Canadian COMPETITION & ANTITRUST LAW

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.”

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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.”

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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 European Commission announced earlier today that the Commission had fined 11 air cargo carriers 799 million Euro in a global air cargo price-fixing cartel that, according to the Commission, affected cargo services within the European Economic Area. 

The 11 undertakings fined included Air Canada, Air France-KLM, British Airways, Cathay Pacific, Japan Airlines, Singapore Airlines and Qantas.

In making its announcement, the Commission stated:

“Today the Commission fined 11 air cargo carriers a total of €799.445.000. The cartel members coordinated various elements of price for a period of over six years, from December 1999 to 14 February 2006. The cartel arrangements consisted of numerous contacts between airlines, at both bilateral and multilateral level, covering flights from, to and within the EEA. Airlines providing airfreight services primarily offer the transport of cargo to freight forwarders, who arrange the carriage of these goods including associated services and formalities on behalf of shippers.”

According to the Commission, the contracts on prices between the carriers began with discussions of fuel surcharges (with flat rate surcharges per kilo for air cargo shipments), which was later extended to include an agreed upon security surcharge and concerted refusals to pay a commission on surcharges to freight forwarder clients.

Lufthansa (and its subsidiary Swiss) received full immunity under the Commission’s Leniency Programme, as it brought the cartel to the Commission’s attention.  In addition, several of the carriers’ fines were reduced for cooperation with the Commission, including Air Canada, whose fine was reduced 15%.

These most recent fines imposed by the Commission follow earlier fines imposed in Canada.  For a copy of the European Commission’s news release see: Antitrust: Commission fines 11 air cargo carriers €799 million in price fixing cartel.

The Toronto Sun and others reported today that the Competition Bureau has launched a new criminal investigation in Quebec, in relation to Quebec’s construction industry.

The Bureau’s recently announced investigation follows closely on the recent price-fixing investigation in the Quebec gasoline industry (see: Criminal Charges Against 25 Individuals and 3 Companies in Quebec Gas Price-fixing Case), which was the largest investigation in the Bureau’s history resulting in the seizure of over 100,000 records, 90 locations searched the interception of thousands of telephone conversations (through the use of wiretaps) and 38 individuals and 14 companies accused of criminal price-fixing offences.

In reporting this case earlier today, the Toronto Sun stated that the investigation was separate from an ongoing criminal bid-rigging investigation involving Quebec construction companies and quoted Bureau officials as recognizing that the construction industry is particularly susceptible to price-fixing and bid-rigging conduct: “The construction sector is highly vulnerable to collusion. … It’s something that’s recognized worldwide. So in that sense, I don’t think Quebec is worse than other provinces.”

This recent investigation is one of a number of ongoing Bureau criminal investigations under Canada’s recently amended Competition Act, under which the maximum penalties are fines of up to $25 million (per count), imprisonment for up to 14 years, or both.

This recent investigation also accords with the Bureau’s continuing focus on the detection of domestic cartels in Canada (i.e., illegal price-fixing, market allocation and output restriction / boycott agreements between competitors).

For more on the criminal conspiracy law in Canada see: Conspiracy / Cartels, Conspiracy FAQs and Conspiracy News.

Earlier today the Competition Bureau published its final Leniency Program Bulletin.  In issuing this fairly anticipated Bulletin, the Bureau stated:

“The Bulletin outlines the factors the Bureau considers when making sentencing recommendations to the Public Prosecution Service of Canada (PPSC) and the process for seeking a recommendation for a lenient sentence in criminal cartel cases. The relationship between and roles of the PPSC and the Bureau, including each organizations’ respective roles and responsibilities, are clearly outlined in the Memorandum of Understanding between the Commissioner of Competition and the Director of Public Prosecutions. The Bulletin is a result of extensive consultations carried out in 2008 and 2009 to solicit feedback on the development of the Bureau’s Leniency Program.

A transparent and predictable Leniency Program complements the Bureau’s Immunity Program. The Bureau recommends immunity from prosecution for the first person to approach the Bureau who admits involvement in an offence and meets the Program criteria. A recommendation for lenient treatment may be available for a company or individual who cooperates with the Bureau’s investigation and admits involvement, but is not first to approach the Bureau. Whether or not the Bureau recommends lenient treatment in sentencing is based on the timeliness of the applicant’s cooperation.”

The Bureau also reiterated that investigating cartels (i.e., price-fixing, market allocation and supply restriction agreements between competitors or potential competitors) remains a top priority:

“Investigating cartels is one of the Bureau’s top antitrust enforcement priorities. The Immunity and Leniency Programs are among the Bureau’s best weapons to combat these anti-competitive agreements.”

