As a result of recent landmark amendments to the federal Competition Act (the “Act”), the impact of competition law on trade associations in Canada is now much more significant. This article discusses some of the highlights of Canada’s new competition law and the impacts of the new criminal conspiracy provisions that will come into force in March, 2010.
The Competition Act & Trade Associations
There are no specific provisions of the Act dealing with trade associations. However, some of the general provisions that are particularly relevant to trade association activities include the criminal conspiracy, bid rigging, misleading advertising, bid rigging and abuse of dominance provisions – all of which have recently changed.
In general, the types of association activities that can raise competition law issues include those dealing with pricing, customers, territories, market shares, terms of sale and advertising. Some specific activities that can be problematic include fee guidelines, advertising restrictions, membership restrictions, association discipline, bylaws and rules relating to key aspects of competition and price fixing, market allocation and bid rigging agreements engaged in by association members.
New Criminal Conspiracy Rules
Significant new criminal conspiracy provisions will come into force in March. Under the new rules, it will be possible to establish price fixing, market allocation and output restriction agreements (three types of “hard core” cartel agreements) without establishing any adverse market effects.
The primary impact of these changes will be that, whereas formerly market power was a prerequisite to establish a criminal conspiracy (i.e., that a cartel agreement prevented or lessened competition “unduly” in one or more relevant markets), under the new law, parties to an agreement with modest market shares may also be caught. As such, trade association members that engage in price fixing, market allocation or boycott agreements (and potentially where associations facilitate such agreements) will face potentially increased criminal liability.
In addition, the penalties for criminal cartels will also more than double – with fines of up to $25 million fines and/or imprisonment for up to 14 years (increased from $10 million and 5 years). The enforcement of the criminal conspiracy provisions also remains an enforcement priority for the Competition Bureau, which has indicated in recent public statements that it is increasingly interested in detecting domestic (i.e., Canadian) cartels.
New Penalties for Misleading Advertising
The false or misleading representation provisions of the Act are also highly relevant to trade associations and their members. The Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations made to promote the supply or use of a product or a business interest. As a result of the recent amendments, contravention of these provisions will now potentially be subject to civil fines of up to $750,000 (for individuals) and $10 million (for corporations).
New Penalties for Abuse of Dominance
As a result of the recent landmark amendments, civil fines have been introduced for abuse of dominance for the first time in Canada of up to $10 million ($15 million for repeat contraventions). Under the Act, abuse of dominance occurs where a dominant firm (or firms) has engaged in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, with the result that competition has been, is being or is likely to be prevented or lessened substantially.
Some of the types of trade association activities that can raise abuse of dominance issues include restricting access to essential services or markets and standard setting that may prevent or impede entry.
New Bid Rigging Law
Canada has a standalone bid rigging provision that applies where, in response to a call for tenders or bids, one or more bidders agrees not to submit a bid (or where two or more bidders agree to submit bids that have been prearranged). These rules can be relevant to members of trade associations that are involved in competitive bids or tenders (e.g., the construction industry). After the recent amendments, it is also now a criminal offence to agree to withdraw a bid that has already been made.
Trade Association Enforcement Guidelines
Finally, the Bureau has recently issued a new draft Information Bulletin on Trade Associations specifically dealing with the enforcement of the Act in relation to trade associations. Together with its proposed new enforcement guidelines for competitor collaborations, the new trade association enforcement guidelines are expected to further alter the analysis of the application of Canadian competition law to the activities of trade associations and their members.
Impacts on Canadian Trade Associations
The landscape of Canadian competition law has drastically changed. Some have said the recent amendments are the most significant in twenty-five years. In our view, the changes are the most significant since Canada introduced competition law in 1889. The impacts on Canadian firms and trade associations will be significant. It remains to be seen, however, what the practical outcomes will be for Canadian firms and associations as a result both of the new rules and Competition Bureau and private enforcement.
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