Canadian COMPETITION & ANTITRUST LAW

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 United States Department of Justice (Antitrust Division) has announced that a California Real Estate Executive has plead guilty to bid-rigging at public foreclosure auctions, which in the U.S. is a violation of the Sherman Act (see: California Real Estate Executive Pleads Guilty to Bid Rigging at Public Foreclosure Auctions).

The offence in the U.S. carries a maximum penalty of 10 years in prison and a $1 million fine (which may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either is greater than the maximum statutory fine).

In making the announcement last Friday, the U.S. Department of Justice said:

“Richard W. Northcutt pleaded guilty to conspiring with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County. The primary purpose of the conspiracy was to suppress and restrain competition and to obtain selected real estate offered at San Joaquin County public foreclosure auctions at non-competitive prices, the department said in court papers.

According to the court documents, after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. According to his plea agreement, Northcutt participated in the scheme from September 2008 until October 2009.

To date, including Northcutt, four individuals have pleaded guilty in U.S. District Court for the Eastern District of California in connection with this investigation. On April 16, 2010, Anthony B. Ghio pleaded guilty to participating in a conspiracy to rig bids at public foreclosure auctions held in San Joaquin County. On June 24, 2010, John R. Vanzetti and Theodore B. Hutz also pleaded guilty in Sacramento to participating in the conspiracy.

‘With our law enforcement partners, we are vigorously pursuing bid rigging conspiracies in real estate foreclosure auctions that allow individuals to gain illegal profits and take advantage of adverse situations,” said Assistant Attorney General Varney. “The Antitrust Division has expanded its investigation into anticompetitive practices in real estate foreclosure auctions beyond the Sacramento area into northern California.’

‘By rigging public auctions of foreclosed properties, the defendants who have pleaded guilty as a result of this investigation illegally manipulated the market for residential real estate,” said U.S. Attorney Wagner. “Improving the transparency and integrity of that market is a principal objective of these prosecutions. The investigation will continue.’

…

These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. The investigation is being conducted by the Antitrust Division’s San Francisco Office, the U.S. Attorney’s Office for the Eastern District of California, the FBI’s Sacramento Division and the San Joaquin County District Attorney’s Office. Trial attorneys Barbara Nelson and Tai Milder from the Antitrust Division’s San Francisco Office and Assistant U.S. Attorney Russell L. Carlberg are prosecuting the case.”

Bid-Rigging Law in Canada

In Canada, section 47 of the federal Competition Act (the “Act”) makes it a criminal offence to enter into an agreement, in response to a call or request for bids or tenders, to: (i) not submit a bid or tender, (ii) withdraw a bid or tender already made or (iii) submit bids or tenders that are arrived at by agreement.

Like criminal conspiracy agreements under the Act, bid rigging is a per se criminal offence, in that it is not necessary to establish any adverse market effects (though all elements of the offence must be proven on the criminal burden of proof – i.e., beyond a reasonable doubt).

Common types of bid-rigging include: (i) “cover” or “courtesy” bidding (some bidders submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder),  (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or agree to withdraw a previously made bid), (iii) bid rotation (all bidders submit bids but take turns being the low bidder according to a systematic or rotating formula), (iv) market division (suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (some bidders that agree not to submit a bid or submit a losing bid are awarded subcontracts or supply agreements from the successful low bidder).

Parties contravening the bid-rigging provisions of the Act are liable to a fine in the discretion of the court, imprisonment for up to 14 years, or both.   It is also common for the Bureau to seek prohibition orders in bid-rigging cases to prohibit the continuation of an offence.  Private parties that have suffered loss or damage as a result of a breach of the criminal provisions of the Act, including the bid-rigging offences under section 47 of the Act, may also commence private civil damages actions.

The Bureau has also issued a number of bid-rigging enforcement guidelines and educational tools including its Bid-Rigging pamphlet and an online multi-media tool entitled Bid-Rigging – Awareness and Prevention, intended to “provide public and private organizations engaged in procurement with information to help them detect, prevent and report suspected incidences of bid-rigging.”

For more information about Canadian bid-rigging law, see: Bid-Rigging and Bid-Rigging News.  For recent Canadian bid-rigging cases, see: Competition Bureau Charges Eight Companies and Five Individuals in Alleged Bid-Rigging Scheme and Competition Bureau Launches Criminal Investigation into Quebec Construction Industry.

The U.K. Office of Fair Trading has issued a decision that the Royal Bank of Scotland and Barclays participated in anti-competitive practices relating to loan products provided to professional services firms, imposing a fine of £28.59 against RBS (see: OFT Issues Decision in Loan Pricing Case).