The Bureau has formal immunity and leniency programs, under which parties that may have been involved in illegal conduct under the Competition Act are able to seek full or partial immunity from prosecution for cooperating with the Bureau (and satisfying a number of other formal requirements under the Bureau’s immunity or leniency programs).

As a practical matter, both the Bureau’s immunity and leniency programs operate on a “first in” basis, and so it is critical that potential parties to criminal offences under the Competition Act be advised of their potential immunity or leniency rights (and the benefits and drawbacks of participating in either of the Bureau’s programs).

Under the Bureau’s immunity program, full immunity may be available where a person is the first to approach the Bureau with evidence of a previously unknown offence (or one for which the Bureau does not yet have sufficient evidence to warrant a referral for prosecution to the Director of Public Prosecutions).  In addition, even where a person does not qualify for total immunity (e.g., they are not first in), it may still be possible to obtain partial immunity under the Bureau’s leniency program. 

Early detection, therefore, can give an individual or corporation that may be facing significant potential liability under the Competition Act a significant advantage in mitigating risk and completely or partially avoiding penalties.  For this reason, not surprisingly, the Bureau has stated on a number of occasions that its immunity and leniency programs are among its top tools in both detecting and investigating criminal cartels (i.e., price-fixing, market allocation and supply restriction agreements among competitors or potential competitors).

We will post more on the new Leniency Program Bulletin soon.

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What is the scope of Canada’s new conspiracy regime?

Canada now has three new criminal conspiracy offences for “hard core” cartel conduct, making bare price fixing, market allocation and supply restriction agreements per se illegal – i.e., without the necessity of establishing any anti-competitive effects on a relevant market (or markets).  At the same time, a second civil provision has come into force under which other commercial agreements (i.e., agreements that do not fall within the scope of the new criminal offences) may be subject to review, where they prevent or lessen competition substantially.

When did Canada’s new two-track conspiracy regime come into force?

On March 12, 2010, the Competition Bureau announced the coming into force of Canada’s new two-track conspiracy regime.  While the majority of the recent amendments to the Act came into force in March, 2009, Canada’s new two-track conspiracy regime came into force one year later – on March 12, 2010.

Why was Canada’s old conspiracy law changed?

Canada’s new U.S.-style criminal conspiracy regime is meant to make the enforcement of hard-core criminal cartel activity easier – i.e., bare price-fixing, market division and output restriction agreements between competitors and potential competitors -  by removing the former competitive effects test.  At the same time, the new rules are meant to allow a more detailed analysis of non-hard core agreements between competitors, such as joint venture and strategic alliance agreements (i.e., where a more detailed analysis of the potential effects on a market may be warranted).  In short, the new regime is meant to make catching clearly anti-competitive agreements easier while allowing for a more detailed review of agreements that may be competitively neutral or pro-competitive.

What is now illegal under Canada’s new criminal regime (i.e., section 45)?

Under the new criminal conspiracy provisions of the Act, three categories of agreements are now “per se” illegal (i.e., with no requirement to establish any negative effect on a relevant market or markets).  The following three types of agreements are now per se illegal: (i) agreements to fix, maintain, increase or control the price for the supply of a product (price fixing agreements); (ii) agreements to allocate sales, territories, customers or markets for the production or supply of a product (market division/allocation agreements); and (iii) agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product (supply restriction agreements).

What types of agreements may potentially be subject to review under the new civil agreements provision of the Competition Act (i.e., section 90.1)?

Agreements among competitors that are not caught by the three new per se criminal offences (price-fixing, market allocation and output restriction agreements) will be potentially reviewable under the new civil agreements provision (section 90.1).  Some of the types of agreements that may potentially be subject to challenge under section 90.1 include non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements.

Are vertical agreements (e.g., supplier / customer, franchisor / franchisee, licensor / licensee agreements) caught under the new criminal provisions (section 45)?

Likely not.  While the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier-distributor-consumer and competitor-competitor agreements), the new criminal provisions appear to be restricted to horizontal agreements between competitors (and potential competitors).  In this regard, it is thought that the scope of the new conspiracy provisions has been narrowed.  The Competition Bureau has also indicated in its recent Competitor Collaboration Guidelines that it will review the majority of allegedly anti-competitive vertical agreements under the new civil provision (section 90.1), or the Act’s other reviewable matters provisions (e.g., section 79 – abuse of dominance), not under the criminal conspiracy provisions.

Where can I get more information about the Competition Bureau’s enforcement policy under the new two-track regime and its approach to collaborations between competitors?

