Archive for the 'Amendments' Category
The CBC and others have reported on the continued progress of Bill C-10, the “Safe Streets and Communities Act”, which is now undergoing 11 days of Senate committee hearings (the Senate’s legal and constitutional affairs committee) that will hear from about 100 witnesses.
Conservative Justice and Public Safety Ministers Rob Nicholson and Vic Toews are asking Senators to “expeditiously” approve the Bill.
Bill C-10, which completed second reading in the Senate in December, would, among other things, eliminate conditional sentences of two years or less (i.e., sentences served in the community rather than a correctional facility) from being ordered by courts for violation of two of the core criminal offences under the Competition Act: criminal conspiracy agreements (section 45) and bid-rigging agreements (section 47).
FEBRUARY 29, 2012 – Teleconference
The National Competition Law Section of the Canadian Bar Association will be holding a teleconference on February 29, 2012 entitled: “Criminal Conspiracy or Legitimate Competitor Collaboration? Tips for In-House Counsel”
The Vancouver Sun, Montreal Gazette, Huffington Post and others have reported that Rogers has launched constitutional arguments in response to allegations by the federal Competition Bureau that it misled consumers with performance claims in relation to its Chatr cell phone brand.
In particular, according to media reports, Rogers is arguing that the civil “performance claim” provision of the Competition Act is contrary to the freedom of expression rights under the Charter and that the penalties for civil misleading advertising are unconstitutional.
On January 6, 2012, the Competition Bureau announced that two companies pleaded guilty of fixing the price of polyurethane foam and were fined a total of $12.5 million (see: Competition Bureau Sends Signal to Price-Fixers with $12.5 Million Fine).
In making the announcement, the Bureau said:
“’Yesterday’s guilty plea is the first conviction under Canada’s amended conspiracy law,’ said Melanie Aitken, Commissioner of Competition. ‘This investigation highlights the Bureau’s reinvigorated mandate to stop consumer harm caused by price-fixing, and to secure significant fines for these serious criminal offences.’
The charges are the first to arise from the Bureau’s investigation into price-fixing cartel in the polyurethane foam industry. Anyone with information relating to this investigation is encouraged to contact the Competition Bureau.
The Bureau’s investigation benefitted from cooperation under the Bureau’s Immunity and Leniency Programs, which create incentives for parties to address their criminal liability by cooperating with the Bureau in its ongoing investigation and prosecution of other alleged cartel participants.
Under the Competition Act, an agreement between competitors to fix prices, allocate markets or restrict output in Canada is a criminal offence. In March 2010, amendments to the conspiracy provision of the Act came into force.”
The past year has been a busy one for Canadian competition law.
Developments in 2011 include new cases, enforcement and legislation in most key areas including abuse of dominance (the Competition Bureau’s ongoing challenge of The Toronto Real Estate Board and CREA settlement in late 2010), criminal conspiracy (developments in price-fixing class action litigation and some Bureau enforcement), refusal to deal (several important private access section 75 cases, including a decision of the Federal Court of Appeal), contested mergers (in the waste and airline markets), price maintenance (the merchant fees case involving Visa and MasterCard) and misleading advertising (involving Bell Canada, Rogers and others).
The Competition Bureau is testing the new rules under Canada’s Competition Act, which came into force in 2009 and 2010, and private plaintiffs are creating new law in a number of ongoing competition/antitrust class actions in Canada (principally indirect purchaser price-fixing cases relating to the sale and supply of dynamic random access, or “DRAMs”, high fructose corn syrup and computer operating systems).
At the same time, several new pieces of legislation have been introduced including a federal omnibus crime bill, which will eliminate conditional sentences for some competition law offences, and sweeping new anti-spam legislation (Bill C-28 or “FISA“) that once in force will be among the strictest anti-spam regimes in the world.
The Commissioner of Competition, and other federal enforcement officials including the RCMP, have also expressed intentions to adopt tougher enforcement stances in relation to competition law and other white collar crime.
In general, these developments mean that it remains important for Canadian companies, organizations and their executives to maintain a practical awareness of Canadian competition law.
Some of the key competition law and related developments of 2011 include:
On December 5, 2011, a federal omnibus crime bill (Bill C-10) was passed that will, among other things, have the effect of eliminating conditional sentences of two years or less from being ordered by courts for violation of two of the core criminal offences under the Competition Act: criminal conspiracy agreements (section 45) and bid-rigging (section 47).
To quote the Legislative Summary issued with Bill C-10, “conditional sentencing … allows for sentences of imprisonment to be served in the community, rather than in a correctional facility. It is a midway point between incarceration and sanctions such as probation or fines.”
Currently, a number of criteria must be met for a sentencing judge to impose a conditional sentence under the Criminal Code as follows: (i) the offence is not a “serious personal injury offence” (as defined in the Code), (ii) the offence is not a terrorism offence, (iii) the offence is not a criminal organization offence prosecuted by way of indictment for which the maximum term of imprisonment is 10 years or more, (iv) the offence is not punishable by a minimum term of imprisonment and (v) the sentencing judge has determined that the offence should be subject to a term of imprisonment of less than two years, is satisfied that serving the sentence in the community would not endanger the safety of the community and the conditional sentence would be consistent with the fundamental purpose and principles set out in the sentencing guidelines of the Code.
Bill C-10 amends section 742.1 of the Criminal Code to remove the current reference to serious personal injury offences and to provide that a conditional sentence of two years or less may be ordered unless, among other things, the offence is an indictable offence with a maximum term of imprisonment of 14 years or life.
The European Commission announced earlier today that it was opening formal proceedings to investigate sales of e-books. In particular, the Commission has opened a cartel investigation to determine whether several international publishers, including Hachette Livre, Harper Collins, Simon & Schuster and Penguin have engaged in anti-competitive practices with respect to the sale of e-books.
In making the announcement, the Commission said in its news release:
“The European Commission has opened formal antitrust proceedings to investigate whether international publishers Hachette Livre (Lagardère Publishing, France), Harper Collins (News Corp., USA), Simon & Schuster (CBS Corp., USA), Penguin (Pearson Group, United Kingdom) and Verlagsgruppe Georg von Holzbrinck (owner of inter alia Macmillan, Germany) have, possibly with the help of Apple, engaged in anti-competitive practices affecting the sale of e-books in the European Economic Area (EEA), in breach of EU antitrust rules. The opening of proceedings means that the Commission will treat the case as a matter of priority. It does not prejudge the outcome of the investigation.
The Commission will in particular investigate whether these publishing groups and Apple have engaged in illegal agreements or practices that would have the object or the effect of restricting competition in the EU or in the EEA. The Commission is also examining the character and terms of the agency agreements entered into by the above named five publishers and retailers for the sale of e-books. The Commission has concerns, that these practices may breach EU antitrust rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty on the Functioning of the European Union – TFEU).”
Bloomberg has reported that federal Industry Minister Christian Paradis has again raised the prospect of amending Canada’s Investment Canada Act (the “ICA”) in remarks he made in New York last week (see: Canada Open to Changing Foreign-Takeover Law, Paradis Says).
The Industry Minister’s comments closely follow a C.D. Howe Institute report also issued last week calling for fundamental changes to the ICA to stimulate foreign direct investment in Canada, including a change to the overarching test for foreign investment approval (replacing the current “net benefit to Canada” test with a national interest test) (see: New Publications – C.D. Howe Institute Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick).
The Commissioner of Competition, Melanie Aitken, addressed current enforcement priorities in two engaging and wide-ranging talks in Vancouver this evening: a keynote speech at a reception hosted by the University of British Columbia, National Centre for Business Law at the Four Seasons and a Vancouver Competition Policy Roundtable meeting organized by Professor Tom Ross of the Sauder School of Business.
