Canadian COMPETITION LAW

April 9, 2010

The following are some of the recent publicly reported Canadian trade association, conspiracy and bid-rigging cases that have involved Competition Bureau (the “Bureau”) investigations, penalties, court orders or settlements.

CANADIAN REAL ESTATE ASSOCIATION ALLEGED ABUSE OF DOMINANCE CASE (2010)

Market:  Residential real estate services.

Overview:  Alleged abuse of dominance case. On February 8, 2010 the Bureau filed an abuse of dominance application with the federal Competition Tribunal (the “Tribunal”) alleging that MLS rules adopted by The Canadian Real Estate Association limit choice and prevent innovation in the market for residential real estate services nationally in Canada.  In particular, the Bureau is challenging MLS rules that it claims require that certain services be provided as a condition for real estate agents to list properties on local real estate boards’ MLS systems and that it claims limit consumer choice of residential real estate services.

The Bureau’s position is that CREA and its members have used their alleged control of the MLS system and related trademarks to impose exclusionary restrictions impacting the supply of residential real estate brokerage services and as a result have limited alternative real estate services business models in the market.

This case is interesting for a number of reasons, including that, if a decision is issued by the Tribunal, it would be the first Canadian “essential facilities” case to be decided on its merits (i.e., a case dealing with whether and under what terms access to an important asset, or “essential facility”, must be granted).

Result:  CREA filed its response on March 26, 2010.  The case is currently ongoing.

QUEBEC STREET LIGHTS TENDER BID RIGGING CASE (2010)

Market:  Contracting services.

Overview:  The defendants in this case were accused of bid-rigging in relation to a call for bids for a street light project.

Result:  The corporate defendant was fined $50,000 and two individual defendants were sentenced to a ten year prohibition order.

QUEBEC RETAIL GASOLINE PRICE-FIXING CASE (2008–2009)

Market:  Retail gasoline.

Overview:  Price-fixing conspiracy case.  In 2008 charges were laid against 13 individuals and 11 companies accused of fixing retail gasoline prices at the pump in Victoriaville, Thetford Mines, Magog and Sherbrooke, Quebec.

Result:  As of December, 2009, 10 individuals and six companies pleaded guilty in this case with total fines imposed of more than $2.7 million.  Les Pétroles Therrien Inc. and Distributions Pétrolières Therrien Inc. were fined $179,000, Ultramar Ltée was fined $1.85 million and Jacques Ouellet was fined $50,000.

Of the ten individuals that pleaded guilty, 6 were sentenced to terms of imprisonment.

This case is noteworthy in that it involves one of the high priority sectors for the Bureau (retail gasoline) as well as being a recent example of where the sentences involved imprisonment (served in the community).

AIR CARGO PRICE-FIXING CASE (2009)

Market:  Air cargo services.

Overview:  International price-fixing case in relation to surcharges for air cargo exported on certain routes from Canada.

Result:  On October 30, 2009 the Bureau announced that British Airways Plc (“BA”) had pleaded guilty in the Federal Court and was fined $4.5 million for its participation in an air cargo cartel affecting Canada.  In particular, BA admitted to fixing surcharges relating to the sale and supply of international air cargo exported on particular routes from Canada between 2002 and 2006.  In this case, each of BA, Air France, KLM, Martinair and Quantas pleaded guilty to fixing surcharges on the sale and supply of international air cargo.  The total fines imposed in this case were more than $14.6 million (Air France: $4 million; KLM: $5 million; Martinair: $1 million; Qantas: $155,000; BA: $4.5 million).

This case is noteworthy for the significant penalties imposed as well as highlighting that the investigation of cartels remains a top enforcement priority for the Bureau.

INTERAC ASSOCIATION ALLEGED ABUSE OF DOMINANCE CASE (1996, 2010)

Market:  ATM services.

Overview:  Alleged abuse of dominance case (variation of Consent Order).

Result:  The Interac Association requested that the Commissioner of Competition (the “Commissioner”) consent to vary a 1996 Consent Order to permit Interac to restructure from a not-for-profit association structure to a for-profit model.  The Consent Order in this case included, among other things, terms relating to membership requirements of the Interac Association and fees.  The Bureau refused to remove certain “safeguards” in the Consent Order and stated that it did “not agree that the removal of the restriction against for-profit activities by Interac would be pro-competitive, or is necessary to allow Interac to remain competitive.”

This case is interesting in that it involves issues relating to access and terms of use for an “essential facility” (in this case a shared electronic network services network established by the Interac Association).

SASKATCHEWAN ROOFING CONTRACTORS ASSOCIATION ALLEGED BID-RIGGING AND CONSPIRACY CASE (2009)

Market:  Roofing contracting services.

Overview:  Alleged bid-rigging and conspiracy case.

Result:  On June 22, 2009 the Bureau announced that a court order had been issued prohibiting the Saskatchewan Roofing Contractors Association from taking any action directed towards the commission of an offence under the conspiracy or bid-rigging provisions of the Competition Act (the “Act”).  The order was a result of allegations that some members of the association had discussed not submitting bids in response to a request for tenders for a roofing project in Saskatchewan.  The order also requires the association to educate its members on the relevant provisions of the Act and terms of the order, and requires the association’s members, as a condition of membership, to acknowledge in writing that they will comply with the association’s corporate compliance program.

