We practice federal Canadian competition/antitrust law, have provided Canadian competition law advice to Canadian and international clients and provide a full range of competition law and foreign investment law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.
RECENT COMPETITION ACT AMENDMENTS NEWS & NOTES
Canada’s New Notifiable Transactions Regulations in Force
New Canadian Laws for Agreements Between Competitors
Canada’s Competition Act Amendments
OVERVIEW OF CANADA’S COMPETITION ACT AMENDMENTS
Sweeping amendments to Canada’s Competition Act (the “Act”) were recently passed that are the most significant changes to Canadian competition law in twenty-five years. Included are changes to most of the cornerstone provisions of the Act including to the criminal conspiracy, bid rigging, criminal pricing, price maintenance, abuse of dominance, misleading advertising and merger notification provisions. Some of the key Competition Act amendments include:
Conspiracy. The introduction of a new U.S.-style two-track criminal conspiracy regime, as part of the recent Competition Act amendments, with “per se” criminal offences for three types of “hard core” cartel agreements (price fixing, market allocation and output restriction agreements) and a second civil track for other types of non-hard core anti-competitive agreements.
Conspiracy Penalties. Significantly increased penalties under the criminal conspiracy provisions with fines of up to CDN $25 million (per count) and/or imprisonment for up to 14 years (more than twice the previous penalties) are among the most significant recent Competition Act amendments.
Private Actions & Enforcement. Changes to the criminal conspiracy provisions that will make it easier for plaintiffs to commence private civil actions and for the Competition Bureau (the “Bureau”) to prove criminal conspiracy offences.
Bid Rigging. A new criminal bid rigging offence has also been added as part of the Competition Act amendments.
False or Misleading Representations. Significantly increased penalties for false or misleading representations including “administrative monetary penalties” (essentially civil fines) of up to CDN $750,000 for individuals and CDN $10 million for corporations (more than ten times the previous penalties) have been added as part of the recent Competition Act amendments.
Criminal Pricing Provisions. The repeal of key criminal pricing provisions, including the criminal predatory pricing and price maintenance provisions.
Abuse of Dominance. The introduction for the first time in Canada of significant civil fines for abuse of dominance of CDN $10 million ($15 million for repeat contraventions) are among the most significant Competition Act amendments.
Competition Bureau Guidelines. The Bureau has issued (or is proposing to issue) a number of new enforcement guidelines setting out its new enforcement approach to the new rules (including Competitor Collaboration Guidelines and draft Trade Association Enforcement Guidelines).
Mergers. The adoption of a new U.S.-style notification and review regime, together with increased Bureau powers to request additional information from merging parties, increased filing requirements and amplified penalties for non-compliance.
These significant changes to Canada’s competition laws, and their impact on Canadian companies and international companies, as well as trade associations and other organizations, are discussed below.
CONSPIRACY – TWO-TRACK CRIMINAL CONSPIRACY REGIME
Among the most significant recent changes to Canadian competition law is the introduction for the first time of a U.S.-style two track approach to criminal cartels, consisting of: (i) a criminal track for so-called “per se” hard core cartel agreements (price fixing, market allocation and output restriction agreements) and (ii) a second civil track for non-hard core agreements that may prevent or lessen competition substantially in one or more relevant markets (which may apply to, for example, a number of common types of commercial agreements including joint venture, strategic alliance, franchise, license, R&D, dual distribution, non-compete and information sharing agreements).
New Offences – “Hard Core” Criminal Cartel Agreements
With respect to the new criminal track, criminal conspiracy provisions have been enacted for price fixing, market allocation and output restriction agreements. In this regard, Canada has now taken a U.S.-style “per se” approach to hard core cartel agreements, which means that as of March, 2010 it will not be necessary to show any adverse market effects to establish a criminal conspiracy under the Act for hard-core cartel agreements.
The practical impact of this change to Canada’s criminal conspiracy law under the Act, as part of Canada’s recent Competition Act amendments, is that, whereas formerly only large market participants were potentially exposed to criminal liability, smaller players (i.e., companies with small market shares) now also face potential criminal liability for bare price fixing, market allocation and output restriction agreements.
