Tied Selling (Competition Act)

Section 77(1) of the Competition Act defines tied selling in two branches. The first is a requirement: as a condition of supplying a product, the supplier requires the customer to acquire another product from the supplier or its nominee, or to refrain from using or distributing, with the tying product, a product that is not of a brand the supplier designates. The second is an inducement: the supplier offers the tying product on more favourable terms if the customer agrees to either condition.

Examples include a franchisor that grants a franchise only if the franchisee buys its proprietary equipment, and a software vendor that discounts its licence only for customers who also buy its hosting. Because inducements count, a bundle discount can meet the definition even when each product is still sold separately.

Section 77 deals with three related practices together:

Meeting the definition is only the first step; the Act reaches tying only when it harms competition.

The Competition Tribunal may make an order under section 77(2) only if it finds all three of the following:

1. The practice is engaged in by a major supplier of a product in a market, or is widespread in a market.
2. It is likely to impede entry or expansion of a firm, impede the introduction or expansion of sales of a product, or have another exclusionary effect.
3. As a result, competition is or is likely to be lessened substantially.

There is no fine, no prison term and no administrative monetary penalty under section 77. The remedy is an order prohibiting the practice or requiring steps to restore competition. The Competition Bureau's draft Anti-Competitive Conduct and Agreements Enforcement Guidelines, released for consultation on October 31, 2025, set no market-share threshold for a major supplier; they describe one as an important supplier whose actions can have a significant impact on the market.

Section 77(4) adds exceptions. No order may be made where a tie is reasonable having regard to the technological relationship between the products, or where a person in the business of lending money ties products to better secure its loans and the tie is reasonably necessary for that purpose. No order applies between affiliated entities either.

Supply requirements are the most common franchise tie: a franchise system typically requires franchisees to buy signature ingredients, packaging, equipment or technology from the franchisor, its affiliate or approved suppliers, and the franchise agreement backs this up with brand standards and inspection rights. Three rules shape the analysis in Ontario:

• Trademark-licence affiliation. Section 77(5) treats a trademark or trade-name licensor and licensee as affiliated, so no section 77 order applies between them, if the licensee's business sells, under a marketing plan substantially prescribed by the licensor, a multiplicity of products from competing sources of supply and a multiplicity of suppliers, and no one product dominates the business. On its wording, it fits multi-product retail systems better than a concept built around one signature product. The narrower rule in section 77(6), for food or drink made from the franchisor's ingredients and sold under its trademark, applies only to market restriction, not to tying.
• Disclosure. Under O. Reg. 581/00, the franchise disclosure document must describe every obligation to buy or lease from the franchisor, its associate or approved suppliers, and the franchisor's policy on volume rebates, including whether it receives rebates or other benefits from franchisee purchases and whether they are shared. It must also warn that the cost of goods acquired under the agreement may not be the lowest available in the marketplace.
• Fair dealing. Section 3 of the Arthur Wishart Act imposes a duty of fair dealing on both parties in performing and enforcing the agreement, including a duty to act in good faith and in accordance with reasonable commercial standards.

A small or mid-sized franchisor is rarely a major supplier, so its exposure usually lies in disclosure and fair dealing rather than section 77. Limits on where franchisees may sell raise the parallel market restriction question covered under franchise territory, and Lamba Law's franchise law team reviews supply programs for both sides.

Private parties have been able to seek leave to bring section 77 cases since 2002, but few did, and damages awards were barred. Amendments made by Bill C-59, which received royal assent on June 20, 2024, changed that from June 20, 2025:

• Under section 103.1(7), the Tribunal may grant leave if it has reason to believe the applicant is directly and substantially affected in the whole or part of its business, or if it is satisfied that leave is in the public interest.
• Under section 77(3.1), when an order follows a private application, the Tribunal may also order the supplier to pay an amount up to the value of the benefit it derived from the conduct, distributed among the applicant and others affected.

Franchisees, distributors and rival suppliers must apply within one year after the conduct stops, and the Tribunal will not consider leave on a matter the Commissioner of Competition is already investigating. Restrictions in a distribution agreement can also be challenged under section 90.1, which since December 15, 2024 reaches agreements between non-competitors where a significant purpose of the agreement, or any part of it, is to prevent or lessen competition and the agreement lessens competition substantially, or is likely to.

Banks face a separate rule that does not depend on market power. Section 627.04 of the Bank Act prohibits a bank, in its dealings with customers and the public, from imposing undue pressure on, or coercing, a person to obtain a product or service from a particular person, including the bank and its affiliates, as a condition for obtaining another product or service from the bank. Because the Act defines a person to include corporations, partnerships and other entities, the wording protects business borrowers as well as individuals.

Section 627.05 keeps two practices lawful:

• Bundled pricing. A bank may offer more favourable terms, such as a lower rate or waived fees, on condition that the customer obtains another product.
• Approved security. Where a borrower obtains a product from a particular person as security for a loan, such as life insurance assigned to the lender, the bank may require that it meet the bank's approval, which may not be unreasonably withheld.

The Financial Consumer Agency of Canada supervises compliance.

Yusuf Demir runs a coffee franchise system with 38 outlets across Mississauga, Brampton and Markham. In October 2026 he wants three new supply rules: franchisees must buy the system's coffee blends and frozen pastries from his supply company; they must use a point-of-sale terminal sold only by that company at $4,800 per store; and they get a 1 per cent royalty reduction if they buy all dairy from one designated distributor, which pays his company a 3 per cent volume rebate worth about $36,000 a year.

The coffee and pastry requirement protects the products that define the brand. The terminal tie has no technological necessity, but with 38 outlets in a crowded coffee market his company is unlikely to be a major supplier in any relevant market, so a section 77 order is a remote risk. The real exposure is disclosure and fair dealing: the purchase obligations and the dairy rebate belong in the disclosure document for new franchisees, and imposing the rules on existing franchisees is subject to the duty of fair dealing.

Yusuf keeps the coffee and pastry requirement, approves three terminal models meeting the system's specifications, discloses the dairy rebate and directs half to the advertising fund. When his bank later makes moving his company's investments to its wealth arm a condition of a $600,000 credit renewal, his lawyer points out that the bank may offer a better rate for the bundle but cannot impose that condition.