The Commissioner of Competition v The Toronto Real Estate Board

Competition Tribunal

Tribunal de la Concurrence

PUBLIC VERSION

Reference: The Commissioner of Competition v The Toronto Real Estate Board, 2016 Comp.

Trib. 7

File No.: CT-2011-003

Registry Document No.: 385

IN THE MATTER OF an application by the Commissioner of Competition pursuant to section 79

of the Competition Act;

B E T W E E N:

The Commissioner of Competition

(applicant)

and

Toronto Real Estate Board

(respondent)

and

Canadian Real Estate Association

(intervenor)

Dates of hearing: 20120910 to 20120914, 20120918 to 20120919, 20120924 to 20120925,

20120927 to 20120928, 20121002 to 20121003, 20121009 to 20121010, and 20121017 to

20121018 (Initial hearing); 20150921 to 20150924, 20151005 to 20151007, and 20151102

(Redetermination hearing)

Before: P. Crampton C.J., D. Gascon (Chairperson) and Dr. W. Askanas

Date of reasons and order: April 27, 2016

REASONS FOR ORDER AND ORDER

Table of contents

I. Executive summary............................................................................................................... 1

II. Introduction and overview................................................................................................... 2

A. Procedural history............................................................................................................. 2

B. The parties’ pleadings....................................................................................................... 2

C. Section 79 of the Act.......................................................................................................... 6

D. The Tribunal’s initial decision......................................................................................... 8

E. The Federal Court of Appeal’s decision.......................................................................... 8

III. Parties and intervenors ........................................................................................................ 9

IV. Industry background.......................................................................................................... 10

A. Provincial legislation....................................................................................................... 10

B. The Real Estate Council of Ontario .............................................................................. 10

C. The Ontario Real Estate Association............................................................................. 10

D. Brokers, agents, realtors and salespersons ................................................................... 11

E. The home purchase and sale process............................................................................. 11

F. The MLS system.............................................................................................................. 12

G. Stratus Data Systems Inc................................................................................................ 14

H. The U.S. antitrust investigation and 2008 settlement .................................................. 14

I. The Commissioner’s investigation................................................................................. 15

J. TREB’s VOW Policy and Rules .................................................................................... 16

K. The VOW Data Feed....................................................................................................... 17

V. Evidence – Overview .......................................................................................................... 18

A. Lay witnesses ................................................................................................................... 18

(1) For the Commissioner ................................................................................................ 18

(2) For TREB ................................................................................................................... 20

(3) For CREA................................................................................................................... 21

B. Expert witnesses .............................................................................................................. 21

(1) For the Commissioner ................................................................................................ 21

(2) For TREB ................................................................................................................... 21

(3) For CREA................................................................................................................... 21

C. Documentary evidence.................................................................................................... 22

VI. Issues .................................................................................................................................... 22

VII. Analysis................................................................................................................................ 22

A. What is or are the relevant market(s) for the purposes of this proceeding?............. 22

(1) Analytical framework................................................................................................. 22

(2) The product dimension ............................................................................................... 25

(3) The geographic dimension.......................................................................................... 28

(4) Conclusion.................................................................................................................. 29

B. Does TREB substantially or completely control a class or species of business in

any area of Canada? ....................................................................................................... 29

(1) Analytical framework................................................................................................. 30

(a) The degree of market power required..................................................................... 30

(b) Exclusionary behaviour and market power ............................................................ 32

(2) Measuring market power............................................................................................ 35

(3) Class or species of business........................................................................................ 36

(a) Overview ................................................................................................................. 36

(b) The supply of the Disputed Data............................................................................. 38

(i) List prices ............................................................................................................ 39

(ii) Teranet, MPAC, brokers and appraisers ............................................................. 40

(iii) Other innovative vehicles.................................................................................... 45

(c) The supply of MLS-based brokerage services ........................................................ 47

(4) Area of Canada ........................................................................................................... 51

(5) Conclusion.................................................................................................................. 51

C. Has TREB engaged in, or is it engaging in, a practice of anti-competitive acts?...... 51

(1) Analytical framework................................................................................................. 52

(a) The purpose-focused assessment ............................................................................ 52

(b) Weighing evidence of anti-competitive purpose and legitimate business

justifications...................................................................................................................... 54

(c) Defining and identifying legitimate business justifications .................................... 56

(2) Did TREB have a subjective intention to exclude actual or potential participants in

the relevant market(s) by adopting the VOW Restrictions, or were those

restrictions motivated by legitimate business justifications?..................................... 61

(a) Background and development of the VOW Policy and Rules................................. 62

(i) The EDU Task Force........................................................................................... 62

(ii) Development of TREB’s VOW Policy and Rules .............................................. 64

(iii) TREB’s VOW Task Force .................................................................................. 67

(iv) Events surrounding the adoption of the VOW Policy and Rules........................ 70

(v) Recent developments........................................................................................... 72

(vi) Alleged privacy concerns.................................................................................... 73

(b) TREB’s approach to the consents used by its Members ......................................... 76

(c) RECO’s advertising policy ..................................................................................... 80

(d) Other business justifications................................................................................... 82

(e) Conclusion .............................................................................................................. 84

(3) Was it reasonably foreseeable that the VOW Restrictions would have an

exclusionary effect on one or more competitors? ...................................................... 84

(4) Does the evidence of subjective anti-competitive intent and reasonably

foreseeable exclusionary effects outweigh the evidence of legitimate business

justifications? ............................................................................................................. 89

(5) Conclusion.................................................................................................................. 89

D. Have the VOW Restrictions prevented or lessened competition substantially, or

are they likely to have that effect?................................................................................. 89

(1) Analytical framework................................................................................................. 89

(a) Overview ................................................................................................................. 89

(b) The “but for” approach.......................................................................................... 93

(2) The alleged anti-competitive effects........................................................................... 95

(a) Summary and commentary...................................................................................... 95

(b) Increased barriers to entry and expansion ............................................................. 98

(i) ViewPoint............................................................................................................ 99

(ii) TheRedPin......................................................................................................... 101

(iii) Realosophy........................................................................................................ 102

(iv) Redfin................................................................................................................ 103

(v) Other full-information VOW operators............................................................. 104

(vi) Conclusion......................................................................................................... 106

(c) Increased costs imposed on VOWs ....................................................................... 106

(d) Reduced range of brokerage services................................................................... 108

(i) ViewPoint.......................................................................................................... 109

(ii) TheRedPin......................................................................................................... 111

(iii) Realosophy........................................................................................................ 111

(iv) Sam & Andy...................................................................................................... 112

(v) Conclusion......................................................................................................... 112

(e) Reduced quality of brokerage service offerings.................................................... 113

(f)

Reduced innovation............................................................................................... 116

(g) Reduced pressure on commission rates................................................................ 120

(h) Reduced output...................................................................................................... 122

(i)

(j)

Maintenance of incentives to steer buyers away from inefficient transactions .... 122

Conclusion ............................................................................................................ 124

(3) Substantiality of anti-competitive effects................................................................. 124

(a) Magnitude and degree .......................................................................................... 125

(i) The limited quantitative evidence ..................................................................... 127

(ii) Conversion rates................................................................................................ 128

(iii) Qualitative evidence.......................................................................................... 129

(iv) Importance of the Disputed Data ...................................................................... 131

A. Sold data............................................................................................................ 131

B. Pending sold information and conditional sold status...................................... 132

C. WEST listings .................................................................................................... 133

D. Cooperating broker commissions ..................................................................... 133

E. Conclusion......................................................................................................... 134

(v) Other considerations.......................................................................................... 134

(vi) Conclusion on magnitude.................................................................................. 136

(b) Duration and scope............................................................................................... 136

(4) Conclusion................................................................................................................ 137

VIII.

TREB’s Copyright ................................................................................................. 139

A. The Copyright Act ........................................................................................................ 140

B. The existence of copyright in the MLS Database....................................................... 140

(1) TREB’s submissions................................................................................................. 140

(2) Analysis .................................................................................................................... 142

(a) General principles ................................................................................................ 142

(b) The evidence.......................................................................................................... 143

(3) Conclusion................................................................................................................ 145

C. Mere exercise of intellectual property rights.............................................................. 146

D. Jurisdiction .................................................................................................................... 149

IX. Remedy .............................................................................................................................. 151

X. Costs ................................................................................................................................... 153

XI. Order.................................................................................................................................. 154

XII. Schedules............................................................................................................................ 155

1

I.

Executive summary

[1]

The Commissioner of Competition (the “Commissioner”) has filed an application

pursuant to section 79 of the Competition Act, RSC 1985, c C-34, as amended (the “Act”), for an

order prohibiting the Toronto Real Estate Board (“TREB”) from engaging in certain anti-

competitive acts in connection with the supply of residential real estate brokerage services in the

Greater Toronto Area (“GTA”).

[2]

In brief, the Commissioner contends that, by restricting access to certain Multiple Listing

Service (“MLS”) information on the password-protected virtual office websites (“VOW”) of its

real estate brokers and salesperson members (the “Members”), and by restricting the manner in

which its Members may display and use that information, TREB’s conduct constitutes an abuse

of dominant position under section 79. The Commissioner asks the Tribunal to remedy TREB’s

alleged substantial prevention of competition in two general ways: First, by prohibiting TREB

from enforcing its current restrictions on the display and use of MLS data, and second, by

requiring TREB to include certain data in an electronic data feed to its Members who use it for

display on their password-protected VOWs. TREB responds that it opted to exclude the disputed

information from its VOW data feed after careful consideration of privacy and copyright issues,

and that its VOW policy does not substantially lessen or prevent competition. Among other

things, it maintains that any incremental impact that its VOW policy may have on competition is

not substantial.

[3]

For the reasons that follow, the Tribunal has decided to partially grant the application

brought by the Commissioner. The terms of the Tribunal’s order (the “Order”) will primarily

address certain restrictive aspects of the rules and policy that TREB has adopted with respect to

VOWs, which are defined below as the VOW Restrictions. The specific terms of the Order will

be determined after the parties have provided written submissions addressing this issue of

remedy and have had an opportunity to make oral submissions. A Direction to that effect will be

issued by the Tribunal shortly following the issuance of these reasons.

[4]

In the course of reaching its decision, the Tribunal determined that the Commissioner has

established, on a balance of probabilities, that the three elements of section 79 have been

satisfied. The Tribunal first concluded that TREB substantially or completely controls the supply

of MLS-based residential real estate brokerage services in the GTA, within the meaning of

paragraph 79(1)(a) of the Act. The Tribunal then found that TREB has engaged in, and continues

to engage in, a practice of anti-competitive acts, as contemplated by paragraph 79(1)(b). In

essence, that practice is comprised of the enactment and maintenance of the VOW Restrictions.

