IN THE SUPREME COURT OF NOVA SCOTIA
Citation: Janelle Pharmacy Ltd. v. Blue Cross of Atlantic Canada, 2003 NSSC 179
Date: 2003/08/28
Docket: SH 147434
Registry: Halifax
Between:
Janelle Pharmacy Limited, Pictou Pharmacy Limited,
Lawrencetown Pharmacy Limited and Dominion
Pharmacy Limited
Plaintiffs
v.
Blue Cross of Atlantic Canada
Defendants
Judge: The Honourable Justice D. Merlin Nunn
Heard: June 2, 3, 4, 5, 6 & 10, 2003, in Halifax, Nova Scotia
Counsel: Joel E. Fichaud,Q.C.
& Melanie S.Comstock, for the Plaintiffs
Aiden Meade & Jane E. O’Neill, for the Defendant
By the Court:
[1] The plaintiffs in this action, four Nova Scotia independent pharmacies, are pursuing a civil cause of action against the defendant, Blue Cross of Atlantic Canada, under Section 36(1) of the Competition Act, RSC 1985 Chapter C-34, for loss suffered as a result of an alleged agreement between the defendant and others to unduly lessen competition in the purchase of pharmaceutical supplies, contrary to Section 45(1)(c) of the Competition Act. This is not a class action, rather it is an action by four independent pharmacies.
[2] Between the time of commencement of this action May 13, 1998, and the trial, the plaintiff Janelle Pharmacy Ltd. was sold and the name was changed to Rockingham Ridge Pharmacy Ltd. As well, the defendant ceased to be a legal entity, being replaced by Medavie Inc., though the name Blue Cross was retained as a business name. An order was granted to substitute the new plaintiff and to change the name of the defendant.
[3] For ease of language, the defendant will be referred to throughout this decision as “Blue Cross”.
[4] There is some history to this matter, before the commencement of this action, which I will set out very briefly. The information itself was taken from the plaintiffs’ pre-trial brief. Essentially, from the 1970's, health care insurers including Blue Cross have negotiated “maximum” prices which Nova Scotia pharmacists may change to customers of those insurers. In the late 1970's and early 1980s, insurers such as Blue Cross and Maritime Medical Care negotiated those maximum prices with the Pharmacy Association of Nova Scotia (PANS), which acted as the negotiating agent for all pharmacies in the Province. In the 1980's a prosecution was commenced against PANS, by the Federal Director of Combines Investigation, alleging that the agreement PANS negotiated was an agreement to lessen competition unduly.
[5] Before trial, challenges were made to the validity of the definition of “undue” lessening of competition and to the section’s validity under the Charter of Rights. These challenges were heard and decided upon in the Trial Division and, upon appeal, by the Appeal Division of the Supreme Court of Nova Scotia and, upon further appeal, by the Supreme Court of Canada which decided the offence was neither void for vagueness, as alleged, nor was it invalid under the Charter.
[6] The prosecution then continued and in R. v. Nova Scotia Pharmaceutical Society (No.3)(1993) 120 N.S.R. (2d) 304, Boudreau, J. acquitted the accused, ruling the joint negotiation lessened competition unduly but the accused lacked the mens rea for the crime.
[7] Since that time PANS has ceased negotiating as agent for all pharmacies, individual pharmacies act on their own behalf and, insurers other than Blue Cross have discontinued the practice of negotiating a “maximum” price. Blue Cross, however, still insists upon pharmacies agreeing to a “maximum” price for its Blue Cross customers and does so by means of a “pharmacy agreement” which it provides to every pharmacy in the Province. While this pharmacy agreement is offered to and completed individually, it is a standard form agreement, identical in its terms to and for each pharmacy. These will be dealt with in detail later.
[8] Returning to the present case, the defendant is a not for profit corporation, established by a Nova Scotia Statute, an Act Respecting Blue Cross of Atlantic Canada, S.N.S. 1943 C65, as amended. It is a provider of health benefits insurance in Atlantic Canada, including prescription drug benefits and is one of seven independent member companies of the Canadian Association of Blue Cross Plans. It has a number of competitors, chiefly insurance companies.
[9] Essentially, Blue Cross, either on its own initiative or at the request of an employer, costs out a package of health benefits and then offers to sell that package as a group health insurance plan. Its costing is based upon two factors, its administrative and operating costs and its cost of product.
[10] Blue Cross has a number of health benefit plans with both private and governmental employers, most of which, if not all, provide prescription drug benefits and, as well, Blue Cross administers the prescription drug benefits of the Department of Veterans Affairs and the Royal Canadian Mounted Police.
[11] The agreement between Blue Cross and the various employers or unions is in the form of a written policy agreement entered into by Blue Cross and the employer or union setting forth, among other things, the benefits available to the individuals covered by the Policy. Those individuals, the employees, then become subscribers when they, individually, sign an application which is submitted to Blue Cross to confirm his or her agreement to the terms set forth in the applicable Policy. Since the Policy is the written indication of the agreement between Blue Cross and an employer or union on behalf of its employees and for the benefit of its employees, I do not understand why the individual employee is required to sign an individual application. While this is of no special significance here, it does greatly enlarge the number of parties with whom Blue Cross has agreements relating to the provision of benefits.
[12] A specimen policy contract, Exhibit 15, Tab 37, is typical of those used in all of Blue Cross’ relationships, though in particular cases, the type of benefits and/or the system of payment may differ. The standard clauses are identical in each policy. For the purposes of this action, only those provisions regarding pharmaceutical benefits are relevant.
[13] Section 3.1(3) of the General Benefit Provisions defines a Blue Cross Approved Provider as follows:
“A Blue Cross Approved Provider is a provider of health care services and supplies recognized and approved by Blue Cross for payment on a Direct Payment Plan and/or Reimbursement Plan basis. Blue Cross will make payment for eligible health care services and supplies provided to Blue Cross Participants by such Blue Cross Approved Providers.”
[14] Among other things, Section 3 defines (a) “co-payment” for those types of benefit plans, i.e. where the subscriber is required to pay a certain amount for the benefit before Blue Cross is required to pay; and (b) a “Direct Payment Provider” and (c) “Reimbursement Plan”, the former for direct payment by Blue Cross and the latter for reimbursement by Blue Cross to the subscriber who originally paid for the services or supplies.
[15] The Direct Payment Provider is defined as a “Blue Cross Approved Provider” and the Reimbursement Plan requires the receipt submitted must be from a “Blue Cross Approved Provider”.
