The Beer Store’s secret sweetheart deal with the LCBO is leaving a bitter taste.

As revealed in Tuesday’s Star, a 14-year-old scheme allows The Beer Store to profit from its effective retail monopoly by limiting the LCBO from competing on products, pricing and territory in Ontario’s $3-billion beer market.

On Wednesday, Restaurants Canada filed an official complaint with Canada’s Competition Bureau: “We did not know the depth of the complicity,” it said, pointing to “new and disturbing information” in the Star that detailed price gouging of restaurants and bars forced to buy from The Beer Store.

A Competition Bureau spokesperson said it is “reviewing it to determine whether the conduct in question could raise concerns under the criminal or civil provisions in the Competition Act.”

Finance Minister Charles Sousa says he, too, is probing the arrangement and may ultimately scrap the secret understanding unless The Beer Store makes major concessions: “If there is anything that’s untoward, that’s why I’ve got the investigation underway,” he said in an interview.

Former LCBO chair Andy Brandt told me the scheme was imposed on the LCBO in 2000 by the Progressive Conservative government of the day, and kept in place by the Liberals.

But while my previous column described the anti-competitive wording of the mutual non-competition pact, it didn’t attempt to answer the recurring question that countless readers have asked online, on Twitter, via Facebook, or in ordinary conversations:

Is this collusion?

The semantics can be confusing.

A key defence for anti-competitive behaviour is if a government authorizes it, in which cases it isn’t criminal collusion. In the eyes of the law, once a government itself is involved, that anti-competitive conduct is merely an illusion of collusion.

Presumably that’s why The Beer Store insists we shouldn’t call its mutual non-competition pact with the LCBO collusion — and had its law firm send the Toronto Star a strongly worded email making that point. I had raised the question with The Beer Store’s spokesperson, Jeff Newton.

While Newton didn’t respond directly to that question, lawyer Michael A. Eizenga of Bennett Jones LLP did the next day, cautioning the Star about any “use of the term ‘collusion’ which has significant legal meaning,” adding: “This is an inaccurate and inappropriate characterization, to which my client objects.”

But the public objects to the current arrangement, Sousa acknowledges, and he indicated a willingness to rip up the deal’s restrictions that prevent the LCBO from selling beer in anything larger than six-packs. Under the pact, only The Beer Store can sell 12-packs or cases of 24 (at lower per-unit prices) — which helps explain why nearly 80 per cent of the market is controlled by the Beer Store chain, run by three big, foreign-owned brewers.

“Public sentiment is with you on this — I mean we’ve got a duty, a responsibility to find the best deal,” Sousa said in an interview.

And how would he describe the cozy non-compete arrangement?

“Collusion is a legal term, so I don’t want to comment on that,” the finance minister mused. But he conceded that anti-competitive tactics can be hard for the public to swallow:

“I’m trying to make certain that if there is competitiveness that’s being deterred . . . . I’m trying to create a better environment.”

Canada’s Competition Bureau defines a cartel as an “arrangement to engage in one or more anti-competitive activities, such as to fix prices, allocate markets or customers, limit production or supply. . . .”

Cartels engage in “collusion,” according to the bureau. “Cartels are harmful because they typically result in higher prices for consumers and reduce the incentive for companies to cut costs and be innovative. For that reason, cartel behaviour is unlawful under the competition laws of most countries.”

But there is an exception to this principle: If a government authorizes anti-competitive behaviour, then it’s not illegal, according to the “regulated conduct doctrine” that emanates from previous court cases, said Gabrielle Tassé, a spokesperson for the Competition Bureau.

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“The current interpretation generally allows exemptions from competition enforcement where . . . a legislature has conferred regulatory power on a commission, board or other authority,” she explained.

In Ontario, The Beer Store derives its authority from the LCBO (the Liquor Control Board of Ontario), which loosely regulates Brewers Retail, Inc. (as it is formally known) under the Liquor Control Act of 1990. But The Beer Store is largely a creature unto itself, making major campaign contributions and hiring well-connected lobbyists who hold governments in their thrall no matter which party is in power.

Michael Osborne, a competition lawyer with Affleck Greene McMurtry LLP, described the relationship as “complicated” in light of the restrictions.

“On its face, the agreement would appear to violate section 45 of the Competition Act,” he said, because it “would appear to be an agreement to control the supply of a product.”

But The Beer Store’s defence is that “if the government passes a law that allows competitors to fix prices, allocate markets, or restrict output, then it’s okay.”

Osborne says the agreement “looks like a hard-core cartel agreement between competitors,” but that The Beer Store would not be in breach because the LCBO has given it, effectively, a free pass.

“It’s fun with words,” Osborne says in an interview. “It’s not criminal because the law allows it . . . but you have to wonder why we would ever allow it.”

Sousa insists he is determined to change that outdated relationship after receiving a recommendation from an outside panel led by former TD Bank CEO Ed Clark to allow the LCBO to sell 12-packs, and force The Beer Store to pay a kind of franchise fee for its retail quasi-monopoly. The finance minister said he may yet go further and allow cases of 24 to be sold.

“We want our restaurants and others to get better treatment — it may well come to that, depending on how things are discussed with The Beer Store,” he says.

Sousa says he’s “encouraged” that media scrutiny of The Beer Store has increased awareness that is foreign-owned, not a government monopoly (even though the government is its chief enabler). Its corporate parents are now based abroad (Labatts, which is owned by AB Inbev of Belgium, plus U.S.-owned Molson-Coors and Japanese-owned Sleeman).

Now that he is in charge of the LCBO — which was forced to sign the deal with The Beer Store restricting its market access 14 years ago — how does Sousa feel about the competition restrictions?

“I’m trying to ensure that what you’re suggesting doesn’t happen any further,” Sousa says. “You’re right, there’s a monopoly, a duopoly, oligopoly — call it what you will.”

Call it what you will.