Canadian COMPETITION & ANTITRUST LAW

Steve Szentesi will be chairing and speaking and Tom Hakemi will be speaking at an upcoming CLE BC competition law seminar on March 18, 2010 in Vancouver at the Coast Coal Harbour Hotel: Canada’s New Competition & Foreign Investment Law 2010.  This upcoming half day practitioner-oriented seminar, which will be held one week after the final amendments to Canada’s Competition Act come into force, will review the major changes to Canada’s competition and foreign investment law regimes.  From CLE BC:

“Recent amendments to Canada’s Competition Act are the most significant changes in 25 years.  These changes now make familiarity with the key concepts of competition law essential to counsel in a wide variety of practice areas that traditionally did not deal with competition issues.  You will learn issues that should raise red flags in your practice and learn the practice points that you need to know as counsel.   Each topic will discuss a major area of change.  The new rules, guidelines, penalties and practice points.  The course will include discussions of the new merger notification, Investment Canada Act, criminal conspiracy, abuse of dominance and misleading advertising rules and related new Competition Bureau enforcement guidelines.  Join us and discover this new aspect of your practice.”

The recent sweeping amendments include fundamental changes to the merger, criminal conspiracy, abuse of dominance, misleading advertising and criminal pricing provisions of the Competition Act.  The recent amendments are also expected to have a significant impact on private competition law actions and class actions in Canada as a result of lowering the bar to establish criminal conspiracies under section 45 of the Competition Act.

The program for this half day seminar, which will include speakers from five Vancouver law firms, will include:

New U.S.-style Two-track Conspiracy Regime:  (i) new “hard core” criminal cartel offences, (ii) new civil provisions for anti-competitive agreements, (iii) increased penalties, (iv) impacts on trade associations and common commercial agreements, (v) new Competition Bureau enforcement guidelines, (vi) impacts on private actions and class actions and (vii) key practice points for counsel.

Misleading Advertising, Pricing & Distribution Practices:  (i) the new misleading advertising rules, (ii) new penalties, (iii) new bid rigging rules, (iv) repeal of the criminal predatory pricing and price discrimination sections, (v) new civil price maintenance and private access provisions and (vi) key practice points for counsel.

Merger Review & Notification: (i) new two-stage merger notification process, (ii) changes to merger control thresholds, waiting periods and forms, (iii) supplementary information requests, (iv) implications for M&A agreements, (v) how to manage substantive merger clearance within the new regime and (vi) managing your client’s expectations about timing and costs.

Investment Canada Act Amendments: (i) changes to the Investment Canada Act, (ii) state owned enterprise guidelines, (iii) new national security test for foreign investment, (iv) privilege and disclosure and (v) interplay between Competition Act and Investment Canada 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.

CANADA’S NEW CARTEL RULES:
NEW TWO TRACK REGIME, HARD CORE OFFENCES & FINES UP TO $25 MILLION

Effective March 12, 2010, parties that contravene Canada’s new criminal cartel rules under the federal Competition Act (the “Act”) will potentially be exposed to fines of up to Cdn. $25 million and/or imprisonment for up to 14 years.  The impending changes to Canada’s criminal conspiracy regime are the most significant since Canada introduced competition law in 1889. The upcoming changes will impact organizations and individuals in a variety of business sectors, including trade associations and businesses involved in joint venture, franchise, licensing, research and development and dual distribution agreements, among others.  This update discusses some of the highlights of the new rules and impacts on Canadian and international organizations and their managers.

NEW TWO-TRACK CRIMINAL CONSPIRACY REGIME

As of March 12, 2010, Canada will have a two-track criminal conspiracy regime. One track will be criminal and reserved for “hard core” anti-competitive agreements (agreements to fix prices, allocate markets or restrict output).  A second civil track will address non-hard core agreements that prevent or lessen competition substantially, requiring an analysis similar to merger review.  In addition, the penalties for contravening the new criminal conspiracy provisions will be substantially increased with fines of up to Cdn. $25 million and/or imprisonment for up to 14 years (increased from the previous Cdn. $10 million and 5 years).  Some of the key impacts of the upcoming changes include:

- Increasing the importance for trade associations and companies to review existing or adopt new competition law compliance programs
- Substantially increasing the risk associated with “hard core” cartel agreements based on the lower legal burden and increased penalties
- The introduction of a U.S.-style ancillary restraints defence, relevant for the negotiation, drafting and review of commercial agreements
- Altering the analysis for the review of common commercial agreements between competitors including franchise, JV, licence and dual distribution agreements
- Increasing the importance of reviewing and controlling information exchanges with competitors (i.e., exchanges of competitively sensitive information)

Impacts on Private Civil Actions

The impending changes are also expected to result in an increased number of private civil actions, and potentially competition law class actions, as a result of the lower bar to establish criminal price fixing, market allocation and output restriction agreements.