For more information about the Competition Bureau’s enforcement policy under Canada’s new two-track regime and its approach to collaborations between competitors, including joint ventures and strategic alliances, see: Competitor Collaboration Guidelines (Enforcement Guidelines) and Reaching an Agreement with Competitors (Pamphlet).

What is necessary to prove an agreement?

Canadian case law has established that while there must be a “meeting of minds” or “consensus” between parties, both informal and overt arrangements may be caught.  Moreover, it is well established that an agreement may be established based only on circumstantial evidence, which may include, among other things, evidence of meetings, exchanges of competitively sensitive information, identical or similar pricing (or sudden price stabilization), language suggesting the existence of an agreement, enforcement activities among competitors, attempts to keep meetings or other activities secret and conduct that can only be explained by the existence of an agreement.

Does an agreement need to be secret or confidential to be caught by section 45?

No.  Both “overt” (i.e., non-secret) and “covert” (i.e., secret) agreements may be caught by section 45 (the criminal conspiracy provision of the Competition Act.

Does an agreement need to be carried out to violate section 45?

No.  It is settled law in Canada that the offence is in the agreement, not in the carrying out of an agreement.  While acts in furtherance of a cartel may be used as additional evidence, they are not necessary in order to establish an offence under section 45.

What is the burden to prove that section 45 or section 90.1 has been contravened?

The burden for section 45 remains the criminal burden of proof – i.e., beyond a reasonable doubt.  The burden for section 90.1 (the new civil agreements provision) is the civil standard – i.e., on balance of probabilities.

What are the potential penalties for contravening Canada’s criminal conspiracy offences under section 45?

Under the new rules, the penalties for contravention of the criminal conspiracy provisions have been increased to include fines of up to $25 million (per count) and/or imprisonment for up to 14 years (increased from the previous $10 million per count and 5 years).  Canadian courts may also issue “prohibition orders” prohibiting the continuation or repetition of an offence and order a party to take certain steps to avoid future offences and comply with the law (e.g., to implement a corporate compliance program).  In reality, however, most penalties in Canada for violations of the criminal conspiracy provisions arise as a result of plea negotiations between the Competition Bureau and an accused.

What are the potential penalties under the new civil agreements provision (section 90.1)?

The federal Competition Tribunal now has the power, on an application by the Commissioner of Competition, to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition substantially in a relevant market.  The Tribunal may make an order: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.  Unlike the criminal conspiracy provisions, however, the Tribunal does not have the power to impose monetary penalties and private parties do not have any right to commence private actions.

Who enforces the conspiracy provisions of the Competition Act?

The Competition Bureau is responsible for the administration and enforcement of the Act, while the Director of Public Prosecutions has exclusive jurisdiction to determine whether to commence prosecutions for alleged violations of the Act’s criminal offences, including the criminal conspiracy, bid rigging and criminal misleading advertising provisions.

What enforcement powers does the Competition Bureau generally have?

The Competition Bureau has broad powers of investigation under the Competition Act.  These include the power to obtain search warrants (including for computer searches), obtain court orders to compel document production and oral testimony under oath, as well as the ability to obtain wiretaps in some cases.  In some cases the Competition Bureau may rely on voluntary information requests, while in others it may resort to compulsory document or information requests (e.g., using its powers under sections 11 or 15 of the Act).

Are conspiracies an enforcement priority for the Competition Bureau?

Yes.  Criminal conspiracies, together with abuse of dominance and deceptive marketing, remain top enforcement priorities for the Competition Bureau.  Moreover, in the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

What industries or sectors are practically most at risk?

The Competition Actis “law of general application”.  As such, it applies, with few exceptions to all businesses and industries in Canada.  Having said that, as a practical matter, the Competition Bureau has tended to focus its enforcement resources in recent years on industries with high consumer impact, including gasoline, real estate and high profile retailers.  Historically, industries in which demand is declining, there is excess capacity, homogenous products, competition primarily on price and consolidated markets have tended to be at the greatest risk for the formation of cartels.

What defences are available under the new conspiracy rules?

The recent amendments have introduced a new ancillary restraints defence that will apply where it can be shown that: (i) the agreement is ancillary to a broader or separate agreement that includes the same parties; (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement; and (iii) the broader or separate agreement does not itself constitute an offence under section 45.  Other pre-existing defences and exceptions continue to apply (e.g., the exception for affiliates and export defence), while other defences have been repealed.

In addition, a new efficiencies defence has been created under section 90.1 that will apply where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of the agreement (i.e., any prevention or lessening of competition that will result or is likely to result from the agreement).  In this regard, the new civil provision dealing with non-criminal anti-competitive agreements is now more closely aligned with the existing merger provisions of the Act.

