Vancouver Convention & Exhibition Centre 999 Canada Place Vancouver, British Columbia

1. Understanding How the Ordinary Selling Price Provisions of the Competition ActApply to Your Business Vancouver Convention & Exhibition Centre 999 Canada Place Vancouver, British Columbia October 19, 2006

2. Overview of presentation • Ordinary Selling Price (OSP) – Harm to consumers and competitors • What the OSP Provisions Do Not Do • Basic Framework – Ordinary Selling Price • Two kinds of OSP • Nature of the product/geographic market • Volume and time tests • Special OSP Issues (Seasonal, Short-Life Cycle) • Corporate Compliance Program • OSP Do’s and Don’ts • Questions and Answers 2

3. Harm to consumers Misleading impression of savings Misleading impression regarding the quality of the product Harm to consumers and competitors • Harm to competitors • Lost sales of the advertised item • Diminished sales not only for competing products but also for other products • Negative goodwill to honest competitors 3

4. What the OSP Provisions Do Not Do • They do not regulate pricing – advertisers are free to set prices and change those prices to accommodate whatever the market will bear • OSP provisions only triggered when a savings claim from a regular selling price is made 4

5. nature of the product Retailers can refer to regular selling price if they can satisfy one of the following two tests relevant geographic market Volume test Time test - reasonable period of time- substantial volume • in good faith- substantial period of time Basic Framework – Ordinary Selling Price Section 74.01(2) – Market priceand 74.01(3) – Supplier’s ownof the Competition ActEssentially prohibit retailers from making false or misleading representations to the public as to the ordinary selling price (OSP) of a product recently before or immediately after the making of the representation 5

6. Two Kinds of OSP Section 74.01(2) – Market priceand 74.01(3) – Supplier’s ownof the Competition ActEssentially prohibit retailers from making false or misleading representations to the public as to the ordinary selling price (OSP) of a product • Section 74.01(2) – applies when a supplier references the market’s regular selling price of the item 6

7. Two Kinds of OSP (continued) Section 74.01(2) – Market priceand 74.01(3) – Supplier’s ownof the Competition ActEssentially prohibit retailers from making false or misleading representations to the public as to the ordinary selling price (OSP) of a product • Section 74.01(3) – applies when the supplier references their own regular selling price 7

8. nature of the product relevant geographic market Nature of product-geographic market Retailers can refer to regular selling price if they can satisfy one of the following two tests Volume test Time test • Under ss. 74.01(2) and (3), compliance with the volume and time tests is assessed having regard to the nature of the product and the geographic market: • 74.01(2) – “… where suppliers generally in the relevant geographic market, having regard to the nature of the product”; • 74.01(3) – “… having regard to the nature of the product and the relevant geographic market”. 8

9. Nature of product: Bulletin • Infinite variety of products • Vary in nature in numerous ways: • seasonal/non-seasonal • national brand/private label • durable/perishable • fashionable • novelty/commonplace • frequently/infrequently purchased • new/established • Why look at the nature of the product? • e.g.: a seasonal product may be sold or offered for sale for a shorter period of time than a non-seasonal one 9

10. Nature of product: Sears • Almost all tires sold in multiples • Tire sales fairly stable over time • Consumers do not spend much time searching for tires or evaluating alternatives • Consumers have limited ability to evaluate intrinsic qualities of tires • Consumers engage in passive search over time for tires • Available throughout the year 10

11. Relevant geographic market: Bulletin • Flexible concept • Determined based on relevant factors, which could include some or all of: • the market reach of the representations • the number and location of competitors • the likelihood of travel to purchase the product in question • the location of consumers reached by the representation and ease of price comparison 11

12. Relevant geographic market: Sears • Canada is the relevant market … Why? • Sears prices set on national basis • No discussion of “local markets” in Sears documents • Representations made nationally in flyers; no regional variation • Decisions re: sale pricing based on “market trends and consumer preferences in Canada” 12

13. Volume test “… have not sold a substantialvolume of the product at that price or a higher price within a reasonable period of timebefore or afterthe making of the representation, as the case may be” 13

14. nature of the product relevant geographic market Volume test: The elements • “before or after the making of the representation” • “reasonable period of time” • “substantial volume” Volume test Time test - in good faith - substantial period of time - reasonable period of time- substantial volume Recently before or immediately after themaking of the representation 14

15. Volume test: 1. “before or after” – Bulletin • S. 74.01(4) says that whether you look at the period of time before or after the representation depends on whether the representation relates to the price at which it was supplied or will be supplied • Before: • e.g.: Our Regular $100 – Now $50 • After: • e.g.: After Sale Price $100 – Now Available $50 15

16. Volume test: 1. “before or after” – Sears • the period of time prior to the representations was found to be the relevant period of time 16

