Canadian COMPETITION & ANTITRUST LAW

Canada’s Copyright Act amendment consultations continue:

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For more information about Canadian competition law visit: Merger Notification, Criminal Conspiracy, Abuse of Dominance, Misleading Advertising, Reviewable Matters, Competition Compliance Policies, Trade Associations and Competition Law, Promotional Contests, Competition Law Links, Competition Law Texts and Investment Canada Act.

For more information about Canadian intellectual property law visit: Canadian Intellectual Property Law, Canadian Trademark Law, Trademark Infringement, Trade-marks – FAQs, Canadian Copyright Law, Copyright Infringement, Canadian Internet Law, Internet Law Texts, Canadian Licensing Law, Canadian Domain Name Law, E-commerce, ISP Law, Intellectual Property Law Links and Intellectual Property Law Texts. 

The materials and information on IP & COMPETITION LAW CANADA are provided as legal information only.  Reading and accessing this information does not create a lawyer-client relationship.  The information on IP & COMPETITION LAW CANADA does not constitute legal advice or a legal opinion on any issue.  In addition, the information and materials on this website will change based on new legislation and case law and, as such, may not be current as of the date of access.  As such, we take no responsibility for the accuracy or currency of the information or materials on this website, which should not be relied upon without receiving legal advice from competent legal counsel.   For more information about Canadian competition law or Canadian intellectual property law contact Steve Szentesi at steve@IPVancouverblog.com or steve@nortonstewart.com.  Steve Szentesi is a Canadian competition lawyer and Canadian intellectual property lawyer.  © 2009, Steve Szentesi.  All Rights Reserved.

Overview

With the sweeping amendments to the Competition Act (the “Act”) earlier this year, including significant changes to the criminal offences under the Act and increased fines and other penalties, it is worth revisiting both the scope of competition law in Canada and the Competition Bureau’s (the “Bureau”) criminal Immunity Program for offences committed under the Act.

The Act contains a wide range of provisions applicable to business activities in Canada.  These include a number of criminal offences including criminal conspiracy (e.g., price fixing and market allocation agreements), bid-rigging, criminal misleading advertising, deceptive telemarketing and pyramid selling.

The potential penalties for contravention of the Act can be severe (e.g., breach of the criminal conspiracy provisions can lead to current fines of up to CDN $10 million and/or imprisonment for up to five years, with the penalties to be increased next year to up to CDN $25 million and/or imprisonment for up to fourteen years for breach of the criminal conspiracy provisions).

The Bureau, however, which is the administrative agency responsible for administering and enforcing the Act, has adopted and refined over the years a formal Immunity Program under the Act.  Where a party successfully obtains immunity, criminal liability and prosecution can be avoided.  In addition, where a party does not qualify for full immunity, it may nevertheless seek and obtain some degree of leniency for its cooperation with the Bureau in a criminal investigation.

The Bureau’s Immunity Program, and the requirements to successfully obtain immunity, are discussed below in more detail.

The Commissioner & Director of Public Prosecutions

In a typical criminal investigation under the Act, the Bureau will work together with the Public Prosecution Service of Canada (“PPSC”), which is headed by the Director of Public Prosecutions (the “DPP”).

While the Bureau’s mandate is to administer and enforce the Act, the PPSC’s mandate is the actual initiation and conduct of prosecutions under the Act.  In other words, criminal prosecutions for criminal anti-competitive conduct are the responsibility of the DPP (though in reality in a criminal prosecution the Bureau will work closely with the Crown in a criminal investigation).

Where there is evidence of a criminal offence under the Act, the Commissioner may refer the matter to the DPP for potential prosecution, which in turn has the authority to grant immunity to parties facing potential criminal liability.

Immunity Requirements

With respect to the requirements for immunity, all things being equal, the Commissioner will recommend that the DPP grant immunity to a party where the Bureau is either: (i) not aware of an offence (and the party seeking immunity is the first to disclose it) or (ii) the Bureau is aware of the offence and the party seeking immunity is the first to come forward (before there is sufficient evidence to warrant a referral to the DPP by the Bureau).