Can private parties sue for breach of the conspiracy provisions of the Competition Act?

Yes.  Under section 36 of the Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a private damages action.  Class actions are also possible for violations of the criminal provisions of the Act.  In general, it is thought that the recent amendments (which have lowered the burden to prove criminal conspiracies) together with several recent class action cases in British Columbia and Ontario (which has made it easier to certify price-fixing class actions) will lead to an increase in competition law private actions in Canada.

Have there been any recent significant competition law private actions?

Yes.  See for example: Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action.  For more information about competition law private actions see: Competition Law Litigation in Canada.

What are some examples of recent penalties imposed for breach of the criminal conspiracy provisions?

The Competition Bureau recently announced that Solvay Chemicals has been fined Cdn. $2.5 million in relation to its role in a hydrogen peroxide price-fixing conspiracy.  See Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy.  The Competition Bureau has also recently laid 28 additional charges in its ongoing investigation of a gasoline price-fixing cartel in Quebec.  See: Quebec Gasoline Price-fixing Case.  In the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

Are reductions in penalties possible for cooperating with an investigation?

Yes. The Competition Bureau has a formal immunity program intended to encourage participants in criminal cartels to disclose their illegal conduct to potentially receive immunity from prosecution.  The Competition Bureau’s immunity program is set out in a Bureau Information Bulletin.  See: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).  Immunity applications are made to the Competition Bureau, which will determine whether to recommend to the Director of Public Prosecutions that the request be granted.

What are the requirements to qualify under the Competition Bureau’s immunity program?

In general, a party may receive immunity where: (i) they are the first to approach the Competition Bureau with evidence of a cartel offence that the Bureau is unaware of or (ii) of which the Bureau is aware but has insufficient proof to refer the matter to the DPP for prosecution.  Both the Bureau’s immunity and leniency programs operate on a “first in” basis, and so time is of the essence in order for participants to seek immunity or leniency (where immunity is unavailable).

Other requirements that a party must satisfy in order to obtain immunity include immediately taking steps to stop its involvement in the illegal conduct, not having coerced unwilling parties to participate in the conspiracy, making full, frank and truthful disclosure of all evidence and information that is known (or available), disclosing all offences under the Act in which it may be involved and agreeing to provide full, timely and continuous cooperation during the Competition Bureau’s investigation.

Is more information available about the Competition Bureau’s immunity and leniency programs?

Yes.  For more information about the Competition Bureau’s immunity and leniency programs see: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).

What are some of the key impacts for individuals and companies under the new laws?

Some of the expected impacts of the new rules include: (i) increasing the risk of engaging in hard-core anti-competitive conduct (e.g., price-fixing, market allocation or output restriction agreements), (ii) lowering the bar for the Competition Bureau and private plaintiffs to establish a criminal conspiracy under section 45 (the criminal conspiracy provision of the Act), (iii) increasing the importance of reviewing commercial agreements (and other commercial arrangements, such as information sharing arrangements or joint venture agreements) for competition law compliance and (iv) potentially leading to an increase in competition law litigation in Canada.

Are other Competition Bureau resources available?

Yes.  For example, see: Competitor Collaboration Guidelines (Enforcement Guidelines), Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Reaching an Agreement with Competitors (Pamphlet), Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin), Sentencing and Leniency in Cartel Cases (Information Bulletin), Setting Your Own Price (Pamphlet) and Technical Bulletin on “Regulated” Conduct.

What are some examples of recent conspiracy cases and investigations in Canada?

For some examples of recent conspiracy cases and investigations in Canada see: Criminal Charges Laid Against 25 Individuals and Companies in Quebec Gas Price-fixing Case, Recent Speech by Canada’s Commissioner of Competition Indicates Tougher Enforcement Stance Against Criminal Cartels, Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action, Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy, Competition Bureau Announces Coming Into Force of New Conspiracy Regime, Two Landmark Supreme Court of Canada Cases, Canada’s New Conspiracy Regime – Potential Implications and Key Practice Points for Commercial Lawyers, Canada’s New Criminal Conspiracy Rules – Some Potential Implications for Companies and Trade Associations, Canada’s New Competition Law – Some Potential Implications for Real Estate Brokers, Agents & Boards.

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We practice federal competition law, provide Canadian competition law advice to clients across Canada and internationally and offer a full range of competition law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We also provide Canadian foreign investment law advice under the federal Investment Canada Act.