In announcing the decision, the OFT said:

“This brings the OFT’s investigation to a conclusion. The fine was the subject of an earlier agreement between the OFT and RBS, under which RBS admitted to certain breaches of competition law between October 2007 and February or March 2008 and agreed to co-operate with the OFT.  Barclays brought the matter to the OFT’s attention and, under the OFT’s leniency policy, has not been fined.

The OFT has concluded that between October 2007 and February or March 2008 individuals in RBS’s Professional Practices Coverage Team disclosed generic as well as specific confidential and commercially sensitive future pricing information to their counterparts at Barclays. The disclosures by RBS took place through a number of contacts on the fringes of social, client or industry events or through telephone conversations.”

The OFT’s Senior Director of Cartels and Criminal Enforcement also said:

“The disclosure of confidential future pricing information to competitors is unlawful. This decision sends out a strong message that such practices, even where they arise in the context of informal contacts between competitors, can result in substantial penalties for the companies involved. It is therefore important that companies take steps to ensure an effective compliance culture that is understood by individuals throughout their organization.”

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 any anti-competitive effects, while others are potentially subject to civil review where they prevent or lessen competition substantially in a relevant market).

Unlike Canada, however, 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 certain “concerted practices” that have the object or effect of preventing, restricting or distorting competition, which can include the exchange of pricing information between competitors.

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 commercially sensitive information or engage in discussions regarding confidential 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, markets, market shares, capacity and production data, output, customers and business and strategic plans.

The principal risk of exchanges of competitively sensitive information 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, such exchanges 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.

Common precautions taken in the context of legitimate information gathering exercises, such as trade association research or benchmarking exercises, include aggregating the information collected (so that individual competitors are not identified), restricting information to historical information and using independent third parties to collect and distribute research or benchmarking results to reduce the likelihood of actual or tacit coordination among competitors.

The U.S. Department of Justice has announced that another executive has been indicted for his role in the global LCD price-fixing conspiracy.  According to the U.S. DoJ, a federal grand jury in San Francisco returned an indictment against the current president of HannStar Display Corporation for participating in a global conspiracy to fix the prices of thin-film transistor liquid crystal display (TFT-LCD) panels.

In making its announcement, the DoJ said:

“The indictment, filed today in U.S. District Court in San Francisco, charges that Ding Hui Joe, aka David Joe, conspired with others to suppress and eliminate competition by fixing the prices of TFT-LCD panels. Joe, a resident of Taiwan, is charged with participating in the conspiracy from on or about Sept. 14, 2001, until on or about Jan. 31, 2006.

TFT-LCD panels are used in computer monitors and notebooks, televisions, mobile phones and other electronic devices. By the end of the conspiracy period, the worldwide market for TFT-LCD panels was valued at $70 billion. Companies directly affected by the LCD price-fixing conspiracy are some of the largest computer and television manufacturers in the world, including Apple, Dell and Hewlett Packard.

According to the one-count felony charge, Joe participated in the conspiracy by agreeing to fix prices of TFT-LCD panels during secret meetings, referred to as “Crystal Meetings,” in hotel rooms in Taipei, Taiwan. The participants in the conspiracy also exchanged information on the sales of TFT-LCD panels for the purpose of monitoring and enforcing adherence to the agreed-upon prices. According to the court document, in order to keep the meetings secret and avoid detection, the participants took various steps to conceal the conspiracy.”

More than $890 million in criminal fines have been imposed to date in this investigation, with 22 executives and eight companies charged in the DoJ’s continuing investigation into the LCD industry.  In addition, the European Commission has also fined parties 648 million Euro in the case.  See: European Commission Fines Six LCD Panel Producers €648 Million for Price Fixing Cartel.

Like Canada, the U.S. Sherman Act prohibits outright certain types of “hard core” agreements between competitors, including bare price-fixing and market allocation/division agreements.  Also like Canada, parties in price-fixing and other illegal activities under the Sherman Act are subject to potential private civil actions as a result of contravening the antitrust legislation.

For a copy of the News Release see: Taiwan HannStar Executive Indicted for Role in LCD Price-Fixing Conspiracy.  See also European Commission Confirms Sending Statement of Objections to Alleged Participants in LCD Panels Cartel and European Commission Fines Six LCD Panel Producers €648 Million for Price Fixing Cartel.

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).

