Documentation

~~O'v' 29 '94 12: 51PM STil<EMf="~~~ ELLIOTT OTTAl...JA

F 0 .. I E l E WN 29 1994 f8d ~ D s e THE COMPETITION TRIBUNAL REGISTRAR · REGISTRA1RE OTIAWA,ONT. File No. CT· 94101

IN THE MA'ITER OF an Application by the Director of Investigation and Research under section 79 of the Competition Act R.S.C. 1985 c.C.-34 as amended.

AND lN THE MATIER OF certain practices by The D & B Companies of Canada Limited.

BETWEEN: THE DIRECTOR OF INVESTIGATION AND RESEARCH APPLICANT -and. . TH'R n & B COMPA .NIES QF CANADA LIMITED RESPONDENT

INFORMATION RESOURCES INC. CANADIAN COUNCIL QP GROCERYplSTRIDUTQRS

INTERVENORS FURmER AMENDED NOTICE OP APPLICATION

TAKE NOnCE THAT the Applicant, the niree"tor of Investigation and Research will make an Application to the Competition Tribunal pttrsuant to Section 79 of the Competiti.2n A,g, R.S.C. 1985, c.C-34, for:

~~-C~OM~P~E~T=IT~I07.N~TR~l~9V~~;u::::-.­ TRIBUNAL DE LA CONCURRENCE

NOV 29 '94 12:52PM STIKEMR~~ ELLIOTT OTTAWR P.4/28 a) an order, pursuant to Section 79(1) of the Act, prohibiting the Respondent~ its affiliates, officers or agents:

(i) from entering into any contracts which preclude or L"'l any way restrict a supplier of scanner data from prqvidipg gthers with acce!li:. to 'c;ijlller data. or any other da~a nece,.Mry for th~ proxii:;ion of S('anner-based J.'\larket tracking servic~;

(ii) £rom enforcing any provisions in any of the Respondent's existing contracts which 5@Sude or in any way restrict a supplier of scanner data from ;grovidins gthers with access to scanner data 1 or any other date necessary for the provision 0£ ~canner-based market trac19~s services; and

(iii) from offering Jl!lX inducements to suppliers of scanner data to restrict access bi.others to scanner dam gr any other data neceHI!}: for the provil.iion of 5Ctn1£ler-ba.sed market tracf.ing servicesj

(b) an order1 pursuant to Section 79(2) of the Act declaring nun and void all provisions in all contracts to which the Respondent iS a party, which preclude or in any way restrict a supplier of scanner data from arovigjng pthers with access ~o such data or anv ot!_ler data necessary for the srovision of scanner-based market tracking services; 2 (c) an order, pursuant to Section 79(1) or 79(2) of the Act, prohibiting the Respondent, its affiliates, officers and agents from enforcing any provisions in the Respondent's existing contracts for the supply of market tracking services which require the customer to give unreasonable notice

NOV 2'3 ''34 12: 52PM STIKEMRN ELLIOTT OTTAWA P.5/28 -3-of tenninati.on, or which impose any unreasonable penalty or loss of discount on the customer for early termination;

(d) an order, pursuant to Section 79(2) of the Act, directing the Respondent to make adequate historical scanner data available to any new entrant into the market for the supply of scanner-based market tracking services, on such fair and reasonable terms as may be fixed by the Tribunal;

(e) an order, pursuant to Section 79(2) of the Act, directing the Respondent to take such other actions as are reasonable and necessary to overcome the effects in the market for the supply of scanner-based market tracking services of thP. RP.~pondent's practice of anti-competitive acts;

(£) an order requiring the RQspondent to deliver copies of the Tribunal's Order to all customa?S for scanner. .b ased market tracking services, and to all suppliers of scaMer data; and

(g) such other orders as the Tribunal may consider appropriate. AND TAKE NOTICE that if you do not file a Response with the Regish'o.r of the Tribunal within thirty days of th~ uctt~ upon which this No Lice of Application is served upon you, the Tribunal may make :such urd~r 1:1.1:11.t deems appropriale wiLhouL fwther notice to you.

IN SUPPORT OF THIS APPLICATION, the Director relies upon the Statement of Grounds and Material Facts which follows.

