MAJOR COMPETITION LAW COMPLIANCE UPDATE: On June 3, 2015, the Competition Bureau (Bureau) finalized its new core competition law compliance materials. The Bureau’s new compliance materials, which include information on most major competition law areas, misleading advertising, associations and the Bureau’s Leniency Program, are essential reading for corporate compliance officers, senior management and in-house and general counsel. For an overview of the developments (with links) see: Canadian Competition Law Compliance Programs.
THE COMPETITION ACT
Canadian competition law is largely governed by the Competition Act (Act). The Act is federal framework legislation that applies to most businesses and industries in Canada, with limited exceptions and includes criminal offences and civil “reviewable matters”. The Act is administered and enforced by the federal Competition Bureau (Bureau), a federal enforcement agency headed by the Commissioner of Competition (Commissioner).
The Act sets out four purposes as follows: (i) to promote the efficiency and adaptability of the Canadian economy; (ii) to expand opportunities for Canadian participation in world markets; (iii) to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy; and (iv) to provide consumers with competitive prices and product choices.
While it has been held that none of these four purposes is paramount, and the relevant purpose or purposes can vary according to the type of conduct, the Act is in general consumer protection legislation meant to ensure that consumers benefit from competitive and undistorted markets. For this reason, Canadian courts have long held that private gains by parties (e.g., parties to price-fixing or other cartel arrangements) are not relevant, but rather whether conduct distorts competition to the degree that it is either a criminal offence or may be subject to challenge under the civil reviewable matters sections of the Act.
The Act includes both criminal offences and civil “reviewable matters”.
The criminal offences of the Act include conspiracy (i.e., cartels, such as price-fixing or market division agreements between competitors) (section 45); bid-rigging (section 47); criminal misleading advertising (section 52); deceptive telemarketing (section 52.1); and pyramid selling schemes (section 55.1). For more information on these competition law offences under the Act, please see the overview tabs to the left.
Some former criminal competition offences in Canada (e.g., predatory pricing and price discrimination) were repealed in 2009. The conduct they related to, however, may still be subject to challenge under the civil abuse of dominance provisions of the Act (sections 78 and 79). Canada’s former criminal price maintenance offence (section 61) was also repealed in 2009 and made a civil reviewable matter with a competitive effects test (section 76).
Criminal offences under the Act are investigated by the Bureau, prosecuted by the Public Prosecution Service of Canada (PPSC – headed by the Director of Public Prosecutions), tried in provincial criminal courts and subject to criminal penalties. The potential penalties for violating the criminal offences of the Act include criminal fines and imprisonment, as well as “prohibition orders” (i.e., court orders made under the Act to stop or modify conduct, implement compliance programs, etc.).
The Bureau also has access to a variety of significant, intrusive and potentially disruptive enforcement powers in relation to criminal matters. These include: the ability to obtain search warrants to search premises; wiretaps; and court orders to compel the production of documents. In addition, the Bureau routinely relies on its Immunity and Leniency Programs to detect criminal violations of the Act.
Civil Reviewable Matters
In addition to the criminal offences discussed above, the Act also contains a number of civil “reviewable matters”. These include price maintenance (section 76); civil misleading advertising (section 74.01); refusal to deal (section 75); abuse of dominance (sections 78 and 79); tied selling / exclusive dealing / market restriction (section 77); and mergers (section 92).
These civil sections, generally speaking, can apply to conduct such as refusals to deal/supply, abuses of dominance by significant firms (e.g., predatory pricing, exclusive supply arrangements and other exclusionary or disciplinary conduct) and where suppliers maintain resale prices that have adverse effects on competition.
These civil sections also address conduct that may be pro- or anti-competitive, but require a closer examination of the potential market effects – for example, whether conduct by companies, suppliers, etc. is likely to result in an adverse effect on competition or substantially prevent or lessen competition. In general, the civil reviewable matters provisions of the Act parallel the rule of reason standard of review in the United States.
Like the criminal offences under the Act, reviewable matters are also investigated by the Bureau, may result in proceedings initiated by the Bureau (or private parties in certain cases with leave from the Competition Tribunal), are generally heard before the Competition Tribunal (and in some cases in provincial courts or the Federal Court) and are subject to a variety of potential remedial orders or monetary penalties.
The potential penalties for violating the reviewable matters provisions of the Act include court or Competition Tribunal orders to stop conduct; “administrative monetary penalties” (AMPs) of up to $10 million; and orders to compensate consumers. The types of remedies available under the civil provisions of the Act, however, varies according to the provision.
