Canadian COMPETITION & ANTITRUST LAW

CANADA’S COMPETITION ACT AMENDMENTS (2009, 2010)

Sweeping amendments to Canada’s Competition Act came into force in 2009 and 2010 that are the most significant changes to Canadian competition/antitrust law in twenty-five years and, in some cases, since Canada first introduced competition law in 1889.

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 (i.e., monopoly), misleading advertising and merger notification provisions.

Some of the key amendments include:

Conspiracy (Cartels). The introduction of a new U.S.-style two-track criminal conspiracy regime, with “per se” criminal offences for three types of “hard core” cartel agreements between actual or potential competitors (price fixing, market allocation and output restriction agreements) and a second civil track for other types of non-hard core anti-competitive agreements that may prevent or lessen competition substantially.

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 double the previous penalties).

Private Actions & Enforcement. The removal of the competitive effects test (the former “undueness” requirement) from the criminal conspiracy provisions that will make it easier for private plaintiffs to commence civil actions and for the Competition Bureau to prove criminal conspiracy offences.

Bid-rigging. A new criminal bid-rigging offence has been added, making it an offence to agree to withdraw a bid already made.

Misleading Advertising. Significantly increased penalties for civil misleading advertising have been introduced including “administrative monetary penalties” (essentially civil fines) of up to CDN $750,000 for individuals and CDN $10 million for corporations (for corporations, representing an increase from the previous $100,000 maximum fine to $10 million, or a hundred-fold increase in maximum fine).

Criminal Pricing Provisions. The former criminal pricing provisions of the Act have been repealed (predatory pricing and price discrimination).

Price Maintenance. The former per se criminal price maintenance offence has been replaced with a civil price maintenance provision with a new competitive effects test (requiring that an “adverse effect on competition” be shown in addition to the other required elements).

Abuse of Dominance. Significant civil fines have been introduced for the first time for contravention of the abuse of dominance (i.e., monopoly) provisions of the Act of CDN $10 million ($15 million for subsequent orders).

Competition Bureau Guidelines. The Competition Bureau has issued a number of new or updated enforcement guidelines setting out its enforcement approach to the new rules (including Competitor Collaboration Guidelines).

Mergers. A new two-stage U.S.-style merger notification and review regime has been adopted, together with increased Competition Bureau powers to request additional information from merging parties, increased filing requirements and amplified penalties for non-compliance.  The size of target threshold was also increased from CDN $50 million to $70 million and an indexing formula was also implemented to adjust the size of transaction threshold annually to reflect changes in Canada’s GDP.

Post-merger challenges. The rules relating to the Bureau’s ability to challenge a completed merger have been amended to shorten the period of post-completion challenge to one year (from the previous three years).

Domestic airline abuse of dominance provisions. Specific abuse of dominance rules relating to domestic airlines, adopted when Air Canada acquired Canadian airlines, have been repealed.

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 with a criminal track for so-called “per se” hard core cartel agreements (price-fixing, market allocation and output restriction agreements) and a second civil track for other types of agreements that may prevent or lessen competition substantially (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 adopted a U.S.-style “per se” approach to hard core cartel agreements, which means that it is now no longer necessary to show any adverse market effects to establish a criminal conspiracy under the Act for hard-core cartel agreements (whereas before, it was necessary to show that such agreements prevented or lessened competition “unduly”).

The practical impact of this change to Canada’s criminal conspiracy laws is that, whereas formerly only large market participants were potentially exposed to criminal liability, smaller players (i.e., competitors with small market shares) now also face potential criminal liability for bare price-fixing, market allocation and output restriction agreements.

While the impacts of these changes are obvious in straightforward cases (e.g., a hard core price-fixing agreement between direct competitors), the implications for many other types of commercial agreements and arrangements are less clear.