~mv 29 '94 12: 53PM STIKEMAti ELLIOTT OTTAWA STATEMENT OF GROUNDS AND MAIERIAL FACTS TABLE OF CONTENTS I. GROUNDS FOR APPLICATION-----------------·-........ ------ II. MATERIAL FACTS A. DEFll\lITIONS --.. --------------------------------------------------· B. mE PARTIES ---------------------------"-.. - .... -------------- C. THE CANADIAN MARKETING RESEARCH INDUSTRY--------- D. lliE RELEV Al~T PRODUCT ~1.ARKET -----·-..................... ----------- E. THE RELEVANT GEOGRAPI-IlC MARKET-----.. --......... ------- F. NIELSEN'S CONTROL OF THE MARKET FOR SCANNIZR-BASED MARKET TRACKING SERVICES -----------------------------·.. G. PRACTICE OF ANTI-COMPETITIVE ACTS ---·---............ --------- H. SUBSTANTIAL PREVENTION OF COMPETITION --------------- III. CONCLUSION------------------·. ....... ~------------------ IV. RELIEF SOUGHT --·--~-.. ------------------------------------·· V. PROCESS ----------------------------------------·. ..... _ .. _____

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I .. G...RQ.UNDS FOR THE APPLICATIQN 1. The Director of Investigation and Research submits, (A) thAt the Respondent, The D & B Companies of Canada I.imiifd, (hereinafter ''Nielsen") substantially or completely controls the supply of scanner-based market tracking services in Canada;

(b) th.at the supply o£ such services constitutes a distinct class or species of businees;

(c) that Nielsen has engaged in o.nd continues to enga.gc in a. pro.ctice of o.nti-competitive acts within the meaning of f\ection 78 of the Competition Act (the "AcL 11 ); and (d) that such acts have had1• are having and, unless restrained, will continue to have the effect of preventing or lessening competition substantially in the supply of scanner-based market tracking services in Canada.

2. The following actions by Nielsen constitute a practice of anti. . competitive acts wi.thin the meaning of section 78 and1 in particular, paragraphs 78(e) and 78(h) of the Act:

a) Nielsen has entered into1 renewed and maintained contracts with all major Canadian grocery retail chains and has begun to contract with major retail

NOV 29 ·' 94 12: 54PM STikEMRN ELLIOTT OTTAWA P.8/28 -6· drug chains to acquire their UPC scanned data on a long-term exclusive basis, thu~ prP.duciing 11ny potential competitors -from a.cquiri.ng such data;

b) Nie] sen has paid significant financial inducements to retailers to acquire and maintain exclusive access to their scanner data; and

c) while the market has been foreclosed to potential competitors through their inability to access sc::ilnncr data., Nielsen has contro.ctcd and attempted to a.mtrEtct with manufacturers of consumer packaged goods to provide mi.ll'kct tro.cking services for terms of three yeMs or more, with conditions requiring substantial notice of termin11.tion1 and imposing penalties for early termination.

3. Nielsen has engaged in this pra1..:til..:t! of "'nti·<.;om~titiv~ '2.1..:t::1 fur th~ purpoae of excluding pot~ntial competitors from the market for the supply of sc:anner-ba:;ed market tracking services.

4. Nielsen's practice of anti-competitive acts has had and continues to have the effect of preventing competition substantially in the supply of scanner .. based market tracking services in Canada.

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IL MAIERIAL FACTS .. A .nDletfil QllS 5. In this application1 the following terms have the meanings set out below: a) Consumer packagectgoods: Food products and other non-food products packaged by the manufacturer, norm.ally but not always ~10ld in superm.arkets and/or drug stores, that are purchHP.d by consumers for consumption or use on a regular battiFt

b) UPC Scanner Data: Universal Product Code (UPC) scanner data a:re comprised of product identifying information provided on the bar coded label affixed by the manufacturer to consumer packaged goods aa well as data input by the . retailer which may include store identification, time of purchase and price, all 0£ which is recorded by a scanning appara.Lus.

c) Sgnner·'&m:d Marj.set Tracking Seryices: As described in this appl1cat1on1 a scanner. . based market tracking service is a type of syndicated market tracking service that is based on Ul;;iC..: data. The data are used to track sales of a number of product categories and brands in a specified period of time. The service tracks the physical movement of goods and other factors such as advertising levels, promotions, prices, and package size.

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d) Audit Data; Data obtained from a manual examination of items in a store 1 a inventory. Products are counted or ' 1 inventoried 11 in periodic visits to store locations and that information is combined with data from store records on merchandise received in order to get item sales figures.

e) Warehouse Withdrawal Informationi Computerized data on individual items shipped to each store served by the retailer's warehouse.

f) Panel Data: Consumer household purchase data recnrdP.d P.ither at the retail grocery counter by shopper identification card or, more commonly, at the consumer'~ rP.side.nc~ by methods of manual diary recordings of purchasQs or by a hand held UPC scarming device.

g) Focus Qrcm;p Interyiews: A method of marketing research directed toward seeking insight into purchase motivation. Small groups of consumen a.re a.sked to explain reasons behind their purchase of a producl or Lhey m.ay be asked to evaluate producl attributes.

