subsection (3) is more circumscribed as to the representations with which it is concerned.
13. Subsection 74.01(3) deals only with, "a representation to the public as to price that is clearly specified to be the price at which a product or like products have been, are or will be ordinarily supplied by the person making the representation". [Emphasis added]
14. The words "a representation as to price" are repeated in subsection (5), and the evidentiary burden on the "person" relates only to such representations.
15. Subsection (6) deals with "the general impression conveyed by a representation". In the context of the Commissioner's Application under subsection 74.01(3), the reference to "a representation" in subsection ( 6) must also be confined to "a representation as to price".
16. It follows therefore that with respect to the impugned advertising, only the words "Sears reg." and the regular prices shown thereunder are at issue, and any alleged misrepresentations made therein.
- 6 -17. Conversely, all other aspects of the advertisements, including savmgs messages, are excluded from consideration smce the Commissioner has proceeded solely pursuant to subsection (3). 18. The Commissioner misapprehends the scope of the pertinent representations when she states, at paragraph 107 of the Commissioner's Written Reply, "In the Representations\ although there is typically mention of warranty and sometimes reference to performance characteristics, the most space, largest font and boldest text were reserved for price and savings messages." The Commissioner's allusions to warranty, performance characteristics and savings messages are improper, as these are separate and distinct representations, none of which constitute "a representation as to price".
19. It is submitted that if the Commissioner wanted these other aspects of the advertisements to be considered, she should have proceeded under section 74.01(1). d) "That is false or misleading": 20. The Commissioner asserts at paragraph 90 of the Commissioner's Written Reply Argument that "the Representations were false or misleading". Moreover, the Commissioner states that the "representations grossly overstated the savings".
21. Central to its response to the Application and consistent throughout its case is Sears' position that the representations were neither false nor misleading.
At paragraph 5 of her Written Reply, the Commissioner defines "Representations" as "the representations at issue".
- 7 -22. Resort to subsection 74.01(5) is only necessary when the Tribunal has found a failure to comply with the "volume" and "time" tests, having first interpreted those tests with "regard to the nature of the product and the relevant geographic market". Under the current statutory regime, it is this that would establish a "prima facie" case against the respondent.
23. However, at paragraph 85 the Commissioner postulates a two-part determination under subsection 74.01(5), of which the first element is a determination as to whether the Representations were false or misleading.
24. Sears states that for the following reasons the Tribunal should find that the representations as to price were neither false nor misleading: (a) The representations as to price correctly set out Sears' previously fixed and determined prices for a single unit of the Tires, prices at which genuine sales had beenmade;
(b) The representations as to price, when made concerning flag brand products, were less than the MSRP for highly comparable, competing products, which constitutes additional evidence that the representations reflected rational, non-arbitrary pnces;
( c) Corresponding to the representations as to price were sale (promotional) price representations that were available to and benefited a customer who purchased a single tire only;
(d) Averaged over the five Tires, eleven percent of purchasers would buy only one tire;
( e) Any one of the tire consumers to whom the representations as to price were directed might choose to buy a single tire, and thus the representations were true for one hundred percent of the intended readers of the representations; and
(f) The representations as to price reflected prices that Sears regularly employed as a basis for calculating warranty adjustments and refunds.
25. In short, the advertisements set out a strict "apples-to-apples" comparison, in which the representations as to price were plainly intended to relate to an advertised sale price expressly stated to be applicable to a single unit purchase.
- 8 -26. The observations of the Court in Purolator Courier Ltd. v. United Parcel Service Canada Ltd. are also applicable to this issue:
Advertising can be an effective tool in persuading the public to utilize a particular product or service. By its nature, it is one-sided and usually does not convey a full and balanced analysis. To do so, of course, might diminish its persuasive power. There must, however, be a reasonable basis for the representation that is made. So long as that is so, competitors may complain that the ad does not depict the whole picture; but they are just as equipped to tell their side of the story in the commercial market-place of ideas, with emphasis on those matters which they believe to be important. Courts should be reluctant to intervene in the competitive marketplace unless the advertisements are clearly unfair.
Purolator Courier Ltd. v. United Parcel Service Canada Ltd. (1995), 60 C.P.R. (3d) 473 at 490 (Ont. Ct. - Gen. Div.).