In addition, the Tribunal concluded that the VOW Restrictions have had, are having and are

likely to have the effect of preventing competition substantially in a market, as contemplated by

paragraph 79(1)(c). The Tribunal reached that conclusion after finding, among other things, that

the VOW Restrictions have substantially reduced the degree of non-price competition in the

supply of MLS-based residential real estate brokerage services in the GTA, relative to the degree

that would likely exist in the absence of those restrictions. Most importantly, this includes a

considerable adverse impact on innovation, quality and the range of residential real estate

2

brokerage services that likely would be offered in the GTA, in the absence of the VOW

Restrictions.

[5]

The Tribunal observes that the Commissioner’s application raised particular challenges

for several reasons: (i) it involved an assessment of dynamic competition and innovation, (ii)

significant developments have occurred in the relevant market since this application was initially

filed in May 2011, and (iii) limited quantitative evidence was adduced regarding the impact of

changes in certain local markets in the United States and in Nova Scotia, relative to other local

markets where similar changes did not occur.

[6]

Among other things, the remedy to be imposed on TREB under the Tribunal’s Order will

remove important restrictions on the ability of innovative, Internet-based brokerages and other

competitors in the GTA residential real estate brokerage services market to offer new products

and services to consumers, in competition with brokers and agents who rely on more traditional

products and services.

II.

Introduction and overview

A.

Procedural history

[7]

The Tribunal’s decision in this proceeding follows a long procedural history going back

to May 2011 when the Commissioner first filed a Notice of Application (the “Initial

Application”) for an order against TREB under the abuse of dominance provisions of the Act.

[8]

In the fall of 2012, the Tribunal held an initial hearing over a period of six weeks (the

“Initial Hearing”). In April 2013, the panel dismissed the Commissioner’s application (The

Commissioner of Competition v The Toronto Real Estate Board, 2013 Comp. Trib. 9 (“TREB

CT”)). However, in February 2014, the Federal Court of Appeal set aside the Tribunal’s order

dismissing the application and referred the matter back to the Tribunal for a reconsideration on

the merits (Commissioner of Competition v Toronto Real Estate Board, 2014 FCA 29 (“TREB

FCA”), leave to appeal to SCC refused, 35799 (24 July 2014)).

[9]

The Commissioner’s application was reconsidered on the merits by a differently-

constituted panel, and a redetermination hearing was held by the Tribunal in the fall of 2015,

over a period of eight days (the “Redetermination Hearing”).

B.

The parties’ pleadings

[10] In May 2011, the Commissioner had applied to the Tribunal for an order under

subsection 79(1) of the Act, prohibiting TREB from directly or indirectly enacting, interpreting

or enforcing certain rules, policies and agreements (the “MLS Restrictions”) that allegedly have

excluded, prevented or impeded the emergence of innovative business models and service

3

offerings in respect of the supply of residential real estate brokerage services in the GTA. Those

business models and service offerings involve the use of a particular Internet-based data-sharing

vehicle known as a VOW to offer new products and services to home buyers and home sellers.

[11] The Commissioner also sought an order under subsection 79(2), directing TREB to take

certain actions to overcome the effects of its alleged practice of anti-competitive acts.

[12] The Commissioner’s Initial Application focused on MLS Restrictions that exclude or

prevent TREB’s Members from innovating by using certain information in TREB’s MLS system

to operate a VOW. However, the relief sought by the Commissioner was cast in language that

appeared to extend beyond the MLS Restrictions. In this regard, the statement of relief sought

was couched in terms of “any restrictions, including the MLS Restrictions” that have the alleged

anti-competitive effects. Other passages of the Initial Application expressed a concern about the

impact of such effects on brokers who operate VOWs or other innovative business models, or

who offer services similar to VOWs.

[13] That wording remained in the Amended Notice of Application (the “Application”) filed

by the Commissioner in July 2011. That version of the Application augmented the initial version

primarily by addressing the VOW policy proposed by TREB and the provisions that were added

to TREB’s MLS rules in respect of VOWs (collectively, the “VOW Policy and Rules”) and that

TREB sent to its Members a few weeks after the Initial Application was filed. The Application

was not modified for the Redetermination Hearing.

[14] As it turned out, the Commissioner’s focus in this proceeding was primarily on the

restrictive aspects of TREB’s VOW Policy and Rules and terms included in TREB’s VOW Data

Feed Agreement (the “Data Feed Agreement”) (collectively, the “VOW Restrictions”). These

restrictions notably exclude certain types of information from the VOW data feed (the “VOW

Data Feed”) that TREB makes available to its Members. This excluded information concerns

data with respect to: sold and “pending sold” homes; withdrawn, expired, suspended or

terminated listings (the “WEST” listings); and offers of commission to brokers who represent

the successful home purchaser, known as “cooperating brokers” (collectively, the “Disputed

Data”). Two other principal aspects of the VOW Restrictions include prohibitions on (i) the use

of the information included in the VOW Data Feed for any purpose other than display on a

website, and (ii) the display on a VOW of the information contained in the Disputed Data, which

TREB makes available to its Members in other ways.

[15] Nevertheless, at the end of his closing submissions at the Redetermination Hearing, the

Commissioner confirmed that the relief being sought extends beyond a request for an order

requiring TREB to include the Disputed Data in its VOW Data Feed, and to eliminate the above-

mentioned prohibitions. The Commissioner maintained that his overarching objective is to

ensure that there is no discrimination between the modes in which information is delivered by

TREB to its Members.

4

[16] Accordingly, in addition to requiring the Disputed Data to be included in the VOW Data

Feed, the order being sought by the Commissioner would reflect this general non-discrimination

principle, as well as ensuring that the VOW Data Feed includes all MLS information that is

available in other ways to TREB’s Members, and that there are no restrictions on how VOW

operators or other Members may use MLS information on the VOW portions of their websites.

[17] In brief, the Commissioner seeks an order that would, in his view, ensure a level playing

field between more traditional “bricks and mortar” brokers and those who wish to provide new

products and services based on MLS information in the manner that they think is appropriate,

and in particular over the Internet.

[18] The Commissioner also acknowledged in his closing submissions at the Redetermination

Hearing that no relief is being sought in this proceeding in respect of TREB’s conduct prior to

2011. Accordingly, these reasons will not assess whether any of that conduct constituted a

practice of anti-competitive acts that prevented or lessened competition substantially, or was

likely to do so.

[19] In the Application, the Commissioner alleges that each of the three elements that must be

satisfied under paragraphs 79(1)(a), (b) and (c) of the Act, respectively, before an order may be

made by the Tribunal under section 79, are met. More specifically, the Commissioner contends

that:

a. TREB substantially or completely controls the supply of residential real estate brokerage

services in the GTA;

b. The MLS Restrictions constitute a practice of anti-competitive acts, the purpose and

effect of which is to discipline and exclude innovative brokers who would otherwise

compete with TREB’s Members who use more traditional business methods; and

c. The MLS Restrictions have lessened and prevented, and will continue to lessen and

prevent, competition substantially in the market for the supply of residential real estate

brokerage services in the GTA. In particular, the Commissioner asserts that by restricting

brokers’ use of VOWs, the MLS Restrictions discourage entry and expansion by brokers

wishing to offer innovative services, with the result that the positions of more traditional

brokers are entrenched, their market power is maintained, and innovation is inhibited.

[20] In its Response, TREB asserts, among other things, that the Commissioner has ignored its

copyright in the MLS database and that, under subsection 79(5) of the Act, an act engaged in

pursuant only to the exercise of any right or enjoyment of any interest derived from the

Copyright Act, RSC 1985, c C-42 is not an anti-competitive act for the purposes of section 79.

5

[21] Moreover, TREB maintains that none of the three elements set forth in subsection 79(1)

is met. Specifically, TREB submits that:

a. It does not substantially or completely control the supply of residential real estate

brokerage services in the GTA, primarily because it has no market power in that market

and has no motivation to exercise any market power, due to the fact that it is not itself a

supplier of residential real estate brokerage services;

b. Neither the VOW Policy and Rules nor any of the other conditions that TREB places on

its Members’ access to and use of the MLS system have the purpose of having a negative

effect on a competitor that is predatory, exclusionary or disciplinary. Instead, they have

been implemented for a number of legitimate purposes. These include preserving the

value of the MLS system for the benefit of its Members, and safeguarding the privacy

rights of its Members and their customers by ensuring that its Members are compliant

with their respective obligations under privacy legislation and the Code of Ethics, O Reg

580/05 (the “Code of Ethics”) established by the Real Estate Council of Ontario

(“RECO”), pursuant to the Real Estate and Business Brokers Act, 2002, SO 2002, c 30,

Sched C (“REBBA”); and

c. There is no basis for the Commissioner’s allegation that, “but for” TREB’s impugned

conduct, there would likely be greater innovation, enhanced quality of service or

increased price competition in the supply of residential real estate brokerage services in

the GTA. TREB contends that the VOW Policy and Rules do not create, maintain or

enhance market power. Furthermore, in the context of the broader competition that is

occurring in the supply of real estate brokerage services to buyers and sellers of homes in

the GTA, TREB submits that the incremental negative effect of its VOW Policy and

Rules, if any, is not significant.

[22] In the Reply filed in September 2011, after the VOW Policy and Rules were formally

adopted by TREB and its Members, the Commissioner rejects TREB’s above-mentioned

positions.

[23] With respect to TREB’s alleged substantial or complete control of the supply of

residential real estate brokerage services in the GTA, the Commissioner submits that TREB’s

position that it does not compete with brokers ignores the reality that TREB enacts and enforces

its rules, policies and agreements for the benefit of its Members, most of whom pursue a

traditional business model. The Commissioner maintains that the enactment of the VOW Policy

and Rules demonstrates TREB’s substantial or complete ongoing control of the relevant market,

and that brokers cannot realistically compete without access to TREB’s MLS system.

[24] With respect to TREB’s alleged practice of anti-competitive acts, the Commissioner

states that the purpose and effect of TREB’s MLS Restrictions is to discipline and exclude

innovative brokers who would otherwise compete with TREB’s traditional member brokers

using their VOWs. The Commissioner adds that by preventing its Members from providing

certain MLS data through a VOW, including “highly valuable information” pertaining to the sold

prices of homes, TREB discriminates against innovative brokers. This is because TREB imposes

6

no corresponding restrictions on traditional brokers who provide the very same MLS information

to consumers by means other than a VOW. The Commissioner submits that the ultimate effect of

the MLS Restrictions is to exclude potential competitors who are not yet in the market as well as

those innovative member brokers who are eager to compete using a VOW.

[25] The Commissioner further submits that TREB’s business justifications for the MLS

Restrictions should be rejected. Regarding privacy, the Commissioner argues that TREB’s

position is belied by the fact that the information at issue in this proceeding is currently and

freely distributed by traditional brokers to consumers on a regular basis by means other than a

VOW.