[16] Each of the plaintiffs is a Blue Cross Approved Provider by a virtue of individual agreements between each pharmacy and Blue Cross. These agreements are all standard forms, identical in all respects except for the parties and the signatures. The Dominion Pharmacy agreement is Tab 9 of Exhibit 15, Pictou Pharmacy is Tab 10, Janelle is Tab 16 and Lawrencetown Pharmacy is Tab 12.
[17] The significant provisions of these agreements relating to these actions are:
7.2 The Pharmacy agrees to collect from the subscriber the co-payment if any.
7.3 Unless otherwise authorized by Blue Cross, the Pharmacy agrees not to charge the subscriber for any amount in excess of the co-payment.
7.4 Nothing in this agreement is intended to interfere with the right of the Pharmacy to charge a subscriber less than the rates set out in the Payment Schedule.
7.5 The Pharmacy agrees that receipt from Blue Cross of payments in accordance with the Payment Schedule in effect at the time the pharmaceutical services where rendered will constitute payment in full for those pharmaceutical services.
8.1 Nothing in this agreement is intended to interfere with the right of the Pharmacy to determine its changes for pharmaceutical services provided to the customers who are not subscribers within the meaning of this Agreement.
8.4 The Pharmacy acknowledge that, from time to time, Blue Cross will determine the various rates and terms of payment and will issue Payment Schedule setting them out.
1.1 Payment Schedule. The Payment Schedule in effect on the effective date of this agreement or the appropriate Payment Schedule subsequently issued by Blue Cross setting out the various rates and terms of payment to Pharmacies, as determined by Blue Cross from time to time, for remuneration of pharmaceutical services rendered to Blue Cross subscribers.
[18] The current Payment Schedule was issued by Blue Cross in September 2002 with the previous one being in effect since its issue in 1993 without change. The 1993 Payment Schedule was the one in effect throughout the period involved in this action, a copy of which is in Exhibit 15 at Tab 21.
[19] The components in the determination of price are set out in the Payment Schedule and basically involve three factors:
(1) Cost of Drugs: defined as price directly from the manufacturer in most circumstances and wholesale price when that may apply. This was also referred to as APS1 cost (Association of Pharmaceutical Services Inc.). Apparently this APS1 list is similar to the listed manufacturer’s prices.
(2) Mark-up: the inventory carrying cost, i.e. the cost of handling inventory, maintaining it and interest charges on money used or borrowed, etc. The fixed mark-up under the Payment Schedule was 2%.
(3) Dispensing Fee: The professional fee covering also the cost of operation and something for profit. The Payment Schedule sets this as up to a maximum of $ 8.36.
Section 2.8a provides:
“Total reimbursement to the Pharmacy, payments from Blue Cross, as well as co-payments from Blue Cross Subscribers, cannot exceed the maximums as specified in this schedule.”
[20] It should be noted that the Payment Schedule covers costing, mark-up and professional fees for some specific drugs and services which are not necessary to set out for the purposes of this action, though all are governed by the maximum rule of 2.8a.
[21] All pharmacies in Nova Scotia are “Approved Blue Cross Providers”. They became so by application to Blue Cross as they began their business. The only requirement of Blue Cross was that they were a licensed pharmacy in the Province. Upon application they were provided with a package of materials which included a Member Pharmacy Agreement to be executed if the pharmacy wanted to be under a direct pay system. Indeed, all Nova Scotia pharmacies have one of these agreements as all are on direct pay.
[22] The package of documents sent out indicated that the included agreement must be signed and returned to Blue Cross in order to participate with Blue Cross. While the evidence is somewhat uncertain as to the contents of the package the letters of Exhibit 15, Tabs 11 and 15 to two of the plaintiffs confirm that participation with Blue Cross required completed agreements. There is no dispute that this was the case for all the plaintiffs and, indeed, for all pharmacies in the Province. Following receipt of the executed agreement Blue Cross provided a kit of operational aids (Exhibit 15, Tab 14) including decals to be placed on the window or door to indicate the pharmacy was affiliated with Blue Cross.
[23] It is clear from the documentary evidence, the standard policy (Exhibit 15 Tab 37) and the viva voce evidence of the plaintiffs that a pharmacy was required to have a Member Pharmacy Agreement to be on a direct pay system and a reimbursement system required the provider of the services to be a Blue Cross Approved Provider, with a Blue Cross assigned provider identification number. According to Ron Gathercole, a defence witness, a pharmacy can discontinue a direct pay agreement and continue to be a provider without direct pay, i.e. reimbursement only. That, however, does not reflect reality as no evidence was given of any pharmacy having done so and there was ample evidence, that dropping direct pay even if technically permitted under the agreement would automatically drive away most Blue Cross customers. In today's society the advantage of obtaining pharmaceutical services with no payment or a small co-payment is obvious and enormous to the purchaser. Admittedly, the direct pay system has advantages for the pharmacy itself as well.
[24] The evidence indicates that each of the plaintiff pharmacies have three types of customers, namely:
(1) Government of Nova Scotia insured - seniors and Workman's Compensation and people on social assistance
(2) Cash customers
(3) Customers with private insured plans - some of the main ones are : Blue Cross, Maritime Medical Care Inc., Assure, RX Plus, Manulife, ESI (Eclipse) and a number of others.
[25] With one variation, namely the plaintiff Dominion Pharmacy Ltd, the actual pharmacy “usual and customary charges” for prescription drugs were:
(1) APSI cost
(2) 4% markup
(3) $8.50 professional fee
[26] The one variation was on 8% markup by Dominion Pharmacy which had a full time nurse on staff which added significantly to its cost of operation.
[27] These “usual and customary charges” of the plaintiffs were the charges in effect for all customers except Blue Cross because, obviously, they exceeded the maximum prices set by Blue Cross. They were, however, paid by all cash customers and all the other private insurers. This is the situation which gave rise to correspondence and discussions by and between the plaintiffs and Blue Cross and, ultimately, to this action.
[28] Before dealing with the evidence in that regard there are several further points generally established by all the plaintiffs’ witnesses and I am satisfied that each is accurate.
[29] First, the pharmacy industry generally, and particularly for the plaintiffs, is a highly competitive one. Within a very short radius of each plaintiff there are a number which provide the very same service. Second, each of the plaintiffs and, indeed most pharmacies, have a large “front of store” department where many types of goods are sold. The people who enter the pharmacy for pharmaceuticals are responsible for a substantial part of the purchases of front of store goods which reflects the significant importance of purchases of pharmaceutical supplies to any particular pharmacy.
[30] All the foregoing, with the exception of the brief history is contained in the testimony of the witnesses and there is no dispute on those facts.
[31] Turning now to the testimony of the witnesses, it is clear that the maximum price became the issue between each of the plaintiffs and Blue Cross.