27. For these reasons, Sears submits that the representations as to price were not baseless or arbitrary, but accurate.
28. If, however, the Tribunal concludes that the representations as to price are m some respect false or misleading, the Tribunal must make a further determination. e) "In a material respect": 29. It is submitted that the words "in a material respect" modify the words "false or misleading".
30. The question therefore is not whether the type of representation is a material one, which appears to have been the question assumed repeatedly by the Commissioner, but whether the element of misrepresentation, if any is found, is material. This distinction is important. To illustrate the difference, one might imagine an advertisement where all of a retailer's ordinary price representations regarding tires were overstated by one dollar. All of the representations
- 9 were false. The OSP representations were a prominent part of the advertisement. On the Commissioner's assumptions and arguments, the retailer would have no defence under section 74.01(5). However, Sears submits that the subsection, properly construed, requires the Tribunal to determine whether the degree of misrepresentation (one dollar per tire in this hypothetical case) is of such a nature that it was material to the decision to purchase.
31. In Sears' submission, an interpretive approach to the subsection that does not focus on whether the representation as to price was material, but rather on whether the representation as to price was materially false, or materially misleading, is the preferred and correct approach because the truthful or factual aspects of the representation can be given due weight.
32. The Commissioner's approach is shown at paragraph 105 of the Commissioner's Written Reply: "it is a matter of common sense that for the ordinary citizen contemplating the purchase of tires, price and savings would be a material consideration". If this was indeed the proper analysis, it is difficult to imagine how in the context of "a representation to the public as to price" a person would ever have a defence under section 74.01(5). Yet it was clearly Parliament's intention to give a respondent more than the purely hypothetical possibility of a complete defence.
33. In interpreting a statute, regard must be had to: (a) the interpretive principle that Parliament does not speak m vam and the presumption that words are not superfluous; and
(b) the operating assumption that a statute has internal coherence, in that all sections and subsections are coherent and interrelated.
Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, (4 ed.) (Markham: Butterworths, 2002) at 158-9 and 168-9.
1 h
- 10 -34. Thus it is respectfully submitted that the Tribunal must have regard to the materiality of any misrepresentation, and not to the bare fact that the representation was "a representation as to price".
35. At paragraphs 90 to 95 of the Commissioner's Written Reply, the Commissioner relies on the fact of Sears' 2-for price to allege that Sears' representations as to price were false or misleading.
36. Sears denies the Commissioner's premise. However, if the premise is accepted, the degree of misrepresentation can be readily defined, and the question for the Tribunal's determination could be put as follows: if the omission of the 2-for price information rendered the representations misleading, (which is denied), was the omission of that information material to the ordinary tire consumer?
37 . Sears states that "in the circumstances" the representations were not misleading, for the reasons stated in its earlier written submissions. Those reasons included the cognitive discounting of OSP representations by consumers; the ordinary consumer's awareness of Sears' promotional marketing approach; the promotional nature of the relevant markets for tires; the further analysis by a potential consumer of their own needs and of competitors' offerings that takes place after the representations are viewed; and the absence of evidence indicating consumer dissatisfaction. t) "The general impression ... shall be taken into account": 38. The issue of general impression arises through the operation of subsection 74.01(6).
- 11 -39. In this case, the observation of the Courts in R. v. Imperial Tobacco Products Ltd., infra, citing F. T. C. v. Sterling Drug, Inc., infra, is quite apposite: "The buying public does not ordinarily carefully study or weigh each word in an advertisement. " Sears submits that the specific price information in the representations was not likely to be retained by the ordinary reader. Only a general impression would be retained. R. v. Imperial Tobacco Products Ltd. (1971), 4 C.C.C. (2d) 423 (Alb. S.C. -App. Div.)
F.T.C. v. Sterling Drug, Inc. (1963), 317 F. 2d 669 at 674 (U.S.C.A. - 2d Circ.)
40. In Purolator Courier Ltd. v. United Parcel Service Canada Ltd., supra, the Court defined some of the factors on which the general impression depended: In order for the court to determine whether or not a representation is false or misleading in a material respect, it must consider the general impression conveyed by the advertisement in question in addition to its literal meaning. Section 52(4) of the Act codifies this requisite step. The general impression created by the advertisement depends on a combination of factors: the understanding of those who have listened to the commercial, as presented through survey evidence; the use of the qualifiers, "usually" and "up to"; the nature of the consumers; and the nature oft he medium.