[26] Regarding TREB’s copyright, the Commissioner asserts that the exception in subsection

79(5) of the Act does not apply because TREB has not established a copyright in the MLS

database (including the Disputed Data) and because, even if it had, the MLS Restrictions go well

beyond a mere exercise of any rights that TREB may have under the Copyright Act.

[27] Finally, the Commissioner maintains that the MLS Restrictions, and in particular the

narrower VOW Restrictions, have lessened and prevented, and will continue to lessen and

prevent, competition substantially in the market for the supply of residential real estate brokerage

services in the GTA. The Commissioner affirms that this is so because, “but for” those

restrictions, consumers would benefit from substantially greater competition in that market.

Specifically, the Commissioner states that the MLS Restrictions effectively protect and

perpetuate the static traditional brokerage model for the delivery of residential real estate

brokerage services. The impugned restrictions on innovative, Internet-based business models

such as VOWs thus have negatively affected the range and quality of services being offered over

the Internet by brokers to their customers and have denied consumers the benefits of downward

pressure on commission rates that would otherwise exist.

[28] Given that the parties’ submissions and the evidence filed in this case centered almost

entirely on the VOW Restrictions, those specific restrictions are the focus of this decision.

However, the Tribunal will remain open to considering the inclusion of terms in its Order that go

beyond the VOW Restrictions, after it has reviewed the parties’ written submission on remedy

and has considered the oral submissions that will be made during the hearing that will be

scheduled with respect to the specific issue of the remedy to be imposed in this case.

C.

Section 79 of the Act

[29] Pursuant to subsection 79(1) of the Act, the Tribunal may make an order prohibiting all

or any of the persons described in paragraph 79(1)(a) from engaging in a practice described in

paragraph 79(1)(b), where it finds, on a balance of probabilities, that the three elements

described in that subsection have been met. Those are that:

7

a. One or more persons substantially or completely control, throughout Canada or any area

thereof, a class or species of business;

b. That person or those persons have engaged in or are engaging in a practice of anti-

competitive acts; and

c. The practice has had, is having or is likely to have the effect of preventing or lessening

competition substantially in a market.

[30] It is important to note that section 79 specifies three distinct elements that must each be

determined independently. In Canada (Commissioner of Competition) v Canada Pipe Co, 2006

FCA 233 (“Canada Pipe FCA”), leave to appeal to SCC refused, 31637 (10 May 2005), the

Federal Court of Appeal stressed that, in abuse of dominance cases, the Tribunal must avoid “the

interpretive danger of impermissible erosion or conflation of the discrete underlying statutory

tests” (Canada Pipe FCA at para 28). However, the same evidence can be relevant to more than

one element (Canada Pipe FCA at paras 27-28).

[31] Pursuant to subsection 79(2), if an order is not likely to restore competition, the Tribunal

may, in addition to or in lieu of making an order under subsection 79(1), make an order directing

any or all of the persons against whom an order is sought to take such actions as are reasonable

and necessary to overcome the effects of the practice in a market in which the Tribunal has found

the three above-mentioned elements to have been met.

[32] In determining whether a practice has had, is having or is likely to have the effect of

preventing or lessening competition substantially in a market, subsection 79(4) further requires

the Tribunal to consider whether the practice is a result of superior competitive performance.

[33] An exception to the Tribunal’s order-making powers under subsections 79(1) and (2) of

the Act is provided by subsection 79(5), which stipulates that for the purposes of section 79, an

act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived

under certain legislation pertaining to intellectual or industrial property, including the Copyright

Act, is not an anti-competitive act.

[34] The Commissioner bears the burden of establishing the three elements of subsection

79(1), and the Tribunal must make a positive determination in respect of each of those elements

before it may issue an order. The burden of proof with respect to each element is the civil

standard, that is, on the balance of probabilities.

[35] The full text of section 79 of the Act, and of section 78, which sets forth a non-exhaustive

list of anti-competitive acts, is reproduced in Schedule “A” to this decision.

8

D.

The Tribunal’s initial decision

[36] In TREB CT, the initial panel of the Tribunal dismissed the Commissioner’s Application.

[37] In brief, the panel concluded that the Commissioner had not met the requirements of

paragraph 79(1)(b) for three reasons. First, it relied on its interpretation of Canada Pipe FCA at

paragraph 68, where the Federal Court of Appeal held that “to be considered ‘anti-competitive’

under paragraph 79(1)(b), an act must have an intended predatory, exclusionary or disciplinary

negative effect on a competitor.” The panel found that, because TREB does not compete with its

Members, the MLS Restrictions could not have the negative effect on a competitor required by

Canada Pipe FCA, as interpreted by the panel. It found that Canada Pipe FCA served as a

binding precedent.

[38] Second, the panel found that the Application was inconsistent with the guidelines entitled

The Abuse of Dominance Provisions, issued in September 2012 by the Commissioner (the

“Guidelines”). The panel noted that while the Guidelines state, at section 3.2, that “certain acts

not specifically directed at competitors could still be considered to have an anti-competitive

purpose,” the Guidelines do not clearly stipulate that a dominant firm’s conduct might fall within

the purview of section 79, even though that firm may not compete in the relevant market.

[39] Third, the panel stated that the language of subsection 79(4), which requires the Tribunal

to consider whether an impugned practice is a result of superior competitive performance, makes

it clear that paragraph 79(1)(b) applies only if the dominant firm in question is a competitor.

[40] The panel therefore concluded that the Application did not meet the requirements of

paragraph 79(1)(b). The panel also observed, with respect to paragraph 79(1)(a), that even if it

could be established that TREB had market power, the requirements of that paragraph would not

be met because that market power would not be exercised by a firm that competes in the relevant

market identified by the Commissioner, namely, the supply of residential real estate brokerage

services in the GTA. Finally, the panel also observed that the requirements of paragraph 79(1)(c)

had not been met, as there were no anti-competitive acts under paragraph 79(1)(b).

E.

The Federal Court of Appeal’s decision

[41] In February 2014, the Federal Court of Appeal set aside the Tribunal’s order dismissing

the Commissioner’s Application and referred the matter back to the Tribunal for reconsideration

(TREB FCA).

[42] In reaching its conclusion, the Court acknowledged that, in the passages of Canada Pipe

FCA relied upon by the Tribunal, the panel interpreted the word “competitor” to mean

“competitor of the person who is the target of the Commissioner’s application for a subsection

79(1) order.” Speaking for the Court, Sharlow JA stated that there was “nothing in the language

or context of the Competition Act to justify the addition of those qualifying words” (TREB FCA

at para 17). She added that the addition of those qualifying words also could not be justified by

9

the facts as found in Canada Pipe FCA. With respect to the dispute between the Commissioner

and TREB, Sharlow JA stated that she did not accept that the Court intended its decision in

Canada Pipe FCA to preclude the application of subsection 79(1) to TREB in respect of a rule

that it makes binding on its Members (TREB FCA at para 18).

[43] In further discussing that conclusion, Sharlow JA referred to paragraph 78(1)(f) of the

Act. That specific provision describes one type of act that is deemed to be anti-competitive for

the purposes of section 79. It appears as part of a non-exhaustive list of other acts contained at

subsection 78(1) that are also deemed to be anti-competitive. Paragraph 78(1)(f) refers to the

“buying up of products to prevent the erosion of existing price levels.” Sharlow JA observed

that, in Canada Pipe FCA, the Court recognized that this paragraph 78(1)(f) describes an act that

is not necessarily taken by a person against that person’s own competitor. She proceeded to note

that the Court in that case did not reconcile this with its view that “to be considered ‘anti-

competitive’ under paragraph 79(1)(b), an act must have an intended predatory, exclusionary or

disciplinary negative effect on a competitor” (TREB FCA at paras 15 and 19, referring to Canada

Pipe FCA at paras 64-68). In expressing disagreement with the interpretation given to Canada

Pipe FCA by the Tribunal, Sharlow JA stated that “paragraph 78(1)(f) is an indication that

Parliament did not intend the scope of subsection 79(1) to be limited in such a way that it cannot

possibly apply to [TREB] in this case” (TREB FCA at para 20). She added that if the Court had

intended to adopt the contrary interpretation as a general rule, she “would be compelled to find

that aspect of Canada Pipe to be manifestly wrong because it is based on flawed reasoning

(specifically, the unexplained inconsistency in the reasons)” (TREB FCA at para 20).

[44] Sharlow JA then proceeded to briefly address two other points identified by the Tribunal

in its reasons for dismissing the Commissioner’s Application.

[45] With respect to the Guidelines, she simply mentioned that they provide no useful

guidance to the Court in interpreting section 79 (TREB FCA at para 21). With respect to

subsection 79(4), she agreed with the Commissioner that it only applies for the purpose of

assessing whether a practice has had, is having or is likely to have the effect of preventing or

lessening of competition substantially in a market, as contemplated by paragraph 79(1)(c) of the

Act. In other words, this provision does not support the view that, “as a matter of law, a

subsection 79(1) order cannot be made against [TREB] simply because it does not compete with

its members” (TREB FCA at para 22).

III.

Parties and intervenors

[46] The Commissioner is the public official appointed by the Governor in Council under

section 7 of the Act to be responsible for the enforcement and administration of the Act.

[47] TREB is a not-for-profit corporation that was incorporated in 1920 pursuant to the laws

of Ontario. It is Canada’s largest real estate board and serves approximately 42,500 Members. Its

core purpose is to advance the continuing success of its Members. To that end, it provides a

range of services to those Members, including access to and use of the MLS system. TREB’s

10

activities are guided by a 16-member Board of Directors elected by TREB’s Members from

among their ranks. Additional information regarding TREB’s operations will be provided later at

various points in these reasons.

[48] The Canadian Real Estate Association (“CREA”) and Realtysellers Real Estate Inc.

(“RRE”) were granted leave to intervene in this proceeding.

[49] Prior to the Initial Hearing, the Tribunal was advised that RRE was no longer represented

but was reserving its intervention rights. However, no one appeared for RRE throughout that

hearing and no submissions were made on its behalf. Subsequently, the Tribunal issued an order

quashing its prior order granting RRE leave to intervene (The Commissioner of Competition v

The Toronto Real Estate Board, 2014 Comp. Trib. 5). Accordingly, no further references will be

made to RRE as an intervenor.

[50] CREA is a not-for-profit trade association that represents over 110,000 real estate brokers

and agents working through approximately 90 real estate boards and associations across Canada,

including provincial and territorial associations. Among other things, it describes itself as the

national voice for the Canadian real estate industry, including on competition law and

technological issues. Membership in CREA is open to real estate boards and associations, as well

as to their members in good standing, provided that they agree to be bound by, among other

things, CREA’s Realtor Code, and by various rules, by-laws and policies that it has issued.

IV.

A.

Industry background

Provincial legislation

[51] Each province/territory in Canada regulates and licenses the brokers and agents within its

jurisdiction. In Ontario, brokers and agents are regulated by the REBBA. Among other things, the

REBBA provides that no one may trade in real estate in Ontario unless they are registered under

that legislation.