In a short but interesting recent note, Madam Justice Sandra J. Simpson has proposed changes be made to the federal Competition Tribunal. In an article entitled “The Competition Tribunal 2003-2011 and Beyond”, the Federal Court judge, who sits on the Competition Tribunal, recommendeds that the Tribunal’s jurisdiction should be expanded to include the following:
1. Single damages for parties in private actions;
2. Private actions for abuse of dominance with leave (to which Justice Simpson adds that the Tribunal has exercised its power to grant leave to private parties responsibly);
3. A reference power for parties in negotiations with the Commissioner; and
4. The approval of consent agreements by a judge alone – with written comments from but no intervention by affected parties (which, in Justice Simpson’s view, will “ensure that the Commissioner has a defensible theory of harm to support his or her settlements”).
Reuters Canada, Canadian Business, the Wall Street Journal and other media have reported that the Competition Bureau has issued a “no action” letter clearing Rio Tinto’s Cdn. $654 million friendly takeover offer for junior uranium developer Hathor Exploration.
In making the announcement, Rio Tinto said in its press release:
“Rio Tinto yesterday received Canadian Competition Bureau clearance for its offer, made through an indirect wholly-owned Canadian subsidiary, to acquire all the common shares of Hathor Exploration Limited (“Hathor”) for C$4.70 in cash per common share.
The Commissioner of Competition issued a ‘no action letter’ which constitutes compliance with all requirements of the Competition Act (Canada) in relation to Rio Tinto’s offer for Hathor.
Rio Tinto’s recommended offer values Hathor at approximately C$654 million on a fully-diluted basis and represents a premium to the unsolicited revised offer of Cameco Corporation’s of C$4.50 per common share of Hathor made on 14 November.
Hathor’s board of directors unanimously recommends that Hathor shareholders accept and tender their common shares to Rio Tinto’s offer which is open for acceptance until 5:00pm (Toronto time) on 30 November 2011, unless extended or withdrawn in accordance with its terms.”
See: Rio Tinto Receives Canadian Competition Bureau Clearance for its Offer for Hathor Exploration.
“No action letters” are one of two types of merger clearance (the other being Advance Ruling Certificates, or “ARCs”) available under the Competition Act. Unlike an ARC, however, where a no action letter is issued, the Commissioner may challenge the transaction for up to one year post-closing (a period recently shortened from three years as a result of 2009 amendments to the Competition Act).
Rio Tinto’s $4.70 per-share offer for Hathor, which it raised last week, expires November 30th.
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For more about Canadian merger control see:
On October 25, 2011, the Competition Bureau published the Commissioner of Competition’s speech given at the 2011 Canadian Bar Association’s Annual Competition Law Conference in Ottawa.
It is fair to say that the Commissioner’s recent speech presented a singular tone across the civil and criminal competition law areas: enhanced enforcement.
Of the Commissioner’s remarks, some of the more interesting points include the Bureau’s increased focus on reviewing non-notifiable mergers (i.e., transactions that do not trigger the notification thresholds under the Competition Act), the statement that the Bureau has begun to revoke markers in some immunity cases where in its view immunity applicants are not complying with its Immunity Program and a subtle suggestion that the Bureau was preparing to bring, but not quite yet in a position to commence, the first conspiracy cases under the amended section 45 (Canada’s new hard core criminal conspiracy offences). The following are some highlights from the Commissioner’s recent speech.
On December 15, 2010 Canada’s new anti-spam legislation received Royal Assent, which will, when it comes into force, be one of the strictest anti-spam regimes in the world:
An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act (the “Anti-spam Act”).
Earlier this Fall, consultations on two sets of draft Regulations concluded and so the new law may come into effect later this Fall or in the Spring of 2012 (see coming into force information below).
On October 5, 2011 the Ottawa Business Journal, Ottawa Citizen and Vancouver Sun reported that Ontario Justice Ann Alder ruled that an Ottawa bid-rigging case in the technology sector can go to trial.
In this case, the Competition Bureau alleged that a number of companies, including TGP Technology, Spearhead Management, The Devon Group, Brainhunter, Nortak Software and Tipacimowin Technology, rigged bids in relation to IT contracts totaling about $67 million issued by the Canada Border Services Agency, Department of Transport and Public Works (see: Competition Bureau Announces Charges Against Companies Accused of Rigging Bids for Government of Canada Contracts and Backgrounder). Justice Ann Alder dismissed charges against several of the companies (Nortak Software and Tipacimowin Technology).
In making its original announcement in February, 2009, the Bureau said:
“The Bureau found evidence indicating that several IT services companies in the National Capital Region secretly coordinated their bids in an illegal scheme to defraud the government by winning and dividing contracts, while blocking out honest competitors.
The Bureau’s investigation found evidence of criminal activity in 10 competitive bidding processes from 2005, for contracts worth approximately $67 million. The contracts related to IT professional services provided to the Canada Border Services Agency, Public Works and Government Services Canada, and Transport Canada.”
The British Columbia Real Estate Association will be hosting its 2011 Instructor Development Workshop in Whistler from September 22nd to 25th 2011, for instructors of REALTORS in British Columbia.
Steve Szentesi will be facilitating a competition law workshop (amendments to the Competition Act and developments in the first two years in force) on Sunday, September 25th.
For more information about the IDW workshop, event schedule and speakers see BCREA’s website:
On September 7, 2011, the federal Competition Bureau announced that it had reached a settlement with Nivea’s Canadian distributor, Beiersdorf Canada Inc., relating to allegedly false or misleading performance claims in its advertising.
In particular, the Bureau took issue with claims that suggested that the use of skin cream could lead to weight loss. Under the terms of the consent agreement negotiated with the Bureau, Beiersdorf has agreed to pay an “administrative monetary penalty” or “AMP” of Cdn. $300,000 (“AMPs” are essentially civil fines), refund Canadian customers and remove its products from Canadian shelves.
In making its announcement, the Bureau said:
“A Bureau investigation determined that Beiersdorf made a number of deceptive claims about its “My Silhouette” product. The misleading representations were displayed on the package and on Nivea’s Web site. The representations stated that:
use of the product could lead to a “reduction of up to 3 centimetres on targeted body parts, such as thighs, hips, waist and stomach”;
My Silhouette “contains a highly effective natural Bio-Slim Complex for a slimmer looking and more defined silhouette”; and
My Silhouette “combines high performance active ingredients for a dual effect of slimming & reshaping.”
Beiersdorf’s representations also created the misleading impression that use of the product could make the skin more toned and elastic.
““Beiersdorf misled consumers by claiming a person could slim down by simply applying a skin cream,”” said Melanie Aitken, Commissioner of Competition. ““Unfortunately, consumers who purchased My Silhouette learned the hard way that there was no such easy fix.””
Under the terms of the consent agreement registered with the Competition Tribunal today, Beiersdorf is also required to publish a corrective notice on Nivea’s Canadian Web site and in major Canadian newspapers, and to pay $80,000 to cover costs associated with the Bureau’s investigation.”
The U.S. Federal Trade Commission has announced that it has filed a $450 million internet fraud civil suit against an Alberta online operator.
According to the FTC, Jesse Willms, an online operator with ten marketing companies, has:
“… raked in more than $450 million from consumers in the United States, Canada, the United Kingdom, Australia, and New Zealand by luring them into ‘free’ or ‘risk-free’ offers, and then charging them for products and services they did not want or agree to purchase. … The defendants used the lure of a ‘free’ offer to open an illegal pipeline to consumers’ credit card and bank accounts.” See: FTC Charges Online Marketers with Scamming Consumers out of Hundreds of Millions of Dollars with “Free” Trial Offers.
The FTC’s complaint alleges, among other things, that Willms and the companies he controls:
- Used deceptive tactics in offering “free trials” for various online products, including acai berry weight-loss pills, teeth whiteners and health supplements.