Our services in relation to criminal conspiracies and competitor collaborations include advice on the application of the new conspiracy rules to commercial activities, structuring commercial agreements and joint ventures to comply with the new regime, designing competition law compliance programs for companies and trade associations, preparing compliance guidelines for key commercial activities (e.g., guidelines for the conduct of meetings, information exchanges, benchmarking projects and joint venture activities), applications for binding Competition Bureau advisory opinions and advice in relation to the Competition Bureau’s immunity and leniency programs.

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For more information about Canadian competition law or our competition law services visit our: Abuse of Dominance, Advertising and Marketing Law, Bid Rigging, Canadian Competition Law, Canadian Competition Law Compliance, Canadian Competition Law Home, Competition Act Amendments, Competition Bureau Investigations, Competition Law Courses and Conferences, Competition Law Litigation, Competition Law Publications, Competition Law Resources, Competition Law Services, Conferences, Conspiracy and Competitor Collaborations, Conspiracy – FAQs, Global Competition / Antitrust Law Resources, Global Competition Law Updates, Investment Canada Act, Merger Control, Merger Control FAQs, Private Actions, Promotional Contests, Publications, Refusal to Deal, Team, Trade Associations or Trade Association Cases pages.

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The Competition Bureau announced today that yet more criminal charges have been laid in the ongoing Quebec gasoline price-fixing case against twenty-five individuals and three companies.  The accused are alleged to have fixed the price of gasoline at the pump in several regions of Quebec including Victoriaville, Thetford Mines and Sherbrooke.

In announcing the new charges, the Bureau stated:

“Unless new evidence comes to light, these charges mark the final charges in the largest criminal investigation in the history of the Competition Bureau. Investigators seized over 100,000 records, searched 90 locations, and intercepted thousands of telephone conversations over the course of the investigation.

These charges demonstrate that we are unwavering in our commitment to crack down on cartels,” said Melanie Aitken, Commissioner of Competition. “This case of price-fixing in the gasoline industry illustrates how cartels cheat honest taxpayers out of their money.”

The Bureau also stated that it was conducting other investigations into price-fixing in the gasoline industry outside Quebec.

With respect to the scope of its investigation, the Bureau stated:

“The charges were broken up into two groups owing to the size of the case. Today’s new charges bring the total to 38 individuals and 14 companies accused in this case. These are new charges against important alleged cartel participants stemming from the extensive Bureau investigation that culminated in a first wave of charges in June 2008. The names of the individuals and companies charged are available on the Bureau’s Web site. A complete list of the pleas, fines, and sentences in this case to date is also available.

The Bureau’s investigation found evidence that gas retailers or their representatives in the four regional markets phoned one another and agreed on the price they would charge customers for gasoline. The evidence suggests that the overwhelming majority of gasoline retailers in these markets participated in the cartel.”

In its investigation, the Bureau used wiretaps and searches, as well as utilizing its Immunity and Leniency programs.

For more information, see the Bureau’s Backgrounder, Gas Prices FAQs and the Bureau’s outline of how the Bureau investigates marketplace activities:Criminal Investigations — Basic Process.

CANADA’S NEW CRIMINAL CONSPIRACY REGIME

As a result of the recent sweeping amendments to the Competition Act (the “Act”), the criminal conspiracy provisions of the Act, considered to a “cornerstone” of the Act and Canadian competition law, have been amended. Effective March 12, 2010, Canada will now have a dual-track criminal conspiracy regime with “per se” criminal offences for three forms of “hard core” criminal agreements (i.e., with no requirement to show any adverse market effects on a relevant market(s)) and a second civil reviewable matters provision under which other non-hard core agreements may be subject to review.

This new U.S.-style criminal conspiracy regime is meant to make the enforcement of hard-core criminal cartel activity easier (by removing the former competitive effects test) while at the same time allowing non-hard core agreements, such as joint venture and other agreements where a more detailed analysis of the potential effects on a market may be warranted, to be subject to more detailed scrutiny.

The enforcement of the criminal conspiracy provisions, which can apply to a wide range of commercial agreements and arrangements (e.g., joint venture, franchise, dual distribution and license agreements – in short any commercial arrangement between competitors or potential competitors), remains a top enforcement priority for the Bureau.  Moreover, in the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

Some of the key impacts of the new conspiracy provisions on Canadian and international firms include: (i) substantially increasing the risk associated with “hard core” cartel agreements (i.e., bare price fixing, market division or supply restriction agreements), as a result of the lower legal burden and higher penalties, (ii) altering the review of many common forms of commercial agreements (e.g., franchise, license, dual distribution and joint venture agreements), (iii) increasing the importance for trade associations and companies to review existing (or adopt new) competition compliance programs and (iv) enhancing the importance of reviewing and controlling dealings with competitors (e.g., information exchanges, etc.).