B.

The Real Estate Council of Ontario

[52] RECO is responsible for administering the REBBA and the regulations promulgated

thereunder, on behalf of the provincial government. One such regulation is RECO’s Code of

Ethics.

C.

The Ontario Real Estate Association

[53] According to information on its website, the Ontario Real Estate Association (“OREA”)

was founded in 1922 to organize real estate activities across the province. It represents

approximately 65,000 real estate broker and salesperson members of Ontario’s 40 real estate

11

boards. In addition to serving its members through a wide variety of publications, educational

programs and special services, it apparently provides all real estate licensing courses in Ontario.

D.

Brokers, agents, realtors and salespersons

[54] Real estate brokerages are businesses that are registered under the REBBA to trade in real

estate. Brokerages can be independent but are often franchisees, operating one or more offices

under the banner of a corporate franchise, such as RE/MAX, Royal LePage, Sutton Group or

Century 21.

[55] Brokerage franchisees pay fees to their franchisor in exchange for the use of the latter’s

corporate brand.

[56] Each brokerage must have a broker of record. Among other things, that individual is

responsible for all of the trading activities of a registered brokerage.

[57] The terms “broker” and “salesperson” are defined in the REBBA as persons who have the

prescribed qualifications to be registered as such under the REBBA and who are employed by a

brokerage to trade in real estate. A broker is subject to additional requirements under the

legislation, typically supervises salespersons and may be the owner of the brokerage.

[58] The term “agent” is not defined by the REBBA. However, the Tribunal understands the

term to mean a person who is registered as a salesperson and who is employed by a brokerage to

trade in real estate.

[59] “REALTOR” is a certification trade-mark that is indirectly jointly owned in Canada by

CREA and the National Association of Realtors (“NAR”). The NAR is essentially the equivalent

of CREA in the United States.

[60] The Tribunal understands that a broker, salesperson or agent becomes a “realtor” in

Canada when he or she becomes a member of CREA and agrees to be bound by CREA’s Realtor

Code, its by-laws, its rules and its policies.

[61] Although the terms “broker”, “salesperson”, “agent” and “realtor” appear to have been

used interchangeably throughout these proceedings, the term “agent” will typically be used in

these reasons when referring to individuals who trade in real estate.

E.

The home purchase and sale process

[62] Although the involvement of an agent is not required in order for real estate transactions

to be completed in Ontario, the majority of buyers and sellers choose to work with agents.

12

[63] Most agents routinely deal with both categories of clients, and sometimes represent both

the seller and the buyer in the same real estate transaction.

[64] A home seller who retains an agent ordinarily will enter into a contractual arrangement

known as a “listing agreement” with the agent’s brokerage. Among other things, the standard

listing agreement prepared by OREA (the “Listing Agreement”) and recommended by TREB

for use by its Members authorizes the brokerage to market and sell the home on behalf of the

owner.

[65] Services typically provided by agents to home sellers include: (1) educating the seller

about the real estate market; (2) assisting the seller to determine the asking price for his or her

home; (3) preparing the listing; (4) marketing the home to potential buyers; (5) representing the

seller in negotiations on behalf of the seller; and (6) finalizing the transaction.

[66] As with home sellers, residential buyers will often retain an agent to assist them with the

purchase of a house. As noted earlier, the agent representing a buyer is known as a “cooperating

broker.”

[67] In most circumstances, and at the recommendation of TREB, the agent and buyer will

enter into either OREA’s standard Buyer Representation Agreement (the “BRA”) or OREA’s

Buyer Customer Service Agreement (the “BCSA”). Services typically provided to home buyers

by agents include: (1) educating the buyer about the real estate market; (2) assisting the buyer to

determine the characteristics and price of the home he or she wishes to purchase; (3) identifying

and showing homes which meet the buyer’s objectives; (4) assisting the buyer to determine the

price to be offered; (5) negotiating a purchase on the buyer’s behalf; and (6) finalizing the

transaction.

[68] In determining a recommended asking or offer price for a client, an agent usually

conducts a comparative market analysis (“CMA”). A CMA typically compares a property which

is listed or is about to be listed with nearby properties that have recently sold. This assists in

determining the market value of the subject property. CMAs vary widely, and can involve a

simple or a very detailed analysis.

[69] Agents typically receive compensation in the form of a commission payment calculated

as a percentage of the sale price. Generally, home sellers pay a commission to the listing

brokerage, which then offers a portion of that commission to the cooperating brokerage. Among

other things, this encourages the cooperating broker to show the home.

F.

The MLS system

[70] An important service provided by TREB to its Members is access to the MLS system.

The MLS system is a cooperative selling system which allows agents to share information and

provide maximum exposure of properties listed for sale. The MLS system is not accessible to

13

members of the general public. TREB’s Members access the MLS system by way of a secure

log-in intranet website.

[71] CREA owns the Multiple Listing Service trade-mark, the MLS trade-mark and the

associated logos, each of which is licensed to TREB and the other real estate boards that are

members of CREA.

[72] In addition to providing agents with information about available properties listed for sale

and the list prices of homes, the MLS system provides agents with a broad range of other

information, including interior and exterior photographs, the time a property has been on the

market, and historical and other data regarding the property. OREA’s standard forms (including

its Listing Agreement, its BRA and its BCSA) are also available on the MLS system.

[73] Not all residential properties that are for sale can be found on a MLS system. For

example, information regarding exclusive listings, properties that are “for sale by owner”

(“FSBO”) and many newly constructed properties such as condominiums is not available to

agents through a MLS system.

[74] To obtain and maintain access to the MLS system, TREB Members must execute and

agree to be bound by the terms of an Authorized User Agreement (“AUA”), as well as TREB’s

MLS rules and policies (the “MLS Rules and Policies”).

[75] Properties listed on the MLS system are included in an extensive database (the “MLS

Database”) that contains both current active listings and an archive of inactive listings on

properties. TREB’s MLS Database is a searchable repository of real estate listings that have been

provided to the MLS system by its Members throughout the GTA and is accessible over an

intranet on a Member-to-Member basis.

[76] Active listings include properties that have not been sold and are still available for sale.

Inactive listings include sold listings, “pending sold” listings and WEST listings. Though the

term is not always defined consistently, the Tribunal understands that “pending sold” refers to a

sold property that has not yet closed and is “firm,” in the sense that it does not have or no longer

has any conditions to closing. Where there are such conditions to closing, the sale is considered

to be a “sold conditional” home as opposed to a “pending sold,” and the sale price is then not

available in the MLS Database. A sale is conditional when the buyer and seller have executed an

agreement of purchase and sale with conditions precedent. WEST listings are listings of homes

that did not sell and, as such, there is no sale price associated with these inactive listings in the

MLS Database.

[77] Pursuant to the MLS Rules and Policies, Members are obliged to report to TREB the

existence of a conditional sale, but not the final selling price, within two business days of the

execution of the agreement of purchase and sale. Two days after any stipulated conditions have

been satisfied, the sale price must then be provided, along with the potential closing date.

14

[78] The listing information that is inputted in the MLS Database is collected by way of an

“MLS Data Information Form” filled out by the seller and the agent. Certain fields are

mandatory, including the address of the property, its list price, the number of rooms, the

municipal taxes, the seller’s name, information about the interior and exterior of the home, the

cooperating brokerage commission, and whether permission has been given to display the

address on the Internet. The form also has other fields that are optional, such as the approximate

age of the building, estimated square footage information, and open house dates.

G.

Stratus Data Systems Inc.

[79] The MLS Database is provided to TREB’s Members through a platform operated by

Stratus Data Systems Inc. (“Stratus”). Members can search for information about both

unavailable and available properties on the MLS Database. The Stratus software can also

generate a report which can be used to prepare CMAs, provide information to clients regarding

listings, conduct market research, etc. The public has no access to the Stratus system. However,

Members can arrange to have their clients automatically receive emails about new or changed

listings in the neighborhoods in which they have expressed interest and that have been uploaded

to the TREB MLS Database. Stratus also has a specific application to permit agents to conduct

CMAs for consumers.

H.

The U.S. antitrust investigation and 2008 settlement

[80] The Tribunal understands that TREB first began considering adopting a policy on VOWs

in approximately 2003, when it obtained a copy of the draft VOW policy that NAR proposed to

adopt in the United States at that time (the “2003 Draft NAR Policy”).

[81] In 2005, the United States Department of Justice (the “U.S. DOJ”) began proceedings

against NAR in relation to NAR’s then existing VOW policy. That version of NAR’s VOW

policy permitted individual listing agents in the United States to withhold their listings from

display on VOWs, by means of an opt-out right. The U.S. DOJ alleged, among other things, that

such an opt-out discriminated against VOWs and was anti-competitive.

[82] In late 2008, the U.S. DOJ and NAR settled their litigation. That settlement was

ultimately embodied in a final judgment of the U.S. District Court for the Northern District of

Illinois, Eastern Division, to which was appended an amended NAR VOW policy (the “2008

NAR VOW Policy”).

[83] The Tribunal understands that, among other things, the 2008 NAR VOW Policy

effectively no longer allowed listing agents to opt-out or to otherwise refuse to share their MLS

listings with operators of VOWs, or with real estate boards. It also effectively prohibited

discrimination against VOWs by imposing requirements on them that were not imposed on

agents accessing the MLS system through other means, including with respect to the Disputed

Data.

15

I.

The Commissioner’s investigation

[84] Following the announcement of the possible settlement between the U.S. DOJ and NAR

in mid-2008, the Competition Bureau (the “Bureau”) approached TREB about implementing a

similar VOW policy based on the principles of non-discrimination.

[85] Among other things, this led CREA to establish a VOW task force (“CREA’s VOW

Task Force”), as TREB believed that the VOW issue had national implications and should

therefore be dealt with at a national level.

[86] However, CREA’s VOW Task Force stalled after reaching a point of impasse with the

Bureau in approximately 2010.

[87] In July 2010, TREB conducted a strategic planning exercise with its newly elected Board

of Directors and decided to establish its own VOW task force (“TREB’s VOW Task Force”).

TREB did not actually begin to set up its task force until March of 2011.

[88] In the meantime, in November 2010, the Commissioner sent a voluntary information

request to TREB concerning VOWs. That action appears to have spurned TREB to prepare a

draft VOW policy, dated May 18, 2011, which tracked to a considerable extent the 2008 NAR

VOW Policy. However, TREB eliminated from its draft VOW policy the provisions in the 2008

NAR VOW Policy that prohibited listing agents from discriminating against VOW operators,

and added certain other provisions that are the subject of dispute in this proceeding.

[89] For example, whereas the 2008 NAR VOW Policy permitted the restriction on the

display of certain information by VOWs only if the restriction applied to other delivery

mechanisms (such as fax and telephone), TREB’s draft VOW policy contained no restriction

upon how its Members could communicate the Disputed Data through other delivery

mechanisms.