- Obtained consumers’ credit or debit card account numbers, by enticing them with “bogus ‘free’ or ‘risk-free’ trial offers that supposedly required only small shipping and handling fees, and also promised phony ‘bonus’ offers just for signing up” (and were charged for trial and bonus products plus recurring monthly fees).
- Made false claims about the total cost of products, recurring charges and the availability of refunds.
- Made false weight loss and cancer cure claims in relation to products.
- Provided merchant banks with false or misleading information to acquire and maintain credit and debit card processing services from the banks in light of “mounting chargeback rates and consumer complaints.”
- Concealed important terms and conditions relating to product sales.
According to the FTC, it worked closely with Canadian law enforcement officials, including the federal Competition Bureau, the Royal Canadian Mounted Police, the Alberta Partnership Against Cross Border Fraud and the Edmonton Better Business Bureau.
In Canada, the federal Competition Act contains both civil and criminal provisions dealing with false or misleading representations and also governs a variety of specific forms of marketing conduct including “ordinary selling price” claims, selling above an advertised price, deceptive telemarketing, promotional contests and performance claims.
Generally speaking, the civil misleading advertising provisions of the Act prohibit representations to the public, for the purpose of promoting a product or business interest, that are false or misleading in a material respect. The criminal provisions, which are substantially similar, prohibit false or misleading representations that are made intentionally (i.e., knowingly or recklessly).
Some of the types of claims that have been of concern for Canadian courts and the Competition Bureau in the past include literally false claims, omitting key information relating to the price or terms of sale of products and false claims regarding the performance of products (product performance claims must be supported by “adequate and proper” tests before any claim is made).
As with the FTC claims, the Competition Bureau has also pursued companies for inaccurate use of the term “free” in connection with marketing claims (see: False or Misleading Representations and Deceptive Marketing Practices and Misleading Advertising Guidelines) and has also issued specific guidelines setting out its enforcement position for online marketing and advertising (see: Application of the Competition Act to Representations on the Internet).
As a result of amendments to the Act in 2009, it is also not necessary to show that a misleading claim was made to Canadian consumers or was made in a publicly accessible place. These changes were recently made to address perceived gaps in the Act and to specifically address misleading claims made in Canada targeting foreign consumers (as is alleged in this FTC case, albeit from a U.S. enforcement perspective) and claims originating in places without direct consumer contact (e.g., in the context of online marketing operations).
For copies of the FTC’s complaint and motion for injunction see:
Complaint for Permanent Injunction and Other Equitable Relief
Motion for Preliminary Injunction and Memorandum of Points and Authorities in Support
For Jessie Willms’ news release in reply to the FTC’s allegations see:
For more information about Canadian misleading advertising law see:
Advertising Law
Representing clients in misleading advertising and defamation based claims against competitors.
Designing promotional contests for many Canadian and international companies.
Reviewing advertising and marketing campaigns for Competition Act compliance.
Preparing competition law compliance programs including compliance with the misleading advertising and deceptive marketing provisions of the Competition Act.
Assisting companies design multi-level marketing plans to comply with the multi-level marketing and pyramid selling provisions of the Competition Act.
Author of misleading advertising compliance publications for The Canadian Real Estate Association.
Advisory Opinions (Written Opinions)
Providing advice in relation to the seeking of a binding advisory opinion from the Competition Bureau for a major Canadian company.
Associations
Speaker, Workshop, Canadian competition law for REALTORS, British Columbia Real Estate Association, Instructors Development Workshop, Whistler, BC.
Chapter, British Columbia Real Estate Association, Legal Update 2012, “Canadian Competition Law – The New Competition Act – The First Two Years in Force” (forthcoming, Spring, 2012).
Competition compliance presentations for numerous associations; recent projects include presentations for associations in the real estate, construction and pharmacy industries.
Providing competition law advice to a major Canadian association for a significant project involving negotiations with a government.
Competition law compliance programs for associations across Canada.
Competition law advice for many Canadian associations including in relation to the criminal conspiracy, bid-rigging, misleading advertising, abuse of dominance and price maintenance provisions of the Competition Act.
Advising many associations in relation to day-to-day association activities including board and membership meetings, information exchanges, collective negotiations with purchasers, standard setting and membership rules.
Designing the first national competition law compliance course for organized real estate for the Alliance for Canadian Real Estate Education and The Canadian Real Estate Association (Competition Law and REALTORS: What You Say and Do Matters).
Instructor, Competition Law and REALTORS: What You Say and Do Matters, national competition law course for organized real estate.
Co-author of a forthcoming book on competition law and associations (The Competition Law Guide for Associations in Canada – forthcoming, Carswell, fall 2011).
Advising association clients (acting on behalf of members) and purchasers (negotiating with associations and their members) in relation to collective negotiations for the supply of goods and services to avoid liability under the Competition Act.
Author of compliance publications for The Canadian Real Estate Association (CREA).
Bid-rigging
Competition compliance seminars in many industries including construction.
Advising clients in key industries (e.g., construction) on the criminal bid-rigging provisions of the federal Competition Act.
Author of competition law compliance resources including bid-rigging law and compliance guidelines.
Competition Litigation
Representing clients in misleading advertising and defamation based claims against competitors.
Preparing Competition Bureau complaints and briefs in relation to marketplace issues (e.g., refusals to supply/deal, abuse of dominance, exclusive dealing and exclusionary dealing activities, etc.).
Acting for a client in a competition law dispute in the real estate services sector (concerted refusal to deal).
Acting as defence counsel in a domestic price-fixing investigation and obtaining immunity for our client from the Competition Bureau.
Acting as Canadian counsel for a U.S. client in a Canadian price-fixing investigation.
Acting for a Western Canadian supplier in an abuse of dominance / exclusive dealing matter, obtaining a significant settlement for our client.
Acting for a Western Canadian company in a refusal to supply matter involving significant Canadian and U.S. suppliers.
Competitor Collaborations
Advising a major mining company on the application of Canadian competition law to mining joint ventures.
Acting for a private plaintiff in a price-fixing and concerted refusal to deal (boycott) civil action against a number of major suppliers.
Acting as Canadian counsel for a U.S. client in a Canadian price-fixing investigation.
Acting as defence counsel in a domestic price-fixing investigation and obtaining immunity for our client.
Advising associations and purchasers on the boundaries of collective negotiation for association member services.
Competition law advice for many trade and professional associations including in relation to the criminal conspiracy, bid-rigging, misleading advertising, abuse of dominance and price maintenance provisions of the Competition Act.
Competition compliance presentations for many trade and professional associations; recent projects include presentations for associations in the real estate, construction and pharmacy industries.
Compliance
Speaker, Workshop, Canadian competition law for REALTORS, British Columbia Real Estate Association, Instructors Development Workshop, Whistler, BC.
Chapter, British Columbia Real Estate Association, Legal Update 2012, “Canadian Competition Law – The New Competition Act – The First Two Years in Force” (forthcoming, Spring, 2012).
Competition law compliance programs and talks in numerous industries.
Designing the first national competition law compliance course for organized real estate for the Alliance for Canadian Real Estate Education and The Canadian Real Estate Association (Competition Law and REALTORS: What You Say and Do Matters).
Instructor for Competition Law and REALTORS for Canadian real estate boards.
Assisting several major British Columbia professional associations with their competition law compliance requirements.
Assisting a global software company design its competition law compliance program.
Assisting a significant Canadian insurance company with its competition law compliance requirements.
Co-author of the Competition Law Guide for Associations in Canada (forthcoming, Carswell, 2011).
Contests
Assisting the Canadian subsidiary of a significant European-based company operate a Canadian contest.
Assisting one the world’s largest computer hardware manufacturers design and operate a Canadian random draw contest.
