Canadian COMPETITION & ANTITRUST LAW

Sale above advertised price.  Competition Bureau, Ensuring Truth in Advertising, Price-related Representations: “Section 74.05 of the Competition Act is a civil provision. It prohibits the sale or rent of a product at a price higher than its advertised price. The provision does not apply if the advertised price was a mistake and the error was immediately corrected.  If a court determines that a person has engaged in conduct contrary to section 74.05, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.”

Service standard periods.  In addition to the statutory waiting periods for notifiable mergers under the Competition Act, the Bureau has also established non-statutory service standards for merger reviews.  The Bureau’s service standard periods for pre-merger notification filings and advance ruling certificate (“ARC”) applications are as follows: (i) non-complex transactions – up to 14 days from the day on which sufficient information has been received by the Commissioner to assign a complexity designation; (ii) complex transactions – up to 45 days from the day on which sufficient information has been received by the Commissioner to assign a complexity designation, except where a supplementary information request (“SIR”) is issued, in which case it is 30 days from the day on which the information requested by the Commissioner has been received from all SIR recipients (coinciding with the statutory 30 day waiting period for second phase reviews).

Sherman Act. Federal U.S. antitrust legislation that prohibits and regulates, among other things, cartels and monopolies  (Sherman Act, July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. §§ 1-7).  Section 1 of the Sherman Act prohibits unreasonable restraints of trade, including price-fixing agreements.  Northern Pacific Railway v. United States, 356 U.S. 1 (1958):  “The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.  It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the  preservation of our democratic political and social institutions.  But even were that premise open to question, the policy unequivocally laid down by the Act is competition.”  U.S. Federal Trade Commission, FTC Guide to the Antitrust Laws:  “The Sherman Act does not prohibit everyrestraint of trade, only those that are unreasonable.  For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws.  On the other hand, certain acts are considered so harmful to competition that they are almost always illegal.  These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids.  These acts are ‘per se’ violations of the Sherman Act; in other words, no defense or justification is allowed.”  The Sherman Act imposes criminal penalties of up to USD $100 million for a corporation and USD $1 million for an individual, together with up to 10 years in prison.  U.S. Department of Justice, Antitrust Division, Antitrust Laws and You: “[The Sherman Act] outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade.  This includes agreements among competitors to fix prices, rig bids, and allocate customers, which are punishable as criminal felonies.  The Sherman Act also makes it a crime to monopolize any part of interstate commerce.  An unlawful monopoly exists when one firm controls the market for a product or service, and it has obtained that market power, not because its product or service is superior to others, but by suppressing competition with anticompetitive conduct.”

Significant interest. 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:  “[t]he Act does not define what constitutes a ‘significant interest,’ as referenced in section 91, leaving this concept to be construed within the broader context of the Act as a whole. … When determining whether an interest is significant, the Bureau considers both the quantitative nature and qualitative impact of the acquisition or establishment of the interest. Given that the Act is concerned with firms’ competitive market behaviour, a ‘significant interest’ in the whole or a part of a business is held qualitatively when the person acquiring or establishing the interest (the ‘acquirer’) obtains the ability to materially influence the economic behaviour of the target business, including but not limited to decisions relating to pricing, purchasing, distribution, marketing, investment, financing and the licensing of intellectual property rights.”