While the impact of these changes are relatively obvious in clear cases (e.g., a hard core price fixing agreement among members of a trade association), the impacts on a variety of commercial agreements and arrangements is less clear.
For example, there is currently debate as to the application of the new hard core provisions to commercial agreements including joint venture, franchise, licensing and dual distribution agreements and, in particular, whether such agreements will be dealt with by the Bureau (and Canadian courts) under the criminal or civil track. In this regard, while the Bureau has issued enforcement guidelines that indicate that it will deal with such agreements in most cases under the civil track, the Bureau’s guidelines are not law and, as such, there is no assurance that Canadian courts (or private parties commencing civil actions) will follow the same approach.
Another key impact of the recent amendments to Canada’s criminal cartel regime is that it will now be easier for private parties to commence private actions for violations of the criminal conspiracy provisions, given that the former competitive effects test to establish an offence has now been removed. This is expected to lead to an increase in both private competition law civil actions and class actions in Canada.
Civil Track for Non-hard Core “Anti-competitive Agreements
With respect to the second civil track for anti-competitive agreements, agreements between competitors that are not caught by the new per se criminal provisions (i.e., agreements that do not fall within the three enumerated categories of “hard core” anti-competitive agreements – i.e., bare price fixing, market allocation/division and output restriction agreements) will be potentially reviewable under a new civil section for other types of potentially anti-competitive agreements. Types of agreements that may be subject to review under the new civil provision may include non-compete, research and development, joint purchasing, joint production, joint selling, franchise, licensing and dual distribution agreements.
Under this recently enacted civil provision, the federal Competition Tribunal (the “Tribunal”) will have the power, on application by the Commissioner of Competition (the “Commissioner”), to make remedial orders where it is established that the agreement prevents or lessens (or is likely to prevent or lessen) competition in one or more relevant markets. In this regard, the new civil provision will be aligned with the process for substantive merger review under the Act.
In particular, the Tribunal will have the power to 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 consent, to take any other action. Unlike the criminal “per se” provisions, which carry the potential risk of criminal fines up to $25 million and/or imprisonment for up to 14 years, under the civil sections no monetary penalties will be available and private parties will have no private right of action.
CONSPIRACY – PENALTIES
Significantly increased penalties under the criminal conspiracy provisions have been enacted, with fines of up to CDN $25 million (per count) and/or imprisonment for up to 14 years, effective in March, 2010. These penalties are significantly increased from the previous CDN $10 million and/or five years imprisonment and signal both the continuing importance to the Bureau of detecting and deterring criminal cartels and as well what may be a more vigorous enforcement approach following the appointment of a new Commissioner last year.
PRIVATE ACTIONS – LOWER BAR TO COMMENCE PRIVATE ACTIONS
As a result of the recent amendments, and in particular based on the repeal of the “undueness” requirement for criminal conspiracies (i.e., removing the necessity of showing anti-competitive effects stemming from an anti-competitive agreement), it will now in theory be easier for private plaintiffs to establish the elements of a criminal conspiracy under section 45. This change, together with several recent plaintiff favourable price fixing class action cases in British Columbia and Ontario, is expected to result in an increase in competition law private actions.
BID RIGGING – NEW OFFENCE
New criminal bid rigging rules have been enacted, which are relevant to companies involved in competitive tenders. A new bid rigging offence for agreements to withdraw a bid that has already been made has been introduced. In addition, the maximum prison sentence for bid-rigging has been increased to fourteen years (from the previous five years). The previous unlimited fines for bid rigging (i.e., which may be set in the discretion of the court) have remained unchanged.
MISLEADING ADVERTISING – INCREASED PENALTIES
Significantly increased penalties under the civil misleading advertising provisions have been introduced. These include “administrative monetary penalties” (essentially civil fines) of up to CDN $750,000 for individuals and CDN $10 million for corporations that breach the civil false or misleading representations provisions of the Act. These new penalties for contravention of the civil misleading advertising provisions are more than ten times the previous fines.