Assisting a European online company design and operate a Canadian online contest.
Assisting a Western Canadian non-profit organization design and operate an online skill contest.
Assisting a significant western Canadian real estate development company design and operate a random draw contest.
Investigations
Acting as counsel in relation to voluntary and compulsory information requests by the Competition Bureau.
Acting as defence counsel in criminal price-fixing investigations.
Seeking and obtaining immunity on behalf of a client in relation to a domestic price-fixing investigation.
Attending on criminal and civil searches (dawn raids).
Acting on behalf of complainants seeking Competition Bureau investigations of criminal and civil matters.
Preparing many compliance programs and search and seizure guidelines for clients.
Investment Canada Act
Advising clients on the application of the Investment Canada Act in relation to Canadian transactions.
Preparing Investment Canada Act notifications and applications for review.
Consulting services to international consulting firms and hedge funds in relation to Canadian transactions, including the BHP bid for Potash.
Mergers
Providing Canadian merger control consulting services to U.S. hedge funds in relation to the Maple bid for the TMX.
Providing Canadian foreign investment and merger control law information to investment advisers in New York and London relating to BHP’s $38 billion hostile bid for Potash Corp.
One of the largest U.S. hedge funds in its $4 billion hostile bid for Inmarsat plc.
A South African diamond producer’s acquisition of a Belgian polishing firm.
Teck Cominco in its $4.1 billion bid for Aur Resources Inc.
A Canadian mining company in a friendly takeover by a Japanese company.
A significant U.S. company’s $300 million acquisition of a Canadian start-up.
A Japanese company in its acquisition of a Canadian transportation company.
West Fraser’s $325 million acquisition of 13 U.S. sawmills.
West Fraser’s $78 million sale of two sawmills to Hampton Lumber.
Glamis Gold Ltd. in its $21.3 billion plan of arrangement with Goldcorp.
Teck Cominco in its $16.8 billion unsolicited take-over bid for Inco.
Glamis Gold Ltd. in its $1.4 billion acquisition of Western Silver.
Sierra Systems Group in its $93 million acquisition by Golden Gate Capital.
Aurizon Mines in a $400 million hostile take-over bid by Northgate Minerals.
GE Capital Corporation in its acquisition of Transamerica Finance Corp., II.
Sodisco-Howden Group in its acquisition of Ace Hardware Canada Limited.
A U.S. acquirer in its $400 million acquisition of a commercial office building.
Chapters/Indigo in the merger of Chapters and Indigo Books & Music.
United Grain Growers Ltd. in the merger with Agricore Cooperative Limited.
Ralston Purina Corporation in its acquisition by Nestlé S.A.
Premdor Inc. in its acquisition of Masonite Corporation.
DaimlerChrysler in its $1 billion acquisition of Western Star Trucks Holdings.
Patheon Inc. in its $300 million acquisition of a Novartis manufacturing facility.
Refusal to Deal
Providing advice to a corporate client in relation to sustained refusals to supply by major suppliers.
Searches
Attending on criminal and civil searches by the Competition Bureau (dawn raids).
Advising clients in relation to searches including the legality of warrants, privilege claims, document review, substantive issues and compliance with Competition Act obligations (e.g., obstruction).
Acting as counsel in relation to voluntary and compulsory (section 11 orders) information requests by the Competition Bureau.
Acting as defence counsel in criminal matters under the Competition Act including domestic and international price-fixing investigations.
Preparing search and seizure guidelines (i.e., “what to do in the event of a search”) for clients in many industries.
Preparing competition law compliance programs for clients in a wide variety of industries.
Preparing document retention programs.
On May 23, 2011, the U.S. Department of Justice announced that it had filed a lawsuit to block H&R Block Inc. from acquiring TaxAct based on concerns that the proposed transaction would further consolidate the “growing U.S. digital do-it-yourself tax preparation software market” from 3 to 2 and eliminate a maverick (TaxAct).
In making the announcement, the U.S. DoJ said:
“’The combination of H&R Block and TaxACT would likely lead to millions of American taxpayers paying higher prices for digital do-it-yourself tax preparation products,’ said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. ‘In addition, TaxACT has aggressively competed in the digital do-it-yourself tax preparation market with innovations such as free federal filing. If this merger is allowed to proceed, that type of innovation will be lost.’
…
According to the department’s complaint, H&R Block’s acquisition of 2SS Holdings would eliminate a company that has aggressively competed with H&R Block and disrupted the U.S. digital do-it-yourself tax preparation market through low pricing and product innovation. By ending the head-to-head competition between TaxACT and H&R Block, American taxpayers would be left with only two major digital do-it-yourself tax preparation providers. This would lead to higher prices, lower quality, and reduced innovation. In addition, by taking control of the TaxACT business, which has been a maverick in the market, it would be easier for H&R Block to coordinate on prices, quality, and other business decisions with the other remaining industry leader – Mountain View, Calif.-based Intuit, which makes personal finance programs such as Quicken and TurboTax – the department said.”
This case is interesting in that in addition to considering market shares and existing remaining competition (according to the DoJ, the top three players including H&R Block and TaxAct account for about 90% of the relevant market), the DoJ is basing its challenge on the fact that in its view TaxAct is also a maverick. Like the U.S., in Canada whether a merging party is a maverick can also be a relevant factor for considering whether competition will be substantially lessened post-merger (though, not surprisingly, whether a party is a maverick can be the subject of considerable debate and maverick cases are relatively rare). In this regard, the Competition Bureau states in its Merger Enforcement Guidelines:
“Pre-merger, effective coordination may be constrained by the activities of a particularly vigorous and effective competitor (a ‘maverick’). An acquisition of a maverick may remove this constraint on coordination by reducing incentives to behave in an aggressive manner. Such an acquisition increases the likelihood that coordinated behaviour will be effective.”
This case is also interesting, if only for being a cautionary tale, in that the DoJ is basing its challenge of the proposed transaction in part on the merging parties’ own internal documents. According to the DoJ, these include statements from H&R Block’s internal emails and presentations that a primary benefit of acquiring TaxAct is “elimination of a competitor” and the “strategic opportunities” include to “eliminate the brand to regain control of industry pricing and further price erosion”.
Given that “4c documents” are a routine and required part of merger notification in the U.S., and that strategic planning documents are also now required for merger notification filings in Canada regardless of complexity (see Notifiable Transactions Regulations, 16(1)(d)),[1] merging parties are well advised to seek competition/antitrust counsel early in the planning stages of a proposed transaction to avoid similar potential issues from arising.
For the complete DoJ news release see: Justice Department Files Antitrust Lawsuit to Stop H&R Block Inc. From Buying TaxAct.
For Canada’s merger control rules see: Competition Act, Part IX – Notifiable Transactions and Notifiable Transactions Regulations.
For an overview of merger control in Canada see: Merger Control and Investment Canada.
[1] Subparagraph 16(1)(d) of the Notifiable Transactions Regulations requires that parties to a transaction, and their affiliates, file “all studies, surveys, analyses and reports that were prepared or received by an officer or director of the corporation … for the purpose of evaluating or analysing the proposed transaction with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions …” This requirement to file strategic planning documents as part of a pre-merger notification filing was recently added to the Canadian Notifiable Transactions Regulations as part of amendments to the Competition Act in 2009, and further aligns Canadian merger control rules with that in the U.S. under the HSR Act (the existing 4c documents requirement).
The Competition Bureau has announced that Kason Industries Inc. plead guilty for its part in a customer allocation conspiracy and was fined $250,000 by the Federal Court of Canada.
In its news release, the Bureau stated:
“The Competition Bureau announced today that Kason Industries Inc. was fined $250,000 by the Federal Court after pleading guilty on March 8, 2011 to a criminal charge that it conspired to allocate customers for the sale of refrigeration and food service equipment components in Canada and the U.S.