Purolator Courier Ltd. v. United Parcel Service Canada Ltd. (1995), 60 C.P.R. (3d) 473 at 483-4 (Ont. Ct. - Gen. Div.).
41. Sears contends that the general impression that Sears Automotive intended to make matched the actual impression, inasmuch as it was intended to convey to the surveyor of the advertisement: (a) Sears is having a sale on certain tires; (b) Sears is currently offering these tires at prices less than their regular price; (c) If a purchaser buys these tires now, she or he will not be paying "top-of-the-market" prices;
(d) If a purchaser buys tires from Sears now, he or she will not be paying as much as they have charged other customers;
- 12 -( e) A purchaser of tires will obtain a good deal if he or she buys tires from Sears now; and
(f) If a purchaser prefers to buy tires from Sears in particular, this is an opportune time to make that purchase.
42. Fairly considered in the media context in which the representations were made, it is submitted that the above statements reflect, and wholly reflect, the "ultimate impression upon the mind oft he reader", to use the language of the Court in F.TC. v. Sterling Drug, Inc., supra. F.T.C. v. Sterling Drug, Inc. (1963), 317 F. 2d 669 at 674 (U.S.C.A. - 2d Circ.).
43. When this "general" and ultimate impression is taken into account, as is mandated by section 74.01(6), it is clear that any degree of misrepresentation created by the inclusion of the specific price information is of little or no moment, and thus any misrepresentation is not material. g) The ordinary citizen: 44. Sears submits that in the matters under consideration the "ordinary citizen" test must be modified to the extent necessary to allow for the fact that the representations were directed to, and acted upon by, only the cross-section of the public who make the reasonably significant purchasing decisions concerning the appropriate tires to put on their vehicles. Such modification is required to reflect the language of subsection (3) - "having regard to the nature of the good", and also to give due weight to the language of subsection (5) - "in the circumstances".
2) "Savings" Messages 45. For these reasons, Sears submits that the savings messages, or "save-stories", are not representations at issue in these proceedings, and thus their materiality or otherwise is also not at issue.
- 13 -46. Alternatively, Sears states that the Commissioner's arguments about the materiality of the savings messages are flawed. 47. Savings in this context are clearly hypothetical, and premised on a willingness by the consumer to pay the higher comparison price. The evidence before the Tribunal indicates that: (a) the aftermarket for tires is very promotional in nature; (b) tires are frequently sold under conditions where prices are negotiated, (c ) tires are a product where there is no necessity or likelihood that consumers will accept the first offering that they see or is made to them;
(d) the majority of consumers shop for deals; and ( e) notwithstanding the promotional nature of the aftermarket for tires, there were, nonetheless, consumers who paid the stated regular price for the Tires.
48. The Commissioner's assertions at paragraph 93 of the Commissioner's Written Reply as to what the "ordinary citizen" would "reasonably believe" do not take any account whatsoever of this context.
49. Moreover, the Commissioner's numerical example is incorrectly premised. It stipulates the purchase of four tires. The representations, and the advertisements in which they appeared, did not stipulate the purchase of four tires, or of multiple tires. In fact, the advertisements contemplated a single tire transaction when they expressly and invariably stated, "Sale, each".
50. It is submitted that Sears was reasonably entitled to express the savings at the highest level consistent with past purchases of the product, provided only that such were genuine purchases. To insist that disclosure must be made of actual savings against all of the prices that consumers have or may have paid for the product in question would be commercially impracticable and exceed the level of disclosure expected in the marketplace. It is further
- 14 submitted that consumers are not misled or deceived when promotional category retailers "put their best foot forward" in advertising of this nature.
3) The Purpose of the Advertisements 51. At paragraphs 108 and 109 of the Commissioner's Written Reply, the Commissioner refers to the testimony of Messrs. McMahon and McKenna concerning the purpose of the . 2 ad vert1sements. 52. The Commissioner suggests that admissions by Sears' witnesses that the advertisements were intended generally to build business and store-traffic must mean that the representations as to regular price were material.
53. If this is indeed the thrust of her submission, it is patently illogical and over-generalised. 54. It is a rare retailer who does not advertise its products with a view to building business and profits. Since this is the practical premise underlying virtually all advertising, it cannot be a determinative or even relevant factor in deciding whether the specific content of an OSP representation was materially false or misleading.
