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.
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