Between January 2005 and December 2008, Kason Industries Inc. engaged in meetings with Component Hardware Group Inc., to allocate their major customers, allowing them to maintain uncompetitive prices.
During this period, Kason was responsible for approximately 40% of the overall sales of food service equipment components in Canada and the U.S., worth nearly $3.16 million to their allocated Canadian customers.”
According to the Bureau, its investigation included the cooperation of the parties to the alleged conspiracy under the Bureau’s formal Immunity and Leniency Programs, as well as coordination from the U.S. Department of Justice.
This case is interesting given that Canadian market allocation cases, both involving the allocation of customers or geographic markets, have been relatively uncommon in Canada.
As such, this case may be an indication that the Bureau’s ongoing criminal investigations are focused on testing the boundaries of Canada’s new criminal conspiracy laws, which were significantly amended in 2010 to expressly prohibit market allocation agreements among competitors, in addition to price-fixing and output restriction conspiracies.
For the Bureau’s news release, see: Competition Bureau Exposes Customer Allocation Conspiracy.
The Competition Bureau (the “Bureau”) has announced today that it has applied to the federal Competition Tribunal (the “Tribunal”) for a Tribunal order to dissolve (i.e., unwind) CCS Corporation’s acquisition of Complete Environmental Inc., owner of the proposed Babkirk Secure Landfill in Northeastern British Columbia (see: Competition Bureau Challenges BC Landfill Merger).
In making its announcement, the Bureau said:
“Following a thorough review, the Bureau concluded that CCS’s acquisition of the proposed Babkirk Secure Landfill will result in a substantial prevention of competition for the disposal of hazardous waste produced largely at oil and gas facilities in Northeastern British Columbia.
‘CCS’s purchase of the Babkirk Secure Landfill prevents competition substantially,’ said Melanie Aitken, Commissioner of Competition. “By purchasing, rather than face competing with the Babkirk Secure Landfill, CCS will prevent the entry of competition into the market for secure hazardous waste disposal in Northeastern British Columbia.”
The Babkirk Landfill is located 130 km north of Fort St. John, BC. Complete Environmental obtained regulatory approval to convert Babkirk into a secure landfill in February 2010. CCS currently operates the only two operational secure landfills in British Columbia. Had the Babkirk Secure Landfill opened, it would have been CCS’s competitor.”
While no decision has yet been made by the Tribunal, this is a landmark case for several reasons.
First, contested merger proceedings in Canada are rare, with the Bureau itself stating that this is the first merger challenge filed by the Bureau in six years.
The vast majority of mergers in Canada that raise issues are resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets or the imposition of other remedies, such as “behavioural” remedies to modify the merged entity’s conduct post-merger).
Second, while the Bureau has jurisdiction to challenge completed mergers for up to one year post-completion (recently shortened from the previous three years as a result of the 2009 amendments to the Competition Act), to our knowledge this has never actually occurred. This will certainly alter advice to merging party clients, which had often been that while the Bureau could challenge a completed merger, it never had.
Third, the Bureau is proceeding on the theory that the acquisition will prevent competition (a rarer basis of challenge under section 92 of the Competition Act, which allows the Tribunal to issue orders, including for the dissolution of a completed merger, where it either prevents or lessens competition substantially in one or more relevant markets).
Finally, the CCS Corporation / Complete Environmental Inc. transaction does not appear to have been notified. While the transaction may not have met the pre-merger notification thresholds under the Competition Act, any transaction in Canada that meets the definition of “merger” under the Competition Act (which is very broad and includes, in addition to de jure control, acquisitions of control in fact, i.e., acquisitions of “significant interests”) may be challenged by the Bureau where it takes the position that it prevents or lessens competition substantially.
As such, merging parties and their counsel are well advised to review transactions in small markets (i.e., where a transaction may not be notifiable) where the market is consolidated, the parties have large market shares despite the transaction value being under the notification thresholds or where other factors may mean the transaction may be problematic (e.g., high barriers to entry, significant regulation, etc.).
This case is also another example of the Bureau’s recently more aggressive enforcement approach to its key enforcement areas (i.e., criminal conspiracies, abuse of dominance (monopolies), deceptive marketing and misleading advertising and mergers).
For more information about Canadian merger control see: Canadian Merger Control and Canadian Merger Control FAQs.
For a copy of the notice of application see: Notice of Application.
The U.K. Office of Fair Trading has announced that seven insurance companies and two IT software and service providers have offered formal commitments to resolve the OFT’s concerns in relation to an information exchange system implemented by the companies. For a copy of the OFT’s Press Release, see: Motor insurers agree to limit data exchange after OFT investigation.
In making its announcement, the OFT said:
“Insurers Ageas Insurance Limited (formally Fortis Insurance Limited), Aviva plc, AXA Insurance UK plc, Liverpool Victoria Friendly Society, RBS Insurance Group Limited, Royal Sun Alliance and Zurich Insurance plc, and the IT software and service providers Experian Limited and SSP Limited have all offered formal commitments to the OFT. This follows an OFT investigation which identified an increased risk of price coordination among motor insurers using a specialist market analysis tool by Experian called Whatif? Private Motor.
The OFT limited the scope of its investigation to a small number of parties with a view to achieving a swift and effective outcome. However, the investigation potentially has wider implications as the Experian tool is just one of a number of similar products used throughout the insurance industry.
The tool allowed insurers to access not only the pricing information they themselves provided to brokers but also pricing information supplied by other competing insurers. The OFT warned the firms that the information exchanged through WhatIf? Private Motor raised competition law concerns because:
- the analysis tool enabled insurers to access individualised and highly disaggregated pricing data for vast numbers of permutations of customer risks across most competing private motor insurers that sold through brokers
- the information accessible through the analysis tool was not genuinely public information. While it would, in theory, be possible to replicate the information by obtaining individual quotes from insurers, this would be almost impossible in practice as it would require obtaining hundreds of thousands of individual quotes
- insurers were able to access information about their competitors’ future pricing intentions as the tool was received by insurers in advance of the pricing information going ‘live’ in insurance policies sold by brokers, and
- the analysis tool was updated and provided to subscribing insurers on a frequent and regular (monthly) basis.
The nine companies under investigation are proposing to address the OFT’s concerns by giving formal commitments that will result in the insurers no longer being able to access each other’s individual pricing information through Whatif? Private Motor. Instead, they propose to exchange pricing information through the analysis tool only if that information meets certain principles agreed with the OFT. These would require the pricing information to be anonymised, aggregated across at least five insurers and already ‘live’ in broker-sold policies.”
Like Canada, the U.K. Competition Act 1998 prohibits certain types of agreements that may have a damaging effect on competition (in Canada, some types of agreements between competitors, including price-fixing and market allocation/division agreements, are “per se” illegal without any requirement to show anti-competitive effects, while others are potentially subject to civil review where they may prevent or lessen competition substantially in a relevant market).
Unlike Canada, where an agreement or arrangement must be proven, U.K. and EU competition rules prohibit not only certain types of anti-competitive agreements, but also “concerted practices” that have the object or effect of preventing, restricting or distorting competition.
As such, the potential risk associated with the exchange of competitively sensitive information between competitors, including through third parties such as customers or suppliers, is considered to be higher in the U.K. and Europe than in Canada (though is still considered to be a high risk area under both Canadian and American competition/antitrust law). In this regard, courts and competition/antitrust enforcement agencies are inherently suspicious when direct competitors exchange competitively sensitive information (or engage in discussions regarding confidential or competitively sensitive aspects of their businesses).
Some of the types of competitively sensitive information that can raise issues when exchanged among direct competitors without adequate precautions include information relating to individual pricing (e.g., current or future pricing, pricing formulas and discounts), costs, sales and terms of sale, territories, capacity and production data, output, customers and business and strategic plans.