55. Moreover, there is a significant difference between an admission that Sears partially relied on OSP representations as an advertising format to build its business, and the assertion that Sears relied on a material misrepresentation of its OSP to build its business. Sears acknowledges the former, but vigorously denies the latter.
At paragraph 108 the Conunissioner again confuses the issue by failing to distinguish between the representations as to price and other representations.
- 15 -4) Sears' Credibility 56. In response to arguments made at paragraph 121 of the Commissioner's Written Reply, Sears reiterates that consumers do not take ordinary selling price representations at face value. Professor Lichtenstein, the Commissioner's expert, acknowledged this.
57. Professor Lichtenstein sought to distinguish this finding from the facts in issue by saying that the studies reflected "a sterile situation", that did not reference a named retailer, whereas Sears was considered a very credible retailer.
58. No issue is taken with Professor Lichtenstein's opinion that Sears is a credible retailer. Sears is a trusted retailer, trusted to provide consumers with tires, and other goods, at a price that represents genuine value for money. Pub. Hr. Tr., Vol. 14, 2428 (25) - 2429 (24), Nov. 4, 2003. 59. However, in addition to being known as a credible retailer, Sears' reputation is that of an established Hi-Low retailer. Sears is widely known as a promotional retailer, who advertises not just tires, but most of its lines, through regular store-wide promotions and events.
60. In considering materiality therefore, it is necessary to have regard to the fact that the representation "as to price" clearly advised that this was "Sears" regular price. The identification of the stated price as a Sears' price is an important qualifier of the representation.
61. The words "Sears reg." place the representation squarely in the context of consumers' knowledge that Sears is a promotional retailer. It is submitted that Sears' promotional flyers are a commonplace of Canadian retailing. The consumer knows that Sears generally does not offer the lowest prices on a day-to-day basis. They know that if price is the predominant concern, and
- 16 not any of the other qualities which motivate a person to shop at Sears, then they can choose to wait until Sears holds a sale.
62. Sears submits that if a known EDLP retailer had advertised an OSP, the reference price would be interpreted differently.
63. It is submitted, moreover, that the consumer implicitly recognizes that the tires are not "flying out the door" at Sears' regular price, since if that were the case there would be no need to hold a sale. The advertisements in which the representations as to price appear do not contain the commonly observed advertising language suggesting an "end of line", "inventory blowout", or "going out of business" condition. In fact, there is no explanation for offering these products at a promotional price other than what would be assumed by any reasonable surveyor of the advertisement - namely, that Sears expects to sell more tires at the advertised price level than it does or has at its regular price. It is to be expected that this factor also reduces any materiality that might otherwise attach to the representations made.
5) The Elimination of the 2-for Price in 2001 64. Sears here replies to the arguments raised at paragraphs 111 to 114 of the Commissioner's Written Reply.
65. The Commissioner asserts that Sears' post 1999 experience "confirms the materiality of the OSP representations". Again, that is not the issue in any case. It is the materiality of any misrepresentation.
66. The evidence led by Mr. McMahon, concerning the decline in promotional sales following a reduction in Sears' regular prices, might reasonably support the Commissioner's
- 17 view that consumer purchases were not "predicated on transaction pnces for the Tires". However, when this evidence is placed alongside other evidence demonstrating the equal or greater success of non-OSP advertising for tires, it becomes clear that an alternative explanation must be found.
67. When all the evidence is considered, Sears submits that the most plausible and likely explanation for the decline in promotional sales is that if savings are represented at all, consumers expect them to be of a certain magnitude. If the represented savings are incongruous with consumers' expectations concerning the deals typically offered in the market-place, or by the particular retailer, then the promotion will be less effective.
68. In addition to the evidence of Messrs Merkley and Cathcart about prices being negotiated with the consumer, it is noteworthy that Sears' internal documents from 1999 referred to competitors' promotional prices in terms that strongly imply both a reference price and savings of a certain order of magnitude. For example,
"35.00 % offl ist"; "40.00 % PROM PRICE" "Discount 35.00%" "value priced off list; "offp rice promo"; and "normal discounted price". Exhibit CR-128: 1999 Automotive Training Program. Exhibit CA-30: Sears Automotive Reviews Spring and Fall 1999.