Canada’s new criminal conspiracy regime, which is part of Canada’s new competition law, is discussed in more detail below.

Criminal Offences - Section 45

Under the new conspiracy provisions of the Act, three categories of agreements are now “per se” criminal offences (i.e., with no requirement to establish any negative effect on a relevant market or markets).  All other forms of agreements among competitors will be potentially subject to review under a second and separate non-criminal reviewable matters provision.

The following three types of agreements will be per se illegal: (i) agreements to fix, maintain, increase or control the price for the supply of a product (price fixing agreements); (ii) agreements to allocate sales, territories, customers or markets for the production or supply of a product (market division/allocation agreements); and (iii) agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product (supply restriction agreements).  Interestingly, the new provisions omits any express reference to group boycotts which, together with bid rigging, has traditionally completed the group of so-called “hard core” anti-competitive forms of agreements both in Canada and internationally (though the language of the new supply restriction offence is broad enough to likely cover group boycotts).

“Competitor” is defined broadly to include potential competitors (i.e., “a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement”).  As such, agreements and arrangements between parties that are not actual competitors may also potentially be caught (e.g., in a franchise arrangement, where a franchisor does not currently but could compete with its franchisees).

It is also worth noting that while the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier-distributor-consumer and competitor-competitor agreements), the new criminal provisions are restricted to horizontal agreements between competitors (and potential competitors).  In this regard, the ambit of the new conspiracy provisions has been narrowed.  Moreover, it is likely that the majority of allegedly anti-competitive vertical arrangements and agreements will be reviewed under the new civil provision or other reviewable matters provisions, such as the civil abuse of dominance provisions of the Act.

Some of the impacts of the new conspiracy provisions include a lower burden to establish criminal conspiracies in Canada, an increased risk for parties engaged in “hard core” anti-competitive agreements (e.g., price fixing or market allocation agreements) and altering the framework for the analysis of non-hard core commercial agreements (e.g., franchise, license, dual distribution and joint venture agreements).

Defences

The recent amendments have also introduced a new ancillary restraints defense that will apply where it can be shown that: (i) the agreement is ancillary to a broader or separate agreement that includes the same parties; (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement; and (iii) the broader or separate agreement does not itself constitute an offence under section 45.  Other pre-existing exceptions, including for agreements between affiliates, will still apply.

In addition, the new civil provision (section 90.1) will include an efficiencies defense that will apply where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of the agreement (i.e., any prevention or lessening of competition that will result or is likely to result from the agreement).  In this regard, the new civil provision dealing with non-criminal anti-competitive agreements will be more closely aligned with the existing merger provisions of the Act.

Civil Section – Section 90.1

Under the amended Act, agreements among competitors that are not caught by the three new per se criminal offences will be potentially reviewable under the new civil reviewable matters provision.

Such agreements may include, for example, non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements (i.e., vertical agreements involving competitors or potential competitors that are not “hard core” anti-competitive agreements caught under section 45).

The Tribunal will be able to, on an application by the Commissioner, make remedial orders where it is established that the agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.  The Tribunal may make an order: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.  Unlike the criminal conspiracy provisions, the Tribunal will not have any power to impose monetary penalties and private parties will not have any right to commence private actions.

Enforcement

The Bureau has broad powers of investigation under the Act in relation to conspiracies.  These include the power to obtain search warrants (including for computer searches), orders to compel testimony, to compel written returns under oath and wiretaps.

In Canada, prosecution of criminal conspiracies is the responsibility of the Public Prosecution Service of Canada (the “PPSC”), which is headed by the DPP.  Criminal matters are referred to the PPSC by the Bureau, which has the authority to determine whether to commence criminal proceedings.  Criminal prosecutions are brought in Canadian criminal courts and, while the DPP has official responsibility for criminal competition matters, the Bureau will typically work alongside the DPP during the course of a prosecution.

Penalties

Under the new legislation, the penalties for contravention of the criminal conspiracy provisions have been increased to include fines of up to $25 million (per count) and/or imprisonment for up to 14 years (increased from the previous $10 million per count and 5 years).  Canadian courts may also issue “prohibition orders” prohibiting the continuation or repetition of an offence and order a party to take certain steps to avoid future offences and comply with the law (e.g., to implement a corporate compliance program).

In reality, however, most penalties in Canada for violations of the criminal conspiracy provisions arise as a result of plea negotiations between the Bureau and accused.