The principal risk of information exchanges between competitors is that they can lead to agreements that violate the criminal conspiracy provisions under section 45 of the Competition Act. In addition, even where an express agreement does not exist, the exchange of competitively sensitive information between competitors can allow the federal Competition Bureau or a court to more easily infer the existence of an agreement. For example, in its recently issued Competitor Collaboration Guidelines, the Competition Bureau has highlighted the potential risk that an information exchange between competitors can lead to the inference of an agreement that contravenes the Competition Act.
Having said that, before the 2009 amendments to the Competition Act, it was thought (at least in theory – as there had never been a decided case) that an information agreement itself could, depending on the circumstances, contravene the criminal conspiracy provisions of the Act (i.e., where an information exchange agreement prevented or lessened competition “unduly”).
This could no longer be the case under Canada’s newly amended conspiracy rules under the Competition Act, given that section 45 of the Act now only prohibits three specific categories of agreements between actual or potential competitors: price-fixing, market allocation and supply restriction agreements.
An information exchange agreement between competitors could, however, now contravene the new civil agreements provision (section 90.1), where the Competition Bureau was able to prove that it prevented or lessened competition substantially in one or more relevant markets. It would, however, be necessary to establish both the existence of an agreement between two or more competitors, as well as the other necessary elements under section 90.1 (including the requisite market effects test – i.e., that competition has been prevented or lessened substantially as a result of the information exchange or agreement).
The Competition Bureau has appointed a new Associate Deputy Commissioner of Criminal Matters (see: Matthew Boswell Appointed Associate Deputy Commissioner of Criminal Matters).
In making the announcement, the Bureau said:
“Mr. Boswell will be taking a leave of absence from his position as Senior Litigation Counsel for the Enforcement Branch of the Ontario Securities Commission, where he represented staff of the Commission before various levels of court, as well as before the Commission. In that capacity, Mr. Boswell provided legal advice on all aspects of enforcement matters, including the use of investigative powers and tools.
Mr. Boswell previously served as Assistant Crown Attorney for the Ministry of the Attorney General (Ontario) preparing and conducting criminal prosecutions. He has also worked in private practice as a civil and criminal defence litigation counsel on a variety of files with a focus on regulatory matters.
Mr. Boswell will work closely with Senior Deputy Commissioner John Pecman, so we can benefit from his complementary criminal prosecution and defence background as we move forward with our enhanced criminal powers and mandate.”
This new appointment is being seen by some as a further step by the Bureau to reinforce its more aggressive enforcement posture under the helm of the (not so new anymore) Commissioner of Competition Melanie Aitken. In this regard, the Bureau has indicated in recent public announcements that it was currently working on some 40+ criminal cases. While the Bureau has long stated that the detection and enforcement of cartels was an enforcement priority, to be fair those statements were at times more policy than reality.
The Bureau, private plaintiffs and corporate counsel are also working to understand the boundaries of Canada’s new U.S.-style criminal conspiracy regime under the amended Competition Act, which remains largely speculative in the absence of any decided cases under the new rules.
The Bureau does, however, now appear to be increasingly serious about focusing on its enforcement priorities, including criminal cartels, bid-rigging, misleading advertising and deceptive marketing, as well as working to develop new case law under the unilateral conduct provisions of the Act, including the abuse of dominance and newly amended price maintenance provisions (see for example: Competition Bureau Charges Eight Companies and Five Individuals in Alleged Bid-Rigging Scheme, Competition Bureau Steps Up Criminal Price-fixing Investigations in Canada, Criminal Charges Against 25 Individuals and 3 Companies in Quebec Gas Price-fixing Case, Competition Bureau Commences Misleading Advertising Case Against Rogers and Competition Bureau Tests New Price Maintenance Provisions with Challenge Against Visa and MasterCard).
Earlier this month, Canada passed its long-awaited anti-spam bill (Bill C-28 – the Fighting Internet and Wireless Spam Act) (“FISA”). In passing this new legislation, Industry Canada stated:
“On December 15, 2010, the Government of Canada passed the Fighting Internet and Wireless Spam bill, Bill C-28. In doing so, the government is delivered on a key commitment made by Prime Minister Harper to Canadians and Canadian businesses in September 2008. The legislation is a critical element of the development of a digital economy strategy.
The intent of the legislation is to deter the most damaging and deceptive forms of spam, such as identity theft, phishing and spyware, from occurring in Canada and to help to drive out spammers.
This law addresses the legislative recommendations of the Task Force on Spam, which brought together industry, consumers and academic experts to design a comprehensive package of measures to combat threats to the digital economy. As well the government studied successful legislative models in other countries and, based on their experiences, has developed a focused plan to address spam and related online threats.”
In his online videocast (“Government of Canada Moves to Enhance Safety and Security in the Online Marketplace”), the Minister of Industry said that the passage of FISA was intended to “help … enhance safety and security in the online world”, “deter the most damaging and deceptive forms of spam from occurring in Canada” and “drive spammers out of Canada”. The Minister also said that “Canadians need to feel just as confident in the electronic marketplace as they do at the corner store” and that “spam is at best a nuisance but it can also discourage electronic commerce, undermine privacy and introduce a host of online threats”.
Overview of FISA (Bill C-28)
According to Industry Canada, the intent of the new legislation is as follows:
“The intent of the legislation is to deter the most damaging and deceptive forms of spam from occurring in Canada, creating a more secure online environment. It does this by addressing the sending of spam, the undesired installation of spyware and malware on the computers of businesses and individuals, and the alteration of transmission data. The bill also extends the provisions of the Competition Act concerning false and misleading marketing to electronic messages, and restricts the scope of certain exceptions under the Personal Information Protection and Electronic Documents Act.”
Some of the highlights of FISA include: (i) addressing spam by prohibiting the sending of commercial electronic messages without consent, (ii) prohibiting false or misleading commercial representations online, (iii) prohibiting the installation of computer programs without consent for commercial activities, (iv) prohibiting the collection of personal information through unlawful access to computer systems (as well as the unauthorized compilation or supply of lists of electronic addresses), (v) creating a private right of action for consumers and businesses, (vi) giving the CRTC and the Competition Tribunal the power to impose administrative monetary penalties for violations of FISA (of up to $1 million for individuals and $10 million for corporations) and (vii) allowing for cross-border exchanges of information and evidence to investigate spammers operating outside Canada.
The Government has also announced that it intends to create a spam reporting centre that will work together with the three enforcement agencies responsible for enforcing FISA (the CRTC, Office of the Privacy Commissioner and the Competition Bureau) to “engage in public awareness” and ”identify and analyze trends in online threats”.
Enforcement
FISA will be enforced by the following three organizations:
Competition Bureau – The Competition Bureau’s mandate will be to focus on misleading and deceptive practices and representations online, including false or misleading headers and Internet website content. In this regard, FISA extends the Bureau’s existing jurisdiction over misleading advertising and deceptive marketing practices in Canada, which already included online advertising and marketing.
Canadian Radio-television and Telecommunications Commission (CRTC) – The CRTC will have the power to investigate and take action (including using significant monetary penalties) against unsolicited electronic messages, altering of transmission data or installation of computer programs without consent.
Office of the Privacy Commissioner of Canada – The Office of the Privacy Commissioner will have the power to take measures against the collection of personal information through access to computers (as well as the unauthorized compiling or supplying of lists of electronic addresses).
Penalties
Persons contravening FISA are subject to administrative monetary penalties of up to $1 million (for individuals) and $10 million (for corporations).
FISA also provides for the issuance of preservation demands to ISPs (requiring the preservation of transmission data), notices of production (requiring the production of documents or preparation of documents based on data, information or documents) and search warrants.