[90] Nine days later, on May 27, 2011, the Commissioner filed the Initial Application with the

Tribunal.

[91] In the wake of that action by the Commissioner, TREB made further revisions to its draft

VOW policy in June 2011. However, that policy continues to prohibit VOWs from displaying

the Disputed Data at all. Indeed, as discussed below, TREB also does not include the Disputed

Data in its VOW Data Feed and prohibits the use of any information included in the VOW Data

Feed for purposes other than display on a website.

[92] Following a 60-day period during which Members were invited to comment on the draft

VOW policy, the VOW Policy and Rules were approved by TREB’s Board of Directors in late

August 2011. The VOW Data Feed discussed below then went “live” in mid-November 2011.

16

J.

TREB’s VOW Policy and Rules

[93] The term “virtual office website” is somewhat incongruous, as it refers neither to a

website nor to a virtual office. Rather, the term is used to describe an area of a brokerage’s

website where MLS information is made available to potential home sellers and buyers in a

particular searchable format. In the GTA, that information is received by TREB’s Members over

the VOW Data Feed. The fact that a VOW Data Feed is received does not reveal anything about

the principal nature of an agent’s office arrangements. Those arrangements may be based on the

traditional “bricks and mortar” business model or they may simply be based on a model where a

brokerage’s agents log-in from home or other locations.

[94] The Tribunal will use the term VOW simply to describe a password-protected area of a

brokerage’s website where consumers can access and search a database containing MLS

information.

[95] TREB’s VOW Policy and Rules govern how Members can operate a VOW in the GTA.

For the purposes of this proceeding, the key provisions of the VOW Policy and Rules include the

following:

1. A member of the public may only access MLS information on a Member’s VOW if: (1)

the Member has first established a broker-consumer relationship; (2) the Member obtains

the name and a valid email for a consumer; (3) the consumer has agreed to prescribed

“terms of use”; and (4) the consumer creates a user name and password for the Member's

VOW (Rules 800 and 805);

2. A Member’s VOW may provide other features, information, or functions in addition to

the display of TREB’s MLS information (Rule 803);

3. A Member, whether through their VOW or by any other means, may not make available

for search by, or display to, consumers the following MLS data intended exclusively for

other Members and their brokers and salespersons, subject to applicable laws, regulations

and the RECO rules:

a. Expired, withdrawn, suspended or terminated listings, and pending

solds or leases, including listings where sellers and buyers have

entered into an agreement that has not yet closed;

b. The compensation offered to other Members;

c. The seller’s name and contact information, unless otherwise directed

by the seller to do so;

d. Instructions or remarks intended for cooperating brokers only, such

as those regarding showings or security of listed property; and

17

e. Sold data, unless the method of use of actual sales price of

completed transactions is in compliance with RECO rules and

applicable privacy laws (Rule 823).

K.

The VOW Data Feed

[96] TREB Members receive data for their VOWs via TREB’s VOW Data Feed. The VOW

Data Feed is an electronic connection over the Internet between a Member’s website and

TREB’s MLS third party database (the “Third Party Database”). The Third Party Database is a

copy of TREB’s MLS Database that TREB uses to transmit data to third parties pursuant to

various agreements. The VOW Data Feed appears to contain all of TREB’s MLS active listing

data, except for cooperating broker commissions, listings which the seller has elected to withhold

from the Internet, information that cannot be distributed by any mechanism of delivery, the

seller's name and contact information (unless otherwise directed by the seller), and instructions

or remarks intended for cooperating brokers only. For greater certainty, none of the Disputed

Data is included in the VOW Data Feed, which is offered to TREB’s Members at no charge.

[97] TREB’s MLS data is transmitted to the VOW operator in a raw data format, to enable the

Member to present the data to a customer in whatever manner the Member chooses, subject to

the certain restrictions.

[98] Use of the VOW Data Feed is governed by the VOW Policy and Rules as well as by

TREB’s VOW Data Feed Agreement.

[99] To have access to TREB’s VOW Data Feed, Members (and Affiliated VOW Partners

(“AVPs”), where applicable) must sign the Data Feed Agreement. An AVP is an entity or person

designated by a Member to operate a VOW on behalf of the Member, subject to the Member’s

supervision, accountability and compliance with the VOW Policy and Rules. For the purposes of

this proceeding, an important provision of the Data Feed Agreement is the following:

4.1

Services and Licence. Subject to the terms and conditions

of this Agreement and the VOW Policy and Rules, TREB will

provide to Member or AVP, if operating Member’s VOW(s) on

behalf of Member, a VOW Data Feed to Member or AVP, solely

and exclusively for the Purpose (“Services”). Subject to the terms

and conditions of this Agreement, TREB hereby grants to Member

and AVP, if operating Member’s VOW on behalf of Member, a

non-exclusive, non-transferable, non-sublicensable, revocable

limited license to use such Listing Information as may be provided

to Member or AVP through the VOW Data Feed solely and

exclusively for the Purpose.

(Emphasis added)

18

[100] The term Purpose is defined as follows in the Data Feed Agreement:

“Purpose” means to permit a Member to display on the Member’s

VOW given Listing Information which is transmitted through a

VOW Data Feed to the Member for the sole purpose of use by

Consumers that have a bona fide interest in the purchase, sale, or

lease of real estate of the type being offered through Member’s

VOW.

(Emphasis added)

[101] The Data Feed Agreement also provides that access to the VOW Data Feed may be

suspended or terminated if a Member or AVP breaches the Data Feed Agreement or TREB’s

MLS Rules and Policies.

V.

A.

Evidence – Overview

Lay witnesses

(1)

For the Commissioner

[102] The Commissioner led evidence from the following lay witnesses:

a. William McMullin: Mr. McMullin is the Chief Executive Officer (“CEO”) of ViewPoint

Realty Services Inc. (“ViewPoint”). ViewPoint is an Internet-based, technology-driven,

residential real estate brokerage based in Halifax, Nova Scotia that offers a broad variety

of services through its website, www.viewpoint.ca. Those services include tools and

features that make extensive MLS information available to potential home sellers and

purchasers, as well as analyses of that information.

b. Urmi Desai: Ms. Desai is a co-founder of Realosophy Realty Inc. (“Realosophy”), a full-

service brokerage in the GTA which provides services through two websites as well as a

storefront office in the Leslieville area of Toronto. Ms. Desai is responsible for

Realosophy’s strategy and marketing.

c. John Pasalis: Mr. Pasalis is a co-founder and broker of record of Realosophy. In addition

to working as a broker, he provides analytics and real estate commentary for

Realosophy’s website and in the public media.

d. Scott Nagel: Mr. Nagel is the CEO of real estate operations for Redfin Corporation

(“Redfin”). Redfin is an Internet-based real estate brokerage based in the United States

that operates in approximately 74 metropolitan areas throughout the United States.

19

e. Shayan Hamidi: Mr. Hamidi is a co-founder and a former CEO of TheRedPin.com Realty

Inc. (“TheRedPin”). He left the company in 2014. TheRedPin is an online brokerage

based in the GTA that operates through its website www.TheRedPin.com.

f. Tarik Gidamy: Mr. Gidamy is a co-founder and the broker of record of TheRedPin. He

has been licensed to practice in real estate in Ontario and has been a Member of TREB

since 1997. Since Mr. Hamidi left the company in 2014, Mr. Gidamy has shared the

duties of TheRedPin’s CEO with two other individuals.

g. Joel Silver: Mr. Silver is the Managing Director of Trilogy Growth, LP (“Trilogy

Growth”), which strategically invests in early stage, innovative companies. In 2012,

Trilogy Growth invested in TheRedPin. Mr. Silver is a member of TheRedPin’s Board of

Directors and has shared the duties of TheRedPin’s CEO with Mr. Gidamy and another

individual.

h. Mark Enchin: Mr. Enchin is a Guelph-area real estate agent with a history of developing

technology-based tools for use by agents. He is a sales representative with Realty

Executives Plus Ltd. (“Realty Executives”) who has an interest in expanding into the

GTA by licensing his VOW, which appears to be still in development, to agents located

there. Prior to a development in 2007 that will be discussed later in these reasons, Mr.

Enchin developed a VOW that was licensed to approximately 1,000 realtors, including

many in the GTA.

i. Sam Prochazka: Mr. Prochazka is the founder and CEO of Sam & Andy Inc. (“Sam &

Andy”), a real estate software company (also known as an AVP) that built websites for

real estate professionals in Western Canada, the United States and the GTA prior to its

sale to Ubertor, a Vancouver-based firm, in May 2015.

[103] Messrs. McMullin, Pasalis, Nagel, Gidamy and Prochazka testified at both the Initial

Hearing in 2012 and the Redetermination Hearing in 2015, whereas the other witnesses

identified above only testified at the Initial Hearing. The Tribunal generally found Messrs.

McMullin, Pasalis, Nagel, Gidamy and Prochazka to be credible and forthright. Given that none

of the members of the redetermination panel participated in the Initial Hearing, the Tribunal will

refrain from making such observations regarding Ms. Desai, Mr. Hamidi, Mr. Silver and Mr.

Enchin, who testified only at that hearing.

[104] The Tribunal pauses to note that further to an order issued in April 2014 (The

Commissioner of Competition v The Toronto Real Estate Board, 2014 Comp. Trib. 4), all witness

statements, expert reports, exhibits, transcripts, and opening and closing submissions from the

Initial Hearing form part of the record of the Redetermination Hearing. The Tribunal’s order

further provided that the pleadings of the parties would not be amended and that opening and

closing statements could refer to evidence given at both the Initial Hearing and the

Redetermination Hearing.

20

(2)

For TREB

[105] TREB led evidence from the following lay witnesses:

a. Donald Richardson: Mr. Richardson was TREB’s CEO for approximately 14 years prior

to his departure from TREB in 2014. He is now partially retired and currently holds the

position of consultant for TREB. Before joining TREB as its CEO, he worked for

approximately 20 years at OREA in a variety of roles, including CEO for the last six of

those years.

b. Tung-Chee Chan: Mr. Chan has been the sole owner and broker of record of Tradeworld

Realty Inc. (“Tradeworld”) since 1985. Tradeworld is a brokerage with four offices in

the GTA.

c. Pamela Prescott: Ms. Prescott is the owner and a broker at Century 21 Heritage Group

Ltd. (“Century 21 Heritage”), an independently-owned brokerage with several offices

in the northern part of the GTA and approximately 475 real estate agents. Century 21

Heritage operates under the Century 21 banner. Ms. Prescott served as a Director of

TREB for a period of three years in the early 2000s.

d. Evan Sage: Mr. Sage is a Vice President and Sales Representative at Sage Real Estate,

which describes itself as “Toronto’s most philosophically and technologically advanced

boutique brokerage.” He was a member of TREB’s VOW Task Force.

e. Timoleon (Tim) Syrianos: Mr. Syrianos is the principal owner, President and broker of

record of Ultimate Realty Inc. (“Ultimate Realty”), a RE/MAX franchisee with two

offices in the GTA and approximately 235 salespersons. Mr. Syrianos has been a Director

of TREB since July 2012 and was previously a member of its VOW Task Force and of its

MLS committee (the “MLS Committee”).