[32] By letter dated June 30, 1993, Janelle Gray, President of the plaintiff Janelle Pharmacy Ltd. wrote to Blue Cross indicating her usual and customary charges as the defined cost (APS1) plus 4% mark-up plus professional fee of $8.50, and requested Blue Cross to update its records “to reflect this level of payment for reimbursement to this store.” (Exhibit 7, Tab 28) She was trying to get Blue Cross to change the payment schedule. However, Blue Cross issued its 1993 Payment Schedule, effective August 1, 1993 setting maximums below those requested (Exhibit 7, Tab 29). Ms. Gray again advised Blue Cross, by letter dated August 6, 1993, as to her usual and customary charges and proposed that she charge Blue Cross subscribers the difference between her usual charges and the Blue Cross maximums. She also indicated she did not wish to process claims for one group (Group L) on a pay direct basis (Exhibit 7, Tab 30).
[33] Blue Cross replied by letter dated August 26, 1993 (Exhibit 7, Tab 31) indicating it was not prepared to modify its position on maximums to allow additional charges to the subscriber. Also, it indicated member pharmacies did not have an option to choose direct pay for some plans and not others. The letter ended with the following sentence:
“While we are willing to discuss any aspect of our agreement and/or our administrative procedures with you or your representative, there are however, certain principles, such as those above (i.e. the maximums and opting out of part) which we feel cannot be compromised.” (parenthesis added)
[34] Upon receipt of this Ms. Gray testified that she had no choice but to agree. it was her understanding at the time that if she persisted to charge her usual and customary charges her contract with Blue Cross would be terminated and she would be unable to serve Blue Cross subscribers thereby losing a substantial part of both her pharmaceutical business and her front of store business. She indicated she could not stay in business without those customers. The financial statements for the pharmacy (Exhibit 7, Tabs 23, 24 and 25) support that view as does the expert report of Dr. Foster (Exhibit 14) which set out the anticipated economic loss during the two years 1996 to 1998 were Blue Cross customers to cease going there.
[35] Four years later on March 10, 1997, Ms. Gray again wrote to George Somers of Blue Cross advising of her usual and customary charges and stating in part:
“It is unfair practice that some insurers will reimburse us as per the above level (her usual and customary charges) and others are not. Therefore we feel it is necessary to charge the clients any differences not reimbursed by the insurer based upon the above formula. I am forwarding you my amended Pharmacy Agreement removing Section 7.3.”
[36] Blue Cross, in its reply of March 21, 1997 (Exhibit 7, Tab 33) stated that her proposal was unacceptable and that Clause 7.3 governed their relationship (see also notes in Exhibit 15, Tab 35). An internal Blue Cross memo (Exhibit 15, Tab 32) indicated a telephone conference with Janelle Gray wherein Ms. Gray advised she would abide by Clause 7.3 and discontinue charging over the maximum. The memo clearly indicates that if the problem (charging more than maximum) continued they would “have to consider terminating their pay-direct arrangement with Blue Cross”.
[37] A year later, by fax dated March 9, 1980 to George Somers, Ms. Gray again stated the Blue Cross maximums are less than those charged her cash customers and she proposes to give up the direct billing, charge Blue Cross subscribers on a cash basis who would then send in their receipts for reimbursement. She requests to be informed if Blue Cross would take the position that this would offend Clause 7.3 or any other provision of the agreement.
[38] Again, Blue Cross replied that this activity would “indeed be viewed as a breach of your Member Pharmacy Agreement with Blue Cross (see Exhibit 7, Tab 35 - letter to Ms. Gray from Ron Gathercole). Prior to receiving this answer Ms. Gray telephoned Blue Cross and spoke to Colleen Rogers, assistant to Mr. Somers who advised her that charging over the maximum would be considered a breach of contract and added that her approved provider status would be revoked. Notes regarding this conversation made by Colleen Rogers are contained in Exhibit 15, Tab 41.
[39] Ms. Gray understood this to mean that Blue Cross subscribers who purchased pharmaceutical supplies at her pharmacy would not be reimbursed by Blue Cross and, therefore, would cease to purchase from her pharmacy.
[40] Having tried over a five year period to have Blue Cross agree, in whatever manner, to allow her to charge her usual and customary charges without any success and, in view of the stated position of Blue Cross, she felt that she had no option but to comply. The loss of Blue Cross subscribers purchases of pharmaceutical supplies and front of store goods would be disastrous to the continuity of her business. She estimated that approximately 8% of her business was Blue Cross.
[41] In view of the General Exclusion provisions of the standard policy (Exhibit 15, Tab 37, Pages s3.14 and 3.15) particularly Section 3.11(q) which reads:
“any health care services and supplies which are not provided by a Blue Cross Approved Provider are excluded from the Policy”.
[42] Ms. Gray’s belief that she would lose Blue Cross subscribers was sound, especially after loss of provider status was confirmed by Colleen Rogers.
[43] It is unnecessary to deal specifically with the remaining volume of business records provided by the plaintiff Janelle Pharmacy, such as its annual financial statements, sales breakdowns and the like but all are included in Exhibit 7.
[44] Having dealt in some detail regarding the plaintiff Janelle Pharmacy, it is also unnecessary to repeat the details of evidence of the other plaintiffs. Briefly, each agreed that their business was highly competitive with a number of other providers within a short distance of their place of business. Also, each was dissatisfied with the Blue Cross Payment Schedule and wanted to charge its usual and customary charges to all customers including Blue Cross subscribers. As well, each indicated that they could not survive without the Blue Cross subscriber customers.
[45] George Morgan testified regarding his pharmacy, Dominion Pharmacy Ltd, with his business records submitted in Exhibit 9. He also wrote to Blue Cross in July 1992 and again in August 1993 indicating Blue Cross maximums were not up to the usual and customary charges paid by all others and requesting permission to implement the higher charges (see Exhibit 9, Tabs 65 and 68). Blue Cross refused to allow any additional charges as it did for Janelle Pharmacy (see Exhibit 9, Tab 69, letter of Blue Cross to Morgan).
[46] Morgan’s reaction to this was that the Blue Cross position was “take it or leave it” but, since he needed the business he had no choice but to accept the Blue Cross terms.
[47] Donald Hicks, owner of the plaintiff Pictou Pharmacy Ltd., testified as to the matters referred to above and submitted Exhibit 5, containing his relevant business records. He did not write to Blue Cross re extra charges but expressed no choice but to go along with Blue Cross as without it his business would fail.
[48] Maria Hagen testified similarly on behalf of the plaintiff Lawrencetown Pharmacy Ltd. with its business records submitted as Exhibit 6. This pharmacy also could not survive without the Blue Cross customers so it had no option but to accept a Member Pharmacy Agreement from Blue Cross with all it entailed.
