Canadian COMPETITION LAW

April 8, 2013

Steve Szentesi &
Mark Katz (Davies Ward Phillips & Vineberg LLP)

(Upcoming note for Associations+)

Just as with any other board of directors, directors of trade and profession associations generally owe duties of loyalty, care and skill to their organizations.  While the applicable standards may vary to some extent or be expressed differently between provinces, association directors are generally required to act honestly and in the best interests of the association and to exercise diligence and skill in the course of fulfilling their duties.  Based on this duty of care, directors have an obligation to take steps not only to advance the interests and objectives of their association, but also to protect their association against risk, including the risks entailed by non-compliance with the law.

One of the areas where compliance is essential for trade associations is with respect to Canadian competition law.  Canadian competition authorities have a long history of proceeding against trade associations for alleged anti-competitive conduct.  Most recently, the acting Commissioner of Competition, who heads Canada’s Competition Bureau, explicitly highlighted why competition law compliance is so important for trade associations:

“A [compliance] program … plays a crucial role for trade associations because trade associations face unique compliance issues.  Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct.  A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition.  It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct.”

Admittedly, compliance procedures and training – including competition compliance – are often not at the forefront of association agendas.  Potential obstacles include real world issues like budgets, staff, access to expertise, competing priorities (including practical goals like membership) and in some cases institutional resistance – for example, the view that “we’ve always done it this way and nothing has happened, so why change now?”

More and more, however, association boards, guided by professional staff, are recognizing that this type of attitude is self-defeating and carries with it the potential for significant legal exposure.  Moreover, they are also realizing that there are practical and commonsense steps that can be taken so that competition compliance is not overly difficult or burdensome.  Our objective with this article is to briefly explain why competition compliance is so important and then to offer a few tips that association boards can use to promote competition compliance within their organizations.

The Competition Act and Compliance

Canadian competition law is embodied in the federal Competition Act (the “Act“), which governs most businesses and industries in Canada.  The Act contains criminal and civil provisions relating to, among other things, conspiracy agreements (price-fixing, market division/allocation and supply/output restriction agreements between competitors), bid-rigging, false or misleading representations, refusals to deal, price maintenance, exclusive dealing, tied selling, market restrictions, and abuse of dominance.

There is no specific provision of the Act dealing with trade associations.  In practice, the key sections of the Act for associations tend to be those relating to conspiracies (e.g., price-fixing agreements), abuse of dominance and misleading advertising.  Some of the association activities that can potentially raise competition law issues in this regard include board meetings, information surveys and exchanges, rules and bylaws (including membership rules), and restrictions on advertising or other member business activities.

Violations of the Act can lead to very serious consequences, including imprisonment, criminal fines or civil “administrative monetary penalties”, orders to compensate consumers (i.e., restitution), court orders to stop or modify conduct, and civil damages actions.

The Bureau currently has several ongoing cases and investigations where trade association conduct is squarely at issue.  Further, in light of the Commissioner’s comments noted earlier, even more scrutiny of this nature can be expected.

One of the ways to sensitize associations and their members to the potential risks posed by the Competition Act is to establish and implement a credible and effective compliance program.

Compliance programs are not legislatively required under the Competition Act.  However, the Competition Bureau strongly encourages that they be adopted, including by associations.

The Competition Bureau’s key compliance guidelines are found in its Corporate Compliance Programs bulletin (“Compliance Bulletin“). In that bulletin, the Bureau recommends that five elements be included in compliance programs: senior management involvement and support; written compliance policies and procedures; training and education; monitoring and auditing; and discipline for non-compliance.

In practice, these recommendations tend to translate into the following basic elements for a credible compliance program: a written policy with a short policy statement (typically less than a page), an overview of the key provisions of the Act, and compliance guidelines (“do’s and don’ts”, conduct of meeting guidelines, etc.); periodic training and education; a mechanism to monitor participation (for example some organizations require employees/members to certify that they have read and understood their compliance policy); and a discipline mechanism for misconduct.

Compliance Tips for Association Boards

The Bureau’s Compliance Bulletin sets out the broad parameters for a credible compliance program.  But that general framework accommodates a considerable degree of flexibility.  The specific compliance approach an association chooses will be based on a combination of factors that include budget, risk tolerance and whether it is in a high-risk industry or even in one which has had a history of enforcement action.

Recognizing that compliance programs can take different forms in practice, here are a few basic and practical tips to help promote competition compliance that all association boards should consider for their organizations:

1. Establish a formal compliance program.  This should incorporate the Bureau’s recommended elements, but be tailored to the association’s specific needs and circumstances.  For example, the written policy can range from merely consisting of a series of simple guidelines for key activities (e.g., meetings, surveys/information exchanges, membership, lobbying, etc.) to an elaborate document with a detailed discussion of the law and its application to the association.

2. Whatever else you do, be sure to have (and use) guidelines for the conduct of board, committee, task force and other meetings.  These guidelines are typically short and to the point (e.g., 2-3 pages), and will cover off the key competition issues that may arise at such meetings.  The guidelines also should address the need to ensure compliance at informal encounters and not just at formal meetings.

3. Start every association gathering with a “competition law caution” that emphasizes the association’s adherence to Canadian competition law.  This is an easy way to remind participants of the importance of competition compliance.

4. Distribute hard copies of the competition law materials you develop to the association membership.  For example, these materials can be included in the package that goes to members prior to the association’s annual general meeting if the association holds one.  Or they can be included in every new member’s package of materials.

5. Post all compliance materials on the association’s website.  Make sure to do this in a way that will be obvious to members and others who visit or use the site.

6. Directors and association staff should participate in a short competition law orientation session on an annual basis.  This can be conducted by staff familiar with the basic competition rules or by asking external counsel to come in to lead a brief session (which may simply be an update on events and trends that year).

7. Don’t assume that association members are receiving competition training internally at their own organizations.  You should therefore make sure to provide a short training session for members on an annual (or some other reasonable) basis.

8. Assign periodic monitoring of the Bureau’s website (news releases) to an association staff person who can report to the board.  This is an easy and quick way to keep up-to-date on developments in key areas for associations.  Alternatively, or in addition, subscribe to some law firm newsletters and/or free or paid services (some of the better free services include Lexology and Mondaq).

9. Add standard competition law materials to the association’s library.  Examples include the CBA’s Fundamentals of Canadian Competition Law and our book on associations (The Competition Law Guide for Trade Associations in Canada (Carswell, 2012)).  You also should have available the Competition Bureau’s Corporate Compliance Programs bulletin (www.competitionbureau.gc.ca).  As noted, this is the Bureau’s key compliance document, including for associations.  It’s free and should be consulted by all association boards and staff.

10. Generally review all association activities through a “competition lens”.  If you believe that an association initiative may lead to higher prices, lower quality or choice, make it more difficult for some members (or others) to compete, or raise other types of competition concerns, get legal advice before you go any further with the initiative.

Competition compliance is in the best interests of associations and should be regarded as an integral aspect of directors’ duty of care.  Fortunately, it also doesn’t require a mammoth or costly effort to exercise this duty in a credible and effective fashion.

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SERVICES AND CONTACT

I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

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