[106] Messrs. Richardson, Sage and Syrianos, as well as Ms. Prescott, testified at both the

Initial Hearing in 2012 and the Redetermination Hearing in 2015, whereas Mr. Chan only

testified at the Initial Hearing. For the reason explained at paragraph 103 above, the Tribunal will

refrain from making observations regarding the testimony of Mr. Chan during the Initial

Hearing. With respect to the Redetermination Hearing, the Tribunal generally found Messrs.

Sage and Syrianos to be credible, forthright, helpful and impartial. The Tribunal found Ms.

Prescott to be somewhat less impartial and helpful. The Tribunal also had concerns about the

reliability of certain aspects of Mr. Richardson’s testimony, which are discussed at paragraphs

355 and 356 below. In addition, the Tribunal found some of his testimony on cross-examination

to have been evasive in nature. Where Mr. Richardson’s testimony was inconsistent with other

evidence, the Tribunal therefore generally found such other evidence to be more reliable.

21

(3)

For CREA

[107] Mr. Gary Simonsen testified on behalf of CREA. Mr. Simonsen is CREA’s CEO. Prior to

assuming that position in July 2011, he was CREA’s Chief Operating Officer. The Tribunal

generally found Mr. Simonsen to be credible and forthright.

B.

Expert witnesses

(1)

For the Commissioner

[108] Dr. Greg Vistnes testified on behalf of the Commissioner. Dr. Vistnes is an economist

specializing in the fields of industrial organization and the economics of competition. He holds a

Ph.D. in economics from Stanford University. He is a Vice President in the Washington, DC

office of Charles River Associates. The Tribunal generally found Dr. Vistnes to be credible,

forthright and more willing to concede weaknesses/shortcomings in his evidence or in the

Commissioner’s case, than was the case for Dr. Jeffrey Church, TREB’s expert witness. Where

his evidence was inconsistent with that provided by Dr. Church or by Dr. Fredrick Flyer

(CREA’s expert witness), the Tribunal found his evidence to be more persuasive, objective and

reliable than that of the latter individuals. However, the Tribunal accepts TREB’s position that

Dr. Vistnes did not have a good understanding of the legal test for what constitutes a

“substantial” prevention or lessening of competition, as contemplated by paragraph 79(1)(c) of

the Act. For this reason, the Tribunal refrained from accepting Dr. Vistnes’ evidence on that

particular issue.

(2)

For TREB

[109] Dr. Jeffrey Church testified on behalf of TREB. Dr. Church is a Full Professor in the

Department of Economics at the University of Calgary. He holds a Ph.D. in economics from the

University of California, Berkeley. The Tribunal found Dr. Church to be less forthright,

objective and helpful than Dr. Vistnes or Dr. Flyer. The Tribunal also found Dr. Church to be

evasive at several points during his cross-examination and to have made unsupported,

speculative assertions at various points in his testimony and in his written expert reports.

(3)

For CREA

[110] Dr. Fredrick Flyer testified on behalf of CREA. Dr. Flyer is an economist holding a Ph.D.

in economics from the University of Chicago and an M.S. in labour and industrial relations from

the University of Illinois. He is an Executive Vice President at Compass Lexecon. The Tribunal

generally found Dr. Flyer to be objective and forthcoming. However, it also found that his

testimony often remained general and high-level, and that he did not immerse himself in the

details of the Canadian real estate industry and in the specific evidence and matters at issue in

this proceeding to the same degree as Dr. Vistnes and Dr. Church.

22

C.

Documentary evidence

[111] Attached at Schedule “B” is a list of the exhibits that were admitted in this proceeding.

VI.

Issues

[112] The following broad issues are raised in this proceeding:

a. What is or are the relevant market(s) for the purposes of this proceeding?;

b. Does TREB substantially or completely control a class or species of business in any area

of Canada, as contemplated by paragraph 79(1)(a) of the Act?;

c. Were the VOW Restrictions adopted for an exclusionary or disciplinary purpose, as

contemplated by paragraph 79(1)(b) of the Act, or was their adoption motivated by

legitimate business justifications? If so, does that continue to be the case?;

d. Have the VOW Restrictions had the effect of preventing or lessening competition

substantially in the relevant market(s), or are they having or likely to have that effect, as

contemplated by paragraph 79(1)(c) of the Act?;

e. Does TREB have a copyright over the MLS Database and, if it is the case, do the VOW

Restrictions constitute the “mere” exercise of TREB’s intellectual property rights?; and

f. What is the appropriate remedy, if any?

[113] Each of these issues will be discussed in turn.

VII. Analysis

A.

What is or are the relevant market(s) for the purposes of this proceeding?

[114] The first issue to be determined by the Tribunal is the identification of the relevant

market(s) for the purposes of this proceeding. For the reasons detailed below, the Tribunal

concludes that the relevant market is the supply of MLS-based residential real estate brokerage

services in the GTA.

(1)

Analytical framework

[115] The ultimate focus of the analysis contemplated by subsection 79(1) of the Act is upon

whether a practice of anti-competitive acts by a dominant firm has had, is having or is likely to

have the effect of preventing or lessening competition substantially in a market. The market in

23

question is the market in which the practice in question is alleged to have had, to be having, or to

be likely to have such an impact.

[116] Where the firm that is the focus of an application under section 79 is alleged to

substantially or completely control a different market, it will be necessary to define that other

market for the purposes of paragraph 79(1)(a). This is further discussed below, in section

VII.B.(3) of these reasons, including at paragraphs 203-207.

[117] In defining relevant markets in proceedings brought under section 79 of the Act, the

Tribunal has focused upon whether there are close substitutes for the product “at issue”

(Commissioner of Competition v Canada Pipe, 2005 Comp. Trib. 3 (“Canada Pipe CT”) at para

68). In the cases that it has considered to date, that product has been the same for the purposes of

the Tribunal’s analysis of both paragraph 79(1)(a) and paragraph 79(1)(c).

[118] In turn, “close substitutes” have been defined in terms of whether “buyers are willing to

switch from one product to another in response to a relative change in price, i.e., if there is buyer

price sensitivity” (Canada (Commissioner of Competition) v Canada Pipe, 2006 FCA 236

(“Canada Pipe FCA Cross Appeal”), leave to appeal to SCC refused, 31637 (10 May 2005) at

paras 12-16, and Canada (Commissioner of Competition) v Tele-Direct Publications Inc (1997),

73 CPR (3d) 1 (Comp. Trib.) (“Tele-Direct”) at p. 35, both citing the test adopted by the Federal

Court of Appeal in Canada (Director of Investigation and Research) v Southam Inc, [1995] 3 FC

557, 63 CPR (3d) 1 (CA) (“Southam”), rev’d on other grounds [1997] 1 SCR 748, a merger

case).

[119] Essentially the same approach has been adopted with respect to assessing whether supply

at one geographic location is a close substitute for supply at another location.

[120] However, an objective benchmark for assessing “a relative change in price” or “buyer

price sensitivity” was not provided in any of those cases.

[121] More recently, in merger cases, the Tribunal embraced the hypothetical monopolist

approach, as defined at paragraph 4.3 of the Bureau’s 2011 Merger Enforcement Guidelines (the

“MEGs”) (Commissioner of Competition v CCS Corporation, 2012 Comp. Trib. 14 (“CCS”) at

para 94). That approach has been defined as follows in the MEGs:

Conceptually, a relevant market is defined as the smallest group of

products, including at least one product of the merging parties, and

the smallest geographic area, in which a sole profit-maximizing

seller (a “hypothetical monopolist”) would impose and sustain a

small but significant and non-transitory increase in price

(“SSNIP”) above levels that would likely exist in the absence of

the merger.

24

[122] This is the approach adopted by the Commissioner in this case and in the Bureau’s

Guidelines. It is also essentially the analytical framework adopted by the economic experts who

testified on behalf of both the Commissioner and TREB, namely, Dr. Vistnes and Dr. Church,

respectively.

[123] In CCS at paragraph 94, the Tribunal noted that in applying the “small but significant and

non-transitory” components of the hypothetical monopolist approach, the Tribunal will typically

use a test of a five percent price increase lasting one year. In other words, if sellers of a product

or of a group of close substitute products in a provisionally defined market, acting as a

hypothetical monopolist, would not have the ability to profitably impose and sustain a five

percent price increase lasting one year, the product bounds of the relevant market will be

progressively expanded until the point at which a hypothetical monopolist would have that

ability and degree of market power. Essentially the same approach is applied to identify the

geographic dimension of relevant markets.

[124] The Tribunal considers that the time has come to recognize that this analytical framework

can make a conceptually helpful contribution to market definition in the context of proceedings

under section 79 of the Act. This is in no small part because it supplies objective benchmarks

(five percent, one year and the “smallest group” principle) that have been missing from the

approach adopted in past abuse of dominance cases brought before the Tribunal under section

79. In the absence of such objective benchmarks, the exercise of assessing whether one product

is a close substitute for another product can be highly subjective in nature.

[125] However, it must be recognized that the practical challenges associated with applying the

hypothetical monopolist framework will often be greater in an abuse of dominance proceeding

brought under section 79 than in the merger area. This is because of the difficulty associated with

determining the “base price” for the purposes of that framework (“Base Price”).

[126] In a proceeding brought under section 79 of the Act, the Base Price is the price that

would likely have existed “but for” the alleged practice(s) of anti-competitive acts. It is the

Commissioner’s burden to demonstrate that price. Determining such a price in a section 79

proceeding will often be more difficult than determining the Base Price in a merger context, i.e.,

the price that would likely exist in the absence of a merger. This may be so notwithstanding that

it is not necessary for the Commissioner to demonstrate the Base Price with precision (CCS at

para 59).

[127] This is because, if a merger has not yet been completed, the Base Price frequently will

simply be the prevailing price, especially if it is being alleged that the merger is likely to lessen

competition. In addition, direct recent evidence of substitutability, for example in the form of

evidence of competitive responses to recent price changes or promotional activities, will often be

available.

[128] Even where it is being alleged that the merger is likely to prevent competition, there will

often be direct evidence, for example in the form of one of the merging parties’ business plans,

regarding the likely future price in the absence of the merger. Alternatively, there may well be

25

sufficient direct evidence to demonstrate a range over which the likely future price would have

fallen (CCS at para 59).