To obtain immunity, however, a party must satisfy certain formal requirements.  These include:

- Terminating its participation in the illegal conduct;

- The party must not have coerced others to be a party to the illegal conduct;

- The party cannot have been the only party involved in the offence;

- During the course of the Bureau’s investigation (and later prosecution(s)) the party must provide complete, timely and on-going cooperation with the Bureau;

- Unless made public by the DPP or the Commissioner (or required by law), the party cannot disclose its application for a marker;

- The party must make full disclosure of all information of conduct that may be an offence under the Act;

- The party must provide complete, full, frank and truthful disclosure of all evidence and records in its possession, available to it or under its control (with the exception of privileged information) relating to the conduct in relation to which immunity is sought;

- Companies must take measures to secure the cooperation of current directors, officers and employees for the duration of the investigation (and subsequent prosecutions); and

- Companies must facilitate the ability of current and former directors, officers, employees and agents to appear for interviews and give testimony in related judicial proceedings.

Director and Officer Liability

With respect to director and officer liability, if a company qualifies for immunity under the Bureau’s Immunity Program, current directors, officers and employees of the company that admit their involvement in the criminal conduct as part of the company admission (and also provide complete, timely and ongoing cooperation) will also quality for the same immunity recommendation by the Bureau.

Former directors, officers and employees that offer to cooperate with the Bureau’s investigation may quality for immunity (though the Bureau makes such determinations on a case-by-case basis).  It is also worth noting that even in cases where a company does not qualify for an immunity recommendation, current or past directors, officers or employees may still be considered for immunity separately.

Immunity Process

The immunity process in Canada generally has four stages.  These are: (i) obtaining a marker, (ii) providing a “proffer”, (iii) entering into an immunity agreement and (iv) full disclosure and cooperation.

(i)  Marker

With respect to a marker, anyone may commence a request for immunity by contacting either the Senior Deputy Commissioner of Competition, Criminal Matters or the Deputy Commissioner of Competition, Fair Business Practices to discuss the potential of receiving immunity from criminal prosecution for an offence under the Act.

An immunity applicant can initiate the first contact on the basis of a hypothetical disclosure which reveals the nature of the criminal offence in relation to a particular product.  The initial disclosure, however, must be made with enough detail to secure a so-called “marker” so that the immunity applicant will be “first in line” to receive immunity (assuming the other formal requirements for immunity are also met).  In most cases, marker requests are made to the Bureau by an applicant’s legal counsel.

(ii)  Proffer

The second step or stage in the immunity process is to provide a “proffer” to the Bureau.  Where a party obtains a marker and wants to proceed with an immunity application, it must provide a detailed description (i.e., a proffer) of the activity and disclose enough information so that the Bureau can determine whether it will qualify for immunity.

Proffers are normally made in hypothetical terms by an immunity applicant’s legal counsel.  The objective for the Bureau during this stage of the immunity process is to determine the nature of the records an applicant can provide, the types of evidence potential witnesses may give and how useful (i.e., probative) the evidence provided by an immunity applicant is likely to be.  Where the Bureau is satisfied that an immunity applicant can provide full cooperation and otherwise satisfy the other requirements for immunity, it may make an immunity recommendation to the DPP (which will exercise its discretion as to whether or not to grant immunity).

(iii)  Immunity Agreement

The third stage in the immunity process is the entering into of an immunity agreement.  Based on a recommendation by the Bureau (assuming the DPP accepts the recommendation), the DPP will execute an immunity agreement for the immunity applicant which will contain the ongoing obligations for the applicant discussed above.

(iv)  Full Disclosure and Cooperation

The final stage in the immunity application process is full disclosure and cooperation by the immunity applicant.  After an immunity agreement has been entered into with the DPP, applicants are required to provide non-privileged information to the Bureau and evidence relating to the anti-competitive conduct.  The Bureau may also require witnesses to attend at Bureau offices for interviews or to testify in court proceedings.

