Canadian COMPETITION & ANTITRUST LAW

Cartel. “Cartel” is another term for a criminal conspiracy and is frequently used in other major jurisdictions (e.g., referring to conspiracy agreements under Section 1 of the Sherman Act in the United States and Article 101 of the Treaty on the Functioning of the European Union in the EU).  Criminal conspiracy agreements between actual or potential competitors (i.e., price-fixing, market allocation/division and output/supply restriction agreements) are prohibited by section 45 of the Competition Act and punishable by fines of up to Cdn. $25 million (per count), imprisonment for up to 14 years, or both.  Competition Bureau: “A cartel is a formal or informal group of otherwise independent businesses whose concerted goal is to lessen or prevent competition among its participants.  Typically, cartel members enter into an agreement or arrangement to engage in one or more anti-competitive activities, such as to fix prices, allocate markets or customers, limit production or supply, or rig bids.”  International Competition Network, Anti-Cartel Enforcement Manual, Chapter 4, Cartel Case Initiation: “Cartel conduct.  Cartel conduct is the most serious form of anti-competitive practice and/or breach of competition law and it involves two or more competing undertakings, businesses or individuals seeking to limit or reduce competition by: (i) fixing prices, which occurs when competitors enter into an agreement to raise, fix, or otherwise maintain the price for a product or service.  Price fixing can include agreements to establish a minimum price, to eliminate discounts, or to adopt a standard formula for calculating prices; (ii) limiting output or sales, which occurs in the form of production or sales quota arrangements which involve an agreement between competitors to limit the volume of particular goods or services available on the market; (iii) sharing markets, which refers to agreements between competitors that divide up the market, for example, on a geographic, product or customer basis, so that the participants are sheltered from competition between each other, or (iv) rigging bids, where two or more competitors agree that they will not compete with each other for particular tenders or will share information on their tenders, and/or allow one of the participants in the agreement to win the tender.”  See also Competition Bureau, Competitor Collaboration Guidelines (2009); Competition Act section 45; definition of conspiracy; definition of hard core cartel.

Cellophane fallacy. A term sometimes used in assessing market power of a firm in an abuse of dominance analysis.  ICN, Unilateral Conduct Working Group, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “In defining the market for the purpose of assessing dominance, it is important to consider whether the alleged dominant firm is already selling its product at or near the ‘monopoly’ price.  If a firm is dominant, it already is presumably extracting a monopoly profit.  Therefore, in this situation, the fact that a further price increase might not be profitable does not indicate that demand-side substitution is constraining prices at a competitive level.  Mistakenly concluding that it does is commonly called the ‘Cellophane fallacy.’”  This analytical error first originated in United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956).  See also Facey, Brian and Dany H. Assaf, Competition and Antitrust Law: Canada and the United States, 3^rd ed. (Markham: LexisNexis Canada, 2006) at 124: “A firm’s inability to raise price is generally associated with the lack of market power, even where it may otherwise exist.  Conventional price theory establishes that even an unregulated monopolist can face restraints on its ability to impose further price increases.  Beyond some point, further price increases will cause buyers to shift to other products that were not originally regarded as sufficiently good substitutes when the monopoly price was lower.  For example, in the famous Du Pont case, the court interpreted the presence of many substitutes for Cellophane (including wax paper, aluminum foil, paper wrapping materials, etc.) at the prevailing price as evidence that Du Pont did not possess market power.  However, the proper benchmark was the competitive price rather than the prevailing price, because it was Dupont’s exercise of pre-existing market power which led to other products being viewed by consumers as substitutes.  If the court had focused on the proper competitive benchmark, it would have found that Du Pont had adopted practices that, for many years, allowed it to exclude competitors and raise its price up to the profit-maximizing monopoly level, beyond which further increases were not profitable due to the presence of these less than optimal substitutes.  The court’s approach to market definition, though proper for merger review, was in appropriate in the monopolization context.  Consistent with the very conventional economic theory of substitutability, the court’s adoption of the wrong competitive benchmark led it to commit the now famous ‘Cellophane Fallacy’.”