[49] An expert report, prepared by Michael E. Foster, Ph.D was introduced as Exhibit 14 with Dr. Foster’s Curriculum Vitae being Exhibit 13. Dr. Foster was qualified as an expert witness entitled to give opinion evidence regarding the economics of competition in the general business sense. His report entitled “An Economic Impact Assessment of Blue Cross Restrictive Practices” sets out its purpose as an assessment “to determine if Blue Cross operated a buyer cartel and the economic implications of the buyer cartel on the pharmacies”. In pursuit of this purpose a review was made of the financial statements of each plaintiff together with a review of the costing procedures of the Blue Cross agreement and the competitive field in which each plaintiff operated.
[50] The report indicates that each plaintiff is operating in a highly competitive market place and that Blue Cross, because of its significant size, is able to act as a buyer cartel on behalf of its members effectively dictating that pharmacies must accept the fixed price that Blue Cross specifies.
[51] The report states at page E2:
“Given the market power exercised by Blue Cross, a consolidated buyer group, the member pharmacies are forced to make choices that they would not be required to make if Blue Cross did not exercise market power. Our assessment of the Blue Cross agreement with the pharmacies reveal a restrictive contract that forces pharmacies to either accept fixed prices for Blue Cross customers or lose their customer base. ... the loss of these customers to the pharmacies is significant.”
[52] The report’s conclusion is that Blue Cross employs a restrictive buyer practice in its agreement with each of the plaintiffs and it sets out the amount of loss to each pharmacy if each were not to accept the Blue Cross agreement. The amounts are significant as the report indicates from May 1, 1996 to April 30, 1997 they range from $32,997.51 for Dominion Pharmacy to $54,843.87 for Janelle Pharmacy while over the same period the reported net income ranged from a loss of $32,225 for Lawrencetown Pharmacy to a profit of $37,552 for Janelle Pharmacy. They clearly illustrate the effect of losing or not having the Blue Cross customers on these four pharmacies.
[53] The report then sets out the situation, for the same period, if each plaintiff were to accept the Blue Cross Agreement as follows:
Janelle Pharmacy - profit loss of $2,663.80
Dominion Pharmacy - profit loss of $1,618.69
Lawrencetown Pharmacy - profit loss of $1,906.05
Pictou Pharmacy - profit loss of $3,699.74
[54] These are based upon the difference between the cash customer price and the Blue Cross Payment Schedule.
[55] Essentially the report indicates that the highly competitive environment that each of the plaintiffs’ pharmacies operate in dictates the nature of the strategic response that the pharmacy can undertake to counter the price fixing in the price restrictive contract. In this market, the individual pharmacy has no market power to force Blue Cross to change its fixed price contract and its only choice is to accept the contract or lose Blue Cross customers.
[56] It is not necessary to set forth the details of the methodology used for each plaintiff and the resulting calculations.
[57] In his oral testimony, Dr. Foster indicated the starting point for his conclusions was to apply the considerations set forth in R. v. Nova Scotia Pharmaceutical Society et al 139 National Reporter 241 (SCC) regarding market structure and market power and, having done so, it was his opinion that Blue Cross and its policy holders and subscribers constituted a buyers cartel, that the plaintiffs had to accept the Blue Cross agreement, that Blue Cross had all the market power and each individual plaintiff had no market power.
[58] On cross-examination, Dr. Foster agreed that each of the plaintiff pharmacies were marginal businesses and the impact of Blue Cross would be much less as profitability increased. His view of market power in this context is the impact on profitability and he indicates that this factor is most significant in this particular case. In his opinion, the seven criteria set out in Paragraph 98 of the Nova Scotia Pharmaceutical Society case, supra, lead to market size which, though sufficient in most cases, is not sufficient here where market power considerations are essential.
[59] Four witnesses were called by the defendant. The first, Laurier Fecteau, Vice President of Marketing for Blue Cross, testified that Blue Cross is a seller of insurance products and its clientele are groups, individuals and governments. Blue Cross has a number of competitors, approximately 12 to 15, mostly insurance companies. He testified that most of their contracts are not long, many one year, and there is, therefore, a continual effort to retain customers.
[60] He stated that the member Pharmacy Agreement with its Payment Schedule, gave Blue Cross a way to determine its costs in either the direct pay, direct pay with co-pay, or reimbursement pay policies it sold. The manufacturers suggested price list or its APSI cousin and the actual acquisition cost was readily determinable as was the 2% mark-up and the $8.36 professional fee. The only uncertainty was on new drugs as they came into existence, many at significantly higher costs.
[61] He indicated that policy holders and subscribers played no role in determining the payment schedules and would be unaware of the provisions of a Member Pharmacy Agreement.
[62] While the 1993 Payment Schedule was in effect during the period involved in this action it did not change because there was no process for a constant review and very few requests for change. As well, Blue Cross knew that some pharmacies were charging less than Blue Cross maximums. This latter point was somewhat self-serving because the only pharmacies charging less that were mentioned were Meditrust, a mail order pharmacy, and Walmart, Zellers and Superstore whose business was vastly different from the classic pharmacies.
[63] The witness described the process whereby a pharmacy became an Approved Blue Cross Provider. A new pharmacy would contact Blue Cross who would then send out a package of material, including a Member Pharmacy Agreement designed solely for direct pay which was plainly required to be executed and returned to become an Approved Provided (defined earlier).
[64] Despite the definitions in the policy and the stated requirements in the documents including a statement in the reply to discovery undertakings (Exhibit 10, Tab 2, Item 19) which clearly states that to be approved by Blue Cross, a pharmacy must have a Member Pharmacy Agreement, the witness stated this was not Blue Cross Policy. In the circumstances here, I cannot accept that and find that whether or not in his opinion it was Blue Cross policy, it was the actual situation. Even if a pharmacy could be an Approved Provider without a Member Pharmacy Agreement and process all prescriptions on a reimbursement basis, it is unreasonable to expect Blue Cross subscribers to purchase their pharmaceutical supplies and services from that pharmacy when every other pharmacy in Nova Scotia has a direct pay plan covering either the total cost or the total cost less co-pay. In the one case, the customer would have to pay the total cost and remit his receipts to Blue Cross for reimbursement while in all the others he would only pay the co-pay if one was required in his policy. No Nova Scotia pharmacy has ever used this reimbursement system only with Blue Cross as all are on direct pay, i.e. all have Member Pharmacy Agreements. An option that would be significantly detrimental to one’s business is really not an option.
[65] It is interesting to know that Blue Cross has programs for dental care and eye care and perhaps others but none are on a direct pay system but rather are on a reimbursement basis and none limit the fees charged.
