CASE BRIEF PART 1
As per decision dated August 23, 2018, the Supreme Court of Canada dismissed the application for leave to appeal in the legal dispute between the Toronto Real Estate Board (“TREB”) and Commissioner of Competition originated from the Federal Court of Appeal. Competition Bureau expects boards across the country to comply with the ruling. Therefore, this matter is of great relevance to the real estate practices in our provinces.
Areas of Law: Real Estate, Protection of Personal Information, Contracts, Copyright, Competition.
Style of Cause:
Toronto Real Estate Board v. Commissioner of Competition, 2017 FCA 236
Decision from a statutory appeal to the Federal Court from two decisions of the Competition Board which determined that some practices of the TREB in relation to information sharing substantially prevented competition in the supply of real estate services in the Greater Toronto Area (“GTA”). Despite maintaining a database of information on current and previously listed properties available to its members, some of the data is not distributed via data feed. This caused concerns to the Commissioner of Competition who alleged TREB violated subsection 79(1) of the Competition Act. The appeal by the TREB was dismissed by the Federal Court with costs.
The Toronto Real Estate Board (“the Appellant”) is a not-for-profit corporation and the largest real estate board in Canada. Its Multiple Listing Service or MLS, operated by the board, is an online system for collection and distribution of real estate information and not accessible by the public at large. Board members have full access to the database at any time. Brokers operating their websites include sections where clients can log in and view information called VOWS OR Virtual Offices Websites. However, not all information contained in the MLS is included in the VOW’s data feed which is regularly delivered by the TREB to the brokers to populate their websites. Since TREB’s VOW Policy contains no restrictions on the release of the disputed data by its members to their clients, the excluded data ends up being shared by other methods such as in person, email or even fax, but cannot be shared with clients through VOW.
In 2011 The Commissioner started proceedings against the TREB in the Competition Tribunal seeking an order to prohibit such practices related to the TREB’s restrictive distribution of data. The Commissioner based its application on the fact that, in its view, TREB’s policies not only excluded, but also prevented innovative business models and services in the supply channel of real estate brokerage services in the GTA. In the spring of 2013, the Commissioners’ application was dismissed by the Tribunal based on the non-application of the abuse of dominance provisions of the Competition Act to the TREB. Such decision was subsequently set aside on an appeal to the Federal Court, which sent the matter back to the Tribunal for reconsideration after finding that subsection 79(1) of the Competition Act could in fact apply to the TREB. The matter was further reviewed in 2015 by a different panel of the Tribunal which came to a different conclusion, issuing its reasons on the merits and making an order granting, in part, to the Commissioners’ original application. Another hearing issued an order on the issue of remedy. Both decisions were the object of the appeal before the Federal Court, being the Canadian Real Estate Association (“CREA”) an intervener since TREB is a member of CREA and operates the MLS system under license from CREA. CREA ultimately owns the MLS trademarks, not the local real estate boards.
1. Did the Tribunal err in finding that TREB had substantially reduced competition within the meaning of subsection 79(1) of the Competition Act?
2. Did the Tribunal err in failing to conclude that TREB’S alleged privacy concerns or statutory obligations constituted, instead, a business justification within the scope of paragraph 79(1)(b) of the Competition Act?
3. Are both TREB and CREA precluded from advancing a claim in copyright in relation to the MLS database as per subsection 79(5) of the Competition Act? If not, did the Tribunal err in its analysis of the TREB’s claim of copyright?
The standard of review applied to this case is that there is a statutory right of appeal to the Federal Court from decisions of the Tribunal as per provisions of the Competition Tribunal Act, which states that any decision or order can be appealed “as if it were a judgement for the Federal Court”. In this context, the Federal Court holds that questions of law arising from decisions of the Tribunal are to be reviewed on the standard of correctness. As to questions of mixed fact ad law, the Supreme Court of Canada confirms the Federal Court’s position that such questions are to be determined on the standard of reasonableness. Finally, as for questions of fact, leave of the court is required. Since in the present matter no such leave was sought, the court could not interfere with the Tribunal’s findings of fact.
In relation to the first issue of Substantial Reduction in Competition, and considering all parties’ submissions, the Tribunal understood the difference in nature between quantitative and qualitative evidence and recognized it was more difficult to the Commissioner to prove the case based on mostly qualitative evidence. The Tribunal indicated that in cases pertained mostly to dynamic competition, it was inevitable that the Commissioner would have to rely in qualitative evidence in the form of business documents, witness statements and testimonies, adding, however, that it remained the Commissioner’s burden to prove the case on the balance of probabilities. Based on the qualitative evidence presented by the Commissioner, the Tribunal made findings of a number of anti-competitive effects caused by the VOW restrictions such as the prevention of a considerably broader range of broker services in the GTA, the prevention of an increase in the quality of these services in a significant way, the prevention of an advent of considerably more innovation and finally the significant adverse impact on entry into, and expansion within the relevant market. By applying the “But for” test, it was in the Tribunal’s opinion that but for the VOW restrictions the anti-competitive effects would be much lower. Tribunal finally concluded that when considered in aggregate, the anti competitive effects amounted to a very substantial prevention of competition. Court found TREB’s and CREA’s arguments regarding the Tribunal’s reliance on qualitative evidence without merit.
On the second issue of Privacy alleged by the TREB on its defense, the Tribunal found that the “principal motivation in implementing the VOW Restrictions was to insulate its members from the disruptive competition that motivated Internet-based brokerages”. Tribunal also concluded that there was little evidentiary support that the restrictions were motivated by privacy concerns for the TREB’s clients. Tribunal found no evidence that the development of the VOW Policy had been motivated by or acted upon privacy considerations. The privacy concerns ended up being “an afterthought and continued to be a pretext for the TREB’s adoption and maintenance of the VOW Restrictions”. The Tribunal’s findings were that TREB’s business justification argument did not corroborate with the evidence. As per Tribunal’s findings, it was “difficult to reconcile TREB’s privacy arguments with the fact that the disputed data was largely available to all 42,000 members, the members of most other Ontario real estate boards through data sharing programs, to clients of all TREB members, to some appraisers, to third party industry stakeholders including CREA as well as to customers via email subscription services or regular emails. Tribunal rejected TREB’s assertation that the privacy matter influenced the VOW policy and concluded that privacy considerations were, in fact, an ex post facto attempt to justify the policy. This second ground of appeal before the court failed.
On the third and last issue of Copyright in the MLS Database, despite TREB’s and CREA’s submissions that the Tribunal erred in finding that TREB does not have copyright in the database, in the court’s view this ground of appeal also failed. Considering that VOW Policy was anti-competitive, subsection 79(5) of the Competition Act precludes reliance on copyright as a defense to an anti-competitive act. TREB and CREA also argued that the Tribunal wrongly required proof of creativity and went beyond the appropriate test for originality. Despite agreeing with the appellant on this point, court concluded that in view of the Tribunal’s findings of fact, the application of the correct test would reach the very same result. The Tribunal considered several relevant criteria to the determination of originality, including the process of data entry and its instantaneous appearance in the database. Therefore, Tribunal found that TREB’s compilation of real estate data consisted of a mechanical exercise. The threshold of originality was not met, and court also dismissed this ground of appeal.