Legislative History
FISA, which was first introduced in April, 2009 and reintroduced on May 25, 2010, addresses legislative recommendations made by the Task Force on Spam, which assembled consumers, academic experts and industry to design comprehensive legislation to fight spam in the digital economy. In 2005, the Task Force on Spam completed its one year mandate and issued its final report (Task Force on Spam Report: Stopping Spam: Creating a Stronger, Safer Internet). The Government also studied successful anti-spam measures in other countries.
From the time Bill C-28 was first introduced, amendments were made to address concerns raised during Industry Committee testimony (which heard from a wide variety of witnesses, including representatives from enforcement agencies, industry associations, ISPs, consumer groups, the financial sector and marketers). During third reading, the amended Bill received unanimous support in the House of Commons and received Royal Assent on December 15, 2010.
More Information
For more information about Bill C-28 see:
Fighting Internet and Wireless Spam Act
Industry Canada News Release: “Harper Government is Getting Things Done for Canadians”
Industry Canada Summary of Bill C-28: “Bill C-28: Canada’s Online Protection Legislation”
Bill C-28 Questions and Answers (Industry Canada)
Task Force on Spam Report: Stopping Spam: Creating a Stronger, Safer Internet
Industry Canada News Release: “Task Force on Spam Presents Final Report to Minister” (2005)
Industry Canada News Release: “Lucienne Robillard Announces Measures to Combat SPAM” (2004)
The Department of Justice has announced that it has reached a settlement with Lucasfilm Ltd. to prevent it from entering into agreements restraining employee recruitment. The announcement by the DoJ follows its investigation of the employment practices of high tech companies, including Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp. and Pixar.
In making its announcement, the DoJ said:
“Today’s complaint arose out of a larger investigation by the Antitrust Division into employment practices by high tech companies. In September 2010, the Antitrust Division reached a settlement with Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar that prevented the companies from entering into no solicitation agreements for employees.
According to today’s complaint, Lucasfilm and Pixar agreed not to cold call each other’s employees; agreed to notify each other when making an offer to an employee of the other company; and agreed, when offering a position to the other company’s employee, not to counteroffer with compensation above the initial offer.
…
The digital animation sector faces strong demand for employees with advanced or specialized skills. A principal means by which digital animation companies recruit these employees is their direct solicitation, referred to as “cold calling.” Savvy employees can use these companies’ tactics to extract multiple rounds of bidding, thus increasing their eventual salaries. These forms of competition, when unrestrained, result in better career opportunities, the department said.
The complaint alleges that the companies’ actions reduced their ability to compete for digital animation workers and interfered with the proper functioning of the price-setting mechanism that otherwise would have prevailed in competition for employees. None of the agreements was limited by geography, job function, product group or time period.
The proposed settlement, which if accepted by the court will be in effect for five years, prohibits the companies from engaging in anti-competitive agreements relating to employee hiring and retention. Although the complaint alleges only that the companies agreed to certain practices, the proposed settlement more broadly prohibits the companies from entering, maintaining or enforcing any agreement that in any way prevents any person from soliciting, cold calling, recruiting or otherwise competing for employees. The companies will also implement compliance measures tailored to these practices.”
This case is interesting in that it coincides with the introduction of new cartel rules in Canada, including new conspiracy offences that prohibit agreements between competitors (or potential competitors) to divide markets or restrict output. At the same time, a second civil track has been introduced under which the Competition Bureau can challenge competitor agreements that prevent or lessen competition substantially (or are likely to do so).
Among the issues that will remain to be determined under the new rules that are relevant to the recent Lucasfilm settlement are whether buyer cartels (i.e., agreements between competing buyers of products or services) will be caught (or rather should be reviewed under the new civil agreements provision), whether many types of common commercial restraints can be challenged under the new criminal rules (including restrictive covenants in employment and sale of business agreements) and perhaps most interestingly, the scope of a newly introduced “ancillary restraints defence” (under which agreements that are ancillary, directly related to and reasonably necessary for a larger pro-competitive agreement can escape the new criminal prohibitions).
In this regard, the U.S. DoJ appears to have adopted an analytical approach commonly taken by U.S. courts in considering whether a restraint is “bare” and at root anti-competitive or, alternatively, ancillary and related to some larger, pro-competitive agreement, concluding that the non-solicitation agreement was a naked restraint, without pro-competitive justification. Also generally consistent with factors articulated by U.S. courts, as well as those set out by the Competition Bureau in its recently issued Competitor Collaboration Guidelines, the DoJ also noted that the challenged restraint in this case was not limited by, among other things, geography or time period.
The line, however, between “naked” or “bare” restraints (potentially subject to per se condemnation under section 1 of the Sherman Act) and secondary or “ancillary” restraints (entitled to a more detailed “rule of reason” review) has been something of a battleground in the U.S. As such, given that contested conspiracy cases have historically been far less common in Canada, it will likely take some years before Canadian courts add shape to Canada’s new U.S. style conspiracy regime.
For a copy of the Department of Justice’s News Release see: Justice Department Requires Lucasfilm to Stop Entering into Anticompetitive Employee Solicitation Agreements.
The Competition Bureau has announced that it will update its Fee and Service Standards Handbook to reflect amendments to the Competition Act made in 2009 and 2010.
In making the announcement, the Bureau stated:
“The changes to the Handbook are necessary to reflect amendments to the Act that came into force in 2009 and 2010, including changes to the conspiracy provision, the addition of a provision governing competitor collaborations that substantially prevent or lessen competition, and changes to other provisions of the Act relating to certain pricing practices.
Since 2002, the Bureau has required the payment of fees for binding written opinions provided pursuant to section 124.1 of the Act regarding the applicability of the Act’s provisions to a proposed practice or conduct. Service standards were established in order to provide applicants with timely and predictable periods for written opinions, and to comply with Treasury Board requirements with respect to the imposition of fees.
The revised Handbook will provide updated guidance on how the Commissioner of Competition generally determines whether to exercise her discretion to provide a binding written opinion on the applicability of the provisions requested by an applicant to a proposed practice or conduct, how the Bureau determines the complexity of a proposed practice or conduct, the information required by the Bureau to commence the applicable service standard, and when service standards may be paused or terminated.”
One of the key aspects of the Bureau’s review of its Fee and Service Standards Handbook is guidance on when the Commissioner will issue section 124.1 advisory opinions.
While the Competition Act provides that the Commissioner may issue binding advisory opinions on the application of the Act to business activities, that power is discretionary (i.e., the Commissioner is not required to issue an opinion in any particular case, and in some cases will decline to issue and opinion).
In addition, the time-frames for issuance of advisory opinions, when issued, can be highly inconsistent ranging from a few weeks to many months in some cases.
The Competition Bureau announced earlier today that it has commenced legal proceedings against Rogers to stop what, according to the Bureau, constitutes misleading advertising in connection with Rogers’ Chatr discount cell phone service.
In making the announcement, the Bureau said:
“Rogers’ Canada-wide advertising campaign claims that consumers subscribing to Rogers’ Chatr brand would experience “fewer dropped calls than new wireless carriers” and have “no worries about dropped calls”.
The Bureau’s investigation, which involved an extensive review of technical data, obtained from a number of sources, led the Bureau to conclude that there is no discernible difference in dropped call rates between Rogers/Chatr and new entrants.
“We take misleading advertising very seriously,” said Melanie Aitken, Commissioner of Competition. “Consumers deserve accurate information when making purchasing decisions and need to have confidence they are not being misled by false advertising campaigns.”
The Government of Canada opened up the domestic cell phone market in 2008 with a spectrum auction that made additional frequencies available to new wireless service providers.”