17. Volume test: 1. “before or after” – Hypothetical example 1 • national brand upright vacuum • national retailer wants to offer a spring cleaning sales event starting April 1 • product also available through national department and hardware stores • carried the last 5 years • Our Regular $500 – Now $300 • therefore, it is likely appropriate to consider time period before the making of the representation 17

18. Volume test: 2. “reasonable period of time” – Bulletin “The time period to be considered will be the twelve months prior to (or following) the making of the representation. However, this period may be shorter having regard to the nature of the product” 18

19. Volume test: 2. “reasonable period of time” – Sears • tires at issue • “all season”- available throughout the year • 12 month period “reasonable” in circumstances 19

20. Volume test: 2. “reasonable period of time” – Hypothetical example 1 • national brand upright vacuum • national retailer wants to offer a spring cleaning sales event starting April 1 • product also available through national department and hardware stores • carried the last 5 years • available throughout year • therefore, 12 month period likely “reasonable” in circumstances 20

21. Volume test: 3. “substantial volume” – Bulletin “The substantial volume of product requirement will be met if more than 50% of sales are at or above the reference price” 21

22. Volume test: 3. “substantial volume” – Sears • Sears sold 1.28% of tires at ordinary selling price in the 12 months preceding the representation • Sears agreed that the volume was not substantial 22

23. Volume test: 3. “substantial volume” – Hypothetical example 1 • national brand upright vacuum • national retailer wants to offer a spring cleaning sales event starting April 1 • product also available through national department and hardware stores • carried the last 5 years • 25% in the past year were sold at or above $500 • therefore, likely does not meet the volume test as set out in the Bulletin 23

24. Time test “… has not offered the product at that price or a higher price ingood faith for a substantial period of time recently before or immediately after the making of the representation, as the case may be” 24

25. nature of the product relevant geographic marketplace Time test: The elements • “in good faith” • “substantial period of time” Volume test Time test - reasonable period of time- substantial volume Recently before or immediately after themaking of the representation - in good faith - substantial period of time 25

26. Time test: 1. “in good faith” – Bulletin • Relevant factors: • product was openly available in appropriate volumes • ordinary price based on sound pricing principles and/or was reasonable given competition in relevant market • ordinary price was a price that the supplier fully expected the market to validate, whether or not the market did validate this price • ordinary price was price at which genuine sales occurred, or it was price comparable to that offered by competitors 26

27. Time test: 1. “in good faith” – Sears • Good faith – inherently subjective concept • Sears’ regular prices were not offered “in good faith”: • Sears had low expectations for sales at regular price • Sears knew: • regular prices greatly in excess of what it knew to be the competitive price range; and • regular prices irrelevant for 90-95% of tires sold • 2-for pricing was Sears’ “every day pricing” • Sears did not track number of tires sold at regular price 27

28. Time test: “in good faith” • The bottom line: Does the retailer in question truly believe that its regular prices are genuine prices, set with expectation that the market will validate them? 28

29. Time test: 1. “in good faith” – Hypothetical example 1 • national brand upright vacuum • national retailer wants to offer a spring cleaning sales event starting April 1 • product also available through national department and hardware stores • carried the last 5 years • regular price of the product has been $500 for several years and has traditionally sold well at that price by retailer and competitors, and demand is expected to continue • the vacuum market is stable • in light of these considerations, the retailer honestly believes that the regular price is a bona fide price that the market will validate • therefore, the regular price appears to have been set in good faith 29

30. Time test: 2. “substantial period of time” – Bulletin “the substantial period of time requirement will be met if the product is offered at or above the reference price for more than 50% of the time period considered. The time period to be considered will be six months prior to (or following) the making of the representation” 30

31. Time test: 2. “substantial period of time” – Sears • Decision: • The Tribunal decided that a 6 month time period is appropriate • “In this context, it seems to me that if a product is on sale half, or more than half, of the time, it can not be said that the product has been offered at its regular price for a substantial period of time” • 4 of 5 tires “on sale” more than 50% of the time • failed the “substantial period of time” aspect of the time test 31

32. Time test: 2. “substantial period of time” – Hypothetical example 1 • national brand upright vacuum • national retailer wants to offer a spring cleaning sales event starting April 1 • product also available through national department and hardware stores • carried the last 5 years • product was offered at regular price 60% of the time in the 6 months prior to the sale • therefore, the retailer has offered a product for a substantial period of time at the reference price before the sales event 32

33. Special Issues Seasonal and Short Life-Cycle Products • The OSP provisions are flexible enough to accommodate a wide variety of goods and services • This flexibility comes from the fact that the time and volume tests are influenced by the nature of the product and the geographic market • Therefore, the application of the tests will be different for products with fundamentally different characteristics 33

34. Representation$ 15.99Our regular $19.99 (20% Off) $19.99 $15.99 2 weeks at $19.99 3 weeks at $15.99 Nov. 1 Week 1 Nov.15 Week 3 Week 4 Dec.6 Special IssuesSeasonal and Short Life-Cycle Products Hypothetical example 2 – Christmas lights • National retailer offers the seasonal product at regular price starting November 1st at $19.99 • Retailer wants to offer this product at 20% off the regular price ($15.99) starting November 15th through to December 6th 34