[66] George Sommers, a Blue Cross Director, and the person in charge of Provider Relations during the period of this action testified about the Member Pharmacy Agreement, indicating the changes over the years from shortening its length to not requiring a signature though the clauses referred to herein and the procedure to become approved are essentially the same. The agreement now comes into effect when the first claim is processed. He also testified about the Payment Schedule, indicating that they felt the 1993 schedule was more than adequate from its introduction to beyond the time of this action and, in fact, till 2002. He agreed that Blue Cross would not compromise its principle of maximum payments and was not concerned as to what other insurers were permitting regarding fees.
[67] Ron Gathercole, the manager of Provider Relations for part of the time involved here, confirmed that the replies to Ms. Gray’s requests re differential billing would be a breach of the Member Pharmacy Agreement and result in loss of provider status.
[68] Both Gathercole and Sommers indicated that the Member Agreement was only for direct pay and that a pharmacy could operate without such an agreement but be on a reimbursement basis as an approved provider. By maintaining this position they must not be aware of the wording of the policy, the agreements, the information provided to applicants, the statements in their own correspondence and, indeed, business reality as I have earlier indicated.
[69] The final witness for the defendant was Donald G. McFetridge of the Department of Economics of Carlton University. He was qualified as an expert entitled to give opinion evidence in the economics of competition and his expert’s report is Exhibit 20 which also contains his Curriculum Vitae.
[70] In his report he states that an agreement to prevent or lessen competition must be between or among competitors and is called a horizontal agreement while agreements between successive stages in the distribution chain are called vertical agreements. While agreements to lessen competition may have a vertical element they must ultimately be horizontal in their effect if they are to lessen or present competition.
[71] He defines a ‘sellers cartel’ as one having the objective of restricting output and raising the price of the product concerned above the competitive level while a ‘buyers cartel’ has the objective of restricting purchases of a product so as to force the price of that product below the competitive level. A sellers cartel is also known as a ‘joint monopoly’.
[72] Before relating the economic framework for analysing an offence under Section 45 of the Competition Act, Professor McFetridge indicated that the fact that pharmacies find it attractive to participate in the Blue Cross system because of the additional business this may bring does not imply that Blue Cross policy holders conspired either among each other or with Blue Cross to bring about a reduction in price.
[73] In considering Section 45 his report also takes the Nova Scotia Pharmaceutical case, already referred to, as the basis of his inquiry. In paragraph 31 of his report he starts from the premise that the Supreme Court of Canada indicated that the determination of whether the lessening or prevention of competition agreed to is undue requires the examination of both the structure of the market and the behaviour of the parties to the agreement. The structure of the market must be such that the parties to the agreement have market power and determining this requires that the relevant market must be defined in both its geographic and product aspects and that the characteristics of the market so defined are such that the parties to the agreement actually had the power to lessen or prevent competition unduly.
[74] Professor McFetridge then states that a high market share is necessary for market power to exist. He was not aware of any case where undueness was found with less than 50% of the market and even where the court’s term was “moderate amount of market power” the case referred to in support of that term, R. v. Abitibi Power and Paper Company et al [Que] (1960) CCC 201, the parties to the agreement encompassed between 56 and 74% of the market.
[75] The report then deals with market power and applies the factors set forth by Justice Gonthier in the Nova Scotia Pharmaceutical case, supra. It must be kept in mind that Blue Cross competes as a “seller” in a number of product and geographic markets, selling various types of insurance in Atlantic Canada, i.e. competes as a seller in the “downstream markets” and as a buyer in a number of “upstream markets”, including the market for pharmaceutical supplies and services.
[76] On the basis that if Blue Cross does not have market power in the downstream market, i.e. the sale of insurance market, it is unlikely to have market power in the upstream market, i.e. the purchase of pharmaceutical supplies and service, Professor McFetridge then reports in detail on the downstream market.
[77] He concludes that the relevant downstream market is non-governmental health/prescription drug insurance and the relevant geographic market is regional though possibly national. As to market share he concludes that the Blue Cross share of the market for prescription drug insurance in Nova Scotia at 22% falls well short of the minimal threshold level for market power as identified in the jurisprudence and in enforcement guidelines.
[78] He makes the same enquiry on the upstream market concluding the relevant market to be the prescription drug dispensing market. He accepts the geographical market as that set forth by the plaintiffs, i.e. the local competitors within the local area, and that the Blue Cross share of total prescription sales of the plaintiffs ranged from 7.7 to 13.3 percent in 1997 and if its market share is roughly similar to this then, again, it is well below the minimal threshold for market power identified in enforcement guidelines. Blue Cross customers are not the largest group of purchasers of prescriptions from any of the plaintiffs.
[79] After explaining that the pharmaceutical market is highly differentiated in three main ways, spatially, level of service, and number of complementary products and services available at or near each pharmacy, the report states that in the author's opinion Blue Cross is not a buying group, i.e. a group of customers deciding to buy collectively. Further an agreement to purchase insurance from Blue Cross by an individual or a group cannot be construed as an agreement to lessen competition and, even if it could such lessening would not be undue because Blue Cross does not have the requisite market power to infer undueness.
[80] Paragraphs 83 to 105 of the report deal with pricing and the assertion by the plaintiffs that the amount they receive from its customers in the form of co-pay is lower than “the economic equilibrium price which would result from a competitive market for prescription drugs.” He concludes there is no merit to this assertion in the actual circumstances of this business because there is evidence of a variety of fees charged cash customers for dispensing that were below the $8.36 + 2% set by Blue Cross and others were below the $8.50 plus 4%.
[81] The report's conclusions, set forth in paragraphs. 106 to 112, begin with the opinion that Blue Cross cannot be construed to have lessened competition because it has not agreed with any of its competitors, i.e. in the downstream market, to do so. Similarly, in the upstream market, Blue Cross cannot be construed to have agreed with the purchasers of insurance to lessen competition.
[82] Contrary to the plaintiffs' expert, his opinion is that Blue Cross has not lessened competition because it is not a buyer's cartel. There is no indication of an agreement among the individuals and groups buying insurance, either explicitly or tacitly, to reduce dispensing fees. They are simply buying insurance.
[83] Further, since there is no agreement to lessen competition, undueness does not enter the picture. In the circumstances here Blue Cross does not have monopsony power and can not lessen competition unduly.
[84] Professor McFetridge's report is well-researched and deals with all the considerations necessary for a determination of the economic principles involved here. In his oral testimony he merely further explained points raised in his report and indicated wherein he disagreed with Dr. Foster particularly with regard to market power and the notion that the more profit a pharmacy makes the more power Blue Cross has and the closer it is to no profit, again, the more power Blue Cross has. His main departure from Dr. Foster is his contention that the market share threshold for Section 45 is 50% and without that it is unnecessary to go to other considerations.
