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CANADA’S CRIMINAL CONSPIRACY LAW

“Price fixing agreements, like other forms of hard core cartel agreements … represent nothing less than an assault on our open market economy. Buyers in free market societies are entitled to assume that the prices of goods and services they purchase have been determined by the forces of competition. When they purchase products that have been the subject of such an agreement, they are effectively defrauded.”

(Chief Justice Crampton, Federal Court)

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“[The conspiracy section] of the Act moreover is its oldest provision.  Even today, it remains at the core of the criminal part of the Act.  The prohibition of conspiracies in restraint of trade is the epitome of competition law, finding its place in every competition law, from Section 1 of the Sherman Act to Article 85 of the Treaty establishing the European Economic Community … [The conspiracy section] of the Act is not just another regulatory provision.  It definitely rests on a substratum of values, a finding which must be kept in mind in the course of the vagueness analysis [in this case].”

(Gonthier J., R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606)

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DECEMBER 2023 COMPETITION ACT AMENDMENTS
AND CHANGES TO SECTION 90.1 (CIVIL AGREEMENTS PROVISION)

On December 15, 2023, Bill C-56 (An Act to amend the Excise Tax Act and the Competition Act), which introduced the first of two new significant rounds of amendments to the federal Competition Act, largely came into force.

This first new round of amendments to the Competition Act, which is intended to strengthen the ability of the Competition Bureau (Bureau) and private parties to enforce Canadian competition law and enhance competition generally in Canada, includes fundamental changes to Canadian competition law not seen since the last major amendments in 2009.

In general, the amendments to the Competition Act under Bill C-56 include new broad powers for the Bureau to conduct market studies, changes to the core substantive test for abuse of dominance under section 79 (creating new two-track tests for abuse of dominance), increased penalties for abuse of dominance, broadening the civil agreements provision (section 90.1) to include agreements between non-competitors (i.e., to also apply to vertical agreements, such as distribution/supply agreements) and repealing the efficiencies defences under section 90.1 and also for mergers under section 96.

These amendments increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition law.

The amendments introduced by Bill C-56 in December 2023 are expected to be followed by a second and more significant round of amendments contained in Bill C-59, which is currently working its way through Parliament. If passed, Bill C-59 would be the most important amendments to Canadian competition law since the current modern Competition Act replaced the former Combines Investigation Act in the 1980s.

Changes to Section 90.1 (Civil Agreements Provision)

Bill C-56 added a new exception under section 90.1 that provides that the Competition Tribunal may make orders even if none of the parties to an agreement are competitors (e.g., vertical agreements, such as supply/distribution agreements, vertical joint venture agreements, etc.) if: (i) a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in a market; and (ii) the agreement or arrangement prevents or lessens (or is likely to prevent or lessen) competition substantially in a market.

Before this 2023 amendment, section 90.1, like section 45 (criminal conspiracy agreements), was restricted to horizontal agreements (i.e., agreements that included at least two or more competitors).

Bill C-56 also repealed the efficiency defence under section 90.1 (under the former sections 90.1(4) to (6)), which had provided that the Competition Tribunal could not make an order under section 90.1 where an agreement resulted in efficiency gains that were greater than and would offset the effects of a prevention or lessening of competition.

These 2023 amendments widen the scope for the Competition Tribunal to make orders under section 90.1 where none of the parties are competitors (e.g., in relation to vertical agreements, such as supply/distribution agreements, vertical joint venture agreements, etc.) and reduce the role of efficiencies in arguing that the Competition Tribunal should not make an order under section 90.1.

While the efficiencies defence under section 90.1 was repealed in 2023, as with the review of mergers under section 92 (where the merger related efficiencies defence was also repealed), it is still possible to argue that efficiencies should be considered by the Competition Tribunal in determining whether to make an order given that under section 90.1(2) it may consider “any other factor that is relevant to competition” in a market in making an order.

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For more information about the December 2023 amendments, see: Significant Canadian Competition Act Amendments Come Into Force (Bill C-56). See also: Competition Bureau, Guide to the December 2023 amendments to the Competition Act. For more information about Bill C-59, the second amending bill, which has not yet passed, see here.

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OVERVIEW

As a result of amendments to the Competition Act (the “Act”) in 2009 and 2010, Canada now has a dual-track conspiracy regime with a criminal track for three categories of “hard core” conspiracy agreements between competitors and a second civil track for other agreements between competitors that may prevent or lessen competition substantially.

This new two-track conspiracy regime is intended to make the enforcement of hard-core criminal cartel activity easier under section 45 (given that the former competitive effects test has been removed) while allowing other non-hard core agreements, such as joint venture, franchise and licensing agreements, to be subject to a more detailed review under a separate civil track (section 90.1).

Some of the key impacts of the new conspiracy provisions on Canadian and international firms include: (i) substantially increasing the risk of “hard core” cartel agreements (i.e., bare price-fixing, market division/allocation or output/supply restriction agreements), as a result of the lower legal burden and higher penalties, (ii) altering the review of many common forms of commercial agreements (e.g., franchise, license, dual distribution and joint venture agreements), (iii) increasing the importance for trade associations and companies to review existing (or adopt new) compliance programs and (iv) enhancing the importance of reviewing and controlling dealings with competitors (e.g., information exchanges, trade association activities, etc.).