Circumstantial evidence. OECD, Policy Roundtable, Prosecuting Cartels without Direct Evidence (2006):  “Circumstantial evidence is employed in cartel cases in all countries.  … There are two general types of circumstantial evidence: communication evidence and economic evidence.  Of the two, communication evidence is considered to be the more important.  Economic evidence is almost always ambiguous.  It could be consistent with either agreement or independent action.  Therefore it requires careful analysis.”  “There are different types of circumstantial evidence.  One is evidence that cartel operators met or otherwise communicated, but does not describe the substance of their communications.  It might be called ‘communication’ evidence … It includes: records of telephone conversations between competitors (but not their substance), or of travel to a common destination or of participation in a meeting, for example during a trade conference.  Other evidence that the parties communicated about the subject – e.g., minutes or notes of a meeting showing that prices, demand or capacity utilization were discussed; internal documents evidencing knowledge or understanding of a competitor’s pricing strategy, such as an awareness of a future price increase by a rival.  A broader category of circumstantial evidence is often called ‘economic’ evidence.  Economic evidence identifies primarily firm conduct that suggests that an agreement was reached, but also conduct of the industry as a whole, elements of market structure which suggest that secret price fixing was feasible, and certain practices that can be used to sustain a cartel agreement.  Conduct evidence is the single most important type of economic evidence. … observation of certain, suspicious conduct frequently triggers an investigation of a possible cartel.  Conduct evidence includes … parallel pricing … capacity reductions, adoption of standardized terms of sale and suspicious bidding patterns …”  Competition Act, section 45(3): “In a prosecution under subsection (1), the court may infer the existence of a conspiracy, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties to it, but, for greater certainty, the conspiracy, agreement or arrangement must be proved beyond a reasonable doubt.”  See also the definition of “facilitating factors”.

Combination remedy. Merger remedies are usually thought of as one of three types: (i) structural, (ii) behavioural or (iii) combination.  Competition Bureau, Information Bulletin on Merger Remedies in Canada (2006): “A combination remedy refers to a structural divestiture combined with other relief that is behavioural in nature.  Certain behavioural terms may help ensure an effective remedy is ultimately implemented when they supplement or complement the core structural remedy …”  The Bureau has in some cases required some supporting behavioural remedies to divestiture, for example to assist a buyer of divested assets operate the new business (e.g., technical assistance, access to supply/inputs, etc.).  See also definitions of “structural remedy” and “behavioural remedy”.

Commercial electronic message. Canada’s new anti-spam legislation (Bill C-28) introduces an “opt-in” regime for electronic marketing using “commercial electronic messages” (“CEMs”).  “CEMs are defined in Bill C-28 as follows: “For the purposes of this Act, a commercial electronic message is an electronic message that, having regard to the content of the message, the hyperlinks in the message to content on a website or other database, or the contact information contained in the message, it would be reasonable to conclude has as its purpose, or one of its purposes, to encourage participation in a commercial activity, including an electronic message that (a) offers to purchase, sell, barter or lease a product, goods, a service, land or an interest or right in land; (b) offers to provide a business, investment or gaming opportunity; (c) advertises or promotes anything referred to in paragraph (a) or (b); or (d) promotes a person, including the public image of a person, as being a person who does anything referred to in any of paragraphs (a) to (c), or who intends to do so.”  “Commercial activity” is defined very broadly as follows: “any particular transaction, act or conduct or any regular course of conduct that is of a commercial character, whether or not the person who carries it out does so in the expectation of profit, other than any transaction, act or conduct that is carried out for the purposes of law enforcement, public safety, the protection of Canada, the conduct of international affairs or the defence of Canada.”