This case is noteworthy as a recent example of the Bureau’s continued interest in ensuring that Canadian trade and professional associations comply with the Act, as well as indicating that the criminal conspiracy and bid- rigging provisions of the Act remain top enforcement priorities for the Bureau.

NEWFOUNDLAND SCHOOL BUS OPERATORS ALLEGED PRICE-FIXING CASE (2009)

Market:  School bus services.

Overview:  Alleged market division and price-fixing case involving school bus services in and around St. John’s Newfoundland and Labrador. This case involved allegations that the parties had entered into agreements to divide the market and fix prices for school bus services and allegations of bid-rigging activities between 2001 and 2003.

Result: In February, 2009 the Bureau announced that it had obtained two prohibition orders against 14 companies and 18 individuals operating school bus services.

FEDERAL GOVERNMENT IT CONTRACTS ALLEGED BID-RIGGING CASE (2009)

Market:  IT services.

Overview:  In February, 2009 the Bureau announced that criminal charges had been laid against 14 individuals and 7 companies accused of rigging bids to obtain Government of Canada contracts for information technology services.  The Bureau stated that it had discovered evidence indicating that several IT services companies in the National Capital Region had been secretly coordinating their bids to “defraud the government by winning and dividing contracts, while blocking out honest competitors.”

Result:  One individual pleaded guilty to one count of bid-rigging, another individual (the former owner of TRM Technologies Inc.) pleaded guilty and was fined $25,000 and a prohibition order was issued against TRM Technologies Inc.

INTERNATIONAL HYDROGEN PEROXIDE PRICE-FIXING CASE (2008)

Market:  Hydrogen peroxide.

Overview:  International price-fixing case.

Result:  In November, 2008, the Bureau announced that Akzo Nobel Chemicals International BV had pleaded guilty and was ordered to pay a fine of $3.15 million in relation to fixing the price of hydrogen peroxide sold in Canada.  The Bureau stated that in its investigation it benefited from the cooperation of an immunity applicant under its formal Immunity Program.

INTERNATIONAL RUBBER AND CHEMICALS PRICE-FIXING CONSPIRACY (2007)

Market:  Rubber and chemicals industry.

Overview:  Charges under section 45 of the Act relating to price-fixing conspiracies in the rubber and chemicals industry.

Result:  On October 30, 2007, Bayer Group pleaded guilty for its participation in three cross-border price-fixing conspiracies.  Bayer AG was fined $2.9 million for its participation in the rubber chemical conspiracy and $400,000 for its participation in the nitrite rubber conspiracy.  Bayer corporation was fined $345,000 for the aliphatic polyester polyols conspiracy.

INTERNATIONAL GRAPHITE ELECTRODES PRICE-FIXING CASE (2007)

Market:  Graphite electrodes.

Overview:  International price-fixing case.

Result:  In November, 2007 the Bureau announced that SEC Carbon Ltd. (“SEC”) pleaded guilty to participating in a conspiracy in the graphite electrodes market and was fined $250,000.  SEC was the eighth party to be convicted in Canada in this case where total fines imposed were about $25 million.

FORT MCMURRAY AUTO BODY SHOPS ALLEGED PRICE-FIXING CASE (2007)

Market:  Auto body services.

Overview:  Alleged price-fixing case involving auto body services.

Result:  In February, 2007, the Bureau announced that a settlement was reached with six auto body shops in Fort McMurray.

The parties agreed to a binding court order that prohibited the six companies from: (i) engaging in communications relating to pricing or services and (ii) entering into agreements relating to pricing of products or services to customers or insurance companies. The companies were also required to publish a corrective notice outlining key terms of the court order and were required to implement a competition law compliance program.

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Competition Law Compliance Tips for
Canadian Trade and Professional Associations

The federal Competition Act can apply to many trade and professional association activities in Canada, including board and membership meetings, membership criteria and discipline, member surveys and benchmarking, association codes of conduct and dealings with suppliers and customers. While trade associations can, and frequently do, serve many legitimate purposes, since trade and professional association activities typically involve direct interaction between competitors, it is prudent for association executives, members and their advisors to take basic steps to proactively reduce potential competition law risk.

The federal Competition Bureau (Bureau) has also commenced many civil and criminal association related enforcement matters, including in the areas of conspiracy (cartels), bid-rigging and abuse of dominance, as well as regularly discussing association activities that can raise concerns and the importance of Competition Act compliance. The Bureau has also released several trade association related enforcement guidelines, including its Trade Associations and the Competition Act pamphlet and Corporate Compliance Programs bulletin.

The following are some key legal tips for trade and professional associations to comply with Canada’s Competition Act:

Implement a competition law compliance program. Developing and implementing an effective and credible competition law compliance program plays a crucial role for trade associations to mitigate risk under the Competition Act. As such, implementing a compliance program should be at the top of the compliance list for all associations.