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B. The Parties 6. The Applicant, the Director of Inve!!itigaffort aT1d Research (the "Directortt), is the officer appointed under !llection 7 of the Act, and is charged with the adm.inist:ratkm and enforcement of the Act.

7, The Respondent, D&B Companie§ Q.f Canada Limited (''Nielsen"), is a privately held, wholly-owned subsidiary of A.C. Nielsen Company (U.S.), which is, in turn, a wholly-owned subsidiary of the Dun &t Bradstreet Corporation. The parent A.C. Nielsen (U.S.) provides marketing services a.round the world and characterizes itself as the world'Widc lco.der in the marketing research industry. As Nielsen is a privately held cornpa.ny, revenue figures Me not available in Canada. However, in 1992 its U.S. parent reported tot.al revenues of approximalely U.S. $1.12 billion. E!iti:l.bli~htd in 1944, Nielsen is ba.5ed in Markham, Onlario. The marketing rt!!llt!arch division of the company (Nielseu Marketing Reti~CU't:h) provides scanner-based tracking services and other md.rketing research services. Nielsen has nvo other separate business divisions, namely: Nielsen Television Rating Service, which measures television statistics, and Nielsen Promotion Services, which handles contest judging, promotion activities and coupon redemption.

7(a). Prior to Qecember L 1991,the bu~ineA~ prP.~ntl~ carried on by the marketimi reaea.rch divi~ion ol thP. Respondent was carried on by A.C. Nielsen Comp_any of Canada Limited. On December 1, 1991, A.C. Nielsen Company of Canada T. imited am.alsama.ted. with Dun &i Bradstreet Llmibaj and Media Measurement Seryicea Inc. to become the D &: B Companies of Canada Ltd.

NO'v' 29 '94 12: 57PM STIKEMA~i ELLIOTT OTTAWA C. The Canadian Marketing Research Industry 8. Marketing researr.h is usP.d by retaile.rs and manufacturers to assist in decision making and strategi.c planning relating to product promotion, pricing and rompe.titive positioning. There are a substantial number of firms of varyins size providing marketing research services in Canada. Services offered by such firms may include market tracking, focus groups, iru:Uvidual consumer interviews, surveys and consumer panels.

9. Ma.nufa.cturers of conswner packaged goods are significant users of marketing research. A 1992 Conference Board of Canada study found that major consumer packaged goods manufacturers typically sper.d one half of one percent of sales on marketing research activitie5.

10. Marketing research services may be either syndicated or custom designed for a particular company or product.

11. Market tracking is a service that monitors the progress and competitive position of a product in relation to other competing products over time.

12. In order to provide a market tracking service, a market researcher must obtain data on sales of the relevant products. Historically, such data were obtained through in-store audit of retailers and by monitoring warehouse withdrawals.

13. New marketing research services were made possible in the late 1970's when electtonic scanner technology was introduced to grocery stores for the purpose of

NOV 29 '94 12: 58PM STIKEMAN ELLIOTT OTTA~JP p. 13/28 ·11· recording purchases quickly and accurately by means of Universal Product Codes (''UPC"). While the intended purpose of scanners was price calculation and control, reduction of labour costs and improved inventory control by retailers, scanners also created a constant flow of day to day data that could be used to effectively track the sales of products.

14. Market tracking services based on scanner data are superior in accuracy, timeliness and cost effectiveness to those based on other methods. As scanner penetration increases in Canada, scanner~based market tracking is displacing other tracking methods and is expected to largely rP.place such methods, H has occurred in the United Sta~.

15. At the present time in Canada, scanners are most prevalent in large retail grocery chains. UPC sc::anner data £rom substantially all such chains is requited in order to produce an effective scanner~based market tracking service for mnnulacturers of consumer packaged goods. UPC sc11nner uange is currently expanding into retail drug cha.ins. The use 0£ scanner data from other types of retailers to provide market tracking services for other types of products is likely to increase in Lhe near f uLUTe.

16. Nieli:;en its currently the only 1,;1..m1pW1y in Canada offering scanner-based market tracking services. It sells such services to manufacturers of consumer packaged goods. Its exclusive contracts to acqUire UPC scanner data from all major grocery retail chains preclude any new entrant from offering a competing service.