Comparative Advertising. A common type of advertising/marketing that can be the subject of challenge by provincial or federal enforcement agencies (e.g., provincial consumer protection officials or the federal Competition Bureau) is comparative advertising.  Generally speaking, comparative advertising is where individuals or companies compare prices, product or service quality or performance to their competitors.  See e.g.: Advertising Standards Canada, Canadian Code of Advertising Standards: “Comparative advertising is advertising (as defined in the Code) that compares the advertiser’s products or services, and the products or services of one or more identifiable organization(s) or of the marketplace as a whole, concerning, for example, product or service characteristics, value, performance, consumer preference, market share, sales origin or availability.”  Like performance claims, comparative advertising can be an effective and legitimate way to distinguish products or services from the competition.  For example, the Competition Bureau has endorsed the potentially pro-competitive benefits of comparative advertising, including in its 2007 Report on the self-regulated professions in Canada (Self-regulated professions – Balancing competition and regulation) with respect to legal fees: “[c]omparative advertising fosters price competition by allowing prospective clients to compare fees.  When consumers cannot compare the prices for legal services, there is little or no incentive for lawyers to compete on price, thereby raising the costs to consumers.”  However, comparative advertising can also raise misleading advertising concerns in some cases – for example, where the information in a comparative advertising claim is false or misleading or where it includes a performance claim that is not substantiated (i.e., that is not based on adequate and proper testing, which is required under the Competition Act).  As such, it is important to ensure that comparative advertising claims are, among other things, true, accurate and that any important information (e.g., conditions, limitations, etc.) is clearly disclosed.  In addition, if comparative advertising involves performance claims, such as claims relating to the performance or reliability of a product/service, it is also important that any such claim be both accurate and substantiated before being made.

Competition.  McMillan (J. & A.) Ltd. v. McMillan Press Ltd. (1989), 99 N.B.R. (2d) 181 (N.B.C.A.):  “… the effort of two or more parties acting independently to secure the business of their party by offering the most favourable terms.”

Competition law. Competition Bureau, Intellectual Property Enforcement Guidelines:  “The principle underlying competition law is that the public interest is best served by competitive markets, which are socially desirable because they lead to an efficient allocation of resources.  Competition law seeks to prevent companies from inappropriately creating, enhancing or maintaining market power that undermines competition without offering offsetting economic benefits.”

Competition Tribunal. Competition Tribunal website:  “The Competition Tribunal is a specialized tribunal that combines expertise in economics and business with expertise in law. The Tribunal is a strictly adjudicative body that operates independently of any government department. The cases it hears are complex and deal with matters such as mergers, misleading advertising and restrictive trade practices.  The Competition Tribunal should be distinguished from the Competition Bureau.  The Competition Bureau investigates complaints and decides whether to proceed with the filing of an application to the Tribunal.”  See also: Competition Tribunal Act and Competition Tribunal Rules.

Conglomerate merger. OECD, Policy Roundtable, Portfolio Effects in Conglomerate Mergers (2001): “… a conglomerate merger is defined as one in which the parties to the merger ‘… are not actual or potential competitors and the parties do not have an actual or potential customer-supplier relationship.’”  … the basic idea in the case of competitors would be that neither firm was exerting any competitive discipline on the other prior to the merger.  As regards a potential customer-supplier relationship … this refers to a situation where a party to a merger is presently competing with another party’s current supplier or client.”

Conscious parallelism. Fundamentals of Canadian Competition Law, J. Musgrove ed., Chapter 4, Criminal Conspiracy, p. 49:  “Identical price changes [that may] occur almost simultaneously among competitors without any agreement among them.  One competitor may take the lead at raising prices.  The others will then follow suit, with the unspoken mutual understanding that all will reap greater profits from the higher prices as long as no one attempts to undercut the others.”  Antitrust Law Developments (Fifth), Volume I, p. 9: “Allegations of concerted action by competitors are frequently based on a pattern of uniform business conduct, which the courts often refer to as ‘conscious parallelism’”.  Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, 203 F.3d 1028, 1032 (8th Cir.):  “Conscious parallelism is the process not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing, supracompetitive level by recognizing their shared economic interests.”  Competition Bureau, Competitor Collaboration Guidelines, p. 7: “… the mere act of independently adopting a common course of conduct with awareness of the likely response of competitors or in response to the conduct of competitors …”