[129] In a proceeding under section 79 of the Act, such direct evidence with respect to the Base

Price will often not be available. This is especially so where, as in the present proceeding, the

principal allegation is that the impugned conduct is preventing competition, or will prevent

competition in the future. However, even in a case in which the principal allegation is that the

impugned conduct is lessening competition, or has already lessened competition, the practical

challenges associated with applying the iterative exercise contemplated by the hypothetical

monopolist approach may be insurmountable. This is in part because products that may appear to

be close substitutes at the prevailing price may not be close substitutes at the Base Price level,

i.e., at the price that likely would have prevailed in the absence of the impugned conduct.

[130] Accordingly, it should be recognized that market definition in section 79 proceedings will

largely involve assessing indirect evidence of substitutability, including factors such as

functional interchangeability in end-use; switching costs; the views, strategies, behaviour and

identity of buyers; trade views, strategies and behaviours; physical and technical characteristics;

and price relationships and relative price levels (Canada Pipe FCA Cross Appeal at paras 15-16;

Tele-Direct at pp. 36-82). In assessing such indirect evidence, functional interchangeability in

end-use is a necessary but not sufficient condition for products to be included in the same

relevant market (Tele-Direct at p. 38).

[131] In the geographic context, transportation costs and shipment patterns, including across

Canada’s borders, should also be assessed.

[132] In carrying out such assessments of indirect indicia of substitutability, it should be

recognized that it will often neither be possible nor necessary to define the product and

geographic dimensions of the relevant market(s) with precision. However, an assessment must

ultimately be made (at the paragraph 79(1)(c) stage of the analysis) of the extent to which

products and supply locations that have not been included in the relevant market provide or

would likely provide competition to the products and locations that have been included in the

market (CCS at paras 59-60 and 92; Director of Investigation and Research v NutraSweet Co

(1990), 32 CPR (3d) 1 (Comp. Trib.) (“NutraSweet”) at p. 20).

(2)

The product dimension

[133] The Commissioner submits that the product dimension of the relevant market is the

supply of residential real estate brokerage services that provide MLS accessibility.

[134] In his 2012 written closing submissions, the Commissioner recognized that sellers of

homes require different services than purchasers of homes and that therefore, from a demand-

side perspective, it might be more appropriate to define distinct relevant markets consisting of

each of those distinct categories of purchasers of real estate brokerage services. This was also the

position advanced by Dr. Vistnes.

26

[135] However, given that brokers and agents generally provide both sell-side and demand-side

MLS-based services, and given that consumers sometimes retain the same agent or broker to sell

their home and then to purchase another home, the Commissioner advanced, and continues to

advance, a single relevant market comprised of both sell-side and buy-side residential real estate

brokerage services. Dr. Vistnes also sometimes referred to essentially the same single relevant

market in his expert reports.

[136] TREB acknowledges that the ultimate focus of the Tribunal’s assessment should be upon

the supply of residential real estate brokerage services. However, it alternately refers to both the

“market” and the “markets” for real estate brokerage services in its written submissions.

[137] In discussing the relevant market, CREA generally used the same “residential real estate

brokerage services” language used by the Commissioner. The same is true of Dr. Flyer, who

explicitly declined to accept Dr. Vistnes’ position that there are separate relevant markets for

sell-side and buy-side real estate brokerage services.

[138] For the purposes of this proceeding, it does not appear to matter whether there is a single

relevant market for the supply of MLS-based real estate brokerage services, or two separate

relevant markets, consisting of the supply of real estate brokerage services to home sellers and

home buyers, respectively. In brief, it appears to be common ground between the parties and

CREA that competitive conditions in respect of the supply of real estate brokerage services to

home buyers and home sellers are highly similar.

[139] Accordingly, for ease of reference, the Tribunal will define a single relevant market for

the supply of MLS-based residential real estate brokerage services to home sellers and home

buyers, respectively.

[140] The Tribunal is satisfied that this is a relevant market, for the following reasons.

[141] First, the evidence suggests that home buyers and sellers generally enter into contracts for

the supply of a bundle of MLS-based residential real estate brokerage services, rather than

paying separately for unbundled services. Although there is evidence that some home buyers and

sellers may prefer to contract for smaller bundles of such services if offered at a discount, the

Tribunal accepts Dr. Vistnes’ view that discount and limited-service brokerage services are in the

same relevant product market as full-service brokerage services. The Tribunal notes that this

view was not contested by TREB or CREA.

[142] Second, home buyers have not switched away from MLS-based services to a significant

degree, despite the fact that the average absolute level of money they indirectly pay in

commissions to purchase a home in the GTA increased by more than 20% (in nominal and

adjusted terms) over the period 2008 to 2011, and has increased even further since that time.

This, according to Dr. Vistnes, has occurred as a result of the increase in home prices, and not as

a result of an increase in the commission rates.

27

[143] Dr. Vistnes testified that, between 2007 and October 2014, the percentage of home

purchasers who have chosen to use MLS-based residential real estate brokerage services

increased from approximately 89.7% to approximately 90.9 % of all home buyers. The Tribunal

was not provided with evidence to suggest that home sellers have switched away from MLS-

based real estate brokerage services in recent years, at a rate proportionate to the increase in total

brokerage commissions paid. Indeed, Dr. Vistnes’ uncontradicted testimony was that he is aware

of no such evidence.

[144] Third, there is no readily available substitute for the full range of information and

services that are provided to home buyers and sellers by suppliers of MLS-based residential real

estate brokerage services. Although some of that information is available separately or in much

smaller bundles on the Internet or from some of the other sources discussed in the next section

below, home purchasers and sellers have not switched away from MLS-based services to those

other sources of supply. To the extent that the evidence suggests that home buyers and home

sellers may be sourcing information that they value on the Internet, they are doing so in addition

to procuring MLS-based real estate brokerage services, as confirmed by the figures immediately

above. The same is true with respect to the complementary services offered by home appraisers,

home inspectors, mortgage specialists and real estate lawyers. In other words, those services are

used as complements, not substitutes, for the MLS-based real estate brokerage services.

[145] Fourth, the evidence provided in this proceeding by agents and brokers supports the view

that their customers require access to a broad range of the information available on TREB’s MLS

system, and that those customers would not likely seek or be able to readily obtain that

information from alternative sources.

[146] Fifth, industry documentation reflects a view that industry participants consider that there

is a single and distinct market for MLS-based residential real estate brokerage services.

[147] Finally, TREB did not contest Dr. Vistnes’ view, which the Tribunal accepts, that there

would likely be significant substitution from agents’ services to the services offered by brokers,

if the price of agents’ services were to rise relative to brokers’ services, and vice versa.

[148] Dr. Church suggested that a market defined in terms of the supply of MLS-based

residential real estate brokerage services may be too narrow. For example, he suggested that

“exclusive listings” tend not be listed on the MLS system and that it is now much easier for

alternatives to the MLS system, such as FSBO offerings, to meet consumers’ demands for the

range of services that they desire. He further suggested that Dr. Vistnes’ evidence that

substitution away from MLS-based brokerage services has not increased while the absolute level

of money charged for commissions has increased in recent years, is undermined by his failure to

take account of rising income levels during that period. He made a similar critique of Dr.

Vistnes’ failure to take account of substitution at the margins between rentals and home

purchases, and between purchases of existing homes and new homes.

28

[149] The Tribunal takes Dr. Church’s point regarding rising income levels. However, the fact

remains that home purchasers appear to have increased their usage of MLS-based residential real

estate brokerage services over a period of time when the absolute level of commissions (in dollar

terms) rose substantially, including in the years prior to both of the Tribunal’s hearings in this

proceeding. Moreover, no evidence was tendered by Dr. Church or TREB to suggest that there is

a material degree of substitution at the margins between rentals and home purchases, or between

purchases of existing homes and new homes. Likewise, no evidence was adduced to suggest that

“exclusive listings” account for a significant percentage of overall listings in the GTA. Indeed,

Mr. Syrianos suggested the contrary and indicated it was not a very high number of Ultimate

Realty’s business.

[150] Dr. Church also asserted that, in a proceeding under section 79 of the Act, the relevant

markets for establishing dominance and competitive effects must be informed by the nature of

the alleged exclusionary practices.

[151] Dr. Church’s position with respect to the market contemplated by paragraph 79(1)(a) will

be discussed in the next section below. The relevant market in which to assess competitive

effects is the market referred to in paragraph 79(1)(c). The Tribunal is satisfied that an

assessment of the alleged exclusionary practices in this case would not alter the conclusions that

it has reached with respect to the product dimension of that market. Dr. Church’s positions

regarding the relevant market are discussed further below in section VII.B.(3) as well as at

paragraphs 208-212 of these reasons.

[152] In conclusion, the Tribunal is satisfied, based on the considerations discussed above and

the evidence on the record in this proceeding, that the product dimension of the relevant market

contemplated by paragraph 79(1)(c) should be defined in terms of the supply of MLS-based

residential real estate brokerage services.

(3)

The geographic dimension

[153] It is common ground between the parties that the geographic scope of the relevant market

for the supply of residential real estate brokerage services is local and likely is no broader than

the GTA, which is comprised of the city of Toronto and the regional municipalities of Halton,

Peel, York and Durham. This was not disputed by CREA. Indeed, the local nature of the market

was acknowledged by its expert, Dr. Flyer. Dr. Church, on behalf of TREB, also agreed with this

position.

[154] The local nature of the relevant market is generally supported by the following evidence.

[155] Dr. Vistnes’ analysis of MLS data for the period of January 2010 to February 2012

indicates that approximately 76% of sell-side transactions and approximately 69% of buy-side

transactions occurred within 10 kilometres of agents’ principal bases of operations. At 20

kilometres from those bases, the corresponding figures are approximately 92% and 89%. At 30

kilometres, they increase to approximately 97% and 96%.

29

[156] The testimony of several agents, including Messrs. Gidamy, Pasalis and Enchin, as well

as Ms. Prescott, confirms that agents tend to specialize at the local level, to meet consumer

demand for local expertise. This appears to be confirmed by Dr. Vistnes’ analysis, which

indicates that even where there are differences in commissions between adjacent local areas, the

geographic range within which agents conduct their business does not materially increase.

[157] However, Ms. Prescott also stated that since the Initial Hearing, agents are increasingly

competing for business across the entire city of Toronto. No evidence was adduced to suggest

that home buyers or home sellers in the GTA retain the services of agents whose principal base

of operations is located outside the GTA.

[158] Although the foregoing evidence suggests that there may be several local relevant

markets within the GTA, nothing in this proceeding turns on whether there is a single relevant

geographic market that extends throughout the GTA, or several separate and discrete geographic

markets within the GTA.

[159] Given that the focus of this proceeding is upon certain of TREB’s practices, and given

that TREB’s focus and activities extend throughout the GTA, the Tribunal is of the view that it is

appropriate to define a single geographic market consisting of the GTA. This will simplify the

discussion and analysis below, without adversely impacting upon the interests of either party or

CREA.