The legal proceedings begun by the Bureau are being brought in the Ontario Superior Court of Justice. In its claim, the Bureau is seeking an order that Rogers: (i) stop its advertising campaign, (ii) pay an administrative monetary penalty of $10 million, (iii) pay restitution to affected customers and (iv) issue a corrective notice.
The Bureau’s announcement follows a series of competition law related disputes in the telecom sector that have included an abuse of dominance complaint by Mobilicity against Rogers apparently alleging that Rogers is abusing its dominant position in the use of “fighting” or “flanking” brands (see: Mobilicity Files Competition Bureau Complaint Against Rogers) and recent novel proceedings in which the Supreme Court of British Columbia struck out Novus Entertainment’s claims against Shaw Cablesystems based on the abuse of dominance provisions of the Competition Act (and in particular predatory pricing related claims) (see: British Columbia Supreme Court Rejects Novus’ Section 79 Predatory Pricing Claim Against Shaw).
The proceedings commenced against Rogers appear to be based on complaints made by Wind Mobile about Rogers advertising claims for its Chatr brand. For example, the Globe and Mail reported that Wind Mobile had filed a complaint with the Bureau and quoted Wind Mobile’s Chairman Anthony Lacavera as saying that “there is absolutely no solid or objective technical basis for Chatr’s claim to have more network reliability and fewer dropped calls than Wind.” See: Wind Mobile Files Competition Bureau Complaint Against Rogers.
In this regard, the Commissioner of Competition, Melanie Aitken, stated:
“The spectrum auction was intended to enhance competition in the wireless sector,” Ms. Aitken said. “New entrants attempting to gain a foothold in the market should not be discredited by misleading claims made by their competitors.”
The Bureau’s recent announcement, with allegations against Rogers that have not been proven, is a sober reminder of the new penalties for misleading advertising under the Competition Act, which were enacted as part of sweeping amendments to the Act in 2009. As a result of the amendments, significantly increased penalties for civil false or misleading representations were introduced including “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals ($1 million for subsequent orders) and $10 million for corporations ($15 million for subsequent orders), which are more than ten times the previous penalties.
Misleading Advertising Law in Canada
The federal Competition Act contains both criminal and civil provisions that prohibit false or misleading representations. The general civil misleading advertising provision of the Act prohibits representations to the public, to promote a product or any business interest, that are false or misleading in a material respect. For a representation to be false or misleading under the civil misleading advertising provision, it must be established on the civil burden of proof (i.e., on a balance of probabilities) that: (i) a representation has been made, (ii) to the public, (iii) to promote a product (including services) or any business interest, (iv) the representation is false or misleading and (v) that it is false or misleading in a “material” respect. The criminal misleading advertising provision of the Act is substantially similar, except that in order to establish criminal misleading advertising, it must also be established on the criminal burden of proof (i.e., beyond a reasonable doubt) that a representation was intentionally made (i.e., was made “knowingly or recklessly”).
Performance Claims under the Competition Act
In addition to the “general misleading advertising” provisions, the Competition Act also prohibits false performance claims, and in particular prohibits representations to the public about the “performance, efficacy or length of life of a product” that is not based on an “adequate and proper test.” While performance claims themselves are not prohibited, any testing or verification of a performance claim must be performed before the claim is made and the onus is on the person making the representation to prove that the claim is based on an adequate and proper test. As such, while performance claims can be a legitimate and effective way to distinguish goods or services from competitors, it is important that adequate and proper testing is performed (or appropriate statistics or support are obtained) before performance claims are made. (the federal Competition Tribunal has also recently held that there a non-exhaustive list of factors are relevant in considering whether testing is “adequate and proper”).
Steve Szentesi and Christine Mingie Duhaime
Last month, the federal Competition Bureau started a criminal investigation into possible collusion involving the Quebec construction industry. The investigation is separate from an on-going investigation by the Bureau of the Quebec construction industry into bid-rigging, intimidation, fraud and influence. This investigation, together with others, shows that the Competition Bureau has significantly stepped up its enforcement efforts against the construction and other industries and is being closely watched by companies in British Columbia.
In the last year alone, the Bureau has assessed over $28 million in fines against companies for price-fixing, including $3 million against suppliers of air compressors, $17 million against air cargo suppliers, $2.7 million against gasoline suppliers and $5.6 million against hydrogen peroxide suppliers.
The Bureau tends to take enforcement action against companies, including when there is evidence of a criminal conspiracy, abuse of dominance, misleading advertising or deceptive marketing. Of these, the criminal conspiracies and abuse of dominance remain top enforcement priorities. With the Commissioner of Competition recently remarking that the Bureau currently had 42 on-going criminal investigations in Canada, this is also not merely enforcement agency bluster.
Under the Competition Act, it is illegal for individuals or companies to, among other things, fix prices with competitors, rig bids or engage in intentional misleading advertising. The Competition Act also regulates a variety of civil (i.e., non-criminal) conduct including some types of marketing and advertising, mergers and companies that abuse their dominant position. In addition, the Act applies to virtually all businesses and industries in Canada.
Canada’s New Conspiracy Law
In March, 2009 the Competition Act was significantly amended, with some changes coming into effect this year. These included three new criminal offences for price-fixing, market/division and supply restriction agreements. It is now “per se” illegal (i.e., without needing to show any adverse market effects) for competitors to, for example, fix the prices of their products or agree to divide geographic territories, customers or product lines.
The maximum penalties for criminal conspiracy agreements have also now more than doubled, with fines of up to $25 million (per count), imprisonment for up to fourteen years, or both. The penalties for criminal bid-rigging agreements have also been increased with a new bid-rigging offence having been introduced.
Based on the significant penalties, as well as director and officer liability, the potential risks associated with price-fixing activities are clear. Issues can, however, also arise in connection with many types of common commercial activities including joint ventures and strategic alliances between competitors and trade association activities (e.g., meetings, information exchanges, collective negotiations or attempts to regulate member fees or marketing).
In addition, certain industries and markets are more at risk than others – for example, industries that are declining, highly consolidated or where it is difficult to compete other than on price (e.g., construction, cement, steel, chemical inputs, etc.).
Implications and Steps to Reduce Risk
The Bureau’s stepped up enforcement efforts and increased penalties means that there is heightened risk associated with some types of business activities.
As such, British Columbia companies should be aware of the new rules, the potential risks related to some types of activities and steps that can be taken to reduce potential liability. These include:
Competition compliance and document retention programs. Adopt a competition compliance and document retention program to reduce potential liability. An effective document retention program is particularly important, given that many investigations are based on a company’s own internal documents produced on a voluntary or compelled basis (i.e., based on a court order).
Trade associations. Trade associations should have competition compliance programs or at minimum competition law guidelines for key activities, including meetings, get-togethers, contract negotiations, etc. before companies permit employees to join and participate.
Accurate communications. Ensure that all employees are aware of the importance of accurate internal and external communications from a competition law perspecitive– i.e., not incorrectly suggesting that prices/fees have been fixed, markets or customers have been divided or that an agreement or arrangement exists to limit supply.
Joint ventures and strategic alliances. Ensure that significant initiatives with competitors – for example joint venture and strategic alliance agreements – are reviewed by competent legal counsel for potential competition law concerns.
Information exchanges. Avoid the exchange of competitively sensitive information with competitors and potential competitors (e.g., current or future pricing, costs, customers or business or strategic plans).
Competitive bids and tenders. Do not agree with competing bidders to arrange the terms of a bid, withdraw a bid already made or not submit a bid. In addition, if participating in a bid consortium, ensure that the rules requiring disclosure before a bid is made are complied with (which can act as a defence).
Dealing with competitors. Ensure that employees are aware of what is and isn’t appropriate to discuss with competitors, as well as the types of competitor collaborations that can raise competition law issues in some cases (e.g., trade associations or joint ventures/strategic alliances).
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