Spam. Industry Canada, The Digital Economy in Canada: “Although there is no internationally agreed-upon definition of “spam”, many countries consider it to be any bulk commercial email sent without the express consent of recipients. Spam is no longer just a nuisance, but has quickly evolved into a vehicle for malware, threats to privacy, scams, fraud and misleading trade practices, such as phishing. It is now estimated that spam represents more than 80% of all e-mail traffic. Processing and managing spam creates costs that are ultimately paid for by businesses and personal e-mail users.”  OECD Task Force on Spam: Anti-spam Toolkit of Recommended Policies and Measures (2006): “There is no internationally agreed definition of spam, which is defined differently in national legislative approaches. For this reason the Task Force has not attempted to classify spam. Nevertheless, there are common characteristics that countries have recognized in their definitions: (i) electronic message: spam messages are sent electronically. While e-mail is by far the most significant channel for spam, other delivery channels are also considered in a number of countries (mobile spam, such as SMS and MMS, spam over IP, etc); (ii) hidden or false message origins: spam messages are often sent in a manner that disguises the originator by using false header information. Spammers frequently use un-authorized third-party e-mail servers; (iii) spam does not offer a valid and functional address to which recipients may send messages opting out of receiving further unsolicited messages; (iv) illegal or offensive content: spam is frequently a vehicle for fraudulent or deceptive content, viruses, etc. Other spam includes adult or offensive content, which may be illegal in some countries, especially if it is sent to minors; (v) utilization of addresses without the owner’s consent: Spammers often use e-mail addresses that have been collected without the owner’s explicit consent. This is frequently done through software programs which gather addresses from the Web or create e-mail addresses (harvesting and dictionary attacks); (vi) bulk and repetitive: spam messages are typically sent in bulk in an indiscriminate manner, without any knowledge about the recipient other than the e-mail address. In conclusion, there is a common understanding that spam is a threat to the Internet as an effective and reliable means of communication, and for the overall evolution of the e-economy. This common understanding has led to calls for greater co-operation among all stakeholders in finding common solutions to spam.”

Spyware. Industry Canada, The Digital Economy in Canada: “Spyware is software that collects information about a user without the user’s knowledge or consent. It may also be software that modifies the operation of a user’s computer without the user’s knowledge or consent. Typical kinds of spyware include keyloggers, which send a list to a third party of the keys that a user pressed, and adware, which displays to the user advertisements selected by the adware’s owner.”

Squeezing.  International Competition Network (ICN), Report on the Analysis of Refusal to Deal with a Rival Under Unilateral Conduct Laws (April, 2010): “… when a dominant firm charges a price for an input in an upstream market that, compared to the price it charges for the final good using the input in the downstream market, does not allow a rival in the downstream market to compete.” Pietro Crocioni and Centro Veljanovski, “Price Squeezes, Foreclosure and Competition Law: Principles and Guidelines”:  “A price or margin squeeze is an exclusionary practice used by a vertically integrated firm to leverage its market power in the upstream market to squeeze the margins of its downstream competitors.”  Competition Act, subparagraph 78(1)(a): “For the purposes of section 79 [abuse of dominant position] ‘anti-competitive act’, without restricting the generality of the term, includes any of the following acts: (a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of preventing the customer’s entry into, or expansion in, a market.”  OECD, Policy Roundtables, Margin Squeeze (2009): “A margin squeeze occurs when there is such a narrow margin between an integrated provider’s price for selling essential inputs to a rival and its downstream price that the rival cannot survive or effectively compete. A margin squeeze can arise only when (a) an upstream firm produces an input for which there are no good economic substitutes, (b) the upstream firm sells that input to one or more downstream firms and (c) the upstream firm also directly competes in that downstream market against those firms.  Many countries have investigated margin squeeze cases, particularly in newly liberalised sectors such as telecommunications.  In order for a margin squeeze case to arise, three elements must be present. First, an upstream firm must produce an essential or bottleneck input with no substitutes and no scope for other firms to provide the essential input themselves. Second, that firm must sell that essential input to one or more downstream firms which seek to use that input in the provision of some downstream product or service. Third, the upstream firm must itself use its own input to compete against those downstream firms in the market for that downstream product or service.”

State action doctrine.  An analogous doctrine to the regulated conduct defence in Canada (see Regulated conduct defence).  G.S. Cary, et al., “The Case for Antitrust Law to Police the Patent Holdup Problem in Standard Setting”:  “Under the state-action doctrine, a state does not violate the Sherman Act when it exercises its police power in a manner that restricts competition within its borders.  State-action immunity is not a doctrine created by the Court’s desire to defer to regulatory regimes. In the state-action decisions, the Court did not conclude that state regulatory regimes were superior to antitrust remedies but rather held that, due to principles of dual-sovereignty in our federalist system, Congress did not intend to interfere with those regimes when it enacted the antitrust laws. Hardly evidencing a preference for state regulation in general, the doctrine is limited in scope. In general, private conduct pursuant to the state scheme is immunized only where there is a clear articulation of state policy to displace competition with regulation and the state actively supervises that conduct.”

