See the news release that corresponds to this position statement.
OTTAWA, January 17, 2018 — The Commissioner of Competition ("Commissioner") announced today that he has reached an agreement with Softvoyage Inc. ("Softvoyage") following an investigation initiated by the Competition Bureau (the "Bureau") into allegations of abuse of dominance by Softvoyage, contrary to section 79 of the Competition Act (the "Act"). The consent agreement is registered with the Competition Tribunal.
In order to address the Commissioner's concerns, Softvoyage, a company engaged in the development of software geared towards the travel industry, committed to end certain restrictive business practices that the Commissioner determined have had and would otherwise continue to have the effect of substantially lessening or preventing competition in two markets related to the supply of "all-inclusive travel packages" (hereinafter, "vacation packages"). These markets are: (i) the market for "content management" software used by tour operators to create vacation packages, and to manage their inventories or "content"; and (ii) the market for “online distribution” software enabling the sale of vacation packages to Canadian consumers (together, the "relevant markets").
The Commissioner wishes to emphasize Softvoyage's collaboration throughout the Bureau’s investigation, including the company’s willingness to promptly respond to the Bureau’s concerns. The Commissioner anticipates that Softvoyage's commitment to cease the identified practices will remove certain barriers to entry, thereby restoring effective competition in the relevant markets. This will, in turn, foster innovation in these markets.
This position statement is intended to provide an overview of: (i) the Canadian vacation package industry and its key stakeholders; (ii) the Bureau's investigation; and (iii) the terms of the consent agreement.
I. Overview of the vacation package industry and key stakeholders
Canadians are known to be "vacation package” enthusiasts. Many take advantage each year of all-inclusive trips to plan a getaway to a "sun destination" by choosing the vacation package that suits them best. These packages typically include transportation (both air and ground), accommodation, as well as food and beverages.
Supply of vacation packages in Canada
Vacation packages are created by tour operators. The main tour operators in Canada include Air Canada Vacations, Sunwing, Transat and WestJet Vacations. Tour operators enter into commercial relationships with providers of the various components they wish to assemble to create their vacation packages. They can then make their vacation packages available for purchase to Canadian consumers, whether it be directly through their websites or call centers, or – in most cases – through a travel agency offering their services in person, online, or both.
Two types of software are necessary to enable the marketing of vacation packages:
- “Content management” software, for use by the tour operator. This software allows the tour operator to store its "content" or "data", i.e., the various components that will be assembled to form its vacation packages, and to manage its inventories; and
- Software enabling the “distribution” of vacation packages, i.e., software providing access to the inventory of vacation packages managed using content management software. This distribution software enables the promotion and sale of these packages. Distribution to consumers occurs either directly from the tour operator or through a travel agency.
Softvoyage has developed and marketed content management software, as well as e-commerce software for the distribution of vacation packages. Softvoyage alone currently holds over 90% of the market share in each of the relevant markets.
While software for content management and distribution of vacation packages may appear to the end consumer of vacation packages as somewhat "ancillary", these types of software are very important to the variety of product offerings that are ultimately made available to consumers. The quality of the software, together with the degree of development of its functionalities, impacts (i) the ease of searching and booking for consumers, and (ii) the breadth of features that are available to consumers.
For instance, the more technologically advanced the software, the more it enables tour operators to create and sell vacation packages that allow for greater flexibility on several levels:
- trip duration;
- points of origin and destination, including flight connections;
- methods of payment – especially for individuals traveling in groups; and
- the specific activities included in a given package.
In short, enhanced innovation on the software side translates into a more personalized experience that will better serve the consumer’s particular interests, preferences, or needs.
II. Bureau investigation
The Bureau initiated its investigation after it received allegations that:
- Softvoyage held a dominant position in the relevant markets, substantially controlling both the market for content management software and the market for distribution software with respect to vacation packages in Canada;
- Softvoyage engaged in a practice of anti-competitive acts; and
- these practices had the effect of substantially lessening or preventing competition in these markets, contrary to section 79 of the Act.
In the course of its investigation, the Bureau contacted a wide range of market participants in order to collect information and verify the allegations, including data and documents.
Allegations against Softvoyage
Essentially, it was alleged that Softvoyage had foreclosed the relevant markets, or otherwise made their access difficult through various practices, which Softvoyage had been able to implement due to its control over these two markets.