Violation of Immunity Agreement

It is also worth noting that where an applicant has failed to comply with the requirements of an immunity agreement, the DPP may revoke a party’s immunity (thereby exposing an immunity applicant to potential criminal liability).

Conclusion

With the recent significant amendments to the Act and increased fines and penalties for criminal anti-competitive conduct in Canada, it is prudent for companies and their counsel to not only have an understanding of competition law and compliance, but also to understand the terms of the Bureau’s Immunity Program.

As a practical matter, in the event of the detection of potentially criminal conduct under the Act, the benefit of the Bureau’s Immunity program together with the ability of a company and its officers to move quickly and nimbly to seek immunity, could result in a significant reduction of potential criminal liability.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to clients across Canada and internationally.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.

DISCLAIMER

The materials and information on CANADIAN COMPETITION LAW are provided as legal information about Canadian competition law.  Reading and accessing this information does not create a lawyer-client relationship.  The information on our blog does not constitute legal advice or a legal opinion on any issue.  In addition, the information and materials on this website will change based on new competition law developments and, as such, may not be current as of the date of access.  As such, we take no responsibility for the accuracy or currency of the competition law information or materials on our blog, which should not be relied upon without receiving legal advice from competent legal counsel.

Overview

Sweeping amendments were recently introduced that will significantly amend the criminal conspiracy provisions of the federal Competition Act (the “Act”).

Effective early next year, Canada will have a dual-track criminal conspiracy regime with a “per se” criminal offence for three types of “hard core” criminal agreements (i.e., enforceable with no requirement to show any adverse market effects) and a second civil reviewable matters provision to deal with all other types of agreements.

The new U.S.-style criminal conspiracy law is meant to make enforcement of hard-core criminal cartel activity easier by removing the necessity to prove adverse market effects.  The impact for companies doing business in Canada is that even companies with modest market shares that enter into agreements prohibited by the new law may face criminal liability (even in the absence of any negative effects on a market).

The conspiracy provisions of the Act, which are a cornerstone of the Act and remain a top enforcement priority for the Competition Bureau (the “Bureau”), can apply to a wide range of commercial agreements and activities including non-compete provisions in purchase and sale agreements, joint venture agreements, franchise agreements, trade association activities and intellectual property licensing agreements.

Moreover, in the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately CDN $250 million.  While such fines are relatively modest in comparison to international enforcement, the Bureau continues to work on detecting and prosecuting domestic cartels in Canada.

Criminal Offence – Section 45

Under the new criminal conspiracy offence, three categories of agreements will be “per se” criminal offences (i.e., with no requirement to establish any negative effect on a relevant market).

All other forms of agreements among competitors will be potentially subject to review under a second and separate non-criminal reviewable matters provision.

Under the new criminal provision, three types of agreements will be illegal: (a) agreements to fix, maintain, increase or control the price for the supply of a product (price fixing agreements); (b) agreements to allocate sales, territories, customers or markets for the production or supply of a product (market allocation agreements); and (c) agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product (output agreements).

Interestingly, the new criminal conspiracy law omits group boycott agreements, which is a fourth category of agreement that has traditionally been considered to be among the four types of “hard core” cartel agreements.

The term “competitor” is defined broadly to include potential competitors (i.e., “a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement”).  As such, agreements and arrangements between parties that are not actual competitors may also potentially be caught (e.g., in a franchise arrangement, where a franchisor does not currently but might compete with its franchisees).

It is worth noting that while the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier/customer and competitor/competitor agreements), the new criminal provisions are restricted to agreements between competitors (and potential competitors).

The key impacts of the new conspiracy provisions are that the bar will be lowered for enforcement of criminal conspiracy agreements in Canada, a larger number of agreements between competitors will potentially be subject to the new law which may as well lead to an increase in private actions based on the lower burden.