CRIMINAL OFFENCES (SECTION 45)

Three categories of agreements between competitors are currently “per se” illegal under section 45 of the Act – i.e., with no adverse impacts on a market or markets required:

1.  Price-fixing agreements.  Agreements to fix, maintain, increase or control the price for the supply of a product.

2.  Market allocation/division agreements.  Agreements to allocate sales, territories, customers or markets for the production or supply of a product.

3.  Output/supply restriction agreements.  Agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product. Section 45, however, omits any express reference to group boycotts (i.e., concerted refusals to supply), which may nevertheless fall within subparagraph 45(1)(c) (output/supply restriction agreements) in some cases (though this remains to be decided by Canadian courts).

As a result of amendments to the Act on June 23, 2022, however, wage fixing and no poach agreements between competing employers (i.e., agreements to fix employee wages or no to solicit or hire each others’ employees) will also be criminal offences under section 45. These new conspiracy offences will come into force on June 23, 2023 after a one-year transition period.

Other types of agreements between competitors are now potentially subject to review under a second and separate non-criminal reviewable matters provision (section 90.1).

“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 (i.e., currently) competitors may also potentially be caught in some cases.

CIVIL AGREEMENTS PROVISION (SECTION 90.1)

Agreements between competitors that are not caught by the three per se criminal offences under section 45 of the Competition Act (i.e., price-fixing, market division/allocation and supply/output restriction agreements between competitors) may be reviewed by the Competition Tribunal under the civil agreements provision of the Act (section 90.1). 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.

Under section 90.1, the Competition Tribunal may, on application by the Commissioner of Competition, make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market. The Tribunal may make orders: (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.

As a result of 2023 amendments, vertical agreements can also be reviewed by the Competition Tribunal under section 90.1 (i.e., where none of the parties is a competitor).

Vertical Agreements Under Section 90.1

On December 15, 2023, Bill C-56, which introduced the first of two rounds of new Competition Act amendments, added a new exception under section 90.1 that provides that the Competition Tribunal may make orders even if none of the parties to an agreement are competitors (e.g., vertical agreements) if: (i) a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in a market; and (ii) the agreement or arrangement prevents or lessens (or is likely to prevent or lessen) competition substantially in a market.

Before this 2023 amendment, section 90.1 was restricted to horizontal agreements (i.e., agreements that included at least two or more competitors).

Bill C-56 also repealed the efficiency defence under section 90.1 (sections 90.1(4) to (6)), which had provided that the Competition Tribunal could not make an order under section 90.1 where an agreement resulted in efficiency gains that were greater than and would offset the effects of a prevention or lessening of competition.

These 2023 amendments widen the scope for the Competition Tribunal to make orders under section 90.1 where none of the parties are competitors (e.g., in relation to vertical agreements, such as supply/distribution agreements or vertical joint venture agreements) and reduce the role of efficiencies in arguing that the Competition Tribunal should not make an order.

While the efficiencies defence under section 90.1 was repealed in 2023, as with the review of mergers under section 92 (where the merger related efficiencies defence was also repealed), it is still possible to argue that efficiencies should be considered by the Tribunal in determining whether to make an order given that under section 90.1(2) it may consider “any other factor that is relevant to competition” in a market in making an order.

DEFENCES

An ancillary restraints defence is available under section 45 of the Competition Act that applies where it can be shown that: (i) an agreement is ancillary to a broader or separate agreement that includes the same parties; (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement; and (iii) the broader or separate agreement does not itself constitute an offence under section 45.

ENFORCEMENT

The Competition Bureau has broad powers of investigation under the Act in relation to conspiracies, including search warrants and wiretaps.

In Canada, prosecution of criminal conspiracies is the responsibility of the Public Prosecution Service of Canada (“PPSC”), which is headed by the Director of Public Prosecutions (“DPP”).  Criminal matters are referred to the PPSC by the Competition Bureau, which has the authority to determine whether to commence criminal proceedings.  Criminal prosecutions are brought in provincial criminal courts and, while the DPP has official responsibility for criminal competition matters, the Bureau typically works closely with the PPSC during a criminal investigation.

PENALTIES

The potential penalties for violating the criminal conspiracy provisions of the Act currently include fines of up to $25 million (per count), imprisonment for up to 14 years, or both.

Following amendments to the Act, however, on June 23, 2022, the maximum criminal fine for conspiracy is now a fine in the discretion of the court (i.e., a fine with no upper limit). This amendment came into force on June 23, 2023 after a one-year transition period.

The record Canadian conspiracy (cartel) penalty to date is CDN $50 million, in a bread price-fixing investigation in which Canada Bread agreed to pay a $50 million fine after pleading guilty to fixing wholesale bread prices (see: here).

Canadian courts may also issue prohibition orders ordering that conduct stop and that a party (or parties) take steps to avoid future offences and comply with the law.