Competition compliance options for associations range from formal compliance programs, which encompass all association activities to compliance guidelines for key activities based on risk (e.g., meetings, surveys/benchmarking and other types of information exchanges and specific initiatives that may raise competition law issues, such as joint negotiations with suppliers or customers, discussions or projects involving competitively sensitive topics).

Some of the key benefits of a competition law compliance program include reducing the risk of violating federal competition law, reducing the costs of investigations and proceedings should they occur and potentially mitigating penalties. Association board and other members may also consider requiring that their associations have a credible and effective competition compliance program to participate in association activities. For more information, see: Associations, Association Compliance, Compliance and Immunity & Leniency.

Prepare agendas and meeting minutes. Associations should prepare written agendas for all meetings involving competitors (including board of director meetings) and meeting minutes.  Discussions at meetings should also stay within the boundaries of legitimate agenda items and discussions (or exchanges) of “competitively sensitive information” should be avoided, including discussions of current or future pricing, costs, individual customers and suppliers, markets, market shares, output, competitive bidding and business or strategic plans.

The Bureau recommends that associations provide a clear copy of the agenda before trade association meetings for competing firms to participate in the meeting. For more information, see: Association Compliance and Information Exchanges.

Prepare and adopt conduct of meeting guidelines. Adopting and strictly following conduct of meeting guidelines is a proactive method to reduce competition law risks for associations. Such guidelines commonly include restrictions on the exchange of competitively sensitive information and topics that may lead to conspiracy risks under section 45 of the Competition Act (e.g., discussions relating to pricing, markets, concerted refusals to deal or limiting the production or supply of goods or services). For more information, see: Information Exchanges, Conspiracy (Cartels), Conspiracy FAQs and Refusal to Deal.

Compliance guidelines should also address steps to take if inappropriate discussions or activities arise during association meetings or events, including when attendees should leave meetings, report incidents to association executives and/or legal counsel and record efforts to prevent anti-competitive discussions from continuing. In certain cases, individuals or organizations that have participated in potentially illegal activities may also qualify for immunity from prosecution or lenient treatment under the Bureau’s Immunity and Leniency Programs. For more information, see: Immunity & Leniency.

Conduct compliance audits and appoint a compliance officer. One practical way for associations to monitor compliance is to conduct periodic audits of association activities, which can be performed on an association-wide, activity-specific or spot basis. Appointing a compliance officer to monitor, audit and assist with compliance can also help ensure that association members understand and comply with the Competition Act. For more information, see: Association Compliance and Compliance.

Conduct compliance orientations for new executives and personnel. Another practical step associations can take to assist with competition law compliance is to conduct compliance orientations for new board members, executives and other key personnel (e.g., staffers who are routinely involved in association surveys or benchmarking). The Bureau also recommends requiring company/member representatives to complete competition law compliance training before joining trade associations and participating in association activities. For more information, see: Association Compliance and Compliance.

Obtain legal advice for key association initiatives. Care should be taken in relation to specific types of trade association activities where there is increased potential risk.  Associations should obtain advice from qualified legal counsel for key activities that may raise competition law concerns, including surveys and benchmarking, standard setting, member discipline and joint member initiatives (e.g., joint marketing, purchasing or negotiations with significant purchasers).

Avoid “off the record” meetings. Associations should discourage informal or “off the record” meetings between members, particularly on the “fringes” of association meetings or using association facilities. Private meetings between competitors under the pretext of association meetings should also be discouraged. Association members should also be aware that merely because a meeting is held “off the record” or “in camera” (i.e., a discussion is not recorded in meeting minutes) does not mean that discussions (which may be recorded in other ways such as attendee notes, e-mails or texts, etc.) or the fact of the meeting itself cannot be used as evidence in competition law proceedings.  The Bureau and private plaintiffs can, and often have in the past, used such “circumstantial evidence” to establish a criminal conspiracy agreement.

Review association activities and rules. Associations should generally review their initiatives and activities through a “competition lens”. For example, if a particular association activity may lead to higher prices, less quality or choice, increase barriers for some members or competitors to compete or generally reduce competition, this may well raise competition law concerns (or at minimum the need to consult knowledgeable legal counsel).

It is also prudent for associations to ensure open consultations among members when developing or reviewing existing rules, codes of conduct and standards and include a clear statement of objectives, expectations and responsibilities that comply with the Competition Act. For example, associations should avoid rules (e.g., in association codes of conduct) that establish prices, mandate levels or types of services, restrict advertising or exclude viable competitors from the market.

Require associations to adopt credible and effective competition compliance programs. Before allowing company personnel to participate in trade or professional association activities, ensure that the association has adopted and follows a credible and effective competition compliance program. As a practical matter, if competition law issues arise (or enforcement) the association, member firms and their participating directors and officers and other personnel may be exposed to risk or penalties under the Competition Act. For more information, see: Association Compliance and Compliance.

Consider using third parties for surveys, benchmarking and other information exchanges. Before collecting and sharing competitively sensitive information within the association, consider using third parties to collect such information and distribute it with precautions to minimize potential competition law risk (e.g., circulating information in aggregated form, not distributing raw competitively sensitive data to competing board or other members, etc.). For more information, see: Information Exchanges.

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