Defences

As a result of the recent amendments, a new ancillary restraints defence has been created.  It will apply where it can be proved on a civil burden of proof (i.e., on a balance of probabilities) that an agreement between competitors is (a) ancillary to a broader or separate agreement or arrangement between the same parties and (b) is directly related to (and reasonably necessary to give effect to) the purpose of the broader agreement or arrangement.  It will also have to be established that the broader agreement itself, if considered on its own, does not violate the criminal conspiracy provisions.

Other pre-existing exceptions, including for agreements between affiliates and in relation only to the export of products, will still apply.

In addition, the new civil provision (see below) will include an efficiencies defence that will apply where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of the agreement (i.e., any prevention or lessening of competition that will result or is likely to result from the agreement).  In this regard, the new civil provision dealing with non-criminal anti-competitive agreements will be more closely aligned with the existing merger provisions of the Act.

Civil Provision – Section 90.1

Under the newly amended Act, agreements among competitors that are not caught by the three new per se criminal offences will be potentially reviewable under the new civil reviewable matters provision.

Such agreements may include non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements.

The federal Competition Tribunal (the “Tribunal”) will be able to, on an application by the Commissioner of Competition (the “Commissioner”), make remedial orders where it is established that the agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.  The Tribunal may make an order (a) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (b) requiring any person, with their consent, to take any other action.

Unlike the criminal conspiracy provisions, the Tribunal will not be able to impose any monetary penalties (nor will private parties be able to commence damages actions).

Enforcement

The Bureau has broad investigatory powers under the Act in relation to conspiracies.  These include the power to obtain search warrants (including for computer searches), orders to compel testimony or to compel written returns under oath and wiretaps.

In Canada, prosecution of criminal conspiracies is the responsibility of the Public Prosecution Service of Canada (the “PPSC”), which is headed by the director of public prosecutions (the “DPP”).  Criminal matters are referred to the PPSC by the Bureau, which has the authority to determine whether to commence criminal proceedings.  Criminal prosecutions are brought in Canadian criminal courts and, while the DPP has official responsibility for criminal competition matters, the Bureau will typically work alongside the DPP during the course of a prosecution.

Penalties

Under the new legislation, the penalties for contravention of the criminal conspiracy provisions have been dramatically increased to up to fourteen years imprisonment (increased from five) and/or a fine of CDN $25 million per count (increased from CDN $10 million per count).

Courts in Canada may also issue so-called “prohibition orders” prohibiting the continuation or repetition of an offence and order a party to take certain steps to avoid future offences and comply with the law, such as the implementation of a corporate compliance program.

In reality, however, most penalties in Canada for violations of the criminal conspiracy provisions arise as a result of plea negotiations between the Bureau and an accused.

Advisory Opinions

Before the new conspiracy provisions come into effect, parties to an agreement can apply (for no fee) for an advisory opinion from the Bureau under section 124.1 of the Act as to the applicability of the new provisions to an agreement or arrangement.

Competition Bureau Immunity Program

The Bureau has a formal immunity program that is intended to encourage participants in criminal cartels to disclose their illegal conduct to potentially receive immunity from prosecution.  The Bureau’s immunity program is set out in a Bureau Information Bulletin.  Immunity applications are made to the Bureau, which will determine whether to recommend to the DPP that the request be granted.  In general, a party may receive immunity where they are the first to approach the Bureau with evidence of a cartel offence that the Bureau is unaware of or, alternatively, of which the Bureau is aware but has insufficient proof to refer the matter to the DPP.

Other requirements that a party must satisfy in order to obtain immunity include immediately taking steps to stop its involvement in the illegal conduct, it cannot have coerced unwilling parties to participate in the conspiracy, it must give full, frank and truthful disclosure of all evidence and information it knows (or is available to it), it must disclose all offences under the Act in which it may be involved (i.e., not only conspiracy offences) and must agree to provide full, timely and continuous cooperation during the Bureau’s investigation.

Private Actions

Under section 36 of the Act any person that has suffered loss or damage as a result of a contravention of the criminal provisions of the Act (including the criminal conspiracy provisions) may commence a damages action.  Class actions are also possible for violations of the criminal provisions of the Act.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to clients across Canada and internationally.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.