Consent agreement. Consent agreements are the form of settlement document entered into under the civil provisions of the Competition Act (the deceptive marketing and reviewable practices provisions), and have replaced the former process of obtaining consent orders from the Competition Tribunal.  Under Part VII.1 (Deceptive Marketing Practices) the Commissioner of Competition and a person in relation to whom the Commissioner has applied (or may apply) for an order may enter into a consent agreement to settle the matter.  Consent agreements are registered with the Competition Tribunal, upon which any proceedings are terminated and the consent agreement has the same force and effect as a court order (i.e., an order of the Competition Tribunal, Federal Court or provincial superior court, all of which are “courts” for the purposes of Part VII.1 of the Act).  Consent agreements may also be entered into under the Part VIII Reviewable Matters provisions, including in relation to sections 75 (refusal to deal), 76 (price maintenance), 77 (tied selling / exclusive dealing / market restriction) and 79 (abuse of dominance).  See section 105.  As under Part VII.1 of the Act, consent agreements entered into under Part VIII, once registered with the Tribunal, terminate the proceedings, if any, and have the same force as a Competition Tribunal order.  See also Competition Bureau, Bulletin, Corporate Compliance Programs: “Depending on the circumstances, conduct contravening the Acts may be resolved without fully contested proceedings. The Act contains provisions that provide the Tribunal with the power to issue consent agreements under section 105 to address civil reviewable matters under Part VIII of the Competition Act. The Tribunal also has the authority to issue consent orders, which may include the publication of corrective notices under section 74.12. Section 34 provides that a court may, on application of the Attorney General of Canada, issue a consent prohibition order with or without an admission of guilt.”

Conspiracy (cartel). Section 45 of the federal Competition Act makes it a criminal offence for actual or potential competitors to enter into price-fixing, market allocation or supply restriction agreements.  Section 45 of the Act provides: [e]very person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges (a) to fix, maintain, increase or control the price for the supply of the product; (b) to allocate sales, territories, customers or markets for the production or supply of the product; or (c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.”  Persons who contravene section 45 of the Act are potentially subject to penalties that include criminal fines of up to $25 million (per count), imprisonment for up to fourteen years, or both.  Conspiracy agreements, or “cartels” which is the term frequently used in the United States, are considered to be “hard core” anti-competitive conduct typically punishable by significant penalties in most major jurisdictions.  For more information see: Competition Bureau, Competitor Collaboration Guidelines.

Consumer marketing. Canadian Marketing Association, Code of Ethics and Standards of Practice: “Marketing products or services to individuals when they are purchasing for personal or household use.”

Control. The definition of “merger” under section 91 of the Competition Act includes acquisitions of both control over or a “significant interest” in a business.  Competition Bureau, Merger Enforcement Guidelines: “[w]ith respect to corporations, section 2(4) of the Act defines ‘control’ to mean de jure (legal) control—that is, a direct or indirect holding of more than 50 percent of the votes that may be cast to elect directors of the corporation, and which are sufficient to elect a majority of such directors. With respect to partnerships, section 2(4) provides that a partnership is controlled by a person when the person holds an interest in the partnership that entitles the person to receive more than 50 percent of the profits of the partnership or more than 50 percent of its assets on dissolution.”