Specifically, it was alleged that Softvoyage’s well-established control over the market for distribution software facilitated its control over the market for content management software. Practically speaking, most tour operators that previously used competing content management software migrated towards Softvoyage’s content management software over time, at least partly to benefit from optimal distribution through Softvoyage's distribution software. As explained by various market participants, tour operators using competing content management software frequently faced various technical barriers to the distribution of their vacation packages, which negatively impacted their sales.
Once the majority of tour operators had adopted Softvoyage's content management software, Softvoyage allegedly consolidated its market power in the market for distribution software by including exclusivity clauses in its contracts, including those with tour operators. These exclusivity clauses would then force tour operators that were using Softvoyage's content management software to use only Softvoyage’s distribution software for the distribution and sale of their vacation packages. These clauses would also prohibit tour operators from extracting or using their own data managed in Softvoyage’s content management software.
According to the allegations, these exclusivity clauses restricted access to tour operator’s "content" exclusively for Softvoyage's distribution software. In other words, they created a barrier to entry or prevented the viability of any current or potential competitor in the market for distribution software. As a result, the competitive rivalry, including in respect of innovation, was materially decreased in the relevant markets, compared to the level that would have existed in the absence of Softvoyage’s contracting practices.
The Commissioner’s findings
The information gathered throughout the course of the investigation allowed the Commissioner to establish that:
- Softvoyage controls the two relevant markets. It is currently the leading supplier of content management software and in the supply of distribution software as they relate to vacation packages in Canada, holding over 90% of the market share in these two markets.
- Certain restrictive clauses, or portions of clauses, found in Softvoyage’s contractual agreements, including those with tour operators, constitute a practice of anti-competitive acts which has unduly impeded the ability for potential competitors to enter the relevant markets.
- Such clauses or portions of clauses, individually or as a whole, have had and would otherwise continue to have the effect of substantially lessening or preventing competition in the relevant markets, which, among other things, translates into a lower degree of innovation than that that would likely exist in the absence of these practices.
The Commissioner's investigation identified certain clauses, or portions of clauses, in the contracts between Softvoyage and a number of its clients, including tour operators, which could restrict the distribution channels available to tour operators using Softvoyage’s content management software (“restrictive language”). This restrictive language also appeared to limit the ability of tour operators to extract and make use of their own data (or content) managed in Softvoyage's content management software.
The restrictive language has had the effect of creating an artificial link between Softvoyage's content management software and its distribution software by rendering the tour operators’ content inaccessible to any of Softvoyage’s competitors in the market for distribution software. The Bureau carefully considered the business justifications put forth by Softvoyage to explain why it had included the restrictive language in its contracts. However, the Bureau concluded that the scope of the restrictive language exceeded the stated legitimate business justifications.
Finally, in reaching the finding that the practices had the effect of substantially lessening or preventing competition in the relevant markets, the Bureau collected information from various categories of market participants, including tour operators and travel agencies, industry associations, past competitors to Softvoyage that were excluded from the relevant markets, potential competitors to Softvoyage in the absence of the practices, and businesses offering similar products and services in foreign markets. The information gathered allowed the Commissioner to find that: (i) Softvoyage's practices had an impact on the degree of current innovation in the relevant markets in Canada, and (ii) this difference could likely be attributed, at least in part, to the absence of competition in these markets resulting from the barriers to entry created by Softvoyage's anticompetitive practices.
III. Terms of the Consent Agreement
The consent agreement between the Commissioner and Softvoyage covers a period of seven (7) years from its registration with the Competition Tribunal. The Bureau is of the view that the terms of this consent agreement will resolve the Commissioner's concerns by eliminating certain barriers to entry that have had and that would otherwise likely continue to have the effect of substantially lessening or preventing competition in the relevant markets.
During the term of the consent agreement, Softvoyage commits to refrain from enforcing certain clauses, or portions of clauses, contained in its contracts with its clients. These include clauses that likely limits tour operators in their choice of distribution software, as well as clauses that likely limit the ability of tour operators to use their own content (i.e., data or vacation packages components) when it is managed using Softvoyage's content management software.
Softvoyage also commits to collaborate in good faith with tour operators that wish to use competing distribution channels to distribute their content managed using Softvoyage's content management software. In addition, Softvoyage commits to collaborate in good faith with tour operators using competing content management software so as to enable them to distribute their vacation packages using Softvoyage’s distribution software in a non-discriminatory fashion.
Finally, Softvoyage commits to establish and implement a corporate compliance program.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.