[85] His view is supported by an excerpt from the Competition Bureau Enforcement Guidelines on the Abuse of Dominance Provisions, (Exhibit 24) which indicate that market share is one of the most important factors of market power and, in the cases to date the market share of the dominant firms was very high. The excerpt referred to one case which indicated that a market share of less than 50% would not give rise to a prima facie finding of dominance but that did not imply that market power could never be found below 50%. However, it is indicated that a market share below 35% would normally not give rise to concerns for anti-competitive acts.
[86] The foregoing constitutes a summary of the testimony of the witnesses and the relevant portions of the volumes of documents introduced by the parties.
[87] A pre-trial brief was filed on behalf of each of the parties to this action and full oral argument by each side took place following the completion of the evidence. It is not necessary to set out any summary of the argument . Suffice it to say that each side presented a well organized and thorough argument covering all points necessary for a decision, one way or another.
[88] The relevant portions of the Act, R.S.C. 1985 C-34 involved in this matter are:
45. (1) Every one who conspires, combines, agrees or arranges with another person
(c) to prevent or lessen unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both.
(2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it shall not be necessary to prove that the conspiracy, combination, agreement or arrangement, if carried into effect, would or would be likely to eliminate, completely or virtually, competition in that market.
(2.1) In a prosecution under subsection (1), the court may infer the existence of a conspiracy, combination, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties thereto, but, for greater certainty, the conspiracy, combination, agreement or arrangement must be proved beyond a reasonable doubt.
(2.2) For greater certainty, in establishing that a conspiracy, combination, agreement or arrangement is in contravention of subsection (1), it is necessary to prove that the parties thereto intended to and did enter into the conspiracy, combination, agreement or arrangement, but is not necessary to prove that the parties intended that the conspiracy, combination, agreement or arrangement have an effect set out in subsection (1).
. . .
36. (1) Any person who has suffered loss or damage as a result of
(a) conduct that is contrary to any provision of Part VI, or
(b) the failure of any person to comply with an order of the Tribunal or another court under this Act,
may, in any court of competent jurisdiction, sue for and recover from the person who engaged in the conduct or failed to comply with the order an amount equal to the loss or damage proved to have been suffered by him, together with any additional amount that the court may allow not exceeding the full cost to him of any investigation in connection with the matter and of proceedings under this section.
[89] Section 45 is in Part VI of the Act and, therefore, Section 36(1) applies, and it is this latter section which gives rise to this action.
[90] In the Statement of Claim the plaintiffs allege, in paragraph 8, that Blue Cross has agreed with its subscribers and all groups who sign Blue Cross agreements that Blue Cross will enforce the Member Pharmacy Agreement, including the maximum price provisions. Paragraph 9 alleges Blue Cross has market power over each plaintiff by being able to terminate the agreement if a pharmacy tried to charge Blue Cross subscribers more than the maximum causing a loss of purchasers and a loss of market share that would threaten the economic viability of the plaintiffs. Paragraph 10 alleges that the maximum prices set by Blue Cross are lower than the economic equilibrium price which would result from a competitive market for the purchase of prescription drugs.
[91] Paragraph 12, alleging the contravention of Section 45(1)(c) of the Competition Act, repeats in subsection (a) the allegation of Paragraph 8 and in sub-section (b) alleges that “by creating and enforcing a maximum price, this conspiracy, combination, agreement or arrangement would prevent or lessen . . . price competition among Blue Cross subscribers, and between Blue Cross subscribers and other purchasers of prescription drugs at each Plaintiff's pharmacy.”
[92] Subsection (c) alleges the relevant market and that the prevention or lessening of competition is undue because each Plaintiff must agree to the maximum prices or risk the economic viability of its business. Subsection (d) alleges Blue Cross intended to enter into the agreement and to carry it out and could reasonably foresee that the agreement would unduly lessen competition.
[93] I have set out these provisions of the Statement of Claim to show the unusual nature of this action. It is not at all of the usual type of price-fixing cases the courts have been faced with nor is it an action of a general nature directed to the whole pharmaceutical industry in Nova Scotia though a final decision could have that effect.
[94] The starting point for a consideration of the claims in this action is Section 36(1) of the Competition Act. Since this section creates a civil action, its constitutionality was put in question and finally resolved by the Supreme Court of Canada in General Motors of Canada v. City National Leasing (1989) 58 D.L.R. (4th) 255 when the section was held to be intra vires of Parliament. However the court held the section to be remedial only and that it did not create a general cause of action but its application was limited by the provisions of the Act. For the purposes here this means that the substantive elements of Section 45 must be met by the Plaintiffs. In more simple terms the remedy provided by Section 36(1) requires proof of criminal conduct, i.e. that conduct which is prohibited by Section 45.
[95] The burden of proof in a civil action where criminal conduct is alleged or, as here, where criminal conduct forms the basis of the action, has been well established by the authorities. In Continental Insurance Co. v. Dalton College [1982] 1 SCR 164 the court held that in such a case the burden of proof remains on the balance of probabilities but that a trial judge is justified in scrutinizing the evidence with greater care if there are serious allegations to be established by the proof offered. The Nova Scotia Court of Appeal in Pentagon Investments Ltd v. Canadian Surety Co [1992] N.S.J. No. 402 stated the burden of proof in such a cast at p. 3, as:
“Again the burden on the appellant is heavy. It alleges, in effect, criminal conduct. The appellant must prove the allegations of fraud with a higher degree of certainty than required in other civil actions. However, the burden remains proof on a balance of probabilities.” In B and G Groceries Ltd. v. Economical Mutual Insurance Co. [1992] N.S.J. No. 374 the Court of Appeal, at p.1, the court stated:
“The standard of proof, at the very least is a high preponderance of probability.”
[96] Obviously the thrust of these cases is that the burden of proof is not the criminal burden of beyond a reasonable doubt but, since the basis of the allegation is criminal conduct, there must be established “a degree of probability that is commensurate with the occasion” as Lord Denning said in Bater v. Bater [1950] 2 ALL E.R. 458 at 459.
[97] Since Section 36(1) is a remedial section providing a civil remedy for a very serious public crime which provides for a heavy penalty on conviction and where there has been no conviction of the defendant under Section 45(1) nor a prosecution commenced it is incumbent upon the plaintiff to offer substantial proof that the activity prohibited by Section 45(1) has, indeed, taken place.