State owned enterprise.  In December 2007, the Minister of Industry issued new guidelines under the Investment Canada Act that apply to the acquisition of Canadian businesses by foreign state-owned enterprises (“SOEs”).  These SOE guidelines provide that the Minister of Industry is to review, as part of the review process under the Investment Canada Act, the corporate governance and reporting mechanisms of SOEs.  Investment Canada defines an SOE as “an enterprise that is owned or controlled directly or indirectly by a foreign government.”

Structural remedy. Merger remedies are usually thought of as one of three types: (i) structural, (ii) behavioural or (iii) combination.  A structural remedy involves the divestiture (sale) of assets to a third party that can be used to carry on part of the merged business to provide effective competition to the merged entity post-merger, blocking a transaction or dissolution of a transaction.  The Bureau has taken the position in the past that because mergers involve a structural change to a market, a structural remedy is usually the most appropriate type of remedy to impose (and prefers structural remedies over behavioural or combination remedies). Competition Bureau, Information Bulletin on Merger Remedies in Canada (2006): “The anti-competitive effects that are likely to arise from a merger result from a structural change to the market.  Unless structural changes that have harmful effects on competition are challenged, they are often long lasting and can adversely affect innovation, economic performance and consumer welfare.  Accordingly, structural remedies are usually necessary to eliminate the substantial lessening or prevention of competition arising from a merger. … Most structural remedies involve a divestiture of asset(s) rather than an outright prohibition or dissolution of the merger.” See also definitions of “behavioural remedy” and “combination remedy”.

Subcontracting. 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 “subcontracting”, where parties that agree not to submit a bid (or submit a losing bid) are awarded subcontracts or supply agreements from the successful low bidder.

Substantial lessening of competition (SLC). The Competition Act contains several competitive effects standards as follows: an adverse effect on competition (sections 75 (refusal to deal) and 76 (price maintenance)) and a substantial lessening of competition (sections 79 (abuse of dominance), 90.1 (the civil agreements provision) and 92 (mergers)).  [Mergers]: Competition Bureau, Merger Enforcement Guidelines: “A substantial prevention or lessening of competition results only from mergers that are likely to create, maintain or enhance the ability of the merged entity, unilaterally or in coordination with other firms, to exercise market power.”  Section 93 of the Competition Act sets out a non-exhaustive list of factors that the Competition Tribunal may consider when determining whether a merger prevents or lessens competition substantially (or is likely to).  Competition Bureau, Competitor Collaboration Guidelines, p. 20: [SLC in the context of section 90.1 - the civil agreements provision]: “A substantial lessening or prevention of competition results from agreements that are likely to create, maintain or enhance the ability of parties to the agreement to exercise market power.  For example, an agreement can lessen competition where parties to the agreement are able to sustain higher prices than would exist in the absence of the agreement by diminishing existing competition.”

Supplementary information request or “SIR”.  Following the amendment of the merger provisions of the Competition Act in 2009, the Competition Bureau now has the power under Canada’s two-stage merger review process to issue “supplementary information requests” or “SIRs” under section 123(1)(b) of the Act for additional relevant information for its review of a merger.  The issuance of a SIR by the Bureau triggers a second 30-day waiting period, which commences once the Bureau has received from each SIR recipient a certified complete response to all information requests set out in the SIR.  See Competition Bureau, Merger Review Process Guidelines.

Supply-side substitutability. [Abuse of dominance]: International Competition Network, Unilateral Conduct Workbook, Chapter 3: Assessment of Dominance (May, 2011): “Supply-side substitutability refers to switching existing capacity from the production of another product to the production of the allegedly dominant firm’s product or a close substitute in response to an increase in the alleged dominant firm’s prices.”

Switching costs.  OECD, Competition Assessment Toolkit (2011): “the explicit and implicit costs borne by a customer in changing from one supplier to another.  Switching costs may arise for various reasons, including long contract terms or tying of assets to suppliers in a way that makes switching inconvenient, as with tying a phone number to a given service provider.  When consumers face high switching costs, suppliers can charge higher prices for their goods or services.  Suppliers therefore often seek to create high switching costs, sometimes by promoting policies that will ensure high switching costs.”