- 18 -69. It is hardly surpnsmg, then, that Exhibit CR-128, the 1999 Automotive Training Program, set out for sales associates not only Sears' "Regular Pricing Structure" and "2 for Price Structure" but also what Mr. Keith termed as Sears' "Normal Promotion Price Structure" [emphasis added].
70. Additionally, the consistent evidence of all of the witnesses possessmg specific knowledge of the tire aftermarket is that while a spectrum of prices prevailed, the aftermarket for tires dominated, in terms of general consumer price expectations, by one word. That word is "discount".
71. In the view of Mr. King: MR. KING: Well, it's really just a guiding point for a retailer in the price book. Tires would be typically sold at retail. at a discount from that price as kind ofa starting point.
MR. SYME: What was the last comment you made, sir? Tires ... ? MR. KING: Are sold at a discount from that price. THE CHAIRPERSON: His last phrase was: It's a starting point, I think.
MR. KING: Yes. Pub. Hr. Tr., Vol 7, 1141 (2)-(13), Oct. 28, 2003. 72. In cross-examination, Mr. King confirmed: MR. KING: They use it as a basis or the starting point for their discount.
MR. McNAMARA: And that discount is worked out by the dealer depending on the circumstances.
MR. KING: Depending on the market he is in, in most cases. Pub. Hr. Tr., Vol. 7, 1170 (3)-(9), Oct. 28, 2003.
- 19 -73. Mr. Gauthier, in the context of a discussion concerning the pricing practices of wholesale clubs, also alludes to discounting in the marketplace as "normal". MR. GAUTHIER: When you look at the wholesale clubs, Costco and Price Club, they position themselves as retailers predominantly of flag brands at deeper than normal discount in the marketplace. They tended to position themselves towards the lower end of the spectrum when it comes to flag brand retail prices.
Pub. Hr. Tr., Vol. 11, 1831 (8)-(14), Nov. 3, 2003. 74. Mr. Cathcart, commenting in another context entirely, provides the following insights: They provided me with the regular price on the tire and then a discount if I was to buy all four, and was very, very persistent if I could buy all four and he could do them right away while I wait.
But I guess the interesting thing was on that day, and that is why I remember it so well, was that was the same tire as the first Auto Centre we visited, yet the discounted price on the four was different from the first Goodyear an hour earlier, which is kind of typical of what happens in the independents. They run the same way.
Even our sales managers in the field, when they do competitive shops, will be offered deals depending on how much volume the store did that day. If they had a real slow day they would be more anxious to offer a discounted price. If their books were full and they had no room, they would be less anxious to offer the price.
[Our emphasis.] Pub. Hr. Tr., Vol. 14, 2453 (3)-(22), Nov. 6, 2003. 75. Thus, with respect to materiality, all that can be safely concluded from Mr. McMahon's evidence is that where savings messages are part of the means employed to advertise tires, a representation as to savings or "discount" that is inadequate in the eyes of the consumer because it implies a lesser discount than consumers generally expect or is offered elsewhere in the market, will discourage and dampen sales.
- 20 -76. It is noteworthy that when Sears returned its regular prices to the earlier higher levels, not only did promotional sales increase, but sales at the high regular price levels remained strong. In total, the evidence presented through Mr. McMahon establishes both the competitive nature of the high regular prices offered by Sears and at the same time, the need to be in line with market expectations concerning advertised savings.
6) The Fall 2000 Automotive Review 77. The Fall 2000 Automotive Review is referred to at paragraph 115 of the Commissioner's Written Reply. Page 16515 of the document, which is specifically mentioned by the Commissioner, was a page prepared by the late Mr. Keith. Pub. Hr. Tr., Vol. 20, 3291 (23) - 3292 (7), Jan. 19, 2004. Exhibit CR-141: Fall 2000 Automotive Review, page 16515. 78. It is submitted that the particular statement cited by the Commissioner merely evidences an intention to implement in the latter half of 2000 "a strong advertising plan" for automotive products generally. The statement cannot shed any light on the issue of whether any element of a representation made in 1999, in the conveying of Sears' regular prices for the Tires, was materially false or misleading to the receiver of the representation.
79. The Commissioner further cites page 16519 of the same document. Page 16519 also appears to refer to the intention to implement a "strong promotional program", an element of which will be "big saves". The words "big saves" are not further explained or quantified and the author of the document is not alive to explain their meaning. Exhibit CR-141: Fall 2000 Automotive Review, page 16519.