FOREIGN DIRECTED CONSPIRACIES

In addition to general conspiracy (cartel) offences, the Act also contains several specific provisions for conspiracies relating to professional sport (section 48), agreements or arrangements between federal financial institutions (section 49) and foreign directed conspiracies (section 46).

Section 46 of the Act makes it a criminal offence for any corporation carrying on business in Canada to implement the directives from any person in another country that is in a position to direct or influence the Canadian corporation’s policies to give effect to a conspiracy entered into outside Canada that would, if formed in Canada, violate section 45 (the general criminal conspiracy provision of the Act).

Section 46 purports to make corporations liable to an indictable offence, subject to fines in the discretion of a court, regardless of whether Canadian directors or officers of the Canadian corporation have knowledge of the conspiracy.

This offence is also, on its face, limited to corporations.  As such, while directors and officers are not expressly exposed to liability under section 46, they may liability under other theories of liability, such as through aiding and abetting an offence.  Section 46 expressly extends the jurisdiction of the conspiracy provisions of the Act to include cartel agreements that are formed outside Canada (although Canada is an effects based jurisdiction).

CIVIL ACTIONS

Under section 36 of the Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a damages action.  Class actions are also possible for violations of the criminal provisions of the Act.

IMMUNITY & LENIENCY PROGRAMS

The Competition Bureau has formal Immunity and Leniency Programs under which applicants may receive full immunity from prosecution (or reductions in penalties) for cooperating with an investigation.

Immunity Program

Under the Bureau’s Immunity Program, a party or company implicated in criminal conduct under the Act may offer to cooperate with the Bureau in its investigation and request immunity (i.e., full immunity from prosecution for criminal offences under the Act).  The criminal provisions of the Act include section 45 (conspiracy), section 47 (bid-rigging) and section 52 (criminal misleading advertising).

In general, in order to be eligible under the Immunity Program, the Bureau must either be unaware of an offence (and the immunity applicant is the first to disclose it) or the Bureau is aware of an offence, but does not yet have enough evidence to refer the matter for prosecution.

There are a number of other requirements including: (i) termination of participation in the illegal activity, (ii) not being the “ringleader” (i.e., not having coerced others to be a party to the illegal activity) and (iii) providing “complete, timely and ongoing co-operation” with the Bureau during an investigation (including confidentiality obligations, disclosing any other offences and securing the co-operation of current directors and officers).

Generally speaking the process for obtaining immunity is a multi-step process that involves seeking a “marker” from the Bureau (essentially a place in line, typically made on a hypothetical basis), making an initial “proffer” of information to determine eligibility in the Program (typically made by an applicant’s counsel on a without prejudice basis), the negotiation of an immunity agreement (setting out the obligations of the immunity applicant and their protections if the requirements of the Program are met) and disclosure and cooperation with the Bureau in an investigation and any resulting criminal prosecution.

Obtaining immunity is a “race” in that full immunity is only available to the first applicant that complies with the Bureau’s requirements under its Program.  As such, it is important for counsel advising individuals or companies that may have been involved in criminal conduct under the Act to immediately explore the potential benefits of seeking immunity, which can significantly reduce potential liability for violations of the Act.

The Bureau has issued guidelines that describe the requirements an applicant must meet to obtain immunity (see: Immunity Program under the Competition Act (Bulletin)).

Leniency Program

Under the Bureau’s Leniency Program, parties that have contravened criminal provisions of the Act that are not entitled to full immunity may nevertheless be eligible for leniency in sentencing.

In general, in order to be eligible, an applicant must: (i) have terminated its participation in the illegal conduct, (ii) provide full, frank, timely and truthful cooperation with the Bureau in its investigation and (iii) agreed to plead guilty (not required for Immunity Program applicants).

Importantly, as under the Bureau’s Immunity Program, timing is critical for immunity applicants under the Bureau’s Leniency Program.  This is because the first leniency applicant is eligible to receive a 50% reduction of the fine that would have otherwise been recommended, the second leniency applicant is entitled to receive a 30% reduction in fine with subsequent applicants possibly receiving reductions in fines.  In addition, once the Bureau has referred a matter to the DPP for prosecution, leniency is no longer available.

In addition, a leniency applicant that discloses evidence of another criminal offence under the Act may be eligible for “Immunity Plus” – i.e., full immunity from prosecution under the Bureau’s Immunity Program for a second previously unknown offence, if the applicant meets all the requirements of the Bureau’s Immunity Program.

Generally speaking the process for obtaining leniency, like immunity, is a multi-step process that involves: (i) seeking a “marker” from the Bureau (a place in line which is, like an immunity application, typically made by an applicant’s counsel on a hypothetical basis), (ii) making an initial “proffer” of information to determine eligibility in the Program, (iii) the negotiation of a plea agreement and (iv) full disclosure and cooperation with the Bureau in an investigation and any resulting criminal prosecution.

Successful leniency applicants may also be required to attend interviews and testify in prosecutions of other parties involved in the criminal conduct.

The Bureau has issued guidelines that describe the requirements an applicant must meet to obtain leniency under its Leniency Program (see: Leniency Program (Bulletin)).

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Our experience includes advising clients in Toronto, Canada and the United States on the application of Canadian competition and regulatory laws and we 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 and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

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