Coordinated effects. Competition/antitrust enforcement agencies often consider two main types of anti-competitive effects arising from a merger: (i) unilateral effects; and (ii) coordinated effects.  [Mergers]: Competition Bureau, Merger Enforcement Guidelines: “A coordinated exercise of market power can occur when a merger reduces the competitive vigour in a market by, for example, removing a particularly aggressive competitor or otherwise enabling or enhancing the ability of the merged firm to coordinate its behaviour with that of its competitors. In these situations, higher post-merger prices are profitable and sustainable because other competitors in the market have accommodating responses. … Coordination involves interaction by a group of firms (including the merged firm) that is profitable for each firm because of each firm’s accommodating reactions to the conduct of the others. Coordinated behaviour may relate to price, service levels, allocation of customers or territories, or any other dimension of competition. … Coordinated behaviour may involve tacit understandings that are not explicitly negotiated or communicated among firms. Tacit understandings arise from mutual yet independent recognition that firms can, under certain market conditions, benefit from competing less aggressively with one another.  Coordinated behaviour may also involve express agreements among firms to compete less vigorously or to refrain from competing. Such agreements may raise concerns under the conspiracy and bid-rigging provisions of the Act.”  U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010): “A merger may diminish competition by enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms customers. Coordinated interaction involves conduct by multiple firms that is profitable for each of them only as a result of the accommodating reactions of the others. These reactions can blunt a firm’s incentive to offer customers better deals by undercutting the extent to which such a move would win business away from rivals. They also can enhance a firm’s incentive to raise prices, by assuaging the fear that such a move would lose customers to rivals.  Coordinated interaction includes a range of conduct. Coordinated interaction can involve the explicit negotiation of a common understanding of how firms will compete or refrain from competing. Such conduct typically would itself violate the antitrust laws. Coordinated interaction also can involve a similar common understanding that is not explicitly negotiated but would be enforced by the detection and punishment of deviations that would undermine the coordinated interaction. Coordinated interaction alternatively can involve parallel accommodating conduct not pursuant to a prior understanding. Parallel accommodating conduct includes situations in which each rival’s response to competitive moves made by others is individually rational, and not motivated by retaliation or deterrence nor intended to sustain an agreed-upon market outcome, but nevertheless emboldens price increases and weakens competitive incentives to reduce prices or offer customers better terms. Coordinated interaction includes conduct not otherwise condemned by the antitrust laws.  The ability of rival firms to engage in coordinated conduct depends on the strength and predictability of rivals’ responses to a price change or other competitive initiative. Under some circumstances, a merger can result in market concentration sufficient to strengthen such responses or enable multiple firms in the market to predict them more confidently, thereby affecting the competitive incentives of multiple firms in the market, not just the merged firm.  See also the definition of “unilateral effects”.  OECD, Roundtable, Substantive Criteria Used for Merger Assessment (2002): “… mergers likely to reduce competition by facilitating anti-competitive co-operation.”

“Cover”, “courtesy” or “complementary” bidding. There are a number of types of bid-rigging that can contravene the criminal bid-rigging provisions of the Competition Act under section 47.  These include “cover”, “courtesy” or “complementary” bidding, where some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the party calling for bids, to protect an agreed upon low bidder.

Crown jewel. A term used to refer to key assets in the context of negotiated merger remedies.  Competition Bureau, Merger Remedies Study: “A crown jewel provision allows for additional specific asset(s) to be added or substituted into the initial divestiture package to increase the viability of a remedy.  Typically a crown jewel is triggered if a divestiture is not completed within the specified initial sale period, and thus the presence of a crown jewel is intended, in part, to provide an incentive for timely completion of a divestiture.”  Competition Bureau, Information Bulletin on Merger Remedies in Canada.  “The Bureau’s goal is to design a remedy package that will eliminate the substantial lessening or prevention of competition arising from a merger without going beyond what is necessary to resolve such competition concerns.  However, given the prospective nature of proposed divestitures, there is frequently some uncertainty as to whether the remedy will be viable (i.e., whether the divestiture will be completed).  Thus, an additional asset package (commonly referred to as a ‘crown jewel’) may be required as part of the remedy in order to reduce any such uncertainty.”

Cyberlibel. USLegal.com: “Cyberlibel is essentially same as defamation, except that the alleged defamatory material is posted on the Internet. Defamation may also be referred to as libel, slander, disparagement, defamation of character, etc. Defamation in the Internet can be classified as libel in view of that material communicated on the Internet is published e.g. bulletin boards, emails, chat rooms etc.”