- 21 -80. Even if the words "big saves" are taken as relating to savings messages for tires, which was not established in evidence, Sears submits that this interpretation is of no assistance for the following reasons: (a) "Big Saves" are not the same as a "representation as to price" and thus are not the representations in issue;
(b) In any event, the Tribunal has no basis to evaluate how the intended "big saves" compare with the savings claims made in 1999; and
(c ) The very same page of the document also indicates a promotional intention to use "increased Class 1 's - in every month". A class 1 tire, as Mr. McKenna explained, has no save story:
It is a tire that we bring in and advertize with no save story. It has a price, so that price is the price that the customer pays.
Pub. Hr. Tr., Vol. 19, 3176 (10-16), Jan.16, 2004. 81. To the degree his intention can be ascertained, the author of the document appears to be suggesting that the promotional program will be equally strengthened by both "big saves" and "no saves".
82. For all of these above reasons, it is submitted that consideration of this document cannot aid the Tribunal's determination about the materiality of any alleged misrepresentation in Sears' regular price representations.
7) The Characterisation of the Tires as "Private Label" and "Shopping" goods 83. Generally, in seeking to categorise the Tires, the Commissioner relies on expert evidence given at a high level of generality, and drawn from studies relating to products other than tires.
84. With respect to the characterisation of the Tires as "private label", the Commissioner states at paragraph 120 of the Commissioner's Written Reply that the difficulty of direct
- 22 comparison would increase the likelihood of consumers responding to claims of "exceptional values".
85. To this argument, Sears responds as follows: (a) Only two of the Tires were "private label"; (b) Any difficulty of comparison with other products would indeed allow higher prices to be commanded, and the opportunity for increased mark-up, but these are not factors making a representation about regular price more material than it would otherwise be; and, on the contrary,
(c) In Sears' submission, if the consequence of the goods being "private label" is increased uncertainty about the value represented, this would decrease rather than increase the likelihood of consumer response.
86. The Commissioner's conclusion is therefore a non sequitur. 87. With respect to Professor Lichtenstein's characterisation of tires as "shopping goods'', and the conclusions he has drawn about "a low level of search", Sears states that the direct evidence about consumer search behaviour contradicts and undermines Professor Lichtenstein's op1mon. The direct evidence available through the survey evidence of Dr. Deal and Mr. DesRosiers must be preferred to the high-level theorizing of Professor Lichtenstein.
88. In any event, Professor Lichtenstein qualified his response in various ways. For example, Professor Lichtenstein conceded that: (a) in the abstract continuum of convenience, shopping and specialty goods, one person's "convenience" good might be another person's "specialty" good;
Pub. Hr. Tr., Vol 12, 1983 (4-7), 1984 (22-24), Nov. 4, 2003. (b) he would place tires "above a convenience good and below a specialty good for more consumers, recognizing again there may be some car enthusiast specialist out there who says a particular performance tire to them is a specialty good, but for all season tires for the mass market, they would fall for most consumers as a shopping good"; and
Pub. Hr. Tr., Vol. 12, 1986 (17-25), Nov. 4, 2003.
- 23 -(c ) psychological factors such as safety concerns could mcrease the consumer's cognitive involvement in the search process.
MS WALSH: You would agree with me, though, sir, that if consumers are concerned about safety they might spend more time in searching for tires.
DR. LICHTENSTEIN: If consumers are concerned about safety? If they perceive differences in safety across tires, then yes, it would make sense that they would.
MS WALSH: And that this would entail, as you described this morning, a greater need for cognition.
DR. LICHTENSTEIN: A need for cognition is usually conceptualized as an internal -- it would lead them more toward greater search.
Pub. Hr. Tr., Vol. 12, 2115 (1) - 2117 (7), 2118 (7-21), Nov. 4, 2003. 89. The evidence adduced before the Tribunal about the percentage of consumers who do engage in extensive search activity before purchasing tires, combined with Dr. Trebilcock's observations about the percentage of potential consumers whose search activity serves to discipline retailers' pricing behaviour,3 shows Dr. Lichtenstein's opinion to be overly broad and unsubstantiated in the particular context of the products at issue in the Application.