[160] The Tribunal observes in passing that the Commissioner confirmed in his closing

argument at the Redetermination Hearing that he is not seeking relief that goes beyond the GTA,

except to the extent that TREB’s MLS data can be accessed outside the GTA, including through

inter-board agreements that allow agents located outside the GTA to access that data.

(4)

Conclusion

[161] For all the foregoing reasons, the Tribunal concludes that the relevant market for the

purpose of this proceeding is the supply of MLS-based residential real estate brokerage services

in the GTA (the “Relevant Market”).

B.

Does TREB substantially or completely control a class or species of business in any

area of Canada?

[162] The Tribunal now turns to the second issue to be determined in this proceeding, namely,

whether TREB substantially or completely controls a class or species of business in any area of

Canada, as contemplated by paragraph 79(1)(a) of the Act. For the reasons set forth below, the

Tribunal finds, on the balance of probabilities, that TREB substantially or completely controls

the supply of MLS-based residential real estate brokerage services in the GTA.

30

(1)

Analytical framework

[163] Paragraph 79(1)(a) deals with the “dominance” dimension of section 79. It requires the

Tribunal to find that one or more persons substantially or completely control, throughout Canada

or any area thereof, a class or species of business.

[164] The Tribunal has consistently interpreted the words “throughout Canada or any area

thereof” and “class or species of business” to mean the geographic and product dimensions of the

relevant market in which the respondent is alleged to have “substantial or complete control”

(Canada Pipe CT at paras 65-67). This position was upheld by the Federal Court of Appeal in

Canada Pipe FTA Cross Appeal at paragraphs 16 and 44.

[165] The Tribunal has also consistently interpreted the words “substantially or completely

control” to be synonymous with market power. In turn, it has defined market power using

various formulations, in particular “the ability to set prices above competitive levels for a

considerable period” (Canada Pipe CT at para 122, aff’d Canada Pipe FCA Cross Appeal at

paras 6 and 23-25; Canada (Director of Investigation and Research) v D & B Companies of

Canada Ltd (1995), 64 CPR (3d) 216 (Comp. Trib.) (“Nielsen”) at pp. 232 and 254); “an ability

to set prices above competitive levels and to maintain them at that level for a significant period

of time without erosion by new entry or expansion of existing firms” (Tele-Direct at p. 82); and

“the ability to profitably influence price, quality, variety, service, advertising, innovation or other

dimensions of competition” (Commissioner of Competition v Canadian Waste Services Holdings

Inc, 2001 Comp. Trib. 3 at para 7, aff’d 2003 FCA 131, leave to appeal refused [2004] 1 SCR

vii). This latter definition was embraced by the Supreme Court of Canada in Tervita Corp v

Canada (Commissioner of Competition), 2015 SCC 3 (“Tervita”) at paragraph 44.

(a)

The degree of market power required

[166] The jurisprudence to date leaves unanswered the question of what constitutes a

“competitive level” of prices. It also does not appear to recognize that, except in perfectly

competitive markets, firms often have some market power. Indeed, if paragraph 79(1)(a) simply

requires a demonstration of some market power, even to a material degree, it would arguably be

redundant. This is because an ability to exercise materially greater market power than in the

absence of the impugned anti-competitive practice must be established to satisfy the requirement

in paragraph 79(1)(c) that the impugned practice has had, is having or is likely to have the effect

of preventing or lessening competition substantially in a market.

[167] Fortuitously, the Supreme Court of Canada has shed some light upon the issue.

Specifically, in R v Nova Scotia Pharmaceutical Society, [1992] 2 SCR 606 (“PANS”), the

Court contrasted the level of market power required by former paragraph 32(1)(c) of the

Combines Investigation Act, RSC 1970, c C-23 with the level required by what is now paragraph

79(1)(a). Paragraph 32(1)(c), which subsequently became paragraph 45(1)(c) of the Act, before

it was repealed, made it an offence to conspire, combine, agree or arrange with another person to

prevent or lessen competition unduly.

31

[168] In defining the degree of market power necessary to trigger the application of that

criminal offence, the Supreme Court stated that it was less than what is contemplated by

paragraph 79(1)(a). The Court held that the degree of market power required to trigger the

application of paragraph 32(1)(c) was simply “the capacity to behave independently of the

market, in a passive way” (PANS at p. 654). It characterized this as requiring a moderate degree

of market power, and contrasted this with the greater degree of market power required to

“influence the market” under paragraph 79(1)(a).

[169] Having a degree of market power that is more than “moderate” to trigger the application

of paragraph 79(1)(a), and that is higher than the degree of increased or maintained market

power generally required to demonstrate a substantial prevention or lessening of competition,

would therefore appear to be required to give effect to the Supreme Court’s observations in

PANS and to avoid an interpretation of paragraph 79(1)(a) that arguably renders that provision

redundant.

[170] Such an approach would also be more consistent with the view that subsection 79(1) is

intended to apply to firms with dominant positions, as reflected in the jurisprudence (Canada

Pipe FCA at para 21; Canada Pipe CT at para 7) and in the heading above section 78 (“Abuse of

Dominant Position”) (Commissioner of Competition v Visa Canada Corporation, 2013 Comp.

Trib. 10 at para 112). The Tribunal observes that similar wording appears in the marginal notes

above section 79, although it recognizes that, pursuant to section 14 of the Interpretation Act,

RSC 1985, c I-21, marginal notes form no part of the enactment and are inserted for convenience

of reference only. In brief, given that non-dominant firms often have some degree of market

power, a firm with a “dominant” position should be considered to be a firm that has more than

merely “some” market power, and more than the “material” degree of market power

contemplated by paragraph 79(1)(c).

[171] Requiring a level of market power that is more than “moderate”, and more than what is

contemplated by paragraph 79(1)(c), would also be broadly consistent with the Tribunal’s prior

observation that “no prima facie finding of dominance would arise” when it is determined that

the respondent’s share of the relevant market is below 50% (Canada (Director of Investigation &

Research) v Laidlaw Waste Systems Ltd (1992), 40 CPR (3d) 289 (Comp. Trib.) (“Laidlaw”) at

p. 317).

[172] This approach would also make good sense, because having an intervention threshold

under paragraph 79(1)(a) for single firm conduct that is higher than the threshold for mergers

and agreements among competitors would avoid chilling potentially pro-competitive single firm

behaviour.

[173] With all of the foregoing in mind, the Tribunal considers that the degree of market power

contemplated by paragraph 79(1)(a) is a substantial degree of market power. This is greater than

the material degree of increased or maintained market power (compared to the “but for” world)

that is required to demonstrate a substantial lessening of competition under paragraph 79(1)(c)

(Tervita at paras 50 and 80-81; CCS at para 377).

32

[174] In the Tribunal’s view, a substantial degree of market power is a degree of market power

that confers upon an entity considerable latitude to determine or influence price or non-price

dimensions of competition in a market, including the terms upon which it or others carry on

business in the market. This roughly approximates the degree of market power that is used to

measure whether a firm has a “dominant position” under Article 82 of the Treaty Establishing

the European Community (2002/C 325/01), namely, an ability to behave to an appreciable extent

independently of its competitors (Communication from the Commission – Guidance on the

Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive

exclusionary conduct by dominant undertaking (2009/C 45/02) at para 10; Case 27/76 United

Brands Company and United Brands Continental v Commission, [1978] ECR 207 at para 65;

Case 85/76 Hoffman – La Roche & Co v Commission, [1979] ECR 461 at para 38; Case

COMP/C-3/37.792 Microsoft at para 428).

(b)

Exclusionary behaviour and market power

[175] The Commissioner and TREB dispute whether market power includes the ability to

restrict the output of one’s rivals. The Commissioner submits that market power includes the

power to engage in exclusionary behaviour such as preventing rivals from introducing products

to the market. However, TREB disputes that position, and maintains that the power to exclude is

not a cognizable form of market power under the Act. It states that this is so because the power

to exclude is not captured by the definition of market power articulated by the Supreme Court in

Tervita at paragraph 44, namely, “the ability to profitably influence price, quality, variety,

service, advertising, innovation or other dimensions of competition.”

[176] The Tribunal disagrees with TREB’s position. To the extent that the power to exclude

comprises an ability to restrict the output of other actual or potential market participants, and

thereby to profitably influence price, it falls squarely within the definition of market power

articulated in Tervita. Indeed, it is often the exercise of the power to exclude that facilitates a

dominant firm’s ability to profitably influence the dimensions of competition referred to in

Tervita.

[177] TREB further maintains that it cannot “profitably” influence price because it is a not-for-

profit entity that does not participate in the relevant market for MLS-based residential real estate

brokerage services. Rather, it is an input supplier to that market, and has no stake in who wins or

who loses in that market. Contrasting the situation in which a dominant upstream supplier may

exercise market power for the benefit of its downstream affiliated entity, TREB maintains that it

has no “horse in the race.”

[178] The Tribunal disagrees.

[179] To begin, the Federal Court of Appeal explicitly determined, in setting aside the

Tribunal’s initial decision in this proceeding, that the words used in paragraph 79(1)(a) are

sufficiently broad to apply to a firm that does not compete in the market that it allegedly

substantially or completely controls. This includes a firm that controls a significant input to

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competitors in the market, or that makes rules that effectively control the business conduct of

those competitors (TREB FCA at para 13).

[180] The Court in that case proceeded to find that subsection 79(1) is sufficiently broad to be

applicable to TREB in respect of a rule that it makes binding on its Members (TREB FCA at para

18). That is to say, “Parliament did not intend the scope of subsection 79(1) to be limited in such

a way that it cannot possibly apply to [TREB] in this case” (TREB FCA at para 20). In making

those findings, the Court refrained from determining whether TREB in fact substantially or

completely controls any market. However, it recognized that the rule at the heart of this case is

“a rule prohibiting members from posting historical data on a virtual office website” and that

“[t]he effect of that rule is that a member who operates through a virtual office website cannot

enable clients to access the historical data online” (TREB FCA at para 5). The statement that the

Court made at paragraph 18 of TREB FCA must be read with that in mind.

[181] It follows from the foregoing statements of the Court that a trade association that does not

participate in a market with its members can nevertheless be found to have market power,

particularly when it acts on behalf of the majority of its members.

[182] Trade associations can exercise such market power in a broad range of ways, including

by establishing or mandating product standards or other rules, by-laws or practices that insulate

all or some of its members from one or more sources of actual or potential competition. To the

extent that a trade association has such an ability, it has market power. To the extent that its

actions can enable or facilitate the ability of its members to maintain higher prices, or to maintain

lower levels of service, product quality, variety or advertising levels than would otherwise

prevail in the absence of those actions, they meet the definition of market power set forth by the

Supreme Court in Tervita. The same is true where a trade association has the ability to forestall

the entry and expansion of innovative products and services.