[98] Justice Gonthier in the Nova Scotia Pharmaceutical case, supra, at paragraph 72, page 139 stated:
“The offence created by s. (32)(1)(c) (now 45(1)(c)) comprises two material elements:
1. An agreement entered into by the accused (“Every one who conspires, combines, agrees or arranges with another person”); and
2. An undue prevention or lessening of competition flowing from this agreement (“to prevent, or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage . . . of a product . . .”).
Justice Gonthier adds that there is a mental element to the offence..
[99] The burden of proof on the plaintiffs, therefore, is to offer that reasonably high preponderance of probability that there was an agreement, that the agreement prevented or lessened competition, and did so unduly, and that the parties to the agreement intended to enter the agreement and were aware of its terms and that they ought to have been aware that the effect of the agreement would be to prevent or lessen competition unduly.
[100] Paragraph 8 of the Statement of Claim in this action, supra, alleges the agreement to be one between Blue Cross and its policy holders, i.e. all groups, employees, unions, etc., and all its subscribers and that it is an agreement to enforce the Member Pharmacy Agreements, including the maximum price provisions. While not specifically mentioned, the evidence is that the drug plans of the department of Veterans Affairs and the R.C.M.P. are administered by Blue Cross under the same Pharmacy Agreements. Exhibit 15, Tab 7 lists 48 pages of Blue Cross plan holders, with 35 plans per page, ranging through most major corporations in Nova Scotia as well as cities and municipalities, universities, hospitals and hundreds of small employers and individuals.
[101] The unique feature of this claim is that if there is the conspiracy complained of, there is an extremely large number of co-conspirators ranging throughout the inventory of policies with all individual subscribers and including the Department of Veterans Affairs and the R.C.M.P. and all would be engaging in criminal activity. A closer look at these agreements must be taken.
[102] First, dealing with the Policies, it is necessary to determine if they contain, directly or by implication, any provisions relating to the conduct complained of. A careful reading of the standard policy, Exhibit 15, Tab 37, indicates no specific clauses to support the alleged agreement. Clause 3.1(3) defines a Blue Cross Approved Provider and Clause 5F1(5 and 6) indicates that Blue Cross will make payment for Direct Payment Plans based on the criteria in the Blue Cross Pharmacy Agreements, and for reimbursement plans will reimburse to the maximum payable under the Direct Payment Plan. Nothing in this standard policy refers to any agreement to enforce the provisions of the Member Pharmacy agreement in relation to maximum prices or to anything else. In fact, the Member Pharmacy Agreements is not specifically mentioned in the Policy and, the evidence indicated by the Blue Cross witnesses was that policy holders would play no role in Member Pharmacy Agreements and would be unaware of its existence or provisions. Being satisfied that this evidence is true and when combined with the lack of any wording in the policy to support the agreement alleged, I am satisfied that the plaintiffs have not met even the ordinary civil burden of proof and therefore there is no merit to the allegation that the policy holders or groups are co-conspirators in an agreement to lessen competition unduly.
[103] Further strength for this view comes when one looks at the nature of the policy itself. It represents a plan of health insurance for the group to which the plan refers. Essentially it is a purchase of insurance only for a predetermined price based upon the types of coverage provided. Usually, the cost is shared between the employer or group and the individuals covered.
[104] Of these plans Blue Cross is a seller in competition with a number of other companies in the same business (the downstream market). There is no suggestion here of any agreement between Blue Cross and any others who are engaged in selling insurance programs so there is no question of a sellers cartel and none has been alleged.
[105] With regard to the subscribers there is very little evidence of the agreement they have with Blue Cross though it appears they only sign an application to confirm his or her agreement to the terms of the policy. Since the policy itself is merely an insurance policy containing no provisions capable of being construed as an agreement to lessen competition, it follows that the subscribers agreement is nothing more than the acceptance of the terms and provisions of the policy.
[106] Therefore, the plaintiffs have not shown any agreement between Blue Cross and the policy holders and the subscribers which would prevent or lessen competition, let alone unduly, and have failed to prove the first material element of an offence as outlined by Justice Gonthier with the result that the action fails.
[107] If I had found that there was such an agreement it would then have been necessary to continue to the remaining elements of the offence, i.e. an undue prevention or lessening of competition. It is in this aspect where the substantial proof is required for it is the nub of the criminal action prohibited by Section 45(1)(c). That is not to say the substantial burden of proof does not apply throughout but rather to say that perhaps the proof to establish an agreement is an easier part of the burden of proof than proving the nub of the offence, that the result of the agreement is an undue lessening or prevention of competition.
[108] It is clear that there may be agreements between parties which lessen competition which do not offend Section 45(1)(c). An agreement would only violate the section when its effect is to lessen or prevent competition unduly. The claim here is that Blue Cross, through its Member Pharmacy Agreements, enforced by the policy and subscriber agreements, is lessening or preventing competition unduly.
[109] The evidence is clear that Blue Cross is a seller of health insurance, of which pharmaceutical supplies and service is a part. As such it is in direct competition with a number of other sellers of health insurance and that competition is keen. On the other side of the coin, however, Blue Cross and its competitors are buyers of health services particularly, for this case, pharmaceutical supplies and services. According to the McFetridge report at paragraphs 60 to 65, Blue Cross customers would be responsible for under 7% of the prescriptions in a typical local market for prescription drug services, during the 1997/98 years. Indeed for 1997 the plaintiffs' prescription sales to Blue Cross customers ranged from 7.7 to 13.3 percent and 7 to 11.6 in 1998; and these included Government of Nova Scotia and D.V.A. customers.
[110] Blue Cross customers were not the largest group of prescription purchases from any of the Plaintiffs. For all four the Provincial Government plan was the largest purchaser, cash customers were second except for the Plaintiff Dominion Pharmacy where Manufacturer's Life was second.
[111] If, as Professor McFetridge states, the above percentages were taken as a rough estimate of market share, in his opinion it would be well below the minimal threshold at which the existence of market power is normally inferred for a Section 45 case and also, well below the minimal threshold level for market power identified in the enforcement guidelines. In his view the market share would have to be at least 50% to reach those thresholds.
[112] The plaintiffs and Dr. Foster disagree with that level of threshold and base their view on Justice Gonthier's statement in paragraph 98, page 293:
“Indeed the market share as such cannot suffice to conclude on the structure of the market, and Section 32(1)(C) (now 45(1)(c)) would lose some of its effectiveness and would stray from its objectives if it incorporated a market share threshold. Market share alone is not determinative...”.