Other Recent Amendments

The upcoming changes to Canada’s criminal conspiracy rules are part of recent sweeping amendments to Canada’s competition and foreign investment law including: (i) a new U.S.-style merger notification regime, (ii) increased penalties for failure to comply with the merger notification provisions, (iii) higher fines for misleading advertising (of up to $10 million for corporations), (iv) civil fines for abuse of dominance (of up to $10 million), (v) amendments to the Investment Canada Act and (vi) a new national security test for foreign investment in Canada.

NEW COMPETITOR COLLABORATION GUIDELINES

On December 23, 2009, the federal Competition Bureau (the “Bureau”) issued its final Competitor Collaboration Guidelines (the “Guidelines”). The Guidelines, which were issued to coincide with the coming into force of Canada’s new criminal conspiracy rules and replace the Bureau’s previous Strategic Alliance Guidelines, set out the Bureau’s enforcement approach to Canada’s new two-track criminal conspiracy regime.

General Analytical Framework

In general, the Bureau states that mergers will be reviewed under the existing merger provisions of the Act and that most vertical agreements will be analyzed under the civil provisions of the Act (e.g., the new civil price maintenance or existing abuse of dominance provisions).  Exceptions may include dual distribution agreements in some instances.

Naked Restraints May be Criminal

With respect to determining whether to evaluate agreements under the criminal or civil track, the Bureau indicates that only naked restraints (i.e., bare price fixing, market allocation and output restriction agreements) will be reviewed under the new section 45, while other types of agreements, such as joint venture agreements, will potentially be subject to review under the new civil provisions.

With respect to the process for reviewing agreements under section 45 (hard-core offences), the Bureau indicates that it will take the following approach: (i) determine whether to review the agreement/arrangement under the criminal or civil provisions, (ii) if reviewing an agreement under section 45, determine whether in its view the new ancillary restraints defence applies and (iii) where it determines that the ancillary restraints defence applies, it may still seek a remedy under the civil section 90.1 or refer the matter to the Director of Public Prosecutions for prosecution.

Given that there will be no existing Canadian jurisprudence to interpret Canada’s new ancillary restraints defence when the new criminal cartel provisions come into force, in the first few years American jurisprudence will likely be important to give shape to both this new exception as well as Canada’s new cartel rules generally.

The American Experience

In this regard, the United States has had a two-track criminal cartel regime for over a century, with hard core agreements reviewed under a per se rule, encompassing for the most part bare price fixing agreements, and non-hard core agreements analyzed under a second separate “rule of reason” approach that considers the pro- and anti-competitive effects of challenged agreements.  Unlike Canada’s new regime, however, which has now expressly codified three forms of hard core cartel offences, the United States has over a century of case law that has defined its section 1 of the Sherman Act which, unlike Canada’s new rules, does not explicitly set out the types of agreements that are proscribed.

Establishing an Agreement

With respect to establishing an agreement, the Bureau confirms existing jurisprudence that there must be a “meeting of minds”, that informal or covert arrangements may be caught, that a cartel may be established whether or not the arrangement has been implemented and that an agreement may be established only with circumstantial evidence.

Conscious Parallelism

With respect to one of the most challenging and controversial areas of criminal cartels – i.e., “tacit agreements” or “conscious parallelism” – the Bureau takes the position that “parallel conduct coupled with facilitating practices, such as sharing competitively sensitive information … may be sufficient to prove that an agreement was concluded between parties.”  With respect to determining whether parties are competitors for the purposes of section 45, the Bureau confirms that the impugned agreement must be in relation to a product for which the parties compete (or are likely to compete).