17. In contrast, in the u.~. market, there is vigorous competition between Nielsen and Information Resources Inc. (IRl) in the supply of scanner-based tracking services. Grocery and other retailers in the U.S. sell scanner data to A.C. Nielsen, IRI

NOV 29 '94 12: 58PM STIKEMAN ELLIOTT OTTAl~R p .14/28 -12-and others. The U.S, market for scanner .. based market tracking services is characterized by rapid technological innovation, expanding services, and strong competition on points of price and service.

18. In the mid 1980's, IRJ unsuccessfully attempted to enter the Canadian market to provide a scanner-based market tracking service. At that time, Nielsen was the dominant supplier of market tracking services in Canada and these services were based on audit data and warehouse withdrawal information. IRI's entry into the market was dependent on its being able to acquire scanner data from substantially all major grocery retailers in Canada. IRI sought to acquire exclusive access to such data. It was unable to enter the market because, a.tor around the same time, Nielsen contracted with one major grocery retailer to acquire iti; UPC i;canner data on an exclu.tjve basi~. Sub1~quf?.ntly,. Ni~19P.n C'Ontr.RC'h?d with f.111 m.Pljor grocery retaHers for exdm~ivti' acC'ess to their scanner data.. In 1992, Nielsen then began offering a scanner-based market b'add.ng service to manufacturers of consumer packaged goods.

19. IRI has recently announced its intention to enter the Canadian market, provided that it is not denied access to current and historical UPC scanner data from Canadian grocery retailers as a. result of Nielsen's exclusive contracts.

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D. ]1\e Releyant Product Market 20. Scanner-based market tracking services constitute the relevant product market for the purposes of sections 78 and 79 of the Act.

21. The current level and nature of scanner use in Canada ii; such that at th~ present time1 an effective scanner-bartP.d markP.t tracking sprvir.e can ~ provid~ only to the consumer pal'kage.d goods in.dustry,. using scanner data. from large grocery retail chains and, where available, from large retail drug chains. The use of scanner data from other types of retailers is likely to increase in the near future making scanner-based market tracking services possible for other products.

22. Scanner-based market trncking :;iervicea 11re generally provided as Syndico.tcd Mtlrket Tracking ("SMT") services. They are referred to as such because the service is a research product sourced from pooled data, manipulated or organized by the eeller and re:sold to many customers as a standard producl. Varialions o! lhe product can be purchased by choosing combinations of options sucl1 ~th~ nwnb~r of :;Lores covered in tlle service, tht! numbt!r uf pruduc:t categori~ covered, geographic ui::as, and individual retail store data.

23. Scanner-based market tracking services are of value to manufacturers because they assist them in making informed marketing decisions.

Substitute Products 24. There ;,re no dose substitutes to scanner. . based market tracking services.

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25. While there are many types of marketing research, there is no other type that can adequately and economkally perform the functions of a scanner-based market tracking service. A tracking service must be able to track sales of each manufacturer's products and all competing products. The service must also provide coverage across the market with data from all major retailers in all regions on a timely basis.

26. Other methods of data r.ollection ~uch as audit, warehouse withdrawal and p;mel data are.a, for these purposes, too labour-intensive and ('OAtly to match thE! capability of scanner-based data collection. FurthermorQ, these methods tend to be less timely, accurate and precise for tracking purposes and are seldomly used where scanner data is available.

27. Methods of mil.rkct tro.cl<lng other than scanner-based market tracking services fall outside of the relevant market. Buyers of scanner-bnsed services believe that the scanner-based product is qualitatively superior to l'll'l.Y alternate market tracking mel.hode due Lo greaLer a..:curacy, Limelinee5 and <:Ost effectiveness.

Com~lementary Products 28. Various types of marketing research, taken separately or in combination, are cor.sidered by consumer packaged goods manufacturers to be complements to scanner-based market tracking services. They are not substitutes.

29. By subscribing to a scanner-based market tracking service, a manufacturer rEl<'.'eives data on the performance of its product in relation to thOF!P of it~ competitors. Information concerning consumer demographics, opinions1 preferences and household

t'iOV 29 '94 01: OOPM STIKEMAN ELLIOTT OTTAWA P.17/28 -15-buying patterns is not evident in scanner data but is available through a complementary class of related products such as diary panels, consumer usage and attitude surveys and focus group interviews. These complementary services relate the consumers' buying patterns, opinions and preferences to the information provided by scanner-based market tracking. Neither scanner-based market tracking services nor the class of related products is a substitute for the other. However1 when used together, these serviCP.s C'an assist a manufacturer in determining how a product is moving in the market place and for what reasons.

