Sweeping amendments were recently passed that will significantly amend the criminal conspiracy provisions of the federal Competition Act (the “Act”), which are considered one of the “cornerstones” of Canadian competition law. Effective March, 2010, Canada will have a dual-track criminal conspiracy regime with “per se” criminal offence for three forms of “hard core” criminal agreements (i.e., with no requirement to show any adverse market effects on a relevant market(s)) and a second civil reviewable matters provision under which other non-hard core agreements may be subject to review.
This new U.S.-style criminal conspiracy law is meant to make enforcement of hard-core criminal cartel activity easier (by removing the previous competitive effects test) while at the same time allowing non-hard core agreements (e.g., joint venture and other agreements where a more detailed analysis of the potential effects of the agreement may be warranted) to be subject to more detailed scrutiny.
The enforcement of the criminal conspiracy provisions, which can apply to a wide range of commercial agreements and arrangements (e.g., joint venture, franchise, dual distribution and licence agreements), remain a top enforcement priority for the federal Competition Bureau (the “Bureau”). 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 (though such fines are relatively modest in comparison to other major jurisdictions, notably recent fines in the EU).
Some of the key impacts of the new conspiracy provisions on Canadian and international firms include:
- Substantially increasing the risk associated with “hard core” cartel agreements, as a result of the lower legal burden and higher penalties.
- Altering the review of common commercial agreements (e.g., franchise, licence, dual distribution and joint venture agreements).
- Increasing the importance for trade associations and companies to review existing (or adopt new) competition compliance programs.
- Enhancing the importance of reviewing and controlling dealings with competitors (e.g., information exchanges, etc.).
- Increasing the number of private actions and class actions commenced under the Act (as a result of the lower burden as of next March).
Canada’s new criminal conspiracy regime is discussed in more detail below.
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 or markets). 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 provisions, the following three types of agreements will be per se 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 provisions omits any express reference to group boycotts which, together with bid rigging, has traditionally completed the group of so-called “hard core” anti-competitive forms of agreements both in Canada and internationally (though the language of the new output restriction offence is broad enough to theoretically cover some forms of boycotts).
“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 also worth noting that while the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier/distributor/consumer and competitor/competitor agreements), the new criminal provisions are restricted to horizontal agreements between competitors (and potential competitors). In this regard, the ambit of the new conspiracy provisions has been narrowed (and it is likely that the majority of allegedly anti-competitive vertical arrangements and agreements will be reviewed under the new civil provision or other reviewable matters provisions, such as the civil abuse of dominance provisions of the Act).
Several of the key impacts of the new conspiracy provisions include a lower burden to establish criminal conspiracies in Canada, an increased risk for parties engaged in “hard core” anti-competitive agreements (e.g., price fixing or market allocation agreements) and altering the framework for the analysis of non-hard core commercial agreements (e.g., franchise, licence, dual distribution and joint venture agreements).
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., balance of probabilities) that an agreement between competitors is: (i) ancillary to a broader or separate agreement or arrangement between the same parties and (ii) 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, will still apply.
In addition, the new civil provision (discussed 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, for example, 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: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.
Unlike the criminal conspiracy provisions, the Tribunal will not have the power to impose any monetary penalties (nor will private parties have the power to commence damages actions).
Penalties
Under the new rules, the penalties for contravention of the criminal conspiracy provisions will dramatically increase to up to fourteen years imprisonment (increased from five) and/or a fine of CDN $25 million per count (increased from a previous maximum of CDN $10 million per count).
Advisory Opinions
Before the new conspiracy provisions come into effect, parties to an agreement may 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.
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