8) The Absence of Harm and the Absence of the Perception of Harm 90. At paragraph 126 of the Commissioner's Written Reply, the Commissioner asserts that "the notion that no one was harmed and consumers got good value for their money" is of no assistance to Sears. Sears argues that, on the contrary, evidence that the representation resulted in no actual harm, and that the receivers of the representation do not now believe they were
3 These aspects are considered at paragraphs 177 to 182 of Sears Written Submissions served and filed on June 17, 2004.
- 24 misled but rather are satisfied with any purchase that may have resulted, is highly relevant to whether a misrepresentation was material to the public.
91. If representations were material, and found to be false, then one might expect consumers to be dissatisfied with their purchase.
92. The extensive survey evidence gathered by Dr. Deal indicates that people who purchased the Tires from Sears in 1999 are content with their purchases. There was and is no perception of having been misled into a disadvantageous or unfair purchase.
93. The Commissioner adduced no evidence of consumer complaints, much less of actual harm to the consumer. Rightly or wrongly, she states that this is not part of her legal burden.
94. However, in view of this position, the only direct evidence available to the Tribunal strongly confirms that Sears' representations as to its regular prices did not result in consumer harm or consumer disappointment and are further support for the position that the representations as to price were not false or misleading in a material respect.
95. Moreover, the Commissioner adduced no evidence of harm to the marketplace, or to competition. The evidence indicated that in 1999 Sears had only 5% of the total Canadian aftermarket for all-season passenger tires. Mr. Gauthier's evidence concerning Al's Tires stores' complete disinterest in and disengagement from the tire-retailing efforts of Sears, despite Al's Tires geographic proximity to Sears Automotive outlets, makes even the suggestion of harm to competitors ring hollow. Pub. Hr. Tr., Vol. 11, 1784 (13-19), Nov. 3, 2003.
- 25 -96. The unrefuted evidence adduced before the Tribunal, supporting the proposition that neither consumers nor competitors were harmed by the representations, creates a strong presumption that any misrepresentation was immaterial to the fair and proper operation of the marketplace and was not false or misleading in a material respect.
97. In light of this, Sears asserts that even if misrepresentation is found, it was immaterial to the public, and certainly not one that consumers or reasonable competitors would demand be sanctioned.
PART IV - CONCLUSION RE SECTION 74.01(5) 98. Sears reiterates its earlier submission that a sophisticated, commercially reasonable and real-world view should be taken in assessing "the degree to which the purchaser is affected by these words in coming to a conclusion as to whether or not he should make a purchase" (R. v. Kellys on Seymour Ltd., infra). "In the circumstances", the evidence establishes that the specific representations as to Sears' regular prices were not of "much consequence, important, pertinent, germane" (R. v. D.E.S. Security Systems, infra).
R. v. Kellys on Seymour Ltd. (1969), 60 C.P.R. 24 at 26 (Vane. Mag. Ct.) R. v. D.E.S. Security Systems, (1987] O.J. 2489 at para. 14 (Prov. Ct. - Crim. Div.).
99. Accordingly, Sears respectfully submits that any element of misrepresentation in the representations as to price was not false or misleading in a material respect.
- 26 -ALL OF WHICH IS RESPECTFULLY SUBMITTED
Date: July 6, 2004 Barristers and Solicitors Patent and Trade-mark A Suite 1100, P.O. Box 11 200 King Street West Toronto, Ontario Canada M5H 3T4
William W. McNamara Stephen A. Scholtz Teresa J. Walsh Philip J. Kennedy
Tel: ( 416) 340-6000 Fax: (416) 977-5239
Solicitors for the Respondent, Sears Canada Inc.
TO: THE COMMISSIONER OF COMPETITION c/o Department of Justice Competition Law Division Place du Portage, Phase 1 50 Victoria Street Hull, Quebec KIA OC9
John L. Syme Arsalaan Hyder Leslie Milton Genevieve Leveille
Tel.: (819) 953-3901 Fax: (819) 953-9267
THE COMPETITION TRIBUNAL BETWEEN: THE COMMISSIONER OF COMPETITION
FURTHER WRITTEN SUBMISSIONS OF THE RESPONDENT, SEARS CANADA INC.
(Re Section 74.01(5) of the Competition Act)
Ogilvy Renault Barristers and Solicitors 200 King Street West, Suite 1100 Toronto, Ontario M5H3T4 Counsel for the Respondent, Sears Canada Inc.
DOCSTOR: 82300711
Tribunal File No. CT-2002-004 Applicant - and-SEARS CANADA INC. Respondent