Competition Bureau Immunity Program

The Bureau has a formal immunity program that is intended to encourage participants in criminal cartels to disclose their illegal conduct to potentially receive immunity from prosecution.  The Bureau’s immunity program is set out in a Bureau Information Bulletin.  Immunity applications are made to the Bureau, which will determine whether to recommend to the DPP that the request be granted.  In general, a party may receive immunity where they are the first to approach the Bureau with evidence of a cartel offence that the Bureau is unaware of or, alternatively, of which the Bureau is aware but has insufficient proof to refer the matter to the DPP.

Other requirements that a party must satisfy in order to obtain immunity include immediately taking steps to stop its involvement in the illegal conduct, it cannot have coerced unwilling parties to participate in the conspiracy, it must give full, frank and truthful disclosure of all evidence and information it knows (or is available to it), it must disclose all offences under the Act in which it may be involved (i.e., not limited only to conspiracy offences) and must agree to provide full, timely and continuous cooperation during the Bureau’s investigation.

Private Damages Actions

Under section 36 of the Act any person that has suffered loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a damages action.  Class actions are also possible for violations of the criminal provisions of the Act in some cases.

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We practice federal competition law, have provided Canadian competition law advice to clients across Canada and internationally and provide a full range of competition law and foreign investment law services including in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act. 

Our competition law services in relation to criminal conspiracies and competitor collaborations include:

- Application of the criminal conspiracy offences to commercial activities.
- Application of the new civil rules under the Competition Act amendments.
- Structuring commercial agreements, joint ventures and strategic alliances.
- Competition law compliance programs for companies and trade associations.
- Guidelines for meetings and information exchanges.
- Application of the Competition Bureau’s immunity and leniency programs.
- Applications for binding competition law advisory opinions.

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Overview

With the sweeping amendments to the Competition Act (the “Act”) earlier this year, including significant changes to the criminal offences under the Act and increased fines and other penalties, it is worth revisiting both the scope of competition law in Canada and the Competition Bureau’s (the “Bureau”) criminal Immunity Program for offences committed under the Act.

The Act contains a wide range of provisions applicable to business activities in Canada.  These include a number of criminal offences including criminal conspiracy (e.g., price fixing and market allocation agreements), bid-rigging, criminal misleading advertising, deceptive telemarketing and pyramid selling.

The potential penalties for contravention of the Act can be severe (e.g., breach of the criminal conspiracy provisions can lead to current fines of up to CDN $10 million and/or imprisonment for up to five years, with the penalties to be increased next year to up to CDN $25 million and/or imprisonment for up to fourteen years for breach of the criminal conspiracy provisions).

The Bureau, however, which is the administrative agency responsible for administering and enforcing the Act, has adopted and refined over the years a formal Immunity Program under the Act.  Where a party successfully obtains immunity, criminal liability and prosecution can be avoided.  In addition, where a party does not qualify for full immunity, it may nevertheless seek and obtain some degree of leniency for its cooperation with the Bureau in a criminal investigation.

The Bureau’s Immunity Program, and the requirements to successfully obtain immunity, are discussed below in more detail.

The Commissioner & Director of Public Prosecutions

In a typical criminal investigation under the Act, the Bureau will work together with the Public Prosecution Service of Canada (“PPSC”), which is headed by the Director of Public Prosecutions (the “DPP”).

While the Bureau’s mandate is to administer and enforce the Act, the PPSC’s mandate is the actual initiation and conduct of prosecutions under the Act.  In other words, criminal prosecutions for criminal anti-competitive conduct are the responsibility of the DPP (though in reality in a criminal prosecution the Bureau will work closely with the Crown in a criminal investigation).

Where there is evidence of a criminal offence under the Act, the Commissioner may refer the matter to the DPP for potential prosecution, which in turn has the authority to grant immunity to parties facing potential criminal liability.

Immunity Requirements

With respect to the requirements for immunity, all things being equal, the Commissioner will recommend that the DPP grant immunity to a party where the Bureau is either: (i) not aware of an offence (and the party seeking immunity is the first to disclose it) or (ii) the Bureau is aware of the offence and the party seeking immunity is the first to come forward (before there is sufficient evidence to warrant a referral to the DPP by the Bureau).

To obtain immunity, however, a party must satisfy certain formal requirements.  These include:

- Terminating its participation in the illegal conduct;

- The party must not have coerced others to be a party to the illegal conduct;

- The party cannot have been the only party involved in the offence;

- During the course of the Bureau’s investigation (and later prosecution(s)) the party must provide complete, timely and on-going cooperation with the Bureau;

- Unless made public by the DPP or the Commissioner (or required by law), the party cannot disclose its application for a marker;

- The party must make full disclosure of all information of conduct that may be an offence under the Act;

- The party must provide complete, full, frank and truthful disclosure of all evidence and records in its possession, available to it or under its control (with the exception of privileged information) relating to the conduct in relation to which immunity is sought;

- Companies must take measures to secure the cooperation of current directors, officers and employees for the duration of the investigation (and subsequent prosecutions); and

- Companies must facilitate the ability of current and former directors, officers, employees and agents to appear for interviews and give testimony in related judicial proceedings.