[113] Justice Gonthier then states that the aim of the market structure inquiry is to ascertain the degree of market power of the parties to the agreement and he then states that many factors other than market share, are relevant and he lists seven though his list is not limitative. Both experts in this case have referred to this list and both have indicated that several do not apply, several others only minimally with Dr. Foster emphasizing “countervailing power” as the essence of his approach. He concludes, as earlier indicated that the Blue Cross Agreements constitute a buyers cartel with Blue Cross having all the market power and the plaintiffs having none. His approach to determining market power was to look at the cost to the pharmacy if the Blue Cross business was lost measured against its total business, i.e. an impact on profitability approach.
[114] I do not accept that. Whatever the agreements are between Blue Cross and its policy holders and subscribers they are not agreements to buy pharmaceutical products as a group. They are directed to the sale and purchase of insurance only. Dr. Foster has not directed his attention to the dual activity of Blue Cross. It is only in its buyer activity that it purchases prescription drugs, i.e. providing what the insurance covers, and in this activity its only agreement is one with the individual pharmacies, the Member Pharmacy Agreement.
[115] As well his emphasis on impact on profitability cannot be as major a determination of market power as he suggests. Profitability is too variable and can depend upon a variety of factors such as location, competition, size of operation, costs of operation and other factors. To accept this test of market power would have the effect of individualizing the crime created by Section 45 (1)(c) to any particular store's operations while at the same time removing from the purview of the alleged perpetrator of the crime any means of determining the extent of his actions required to avoid committing the offence, i.e. it would remove any possibility of that person being able to know the elements of the offence so as to act within the law. For example, here Mr. Morgan, the owner of Dominion Pharmacy owns two other pharmacies which are not joined as plaintiff, and assuming they are profitable with or without Blue Cross, would it be reasonable to find Blue Cross guilty of a criminal offence for one pharmacy and not for the other two. This is not the purpose of the Competition Act, to vary from place to place and store to store depending on profitability, and in these circumstances be in and out of criminal activity from time to time as profitability changes. This approach bases liability under the statute on the effect on the plaintiffs and not on the acts of the defendant, an untenable position.
[116] Dr. Foster's approach is much too narrow. Professor McFetridge, on the other hand, takes the proper approach to the situation presented here. He defines the market as “The market for prescription drug sales” and the geographical market he accepts is that suggested by the plaintiffs, i.e. within several miles of each location. He then looks at the percentage of prescription drug sales in that market and also for each plaintiff as earlier indicated. Those percentages are well below any minimal threshold for market power. As well there are many competing sellers and buyers in each of the geographic markets in question here. There is also product differentiation, i.e. different prices in the competitive area, and market differentiation, spatially, and in level of service and in the number of complementary products and services available. With market differentiation the individual sellers have some pricing discretion so prices may vary between competitors.
[117] These latter points, when applied to the market here, reveal that prescription fees do differ among pharmacists and, more telling, that the fees suggested by the plaintiffs do not in any way constitute “an economic equilibrium” against which Blue Cross fees may be assessed. The Blue Cross fee structure was well within the range of dispensing fees paid during the period of this lawsuit.
[118] I agree with Professor McFetridge that Blue Cross is not a buyers cartel and find that Blue Cross does not have the degree of market power contemplated by Section 45(1)(c) or that would come close to the “moderate amount of market power” that Justice Gonthier stated was required to show that parties to an agreement have the capacity to behave independently of the market, in a passive way.
[119] Interestingly, Justice Gonthier makes the statement that a moderate amount of market power is required and refers to R. v. Abitibi Power and Paper Co (1960) 131 C.C.C. 201 at pp. 249-252. In that case the range of market share between accused was between 56 and 74 percent of the market. That being so it is certainly arguable that moderate is more substantial than the term suggests. Professor McFetridge says the market share must be at least 50 percent to bring Section 45(1)(c) into play. While Dr. Foster disagrees though, on cross-examination he indicated he was not aware of any conviction where the accused had less than 50 percent of the market share.
[120] I do not maintain that this precise level must be reached in every case but I do accept that the market share must be substantial and certainly more substantial than the evidence here indicates.
[121] As a result I am satisfied and find that the Plaintiffs have not met the burden of proof required to show that Blue Cross has the degree of market power and market share to prevent or lessen competition unduly even if there was some agreement between Blue Cross and its policy holders and subscribers as alleged which I have already held that there was not.
[122] The thrust of the Plaintiffs here is to maintain their agreement with Blue Cross so as to keep the business but extra bill for the difference between what they charge their cash customers and what they have agreed to accept as payment in full from Blue Cross, i.e. the maximums”. While the plaintiffs have sought to be able to extra bill Blue Cross customers for some time without success, they are, at the same time concerned and fearful of losing their Blue Cross customers. However, the setting of maximum prices, adjusted from time to time based upon the existing market, is not, in itself, something to lessen or prevent competition unduly. It might if it were an agreement between a group of sellers to reduce prices or, indeed, if it were an agreement between a buyer (as the insurance sellers here) and a number of pharmacies to raise prices to the detriment of the public.
[123] It may be unrealistic to say that a pharmacy, or the plaintiffs, have a choice to accept or refuse a Blue Cross agreement but the acceptance is a practical business decision to reach more customers. In a sense it is not much different from agreeing to accept Visa or Master card and paying the required fee for in today's world that may be very necessary to maintain customers.
[124] What is clear here is that this is a most unusual set of facts on which to base a claim of lessening competition unduly. The number and variety of the alleged co-conspirators, the alleged agreement, the limited market share involved and the basis upon which market power was alleged by the plaintiffs together are totally unlike any other case in this area of Canadian Competition law.
[125] There are a number of American cases directly on point here dealing with alleged offences against the Sherman Act, the U.S. equivalent competition statute, which uphold the division of health providers as sellers of insurance and buyers of product. They also indicate that maximum or fixed prices are not price-fixing within the meaning of their statute. They find nothing wrong with a buyer attempting to obtain a favourable price. See James P. Kartell, M.D. et.al. v. Blue Shield of Massachusetts, Inc. 749F (2d) 922, 471 U.S. 1029, a case very similar to the present case; Medical Acts Pharmacy v. Blue Cross & Blue Shield Inc. 1982 U.S. App LEXIS 20491; Royal Drug Company Inc. et.al. v. Groups Health Insurance Co. et.al. v. 737 F. (2d) 1433, 469 U.S. 1160, and Brillhart v. Mutual Medial Ins. Inc. 1985 US App LEXUS 20870.
[126] In like manner in Canada in the market place in the circumstances such as here there is nothing essentially wrong with a buyer attempting to get the best possible price and in doing so setting or fixing maximum prices. It is only when the practices are combined with or form part of agreements the purpose of which is to prevent or lessen competition unduly that they fall within the difference created in the Competition Act. As indicated this is not the case here.
[127] As a result the plaintiffs action is dismissed with costs in accord with the usual scale.
[128] Judgement for the Defendant.
J.