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CANADA’S CRIMINAL CONSPIRACY LAW

“In our criminal work, we continue to concentrate on the, admittedly, lengthy process of ‘changing the game’ – reorienting our approach at the Bureau, our processes, and our mindset to a more appropriately aggressive stance to respond, as we must, to our new more powerful criminal provisions.”

(Commissioner of Competition, Melanie Aitken, speech to the 2011
CBA Competition Fall Conference)

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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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“Competition law treats agreements among rival firms to set the terms on which they trade as extremely serious offenses.  Most of the world’s approximately 120 systems of competition law assign the prosecution of cartels a high priority.  The consequences of detection can be severe. The annual global sum of civil fines and treble damages for cartel participants today routinely exceeds hundreds of millions—indeed, even billions—of dollars, and individuals in a growing number of countries face potent criminal sanctions.

Central to the operation of laws that aggressively punish collusion are the definition and proof of concerted action.  Powerful consequences flow from whether price increases observed in the marketplace emerge from individual or collective initiative.  A firm acting alone ordinarily can set its prices as high as it likes.  If the same firm cooperates with its competitors to achieve price increases, however, its executives may go to prison.  Despite the crucial role of the concept of concerted action to this framework, few elements of modern antitrust analysis in the United States and in other jurisdictions are more perplexing than the design of evidentiary standards to determine whether parallel conduct stems from collective or from unilateral decision-making.”

(William E. Kovacic, et al., “Plus Factors and Agreement in Antitrust Law” (2012))

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OVERVIEW

Recent Developments: New Competition Bureau anti-cartel compliance materials including: compliance video, Competitor Collaboration Pamphlet, updated Bid-Rigging Pamphlet and Trade Associations Pamphlet – see: here.

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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 now “per se” illegal under the amended section 45 of the Act – i.e., with no adverse impacts on a market or markets required any longer:

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).

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 new per se criminal offences are now potentially reviewable under the new civil reviewable matters provision (section 90.1).  These 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.

Following the amendments, the Tribunal now has the power, on application by the Commissioner of Competition, to 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.

Unlike under section 45, however, fines cannot be ordered under section 90.1 and private parties have no right to commence civil actions.

DEFENCES

The amendments to the Act have also introduced a new ancillary restraints defense 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.

Most of the other pre-existing exceptions, including for agreements between affiliates, remain under section 45.

The new civil agreements provision (section 90.1) also includes an efficiencies defense that applies where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of an agreement.  In this regard, the new civil provision dealing with non-criminal anti-competitive agreements is now closely aligned with the existing merger provisions of the Act, which also include an efficiencies defence.

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 include fines of up to $25 million (per count), imprisonment for up to 14 years, or both.  These have been increased from the previous $10 million per count and 5 years imprisonment.  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)).

LINKS AND RESOURCES

Legislation: Competition Act, Criminal CodeCompetition Bureau: Competition Bureau, Investigating CartelsEnforcement Guidelines: Competitor Collaboration GuidelinesBulletins: Immunity Program, Leniency ProgramPamphlets: Bid-Rigging, Competitor Collaboration, Trade AssociationsPublic Prosecution Service of Canada (PPSC): Public Prosecution Service of Canada.

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