REPEAL OF THE CRIMINAL PRICING PROVISIONS
The former criminal price maintenance, predatory pricing and price discrimination provisions under the Act have been repealed. These provisions, and in particular the former criminal “per se” price maintenance offence, were criticized as being unsound in relation to current economic thinking.
While predatory pricing and price discrimination will now be dealt with under the civil abuse of dominance provisions, the former criminal price maintenance provision has been replaced with a civil section together with a new right of private access allowing private parties to seek Tribunal orders in relation to, for example, refusals to deal or discriminatory conduct based on a person’s low pricing policy.
ABUSE OF DOMINANCE – CIVIL FINES
Significant “administrative monetary penalties” have been introduced for the first time for contravention of the civil abuse of dominance provisions under the Act of CDN $10 million (CDN $15 million for subsequent contraventions).
The introduction of what are essentially civil fines for abuse of dominance is both controversial and significant – controversial in that abuse of dominance is not conduct that is per se illegal, but rather prohibited only when extensive economic analysis has established that a dominant firm has abused its dominance in one or more relevant markets that has resulted in a substantial prevention or lessening of competition; the change is significant in that dominant firms now potentially face significant penalties for aggressive competitive conduct, whereas previously the most that could be obtained on a successful application to the Tribunal was a remedial order to cease the conduct.
Some of the key impacts of this change include potential chilling some forms of perfectly legitimate competitive conduct, as well as altering the advice given to dominant firms, given that a contravention of the abuse of dominance provisions may now lead to the potential imposition of significant penalties and not merely an order to cease the conduct.
MERGERS – NEW NOTIFICATION REGIME
Fundamental changes have been made to Canada’s merger review and notification regime. Key changes include: (i) increasing the “size of transaction” threshold for merger notification, which is one of two primary monetary thresholds to determine whether a merger is notifiable in Canada (together with the “size of parties” threshold), to CDN $70 million, (ii) introducing a U.S. style two-phase merger review and notification process with a single initial waiting period, with the potential for second requests, (iii) adding a U.S. “second request” style of supplementary information request, under which the Bureau may request additional information from merging parties in the context of complex transactions, (iv) shortening the post-closing period, during which the Bureau may challenge a completed merger, to one year from the previous three years and (v) introducing a single uniform merger notification form (whereas formerly parties were required to elect whether to file a “short form” or “long form” filing, which in turn depended on the complexity of a transaction).
While the law relating to the substantive analysis of mergers has not changed, the new U.S. style two-phase notification and review regime is expected to introduce additional delay and expense for complex mergers in Canada (i.e., those subject to second requests issued by the Bureau). At the same time, however, the filing process for notifiable mergers has been simplified and streamlined in a number of key respects. The new rules also give merging parties a level of increased comfort based on the shortened post-closing challenge period.
Key issues arising as a result of the recent amendments will include how frequently the Bureau will resort to issuing second requests for complex mergers (or mergers that may raise issues), the ability of merging parties to control the timetable and production requirements in second stage reviews and filing strategies to keep the review of notifiable transactions within a first stage review (e.g., whether merging parties adopt U.S.-style filing strategies, such as filing and pulling filings, to keep potentially problematic transactions within a first stage review).
It also remains to be seen whether the Bureau will adhere to its recently issued Merger Review Process Guidelines, which set out its approach to the new two-stage merger review process, and in particular its approach to second requests for information and internal Bureau controls for supplementary information requests.
IMPACTS
The recent amendments to the Act are highly significant and change the playing field for Canadian and international firms, trade associations and other organizations doing business in Canada. In this regard, some of the key impacts for companies and their counsel include:
1. Increasing the risk associated with “hard core” anti-competitive conduct (i.e., bare price fixing, market division/allocation and output restriction agreements).
2. Altering the advice given to trade associations and parties engaged in business dealings with competitors (and potential competitors).
3. A likely increase in Competition Act private actions and class actions.
4. Altering the advice given to dominant firms engaged in activities that could potentially be seen as anti-competitive under the abuse of dominance provisions.
5. Increasing compliance costs for companies as a result both of the substantive changes and significantly increased penalties.