Director and Officer Liability

With respect to director and officer liability, if a company qualifies for immunity under the Bureau’s Immunity Program, current directors, officers and employees of the company that admit their involvement in the criminal conduct as part of the company admission (and also provide complete, timely and ongoing cooperation) will also quality for the same immunity recommendation by the Bureau.

Former directors, officers and employees that offer to cooperate with the Bureau’s investigation may quality for immunity (though the Bureau makes such determinations on a case-by-case basis).  It is also worth noting that even in cases where a company does not qualify for an immunity recommendation, current or past directors, officers or employees may still be considered for immunity separately.

Immunity Process

The immunity process in Canada generally has four stages.  These are: (i) obtaining a marker, (ii) providing a “proffer”, (iii) entering into an immunity agreement and (iv) full disclosure and cooperation.

(i)  Marker

With respect to a marker, anyone may commence a request for immunity by contacting either the Senior Deputy Commissioner of Competition, Criminal Matters or the Deputy Commissioner of Competition, Fair Business Practices to discuss the potential of receiving immunity from criminal prosecution for an offence under the Act.

An immunity applicant can initiate the first contact on the basis of a hypothetical disclosure which reveals the nature of the criminal offence in relation to a particular product.  The initial disclosure, however, must be made with enough detail to secure a so-called “marker” so that the immunity applicant will be “first in line” to receive immunity (assuming the other formal requirements for immunity are also met).  In most cases, marker requests are made to the Bureau by an applicant’s legal counsel.

(ii)  Proffer

The second step or stage in the immunity process is to provide a “proffer” to the Bureau.  Where a party obtains a marker and wants to proceed with an immunity application, it must provide a detailed description (i.e., a proffer) of the activity and disclose enough information so that the Bureau can determine whether it will qualify for immunity.

Proffers are normally made in hypothetical terms by an immunity applicant’s legal counsel.  The objective for the Bureau during this stage of the immunity process is to determine the nature of the records an applicant can provide, the types of evidence potential witnesses may give and how useful (i.e., probative) the evidence provided by an immunity applicant is likely to be.  Where the Bureau is satisfied that an immunity applicant can provide full cooperation and otherwise satisfy the other requirements for immunity, it may make an immunity recommendation to the DPP (which will exercise its discretion as to whether or not to grant immunity).

(iii)  Immunity Agreement

The third stage in the immunity process is the entering into of an immunity agreement.  Based on a recommendation by the Bureau (assuming the DPP accepts the recommendation), the DPP will execute an immunity agreement for the immunity applicant which will contain the ongoing obligations for the applicant discussed above.

(iv)  Full Disclosure and Cooperation

The final stage in the immunity application process is full disclosure and cooperation by the immunity applicant.  After an immunity agreement has been entered into with the DPP, applicants are required to provide non-privileged information to the Bureau and evidence relating to the anti-competitive conduct.  The Bureau may also require witnesses to attend at Bureau offices for interviews or to testify in court proceedings.

Violation of Immunity Agreement

It is also worth noting that where an applicant has failed to comply with the requirements of an immunity agreement, the DPP may revoke a party’s immunity (thereby exposing an immunity applicant to potential criminal liability).

Conclusion

With the recent significant amendments to the Act and increased fines and penalties for criminal anti-competitive conduct in Canada, it is prudent for companies and their counsel to not only have an understanding of competition law and compliance, but also to understand the terms of the Bureau’s Immunity Program.

As a practical matter, in the event of the detection of potentially criminal conduct under the Act, the benefit of the Bureau’s Immunity program together with the ability of a company and its officers to move quickly and nimbly to seek immunity, could result in a significant reduction of potential criminal liability.

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DISCLAIMER

The materials and information on CANADIAN COMPETITION LAW are provided as legal information about Canadian competition law.  Reading and accessing this information does not create a lawyer-client relationship.  The information on our blog does not constitute legal advice or a legal opinion on any issue.  In addition, the information and materials on this website will change based on new competition law developments and, as such, may not be current as of the date of access.  As such, we take no responsibility for the accuracy or currency of the competition law information or materials on our blog, which should not be relied upon without receiving legal advice from competent legal counsel.