NOV 29 '94 01: 01PM STIKEr1RN ELLIOTT OTTHl·JR 30. The relevant geographic market for ~c;Jnn~r-based mark.et tracking services is Canada.

31. The geographic market does not extend across national borders as the relationship between prke and promotion for a product and sales volume depends on the economic and social conditions, tastes and on the nature of product mlU'ket com~tion in each coWltry.

32. There are significant differences in the marketing of consumer packaged goods between Canada and the U.S. Given the differences in con:swner pr~ft!rences, brands1 product formul11tions, distribution channel5 and promotion~ across countries, a scanner-baaed market tracking service based ou U.S. Uiita would be a poor substitute for a service that meuures the performance of !iiucll goods in Canada. This is also supported by the facl iha.t North American companies purchase separate services for U.S. and Cai1adian op~ra:tions.

33. Although consumer buying patterns may differ among the regions of Canada, most con.~umer packaged goods manufacturers who purchase scanner .. based market tracking services are organized on a national basis and typka11y ~n their products across the country. They therefore requirP. a i:u).rvict? which is national in scope and which covers all of the regions in Canada using the same methodology.

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34. Nielsen substa.ntiaJ1y or completely controls the market for the supply of scanner-based market tracking servi CP.i:i in Canada, a class or species of business within the meaning of paragraph 79(l)(a) of the Act.

35. Nielsen controls 100 percent of the market for scanner-based tracking t1tavlces in Canada. Nielsen has .achieved and maintained complete control of this markl't through ib UBe of exclusive contracts for the purchaAe of scanner data &om all major grocery retail choins in Cimada and through the other anti-competitive acts described ht!t~in.

liOV 29 '94 01: 02PM STIKEMAN ELLIOTT OTTAl,JA P.20/28 G. fractice Of Anti·Competitive ACt$. 36. Nielsen has engaged in a practice of anti-competitive acts, contrary to section 79 (l)(b) of the Act, and as defined in Section 78 of the Act and, in partkulu, in paragraphs 78(e) and 78(h) of the Act

3"1. The particulars of Nielsen's practice of 11nti-competitive acts are as follows: a) Nielsen has entered into, renewed and maintained contracts with all major Canadian grocery retail chains and has begun to contract with major retail drug chains to acquire their UPC scanned data on a. long term exclusive basis, thus precluding any potential competitors from acquiring such data;

b) Nielsen has paid significant financial inducements to retailers Lo acquire and maintain exclusive access to their scanner data; and

c) While the ntarkel has been fureclosed to potential competitors through Lheir lnability tu access scanner data, Nielsen has contracted and attempted to contract with manufaetUrers of consumer packaged products to provide market tracking services for terms of three years or more, with conditions requiring substantial notice of termination, and imposing penalties for early tennination.

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R Su.Pstantial Prevention Of Competition 38. The effect of Nielsen's practice of anti-competitive acts has been to prevent competition substantially in the market for scanner .. based market tracking services. Nielsen has promoted and maintained its dominant position by completely foreclosing the market for scanner-based market tracking services to potential alternative suppliers of the service. There can be no new entry while Nielsen has exclusive access to thQ scanner data of all major grocery retailers.

39. In contrast to Canada, there is viiorous competition in the U.S. in the supply of scanner-based market tracking services. Differen.ces between the Canadian and U.S. markets include the following:

a) Prices for scanne.r-bai:iP.d tracking services have remained high in Ccanada while th9.y have fall@n in other jurisdictions where there is competition;

b) Services in Canada generally lag behind those available in Llle U.S. in terms of technology, innovation, quality, and range.

40. Nielsen's practice of anti·competitivt:? acts has created or led to the following ba?Tiers to entry into Lhe nlarkt!t for the supply of scanner-based market tracking services:

a) Nlultil:!n's exclusive access to scanner data from all major grocery retailers and certain major retail drug chains completely forecloses any new entry;

----··-·-......... --.~ NOV 29 ''34 01:03PM STIKEMAN ELLIOTT OTTAWA P.22/28 b) Nielsen's contracts for exclusive access to scanner data from all such retailers expire at different times. Access to data from substantially all retailers would be required by a new entrant;

c) A new competitor who obtained access to current scanner data would not have access to a database of historical Canadian sales information, an integral part of a scanner-based market tracking se!'Vke; and