Impacts for Trade Associations

With respect to trade associations, the new Guidelines indicate that there may be increased exposure for associations that facilitate anti-competitive agreements.  In this regard, the Bureau states that “rules, policies, by-laws or other initiatives enacted and enforced by an association with the approval of members who are competitors, are considered by the Bureau to be agreements between competitors for the purpose of section 45.”  The Bureau’s position that trade associations that facilitate anti-competitive agreements may be parties to a cartel agreement is noteworthy for several reasons. First, there is little recent authority for this proposition.  Second, it is not clear that many trade associations could be considered to compete or potentially compete with their members in order to fall within the new narrower horizontal prohibition under section 45. Unlike the previous version of section 45, which could potentially catch horizontal and vertical agreements, the new section 45 is structured to only apply to horizontal cartel agreements.

Other Common Commercial Agreements

With respect to dual distribution agreements, the Bureau indicates that it will review such agreements (i.e., arrangements where a supplier may compete with one or more of its distributors) under the new civil provisions and not under the criminal provisions.

Finally, the Bureau indicates that it will generally not review the following types of common commercial ancillary restraints under the criminal provisions, but rather under the civil provisions: (i) non-compete clauses in employment agreements and asset/share agreements, (ii) agreements not to make material changes to a business prior to completing a merger and (iii) non-compete agreements between joint venture partners where the restraint relates only to the products, services or territories of the JV.

Non-hard Core Agreements

With respect to the application of the new civil provision (section 90.1) for non-hard-core anti-competitive agreements, the Bureau states that in general agreements that fall within this new provision will be reviewed in a manner consistent with mergers under the Bureau’s existing Merger Enforcement Guidelines (the “MEGs”).  For example, the Bureau adopts very similar market share safe harbours to those set out in the MEGs.  Moreover, the Bureau sets out a similar analytical framework to that in the MEGs for mergers for considering whether parties possess market power, with factors including market shares, the likelihood of entry, foreign competition, barriers to entry and innovation.

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.

The Institute for European Legal Studies (IEJE, University of Liege, Belgium) and Professor Nicolas Petit, co-director of the IEJE, is organizing a half-day conference on the Google book settlement.  This half day conference will be held in Brussels on February 12, 2010.  The programme has been designed to reflect the breadth of opinions on the complex issues this matter raises in relation to the intersection of IP and competition law.  Speakers for this event will include European Commission officials, high level antitrust scholars, in-house counsel and antitrust/competition law practitioners.

For more information and the programme for this event see: IELS Program – Google Book Settlement Conference

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.

Significant amendments were recently made to Canada’s federal Competition Act (the “Act”) including the introduction of a new U.S.-style two-stage merger control regime.  This update discusses Canada’s new merger control rules and their impact on domestic and cross-border transactions.

Overview of Canadian Merger Control

The pre-merger notification provisions of the Act require both parties to specified types of transactions that exceed the statutory monetary thresholds under the Act to file pre-merger notification filings with the federal Competition Bureau (the “Bureau”).

In addition, regardless of size, any transaction that falls within the statutory definition of “merger” under the Act is potentially subject to substantive review by the Bureau to determine whether it is likely to result in a substantial prevention or lessening of competition in a relevant market (or markets).  For mergers that exceed the statutory monetary thresholds, notification is mandatory and failure to notify is a criminal offence.

Pre-merger Notification

For a transaction to be notifiable in Canada it must: (i) involve the acquisition of an “operating business” in Canada, (ii) be one of five specified types of transactions, (iii) exceed the statutory monetary thresholds and (iv) not fall within one of the statutory exceptions in the Act.

Canadian Operating Business

In order for a transaction to be notifiable in Canada, it must involve the acquisition of an “operating business” in Canada, which is defined under the Act as a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work.  In this regard, the Bureau has taken the position that employees may include both independent contractors and part time employees.

Types of Transactions

The five types of transactions that require pre-merger notification filing, assuming all of the other requirements are met, are: (i) asset acquisitions, (ii) share acquisitions, (iii) amalgamations, (iv) non-corporate combinations and (v) acquisitions of interests in non-corporate combinations.

Thresholds

In order to be notifiable, a transaction must also exceed the “size of parties” and “size of transaction” thresholds under the Act.

With respect to the size of parties threshold, the parties to a transaction and their affiliates’ Canadian assets, or gross revenues from sales in, from or into Canada, must exceed CDN $400 million.  With respect to the size of transaction threshold, 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 exceed CDN $70 million.