6. Increasing the expense and time for the review of complex mergers.
IMPACTS OF CANADA’S NEW COMPETITION LAW ON REAL ESTATE BROKERS & AGENTS
New Conspiracy Regime
A new U.S.-style two-track criminal conspiracy regime has been introduced making three types of “hard core” conspiracy agreements per se illegal with no adverse market effects required (price fixing, market allocation/division and supply restriction agreements). A second civil track has been introduced for other types of non-hard core anti-competitive agreements that may prevent or lessen competition. Under the new criminal rules, there is no requirement to show any anti-competitive effects as a result of an agreement, which has significantly lowered the bar for the federal Competition Bureau and private plaintiffs to prove criminal conspiracy agreements. In addition, the penalties have been increased to up to $25 million and/or imprisonment for up to fourteen years (increased from the former $10 million and five years).
It will now be easier for the Bureau and private plaintiffs to prove criminal conspiracy agreements, which means that the potential risk of engaging in “hard core” criminal conspiracy conduct is now much more significant (e.g., agreements or arrangements to fix commissions, divide territories or agreements to boycott competitors). Regulating improper exchanges of competitively sensitive information (e.g., information relating to pricing, marketing strategies, markets, clients, costs, etc.) will also be more important. In other words, it will be prudent for real estate brokers and agents to take precautions when dealing with competitors and participating in board or association activities to avoid improper discussions and information exchanges (e.g., in relation to commissions, marketing and advertising strategies, dealing with competitors, alternative business models, refusing to deal with competing brokers and agents, etc.). It will also be important to adopt new (or revise existing) competition law compliance programs and provide competition law compliance seminars and training for brokerage personnel.
New Bid Rigging Rules
A new criminal bid rigging offence has been introduced and added to the existing bid rigging offences, for agreements to withdraw a bid already made in response to a call for bids or tenders. In addition, the maximum prison sentence for bid-rigging has been increased to fourteen years from five years.
These changes will make it more important for real estate brokers and agents involved in competitive tenders to understand Canada’s bid rigging laws. It will also be important to include guidelines in relation to competitive bids or tenders in brokerage competition law compliance programs.
Higher Misleading Advertising Penalties
Significantly increased penalties for false or misleading representations have been introduced including “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals and $10 million for corporations. The new maximum penalties are more than ten times larger than the previous penalties, and signal that the enforcement of the misleading advertising provisions of the Competition Act remain a top enforcement priority for the Competition Bureau (together with criminal conspiracies).
These changes will make it more important for real estate brokers and agents to comply with the misleading advertising provisions of the Act (including in online and social media). It will also be critical for Canadian brokers to include misleading advertising guidelines in brokerage competition law compliance policies, given the potentially more significant exposure.
Repealed Criminal Pricing Provisions
The criminal pricing provisions of the Act have been repealed including the former criminal price maintenance provisions (which deal, among other things, with refusals to deal or discrimination based on other market participants’ low pricing policies).
These changes eliminate the former criminal liability associated with price maintenance conduct. At the same time, the amendments have introduced the potential for challenges by competitors (the new civil price maintenance rules allow private parties to make applications to the Competition Tribunal for orders to cease conduct). The new regime will also likely reduce the number of price maintenance cases based on the introduction of a competitive effects test for the new civil provision (i.e., raising the bar to prove price maintenance).
New Abuse of Dominance Penalties
Finally, the amendments have introduced significant civil fines for abuse of dominance in Canada for the first time of up to $10 million ($15 million for subsequent orders). These changes mean that there may be increased liability for franchisors and larger brokerages in some cases that engage in anti-competitive (i.e., as a result of the introduction of monetary penalties). The changes will also increase the importance in some instances for franchisors and brokerages with significant market presence to seek legal advice in relation to conduct that could raise abuse of dominance issues.
CANADIAN COMPETITION LAW LINKS
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CONTACT US
We provide Canadian competition law and consulting services to Canadian and international clients. For more information about our services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558. Visit us on the web in Toronto at www.torontocompetitionlawyer.com or www.torontocompetitionlaw.com.