For example, it is not yet clear how the new conspiracy provisions will apply to joint venture, franchise, licensing and dual distribution agreements and, in particular, whether such agreements will be dealt with by the Competition Bureau (and Canadian courts) under the criminal or civil track.  In this regard, while the Competition Bureau has issued enforcement guidelines that indicate that it will deal with such agreements in most cases under the new civil track, the Competition Bureau’s guidelines are not law and, as such, there is no assurance that Canadian courts, or for that matter private parties in civil actions, will necessarily 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, given that the former competitive effects test to establish an offence has now been removed.

Civil Track for Non-hard Core “Anti-competitive Agreements

Agreements between competitors that are not caught by the new per se criminal provisions (agreements that do not fall within the three categories of “hard core” anti-competitive agreements – i.e., bare price-fixing, market allocation and output restriction agreements) will be potentially reviewable under a new civil section.  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 the new civil agreements provision (section 90.1), the federal Competition Tribunal (the “Tribunal”) now has the power, on application by the Commissioner of Competition (the “Commissioner”), to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition.  In this regard, section 90.1 is similar to the existing merger provisions of the Act.

Under the new section 90.1, the Tribunal has 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 provisions, however, no monetary penalties or imprisonment can be imposed under the new civil provisions (nor are there any civil private action rights).

Conspiracy – New 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.  These penalties are significantly increased from the previous CDN $10 million and/or five years imprisonment.

PRIVATE ACTIONS – LOWER BAR TO COMMENCE PRIVATE ACTIONS

As a result of the recent amendments and 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 is now easier for private plaintiffs to prove a conspiracy under section 45 of the Competition Act.  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 has been introduced making it an offence to agree to withdraw a bid that has already been made.  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) remain unchanged.

MISLEADING ADVERTISING – INCREASED PENALTIES

Significantly increased penalties under the civil misleading advertising provisions have been introduced.  These include “administrative monetary penalties” (i.e., “AMPs” – essentially civil fines) of up to CDN $750,000 for individuals and CDN $10 million for corporations.  The new fines are more than ten times the previous fines.

CRIMINAL PRICING PROVISIONS REPEALED

The former criminal price maintenance, predatory pricing and price discrimination provisions of 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.  Predatory pricing will now be dealt with under the abuse of dominance provisions of the Act (section 79).

NEW CIVIL PRICE MAINTENANCE PROVISION

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, among other things, refusals to deal or discriminatory conduct based on a person’s low pricing policy.  The new price maintenance provision is now civil (not criminal), no criminal fines may be imposed (only Tribunal remedial orders) and while private parties may seek private access to the Tribunal there is no private right of action for parties seeking damages.

ABUSE OF DOMINANCE – CIVIL FINES

Significant “administrative monetary penalties” (i.e., “AMPs” – essentially civil fines) have been introduced for the first time for contravention of the civil abuse of dominance provisions of CDN $10 million (CDN $15 million for subsequent orders).

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 (i.e., a Tribunal order to cease the conduct).

MERGERS – NEW NOTIFICATION REGIME

Fundamental changes have been made to Canada’s merger review and notification regime.  These include: (i) increasing the “size of transaction” threshold for merger notification (which is, together with the “size of parties” threshold, one of two primary monetary thresholds to determine whether a merger is notifiable in Canada) to CDN $70 million (subsequently increased to $73 million in February, 2011, as the amendments also provided for an indexing formula to adjust the size of transaction threshold annually to reflect changes in Canada’s GDP), (ii) introducing a U.S. style two-phase merger review and notification process, (iii) adding a U.S. “second request” style of supplementary information request, under which the Competition Bureau may request additional information from merging parties in the context of complex transactions, (iv) shortening the post-closing period during which the Competition Bureau may challenge a completed merger to one year from the previous three years and (v) introducing a single uniform merger notification form (whereas the previous notification forms and information required turned on the complexity of the 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 Competition 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 Competition Bureau will resort to issuing second requests for complex mergers, 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).

COMPETITION/ANTITRUST LAW & ECONOMIC TERMS

For competition/antitrust definitions and terms see:

Antitrust Alphabet

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