For share acquisitions, there is an additional threshold.  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).

Exceptions

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

Who Must Notify

Both parties to a transaction (i.e., both the acquirer and the target) are required to file a pre-merger notification filing.  Parties may request that an ARC or alternatively a “no action” letter be issued.  Parties will also often file a separate competitive effects 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).

Waiting Periods

Canada is a suspensory jurisdiction, in that parties to a notifiable transaction are prohibited from completing a transaction after filing unless the applicable waiting period has expired or clearance has been received.  As a result of recent amendments, Canada now has a U.S. style two-stage merger review process.

Under the new regime, filing triggers an initial 30 calendar day waiting period during which the parties to a transaction are not permitted to complete unless clearance has been received (either by receipt of a no action letter or ARC).  During this 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 issues, it now has the power to issue supplementary information requests (the Canadian equivalent to second requests).  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 during which the parties are not permitted to close (again, unless clearance is received).

Under the new regime, there is no limit as to how long the second 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 fully complied with (compared to the lesser standard of substantial completion in the U.S). 

In addition, while parties are free to complete a transaction after 30 days of complying with a second request, the Bureau is not required to have completed its review by that time.  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.

The recently amended Act also now gives a court or the Competition Tribunal (“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” (essentially civil fines) of up to CDN $10,000 for each day of non-compliance.

Clearance

Parties may complete a transaction when: (i) an ARC is received, which is the strongest form of clearance under the Act and typically issued in non-complex transactions where there are few or no issues and no overlap, (ii) a “no action letter” is received stating that the Commissioner does not at that time intend to seek a remedial order or (iii) the applicable statutory waiting period has expired.

It is worth noting, however, that the Bureau has the power to continue to review a transaction after the applicable waiting periods have expired if clearance has not been received.

Hostile Transactions

There are special rules under the Act 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), which is intended to prevent targets from stalling a transaction by delaying filing.

Filing

The Bureau’s Merger Notification Unit (“MNU”) is responsible for all pre-merger notifications in Canada. The MNU also gives guidance to parties regarding timing and information requirements for merger notification filings and enforces compliance with the pre-merger notification provisions of the Act.

Substantive Review

Broadly speaking, substantive review of mergers in Canada involves an analysis as to whether a proposed transaction is likely to prevent or lessen competition substantially in one or more relevant markets post-merger (i.e., to assess what the potential anti-competitive effects of a merger may be).  Whether a merger is likely to prevent or lessen competition substantially in a relevant market turns largely on whether the merged firm will be likely to exercise a materially greater degree of market power in a relevant market(s) post-merger.

The framework to analyze the potential anti-competitive effects of a transaction includes evaluative criteria in the Act, Tribunal merger decisions and the Bureau’s Merger Enforcement Guidelines (“MEGs”).  In assessing potential competition issues associated with a merger, the Bureau considers both unilateral effects (i.e., whether the merged firm alone is likely to be able to exercise market power post-merger) and coordinated effects (i.e., whether a group of firms together are likely to be able to exercise market power post-merger). 

This analysis of market power involves, among other things, the review of a number of factors including the estimated market shares of the parties, concentration in the relevant market (or markets), barriers to entry and other “evaluative criteria” including effective remaining competition, foreign competition and countervailing power of customers.

With respect to market shares, the Bureau takes the position in the MEGs that it will generally not challenge a merger on the basis of a concern of a unilateral exercise of market power where the post-merger share is less than 35% and will not generally challenge a merger on the basis of a concern of coordinated effects if: (i) the combined post-merger share of the four largest firms in the relevant market (CR4) is less than 65% or (ii) the post-merger share of the merged entity is less than 10%.

Challenging a Merger

The Bureau has exclusive jurisdiction to challenge mergers under the Act and may challenge a merger either before closing or post-completion.

Where the Bureau takes the position that a proposed merger is likely to prevent or lessen competition substantially, the Commissioner may seek remedial orders from the Tribunal including an order to block the merger (in the case of a proposed merger) or an order for the dissolution of assets of shares (in the case of a completed merger).  The Bureau has also sought injunctions in the past to allow more time for substantive review.  The Bureau may also challenge a transaction for up to one year after closing, which 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 highly uncommon in Canada with the majority of issues being resolved by way of negotiated settlement (i.e., consent agreements).

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.

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.