The Act is enforced and administered by the Bureau, a federal enforcement agency headed by the Commissioner. The Bureau investigates potential competition law offences and civil “reviewable matters” under the Act.
The Commissioner and the Bureau have significant powers to investigate potential violations of the Act. These include the ability to search premises and seize documents; search and seize computer records; obtain wiretaps; compel individuals to testify under oath; and require companies or individuals to produce documents or responses to written information requests.
The Commissioner has the power to investigate and refer criminal matters to the Director of Public Prosecutions (DPP) for prosecution. As discussed above, criminal offences under the Act include conspiracy (i.e., price-fixing, market allocation/division or supply/output restriction agreements between competitors); bid-rigging; misleading advertising in some cases; deceptive telemarketing and pyramid selling schemes. While the Bureau investigates potential violations of the Act’s criminal offences, the responsibility for prosecutions lies with the DPP. In practice, the Bureau and the PPSC work closely together on criminal competition law prosecutions.
The Commissioner is also responsible for investigating and initiating applications relating to potential contraventions of the Act’s civil “reviewable matters”. The Act’s civil reviewable matters include the civil misleading advertising, refusal to deal, price maintenance, abuse of dominance and exclusive dealing / tied selling / market restriction sections.
COMPETITION LAW MATTERS
Competition law proceedings in Canada may be commenced under the Act by the Bureau itself based on its own investigation, as a result of complaints from customers, competitors or other industry participants or from persons that have (or may have) contravened the Act and are seeking immunity or leniency under the Bureau’s Immunity and Leniency Programs. The Act also contains specific whistleblower provisions with protections for whistleblowers.
In addition to Bureau investigations, private parties may also in some cases commence private actions (under section 36 of the Act) for violations of the criminal sections of the Act, including the criminal conspiracy and criminal misleading advertising sections. Private parties may also make private access applications to the Competition Tribunal for Tribunal orders under the refusal to deal, price maintenance or exclusive dealing / tied selling / market restriction sections.
Violation of the Act can result in severe penalties, lost time and negative publicity for individuals, companies, other types of organizations, as well as their executives and personnel.
The potential penalties under the Act include criminal fines (e.g., fines in the discretion of the court for bid-rigging under section 47 or up to $25 million per count for violation of the conspiracy offences under section 45), AMPs (essentially civil fines), imprisonment, damages (or settlements) arising from private civil actions and court orders (injunctions or prohibition orders) to stop or modify conduct.
There is also potential director and officer liability under the Act. In this regard, the Bureau commonly pursues individual executives as accused in criminal matters and plaintiffs frequently name directors and officers as defendants in civil actions.
Over the past several years, the Bureau has also expressed a desire to more seriously pursue individual liability for violations of the Act and the former ability of courts to award conditional sentences (i.e., time served in the community) has been eliminated for some offences.
Private parties (e.g., consumers or competitors) can also commence private actions for damages where they have suffered actual damage or loss as a result of a violation of the criminal provisions of the Act (or as a result of the breach of a Tribunal or court order made under the Act). Class actions may also be commenced under the Act and are increasingly common, as well as likely following several recent Supreme Court of Canada cases that held that “indirect purchaser” class actions may proceed in Canadian courts.
COMPETITION LAW COMPLIANCE
Competition law compliance programs are highly recommended for companies and trade and professional associations.
Effective competition compliance programs have many benefits for companies, trade associations and other organizations. These include: reducing the risk of violating the criminal or civil provisions of the Act; identifying the boundaries of acceptable conduct; reducing costs in relation to investigations and proceedings; identifying circumstances when legal advice should be sought; detecting illegal conduct; potentially mitigating penalties in the event of an investigation; strengthening corporate goodwill and reputation; avoiding negative publicity; and reducing potential director and officer liability.
It is also more important now for companies to have effective compliance programs for several reasons including: (i) amendments to the Act in 2009 that reduced the number of elements necessary to prove criminal conspiracy agreements under section 45 of the Act; (ii) increased penalties for criminal conspiracies (maximum fines of up to $25 million and/or 14 years imprisonment); (iii) heightened misleading advertising penalties (maximum AMPs of $10 million); (iv) an increased focus by the Bureau on pursuing penalties against individuals; and (v) the elimination of conditional sentences (i.e., time served in the community) for some offences under the Act.
NEW DRAFT CORPORATE COMPLIANCE BULLETIN
The Bureau has also been working over the past several years to update its competition law compliance guidelines and policies. As part of this initiative, on September 18, 2014 the Bureau issued a revised draft Corporate Compliance Programs Bulletin for public comment (see: here and here).
For some highlights of the Bureau’s new draft Bulletin see: here.
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