 By G.R. Bhatia of Luthra & Luthra (India)

‘Dawn Raids’ colloquially known as ‘unannounced search & seizure’ is a common tool that may be used by the investigating arm of a competition law agency to gather documentary evidence in an anti-trust probe. Such visits by officials of the competition law agency are increasingly becoming a global phenomenon.  The competition law jurisprudence also suggests a higher rate of detection of anti- trust infringements in cases where raids are undertaken.  To mention few:

(a) In Feb. 2009, EU and US competition authorities launched a joint, fully synchronized dawn raid on the refrigeration compressor industry across these two continents and the searches primarily contributed in proving the infringement of the competition law provisions[2];

(b) In Oct. 2006, in Singapore, the CCS carried out dawn raids on six pest control companies after a complaint of collusion in submitting tenders for termite treatment projects was received and recently these six companies were fined S$ 262,759.66[3];

(c) In Dec. 2009, in Poland, the Polish Competition Authority undertook biggest dawn raids on major cement players.  The raid revealed documents inter-alia relating to resale price maintenance for an unprecedented period of 11 years and a total fine of 108 million euros was imposed on seven cement makers[4];

(d) In South Africa, a dawn raid was conducted on the offices of Airlines Association of Southern Africa for alleged settlement agreement; in April 2007[5], the Commission unleashed a dawn raid upon the tyre industry, seizing documents from Dunlop Tyres International, Bridgestone SA and SA Tyre Manufacturers Conference; in May, 2010, raid was conducted on four electric cable companies for alleged price fixing[6];

(e) In Nov. 2010, in Brazil, the Secretariat Economic Law (SDE) has raided a handful of companies and home of former Government official for suspected bid rigging conspiracy[7]; and

(f) In June, 2009, in Japan, the JFTC conducted dawn raids on three galvanized steel sheet makers for participating in a price fixing cartel and these companies were fined an aggregate of 10 billion Yen, the highest amount yet imposed by the JFTC[8].

These surprise inspections occur without warning and are usually conducted at times when least expected often at the crack of dawn and/or during weekends.  The ‘raids’ are conducted in a covert manner leaving no scope with the party under investigation to scuttle the search in any manner and also not to give any opportunity to ‘sanitize’ the records.  In case of multi-national corporations, simultaneous raids can be coordinated in several jurisdictions and at different locations in the same jurisdiction. Further, raids can be conducted regardless of size of the enterprise, nature of business and both at business and personal premises.

Cartel conduct is one of the fertile grounds for dawn raids.  As obtaining convincing evidence on price fixing and other concerted practices between rivals is extremely tricky, there can be little doubt that the frequency of dawn raids will be stepped up steeply in times to come in such cases.

In line with international trend, the Indian Competition Law also empowers the Director General (the investigating arm of the CCI) to undertake such ‘search and seizure’[9].  An irrefutable fact is that a raid is the most intrusive and disruptive experience that is faced by an alleged delinquent.  Businesses and their associations against which investigations are ordered pursuant to commencement of an Inquiry for suspected infringement of the Act, run a risk of their personal/official premises being ‘raided’ by the Director General (‘DG’) [10].  Thus, there is immense need to understand the (I) the limits, conditions and manner in which the ‘unannounced raid’ can be undertaken by the DG, (II) the rights of investigated enterprise; (III) the obligations of an enterprise faced with such search and seizure and (IV) post raid actions.  

The scope, ambit and gravity of these dimensions are of great relevance for an “enterprise & its principal officers’ as unearthing of documents in the wake of a raid is the foundation and precursor to the final order of an Agency.  Further, there is an obligation to cooperate/assist the investigator failing which penal provisions can be triggered.  The in-house legal counsel and also the most senior executive of the company at the premises also need to take note of this aspect of law as he/she is the first port of call for a company which is faced with anti trust inspector at its door.   

LIMITS, CONDITIONS & MANNER IN WHICH UNANNOUNCED RAID CAN BE UNDERTAKEN BY THE DIRECTOR GENERAL (DG)  

(i) Though, the office of DG is meant to assist the CCI in investigating into any contravention of Act/ Rules/ Regulations, however, it is incumbent upon the DG to be fair & impartial in carrying out the investigation as well in drawing his findings/ conclusions in its report.  The process and product of DG have to be reasoned in order to meet the counter arguments of the charged enterprise or the referrer, as the case may be;

(ii) Investigation by the DG begins only when directed by the CCI[11] and formation of a prima face case of contravention of the Act by the CCI ought not influence the investigation undertaken by the DG;

(iii) On receipt of order of investigation, the DG in the first instance is to send a ‘questionnaire’ to the alleged charged party to respond and to furnish documents/evidence in support thereof.  The DG is vested with powers of a civil court in carrying out investigation and therefore, it is advisable for the addressee to furnish correct & complete information/documents failing which (a) non compliance/ disobedience liability devolves on the addressee[12] and (b) prompts DG to invoke powers of ‘search and seizure’ with the approval of Chief Metropolitan Magistrate (‘CMM’),  Delhi;