35. Special IssuesSeasonal and Short Life-Cycle Products Hypothetical example 2 – Christmas lights • Before or after the representation? “$15.99 - Our regular $19.99 (20% Off)” • Therefore, the period of time before the representation was made is likely to be considered • Volume test (Reasonable period of time & Substantial volume) • Assume the volume test has not been met • What about the time test? 35

36. Representation$ 15.99Our regular $19.99 (20% Off) $19.99 $15.99 2 weeks at $19.99 3 weeks at $15.99 Nov. 1 Week 1 Nov.15 Week 3 Week 4 Dec.6 Special Issues Seasonal and Short Life-Cycle Products Hypothetical example 2– Christmas lights (Time test) • Good faith • Let’s assume the regular price of $19.99 was set in good faith • Substantial period of time • Substantial period of time will be met if the product is offered at or above the reference price more than 50% of the time period considered • The time period to be considered is the period starting December 6th back to November 1st 36

37. Representation$ 15.99Our regular $19.99 (20% Off) $19.99 $15.99 2 weeks at $19.99 3 weeks at $15.99 Nov. 1 Week 1 Nov.15 Week 3 Week 4 Dec.6 Special Issues Seasonal and Short Life-Cycle Products Hypothetical example 2– Christmas lights (Time test) • Conclusion • The sale started out as being compliant, but as of the last day of the sale, the product had been sold for 2 weeks at the regular price and for 3 weeks at the sale price • Therefore the product would have been on sale for 60% of the time period considered, and would likely not meet the time test 37

38. Special Issues Seasonal and Short Life-Cycle Products Hypothetical example 2 – Christmas lights What happens if the product returns to the regular price, and is then offered at a percentage off that regular price again later in time? • the entire period of time the product was offered would likely need to be considered in determining whether the volume or the time test is met 38

39. Special Issues Seasonal and Short Life-Cycle Products Hypothetical example 2– Christmas lights What happens if the reference to the regular price is now removed entirely on all representations and the sale price becomes the new regular price? • The OSP provisions are only triggered when a savings claim is made with reference to a regular selling price • However, ensure that the savings claims do not create the false or misleading general impression that after the sale, prices will return to the former regular price if that’s not the case (e.g.: Hurry in! One week only!) 39

40. Special IssuesSeasonal and Short Life-Cycle Products Hypothetical example 2 – Christmas lights What happens if a new, lower OSP representation is made about the product? • the entire period of time the product was offered would likely need to be considered in determining whether the volume or the time test is met 40

41. OSP-Related Issues The Saving Provision • Section 74.01(5) of the Competition Act provides that the OSP tests “… 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”. 41

42. OSP-Related Issues The Saving Provision • “Advertisers should be allowed the freedom to make any price representations they wish so long as they are reasonably based and not deceptive or misleading” • Report of the Consultative Panel on Amendments to the Competition Act 42

43. OSP: Related Issues Clearance sales • Clearance sales, if legitimate, may be an example of an exception to the OSP tests • Bulletin indicates that a supplier would likely be able to show that OSP representations were not misleading if: • the supplier can demonstrate that the sale was clearly marked as a clearance sale • the representations refer to the original price and any subsequent interim prices • the original price was offered in good faith 43

44. OSP: Related Issues Clearance sales • The Bulletin indicates that such a sale may occur where: • a retailer offers for sale products not intended to be sold again at the original price; • the products did not sell well or were no longer selling at the original or lower price; or • the supplier wants to take a firm mark-down to make room for new merchandise. • The regular price must still have been set in good faith and the clearance must be legitimate 44

45. OSP: Related Issues MSRP(Manufactured Suggested Retail Price) • MSRP representations are popular in certain markets • Example: Save $50.00 off of MSRP!! • The Commissioner treats these as representations as to the market price 45

46. OSP: Related Issues Other Pricing Strategies • Depending on the circumstances, a particular pricing strategy may fall outside the parameters of the OSP provisions altogether: • but it will still be captured by the general prohibition against false or misleading representations if the conduct is deceptive. 46

47. Corporate Compliance Programs • Bureau's bulletin on Corporate Compliance Programs (available on the Bureau's website) • 5 essential elements: • the involvement and support of senior management • the development of relevant policies and procedures • the ongoing education of management and employees • monitoring, auditing and reporting mechanisms • disciplinary procedures 47

48. Compliance Tips for OSP…Some Do’s and Don’ts 48

49. Compliance Tips for OSPSome Do’s and Don’ts • DO start by fostering a culture of compliance • DO develop and refine a credible and effective compliance program 49

50. Compliance Tips for OSPSome Do’s and Don’ts • DO ensure that compliance policies articulate the difference between market price and supplier’s own price references, so staff understand that different claims require different substantiation 50