DISCLAIMER

The materials and information on CANADIAN COMPETITION LAW are provided as legal information about Canadian competition law.  Reading and accessing this information does not create a lawyer-client relationship.  The information on our blog does not constitute legal advice or a legal opinion on any issue.  In addition, the information and materials on this website will change based on new competition law developments and, as such, may not be current as of the date of access.  As such, we take no responsibility for the accuracy or currency of the competition law information or materials on our blog, which should not be relied upon without receiving legal advice from competent legal counsel.

Overview

Effective advertising is important for most companies and will prove its effectiveness in many ways including building goodwill, instilling consumer trust and, ultimately, resulting in increased sales.

However, when a company markets its products or services in a misleading manner, consumers may be deprived of accurate information which can adversely affect a company’s goodwill and reputation.  Misleading advertising can also attract legal liability and sanctions under both federal and provincial laws.

On the federal level, the Competition Act (the “Act”) sets guidelines on advertising and marketing practices including in relation to misleading advertising generally and specific forms of marketing conduct including sales (under the Act’s “ordinary selling price” provisions), deceptive telemarketing and promotional contests.

Misleading Advertising

The Act contains both criminal and civil misleading advertising provisions.  As such, the Competition Bureau (the “Bureau”) may pursue misleading advertising either as a civil matter or, alternatively, as a criminal matter.

While in most instances the Bureau will follow the civil track, it may proceed on the criminal track in some cases – for example, where there is clear and compelling evidence that an accused intentionally made false or misleading representations.

The civil misleading advertising provision, under the “deceptive marketing practices” part of the Act, prohibits representations to the public to promote products or business interests that are materially false or misleading.  The criminal provision, which is substantially similar, provides that a misleading representation may be criminal if it is made with intent (i.e., made knowingly or recklessly). 

It is worth noting that representations made to as few as a single person may be caught, the Act catches both literally false representations as well as claims that may be literally true where the “general impression” of the representation is misleading and that no person needs to be actually deceived or misled.

In addition, it is not necessary to prove that a representation was made to persons in Canada or that a representation was made in a publicly accessible place (i.e., companies in Canada targeting foreign consumers with misleading advertising can be potentially exposed to liability as can companies making claims in places not accessible to the public – e.g., through catalogue or direct sales).

The Act also governs a broad range of specific forms of marketing conduct including “ordinary selling price” claims (e.g., in relation to sales), deceptive telemarketing, contests, performance claims for products and bait-and-switch selling.

The potential penalties for contravening the civil misleading advertising provisions include a Competition Tribunal or court order to cease the conduct, an order to publish a corrective notice, a restitution order, a “freezing order” preventing the disposition of property and/or an order to pay an “administrative monetary penalty” (essentially a civil fine, referred to as an “AMP”) of up to CDN $750,000 for individuals (CDN $1 million for subsequent violations) and CDN $10 million for corporations (CDN $15 million for subsequent violations).

Potential penalties for contravening the criminal misleading advertising provisions (and the deceptive telemarketing and deceptive prize notice provisions) include up to 14 years imprisonment and/or an unlimited fine (i.e., a fine in the discretion of the court).

Ordinary Selling Price Claims

The “ordinary selling price” (“OSP”) provisions of the Act are intended to prevent inflated “regular” prices in relation to sales.

Claims relating to the ordinary or regular price of a product cannot be made unless either a “substantial volume” of the product has been sold at the stated “regular” price (or higher) within a reasonable period before or after the claim (referred to as the “volume test”) or the product has been offered for sale in good faith at that price (or higher) for a “substantial period of time” (referred to as the “time test”).

Since the OSP provisions were enacted in 1999, several well-known retailers have paid penalties ranging from $100,000 to $1.7 million.

Deceptive Telemarketing

The deceptive telemarketing provisions of the Act require, among other things, that telemarketers make certain disclosure at the beginning of calls (e.g., caller identity, purpose of the call, etc.) and that other disclosure be made in a “fair, reasonable and timely manner” (e.g., the product’s price and any material delivery restrictions).