(iv) The analogous power in DG of seizure as are vested in an Inspector under Section 240A of the Companies Act, 1956 are not open ended. The ‘search & seizure’ can be undertaken only when he has reasonable ground to believe that the books and papers of, or relating to, any company or other body corporate may be destroyed, mutilated, altered, falsified or secreted. The expression ‘reason to believe’ has been viewed as:   

The crucial expression ‘reason to believe’ postulates belief and the existence of reasons for that belief.  The word ‘reason’ means cause or justification and the word ‘believe’ means to accept as true or to have faith in it.  The belief may not be open to scrutiny as it is the final conclusion arrived at by the officer concerned, as a result of mental exercise made by him on the information received. The existence of reasons to believe is supposed to be the check, a limitation upon the power[13].

The expression ‘reason to believe’ is stronger than the expression ‘is satisfied’.  Belief should not be irrational and arbitrary.  To put it differently, it must be reasonable and must be based on reasons which are material. [14]

Belief must be held in good faith.  It can not be merely pretence.  It is open to court to examine whether reasons for belief have a rational nexus or a relevant bearing to the formation of belief and are not extraneous or irrelevant for the purpose of the Section.  To that limited extent, action of the assessing officer in initiating proceedings under section 147 can be challenged in a court of law.[15]

There must be reasons to induce belief.  The same should be by reason of omission or failure on the part of assessed to disclosed fully and truly his income.[16]

(v) The principles as emerged from the case law(s), are (a) the authority must be in possession of information and that there is reason to believe that the addressee would not disclose or that it will not part with; (b) the information must be in existence and it should not be merely rumour; (c) the active application of mind on the information is a condition precedent and is open to scrutiny; (d) the court will not go into the question of sufficiency of material and that it will not sit in appeal[17].

The jurisprudence evolved clearly indicates that the DG does not have unbridled powers to invoke provisions relating to ‘unannounced raid’ at the premises of the charged party and/or person related thereto and that law and precedents do prescribe the limits, conditions and manner in which DG can resort to ‘search & seizure’. 

THE RIGHTS OF THE COMPANY FACING “RAID”

(i) The representative(s) of a raided company may request the DG to allow a reasonable time for the in-house counsel or external counsel to arrive.  However, it is not obligatory for the investigator to wait for the arrival of the counsel;

(ii) The representative has a right to ask for the identity and the order of the CMM, Delhi and the scope of dawn raid. It is advisable to confirm the authenticity of the dawn raid by telephoning the Director General; (iii) Take steps which are necessary to preserve the documents or prevent any interference with them;

(iii) Keep full record of all questions asked and answers given and make copies of all documents copied by the officials;

(iv) The representative can object to the review or taking of copies of privileged documents including confidential communication between the client and its external attorney;

(v) It is not within the power of the investigating officer to (a) use force against any person, (b) examine any document or take copy of documents which are not relevant for the purpose of dawn raid and (c) documents which enjoy legal privilege (d) compel answering a question which leads to self incrimination; and

(vi) Seek clarification from the Investigator, if the question posed is complicated or vague.

OBLIGATIONS OF THE INVESTIGATED COMPANY

It is obligatory on the functionary of the investigated company to:

(i) furnish to the point and correct explanation/answer relating to  a document covered in the search.  The person answering on behalf of company should ensure that his response is not false or misleading beside being not based on speculation and keep a record of all questions and answers;

(ii) furnish location of a document as per person’s knowledge and belief, electronic information to be produced in hard or soft copy. DG can seize only those mails/electronic records which are relevant to the investigation and which do not enjoy privilege.  In case the whole email box is seized, the inspector can open the box subsequently in the presence of authorised official of the investigated enterprise and the inspector has to return all other mails which are personal and not construed to be relevant for the investigation. On 2^nd November, 2010, the Paris Court of Appeal has objected to the seizure of the whole content of email boxes by the French Competition Authority. The Court, however, ruled that the seizure of certain personal documents belonging to employees or documents that may be irrelevant to the investigation, does not invalidate the entire search which was pre approved by the judge.[18] However, there is need to strike a balance between the powers of DG during dawn-raids and the data protection and privacy of the individuals. The principle as to legitimacy, proportionality and transparency during such dawn-raids needs to be observed and these be incorporated in the Manual of Office Procedure which is under preparation by the Office of DG[19] ;

(iii) not to obstruct or recklessly destroy/shred or otherwise falsify or conceal the documents of which production has been required;

(iv) not providing information knowingly which is materially false.

POST DAWN RAID STEPS BY THE INVESTIGATED COMPANY 

Before the DG team departs:

There is need to determine if/when the inspector will return next day, ensure to have copy of documents (both electronic and otherwise) taken by inspector, make a request for a copy of written records of interviews taken by the inspector and make a record in the event of refusal.  Take a copy of minutes and ensure recording of disputes and disagreements therein.  In the notes, classify printed/electronics documents into three categories (i) not contested, (ii) outside scope and (iii) privileged.  In the event of non resolution of dispute or doubt as to document being privileged or outside the scope of investigation, the DG be requested to keep the document in the sealed cover for later’s consideration with the company’s lawyers.

After the DG Leaves

Compile all your notes, recheck inspector’s written records including interviews and computer searches, prepare your own report and conduct final meeting with the in-house legal head/external counsel for  review to identify potential issues, analyse and assess risk and scope of enquiry.

The DG can keep in his custody the documents/ records seized for such period not later than the conclusion of the investigation as he considers necessary and thereafter there is an obligation to return the same to the investigated company or any other person from whom custody these were seized[20].  The DG is also required to inform this position to the CMM, Delhi with whose approval the dawn raid was undertaken.

Key Take Aways:

Undoubtedly,’ dawn raids’ tarnish the image and goodwill of a raided company and its management.  It dampens the business prospects of the raided company in the ever growing competitive environment.  Thus, it is imperative for business and their associations to ward off and take guard of such unpleasant visits and visitors.  Prudence suggests that the business and the concerned trade bodies should have in place a detailed programme to effectively meet the requirements of such search & seizure.

Enterprises against which enquiries have already commenced should in the first instance extend full cooperation/assistance and furnish complete and correct information/documents within the given time. Adherence to this golden principle not only rules out triggering of penalty provisions but also minimises the risk of being raided by the DG.  However, taking cue from global experience, size and success in business does attract scrutiny through such mode. It is therefore, critical for such target company to designate an officer(s) as a ‘Dawn Raid Warden’ who should ensure a  full fledged programme encompassing (i) dawn raid training, (ii) guidelines/checklists before, during and after the dawn-raids, (iii) instant response team during the visit and (iv) follow up action. It is difficult to suggest a tailor-made programme in view of variance as to nature & size of business, total market and structure thereof, nature of trade practices being probed etc and all these heterogeneities necessitate a customised detailed dawn raid programme.

[1] G R Bhatia is Partner & Head of Competition Law Practice, Luthra & Luthra Law Offices (a full service law firm) India.  He advises and represents before the Competition Commission of India (CCI)/Competition Appellate Tribunal/Supreme Court on competition issues.  He is an Expert on Competition Law before London Court of International Arbitration.  Mr. Bhatia is former Additional Director General, CCI and Monopolies & Restrictive Trade Practice Commission (MRTPC).  He was associated with  amendments to the Indian Competition Act and formulation of  Regulations which set out procedure of enquiries by the CCI.  He underwent intensive training with JFTC and KFTC. He held office of Registrar of Companies & Official Liquidator of a State in India.  He is on the Editorial Board of Chartered Secretary and a Consulting Editor, Manupatra Competition Law Reports and faculty with Institute of Chartered Accountants of India and the Institute of Chartered Secretaries of India. He contributes regularly articles on competition matters and are available on the firm’s website Luthra & Luthra (www.luthra.com). 

[2]http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/454&format=HTML&aged=1&language=EN&guiLanguage=en

[3] www.drewnapier.com/pdf/Quarterly%20Update%20Q109.pdf

[4] www.ec.europa.eu/competition/ecn/brief/01_2010/cement_pl.pdf

[5] www.ens.co.za/…/briefs/10_11_08%2001%2001lr1011LAW_AL_10b.pdf

[6] http://www.abndigital.com/news/sens/497910.htm

[7] http://www.latinlawyer.com/news/article/41205/brazil-raids-former-state-officials-amid-ambulance-probe/

[8] http://www.globalcompetitionreview.com/news/article/16239/japan-fine-three-steel-companies/

[9] Section 41 of the Act lays down the duties & powers of the Director General. Sub-section (3) thereof envisages that the powers as they apply to an Inspector in terms of Section 240 and 240A of the Companies Act, 1956 shall apply to an investigation made by the Director General.  In terms of Section 240A, where in the course of investigation, the Inspector has reasonable ground to believe that the books and papers of , or relating to any company or any other body corporate, may be destroyed, mutilated, altered, falsified or secreted, as the case may be, the Inspector, on order of  Tribunal/Magistrate, may (a)  enter with such assistance to such places where the books are kept, (b) to search in the manner as may be specified in the order and (c) seize the books and papers as he considers necessary. In terms of an explanation below sub section (3), the DG, CCI may search and seize with the approval of CMM, Delhi.

It is interesting to note that such power was never invoked by the Director General (Investigation & Research) under the repealed MRTP Act, 1969 but it seems to be history going by the presentations made by DG in some of the recent concluded workshops/seminars.

[10] DG means the Director General appointed under sub-section (1) of Section 16, Competition Act, 2002 and  includes any Additional, Joint, Deputy or Assistant Director General appointed under that section 16(1), Competition Act, 2002.

[11] Section 26(1) stipulates that on receipt of a reference from Central/State Government or a statutory authority or on its own knowledge or information received under Section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the DG to cause an investigation to be made into the matter.

[12] In Nov., 2010, the CCI, on the application of DG, imposed a fine Rs. 1 crore on Kingfisher Airlines for not furnishing information as sought by DG in order to carry out investigation into the carrier’s alleged strategic agreement with another private player, the Jet Airways – News item in Financial Express of 22^nd Nov., 2010 under the caption ‘CCI slaps Rs. 1crore fine on Kingfisher’. However, the Competition Appellate Tribunal had directed the CCI not to recover the fine amount from the airline company until the matter is heard by the CCI on Jan., 2011- News item Financial Express of 2^nd Dec., 2010 under the caption’ Appellate Tribunal stays CCI’s Rs. 1 crore penalty on Kingfisher’.

[13] In Barium Chemicals Limited vs Company Law Board (MANU/SC/ 0037/1966) & : (1966) 36 Comp Cas 639 (SC) : 1966 Suppl SCR 311 at 361: AIR 1967 SC 295 AT 324.

[14] In Ganga Saran & Sons (P) Ltd Vs. ITO : MANU/SC/0297/1981L1981) 130ITR 1 (SC).

[15] In S. Narayanappa Vs. CIT MANU/SC/0124/1966: (1967) 63ITR219(SC).

[16] In R. Dalmia Vs UOI MANU/DE/0408/1971: (1972) 84ITR616 (Delhi).

[17] Guide to SEBI Capital Issue Debentures and Listing (2003) pg 282 by K Sekhar.

[18] World Data Protection Report- ISSN 1473-3579 Volume 10, Number 5- May 2010 -Janssen-Claig case illustrates how the investigative powers of the competition authority may conflict with employee’s right to privacy and shows that there is a possible conflict of laws between data protection Act and competition law.  While the plaintiff argued that the competition officials had used unnecessary and disproportionate means to gather the evidence, including global and massive seizures, which disrupted the normal functioning of the company.  However, the court cancelled seizure of three computer files but validated the investigation on the grounds there was no evidence that the officials had not selected in advance the documents seized, nor that the seizure was disproportionate.  The Court also validated the investigation on the grounds that it had used only methods enabling them to preserve the accuracy and reliability of the relevant documents.

[19] Presentation by the Director General on 19^th Oct., 2010 in 2^nd International Conference on Competition Law, held in New Delhi to commemorate the Ist Anniversary of the Competition Appellate Tribunal.

[20] Before return of these seized documents, the DG can place identification marks in terms of proviso below Section 240(1A) of the Companies Act, 1956.

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).

The Competition Bureau announced earlier today that it has laid criminal charges against eight companies and five individuals in Quebec that are accused of rigging bids for private sector ventilation contracts for residential highrise buildings in the Montreal area (see: Charges Laid in Residential Construction Bid-Rigging Scheme in Montreal and Competition Bureau, Backgrounder, Charges Laid in Residential Construction Bid-Rigging Scheme in Montreal).

In making its announcement, the Bureau stated:

“The Bureau uncovered evidence indicating that several companies specializing in ventilation, air conditioning and heating services, secretly coordinated their bids in order to pre-determine the winners of the contracts, while blocking out honest competitors.

…

The Bureau’s investigation found evidence of criminal activity in five competitive bidding processes between 2003 and 2005, for contracts worth approximately $8 million. The contracts in question relate to the supply and installation of ventilation and/or air conditioning systems in residential highrise construction projects in the greater Montreal region.”

According to the Bureau, it began investigating this matter in 2005 based on a tip from a former employee of one of the companies charged and the objective of the bidders was to pre-determine the winners of the contracts (while blocking other companies that were not involved in the alleged bid-rigging scheme).

Some of the common types of bid-rigging that can violate the criminal bid-rigging offences under the Competition Act include: (i) “cover”, “courtesy” or “complementary” bidding (some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder), (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or withdraw a previously made bid), (iii) bid rotation (all parties submit bids but take turns being the low bidder according to a systematic or rotating basis), (iv) market division (where suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (parties that agree not to submit a bid, or submit a losing bid, are awarded subcontracts or supply agreements from the successful low bidder).

Section 47 of the federal Competition Act sets out three distinct criminal bid-rigging offences, making it a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted (which was recently added to the Act as a result of March, 2009 amendments) or (iii) submit a bid or tender that is arrived at by agreement.

In Canada, bid-rigging is ”per se” illegal, in that no anti-competitive effects on a relevant market (or markets) need to be established in order to make out an offence.  However, all of the elements need to be established on the criminal standard (i.e., beyond a reasonable doubt).

This most recent case also appears to signal a more aggressive enforcement approach by the Bureau under the helm of the new Commissioner, which has included the recent Visa/MasterCard price maintenance case, misleading advertising case against Rogers in Ontario (relating to allegations from telecom new entrants Wind Mobile and Mobilicity) and the recently concluded CREA MLS abuse of dominance case. 

For more information about bid-rigging law in Canada see: Bid-Rigging.

OUR SERVICES

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 bid-rigging law services include:

- Advice on the application of the bid rigging provisions of the Competition Act.
- Reviewing competitive bid and tender documents for compliance.
- Advice in relation to bid consortiums, joint ventures and joint bidding.
- Advice on the Competition Bureau’s immunity and leniency programs.

On December 14^th, the European Commission issued its final revised rules on horizontal co-operation agreements (“Horizontal Guidelines”).

The Horizontal Guidelines, which address key forms of collaboration between competitors including information exchanges, standardization agreements and research and development, are the European parallel of the joint U.S. FTC/DoJ Antitrust Guidelines for Collaboration Among Competitors and the recently finalized Canadian Competition Bureau’s Competitor Collaboration Guidelines (finalized by the Bureau in 2009).

In its News Release, the Commission stated:

“The European Commission has revised its rules for the assessment of co-operation agreements between competitors, so called horizontal co-operation agreements. As it is often vital for companies to work together to achieve synergies, there exist a vast number of horizontal co-operation agreements in many industries. The texts update and further clarify the application of competition rules in this area so that companies can better assess whether their co-operation agreements are in line with those rules. Modifications concern mainly the areas of standardisation, information exchange, and research and development (R&D).”

For a copy of the Horizontal Guidelines see: Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements.

The European Commission has announced that six producers of LCD panels have been fined €648 million in a price-fixing cartel to fix the prices for LCD panels used in televisions, computer monitors and electronic notebook computers.

In making its announcement, Commission Vice President in charge of competition policy Joaquin Almunia issued the Commission’s standard warning about the potential risks of engaging in price-fixing activities:

“Foreign companies, like European ones, need to understand that if they want to do business in Europe they must play fair. The companies concerned knew they were breaking competition rules and took steps to conceal their illegal behaviour. The only understanding we will show is for those that come forward to denounce a cartel and help prove its existence.”

The six firms involved are Samsung Electronics and LG Display of Korea and Taiwanese firms AU Optronics, Chimei InnoLux Corporation, Chunghwa Picture Tubes and HannStar Display Corporation (Samsung receiving full immunity from fines under the Commission’s leniency program).

According to the Commission, the cartel involved an agreement on prices (including price ranges and minimum prices), information exchanges (relating to future production, capacity utilization, pricing and other commercial terms) and a significant number of meetings over a four year period referred to by the parties as “the Crystal meetings.”

Interestingly, this case also highlights the risk of prejudicial internal documents, with the Commission referring to one document in particular that warned the parties to: “take care of security/confidentiality matters and to limit written communication.”

“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues.  Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct.  A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition.  It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct.  Such programs may allow trade associations and its members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities.  They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.” (Competition Bureau, Corporate Compliance Programs Information Bulletin)

OVERVIEW

Trade and professional associations can serve many legitimate purposes, including promoting common interests to the public, lobbying and advocacy, research, member education and the promotion and improvement of product standards.

However, because association activities by definition involve the interaction of direct competitors, they can in some cases raise serious competition law concerns under the federal Competition Act.

In general, some of types of association activities that can raise competition law issues include those dealing with pricing, advertising, customers, territories, market shares, terms of sale and other key elements of competition.

Some of the specific association activities that can be problematic include: (i) board and membership meetings, (ii) exchanges of competitively sensitive information (e.g., relating to fees, customers, costs, bidding/tendering, etc.), (iii) association rules and bylaws (e.g., mandatory or suggested fee guidelines, advertising restrictions, etc.) and (iv) advertising or marketing restrictions.

This summary discusses Canadian competition law as it applies to trade and professional associations, including an overview of the Competition Act, key sections relevant to associations, some association activities that can raise competition law issues and searches and investigations.

CANADIAN COMPETITION LAW

Legislation

Competition law in Canada is governed by the federal Competition Act (the “Act”).  The Act, which contains both criminal offences and civil “reviewable matters”, is law of “general application” in that it applies to most business activities in Canada including many trade association activities.

Purposes

The Act sets out four objectives of Canadian competition law that are not always easily reconcilable: (i) to promote the efficiency and adaptability of the Canadian economy, (ii) to expand opportunities for Canadian participation in world markets, (iii) to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and (iv) to provide consumers with competitive prices and product choices.

As a practical matter, at least from the perspective of competition law enforcement agencies, the main overarching purpose of competition law is to ensure that consumers benefit from competitive markets.

Criminal and Civil Sections

The Act contains a number of criminal provisions.  These include the conspiracy, bid-rigging, criminal misleading advertising and deceptive telemarketing sections.

The Act also contains a number of civil (non-criminal) “reviewable matters” sections.  These include the price maintenance, civil misleading advertising, refusal to deal, abuse of dominance and tied selling, exclusive dealing and market restriction sections.

Enforcement

The Act is administered and enforced by the federal Competition Bureau (the “Bureau“), which is a federal enforcement agency headed by the Commissioner of Competition (the “Commissioner“).

These have included associations of ambulance operators, banks, building contractors, business forms suppliers, coal dealers, corrugated box manufacturers, corrugated metal pipe manufacturers, electrical contractors, fruit growers, gypsum dealers and manufacturers, insurance salespersons, lawyers, mandarin orange importers, notaries, pharmacists, paper mills, plumbing contractors and suppliers, real estate agents, softwood lumber dealers, surveyors and wholesale grocers, among many others.

A great many international cartel cases have also involved associations, including in the flat glass, fasteners, synthetic rubber, raw tobacco, copper fittings, sorbates, citric acid, acrylic glass, choline chloride, industrial bags, copper tubes, carbon brushes, concrete reinforcing bar, industrial gases and carbonless paper industries, among others.

Recent Canadian cases have involved the Saskatchewan Roofing Contractors Association (2009 – alleged bid-rigging issues) and The Canadian Real Estate Association (2009/2010 – alleged abuse of dominance).

Under the Act, the Commissioner’s enforcement powers include the power to make voluntary information requests, obtain compulsory production orders and search warrants and orders to interview employees under oath.  In addition, the Commissioner has the power to apply to the federal Competition Tribunal (the “Tribunal”) for orders and refer criminal matters to the Director of Public Prosecutions (“DPP”) for criminal prosecution.

Proceedings may be commenced under the Act by the Bureau itself as a result of its own investigations or based on complaints from customers, competitors, suppliers or other industry participants.

In addition to Bureau investigations, private parties may commence private civil actions against persons contravening the criminal sections of the Act, including the criminal conspiracy and criminal misleading advertising sections, and make “private access” applications to the Tribunal for Tribunal orders.

In the context of trade associations, for example, private actions can be commenced by competitors or customers that have suffered damages as a result of the activities of an association or its members.

The Bureau has also recently issued new enforcement guidelines setting out its enforcement approach to collaborations between competitors, including trade association activities (Competitor Collaboration Guidelines).

Penalties

Contravention of the Act can be a serious matter and lead to significant penalties, lost time and negative publicity for companies, associations and their management.  Potential penalties under the Act include criminal fines, civil “administrative monetary penalties” (essentially civil fines), imprisonment, damages as a result of private civil actions and prohibition orders or injunctions to stop conduct and/or take positive action (e.g., adopt compliance programs).

For example, penalties under the Act include criminal fines of up to $25 million or imprisonment for up to 14 years (under the criminal conspiracy provisions) and civil fines of up to $10 million (under the abuse of dominance provisions).  In addition, there is also potential director and officer liability under the Act.

Recent fines in the last year, in connection with price-fixing investigations, include $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.  Recent penalties imposed on individuals include 54 months imprisonment (served in the community) imposed on gasoline company employees in the Quebec gasoline price-fixing case.

As a practical matter, the Bureau is more likely to proceed criminally (as opposed to civilly) where there has been intentional or fraudulent anti-competitive conduct, as opposed to where, for example, conduct has been engaged in accidentally or negligently and immediate remedial steps are taken.

SECTIONS RELEVANT TO ASSOCIATIONS

There are no specific sections of the Act dealing exclusively with trade or professional associations.  However, some of the general sections that are particularly relevant to trade association activities include the criminal conspiracy, abuse of dominance, price maintenance and misleading advertising sections of the Act.  These are discussed in more detail below.

Criminal Conspiracy

Section 45 of the Act, which is in many cases the most important section for trade associations to understand and comply with, contains three criminal conspiracy offences.  Under section 45, three types of “hard core” anti-competitive agreements are illegal:

Price fixing agreements. