On February 17, 2017, Toronto-based e-books retailer Rakuten Kobo Inc. (“Kobo”) sought judicial review of the consent agreements reached between the Commissioner of Competition (“Commissioner”) and three e-books publishers earlier this year.
The consent agreements reached between the Commissioner and each of Hachette, Macmillan, and Simon & Schuster are aimed at resolving the Commissioner’s concerns arising from alleged agreements that prevent or lessen competition substantially, which are reviewable under section 90.1 of the Competition Act (the “Act”). The Commissioner, however, was unable reach agreement with a fourth publisher, HarperCollins, and has now filed an application for a prohibition order under section 90.1.
Pursuant to the terms of the consent agreements, publishers are prohibited from using an “agency” model—a model wherein publishers set prices and pay retailers, such as Kobo, a commission. The consent agreements also restrict the ability of publishers to use most favoured nation clauses in their agreements with retailers for a period of 3 years. These clauses prevent retailers from negotiating their own agreement with publishers.
Kobo’s application for judicial review is not at all surprising. The consent agreements mentioned above are recent iterations of agreements that were first reached between the Commissioner and each of Hachette, Macmillan, Simon & Schuster, and HarperCollins in February 2014 but were later rescinded by the Competition Tribunal (the “Tribunal”) at the behest of Kobo.
Among other things, Kobo alleged that the consent agreements struck between the Commissioner and the four e-books publishers in 2014 would negatively impact its ability to effectively compete in the Canadian marketplace. Last year, the Tribunal partially found in Kobo’s favour, nullifying the 2014 consent agreements on the basis that the Commissioner did not sufficiently identify in the consent agreements the six elements of section 90.1 of the Act. However, the Tribunal rejected Kobo’s submissions that the terms of the consent agreements were unenforceable.
Now, more than 3 years later, Kobo appears to be right back where it first started—this time, however, in the Federal Court. Kobo’s decision to file an application for judicial review in Federal Court—as opposed to an application for rescission or variance under subsection 106(2) of the Act before the Tribunal—undoubtedly stems from the Tribunal’s earlier pronouncement (in an adjunct reference proceeding) of its ability to award such an order. In that proceeding, the Tribunal held that:
- It may confirm that the terms of a consent agreement are within the “purview” of the type of order that the Tribunal would be able to issue in respect of the particular reviewable conduct at issue;
- It may confirm that the elements of the alleged reviewable conduct have been identified and confirmed; and
- Applicants may seek to establish that the terms of a consent agreement are unenforceable or would lead to no enforceable obligation.