The enforcement of the telemarketing provisions of the Act has been aimed for the most part at companies engaged in true “scams” rather than legitimate marketers who may have committed technical violations.

Individuals have been charged or imprisoned in a number of cases in connection with marketing a broad variety of products including business directories, office supplies and credit cards where the marketing was not in compliance with the Act.

Promotional Contests

Promotional contests are a common and popular way to promote products and may take a variety of forms (e.g., scratch-and-win contests, promotional draws, etc.).  Promotional contests are, however, governed by both the Act and the Criminal Code and can raise a number of potential issues (and attract civil and criminal sanctions) if they are not property structured.

OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  Our misleading advertising and marketing law services include advice in relation to:

- The general misleading advertising provisions of the Competition Act.
- “Ordinary selling price” provisions (sales).
- Promotional contests.
- Multi-level marketing plans.
- Pyramid selling.
- Telemarketing.
- Deceptive prize notices.
- Double ticketing & bait and switch advertising.
- Performance claims & comparative advertising.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.

Overview

In Canada, under the federal Competition Act (the “Act”), transactions that exceed certain monetary thresholds are required to be notified to the federal Competition Bureau (the “Bureau”).  In addition, all mergers regardless of their size (i.e., regardless of whether the statutory thresholds are exceeded) can be reviewed by the Bureau.

Broadly speaking, there are two aspects to merger review in Canada: (i) pre-merger notification and (ii) substantive review for potential competition issues.

I.  Pre-merger notification

Parties to transactions that exceed the monetary thresholds set out in the Act are required to make pre-merger notification filings with the Bureau.

In order for a transaction to be notifiable, it must involve the acquisition of an “operating business” in Canada (defined as a business undertaking in Canada to which employees ordinarily report for work) and be one of five specified types of transactions set out in the Act (an asset acquisition, share acquisition, corporate amalgamation, non-corporate combination or an acquisition of an interest in a non-corporate combination).

For share and asset acquisitions, the parties and their affiliates’ Canadian assets (or gross revenues from sales in, from or into Canada) must exceed CDN $400 million (the “size of parties” threshold).  In addition, the book value of the target’s assets in Canada (or annual gross revenues from sales in or from Canada generated by those assets) must also exceed CDN $70 million (the “size of transaction” threshold, which is increased annually based on inflation).

There is an additional threshold for share acquisitions.  For the acquisition of public companies, the acquisition must result in the acquirer holding more than 20% of the voting shares (more than 50% if more than 20% is already held).  For the acquisition of private companies, the acquisition must result in the acquirer holding more than 35% of the voting shares (more than 50% if more than 35% is already held).

The Act also contains a number of exceptions from the obligation to notify, including certain ordinary course acquisitions of real property and goods, an underwriting exception, transactions between affiliates and where an Advance Ruling Certificate (“ARC”) (one form of pre-merger clearance under the Act) is received.

(a)  Who Must Notify

Both parties to a transaction (i.e., the acquirer and the target) are required to file a pre-merger notification filing.

Filing choices include an application for an ARC or, alternatively, a filing requesting that a “no action” letter be issued.  Parties will also often file a separate submission or brief with a pre-merger notification filing setting out the reasons why the proposed transaction is unlikely to prevent or lessen competition substantially in the relevant market(s).

(b)  Closing Before Clearance

Canada is a “suspensory” jurisdiction, which means that parties to a notifiable transaction are not permitted to complete their transaction after filing unless the applicable waiting period has expired or clearance has been received (i.e., an ARC or no action letter).

The recently amended Act now also gives a court or the Competition Tribunal (the “Tribunal”) new powers relating to non-compliance with the statutory waiting periods.  These include, for a proposed transaction, the power to issue an interim injunction or compel the filing of information and, for a completed transaction, the power to order that the merger be dissolved, an order for the divestiture of shares or assets or “administrative monetary penalties” of up to CDN $10,000 for each day of non-compliance.

(c)  Waiting Periods

Following recent amendments to the Act, Canada now has a U.S. style two-stage merger review process.

After a pre-merger notification is made, there is an initial 30 calendar day waiting period which begins when the Bureau receives the notification filing.  During this initial review period, the parties to a transaction are not permitted to close until the waiting period has expired (unless clearance is received).

During the initial 30 day waiting period the Bureau may advise the parties to the transaction that it does not intend to challenge the transaction.

Alternatively, where the Bureau takes the position that there are potential competition issues, it may make a supplementary information request.  If the Bureau does so, the waiting period stops until a complete response has been filed upon which a second 30 day waiting period begins in which the parties are not permitted to close (again, unless clearance is received).

There is under the new merger clearance regime no limit on how long the supplementary information request process can take.  This is because the burden is on the merging parties to complete the request and, where a second request is made, the “clock” will not start again until the order has been complied with.  In addition, while parties are free to complete a transaction after 30 days of fulfilling a second request, the Bureau is not required to have finished its review by then.  As such, parties may either opt to wait for the Bureau to complete its review or close and assume the risk that the Bureau may challenge the transaction post-closing.

This new merger clearance process is modeled on that under the U.S. Hart-Scott-Rodino Antitrust Improvements Act and is intended to more closely align Canadian merger review with the U.S. system.

(d)  Clearance

Parties may close a transaction when (i) an ARC is received (the strongest form of clearance, typically issued in non-complex transactions where there are no issues or few issues), (ii) a “no action letter” is received (which indicates that the Commissioner does not, at the time it is issued, intend to apply to the Tribunal for remedies) or (iii) the applicable statutory waiting periods have expired.

It is worth noting, however, that the Bureau could continue to review a transaction after the applicable waiting periods have expired.

(e)  Hostile Transactions

There are special notification rules for hostile transactions.  Under these rules, the initial 30 day review period begins on receipt of a complete filing from the bidder and the Bureau will notify the target that a filing has been received from the bidder (and give the target 10 days to file from the date the target is notified).  In addition, the second 30 day waiting period (where a supplementary information request has been issued) begins when the Bureau receives the requested information from the bidder (i.e., regardless of when the target complies).  This is meant to prevent the target in a hostile transaction from stalling the transaction by delaying filing.

(f)  Challenging a Merger

The Bureau may challenge a merger either before or after closing.  The Bureau may seek an injunction to prevent closing or make an application to the Tribunal for a remedial order.  Potential remedial orders include an order to block the merger, an order for the dissolution of the merger or for the disposition of assets or shares.  The Bureau may also challenge a transaction for up to one year after closing (a period that has recently been shortened from the previous three years).

However, while the Commissioner has the power to make applications to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues being resolved by way of negotiated settlement (i.e., consent agreements providing for the disposition of assets, so-called “behavioural” remedies, etc.).

II.  Substantive Review

Broadly speaking, the substantive review of a merger involves an analysis as to whether the proposed merger is likely to prevent or lessen competition substantially in one or more relevant markets (i.e., what the potential anti-competitive effects of a merger may be).

In assessing the potential competition issues associated with a merger, the Bureau will consider both “unilateral effects” (i.e., whether the merged firm alone will be able to exercise market power post-merger) as well as “coordinated effects” (i.e., whether the merger will mean that a group of firms will be more likely to be able to exercise market power post-merger).

The substantive analysis of a merger involves the review of a number of factors including the estimated market shares of the parties, barriers to entry and other so-called “evaluative criteria” (e.g., effective remaining competition).

OUR CANADIAN MERGER CONTROL SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We have provided pre-merger notification and foreign investment advice in relation to numerous domestic and cross-border mergers.  Our Canadian merger control and foreign investment services include:

- Advice on the application of the Competition Act to mergers.
- Application of the Investment Canada Act to foreign investment in Canada.
- Preparing pre-merger notification filings and submissions.
- Drafting transaction documents.
- Merger-related compliance guidelines (pre-merger conduct memoranda).
- Coordinating and advice in relation to multi-jurisdictional merger review.

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For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

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We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.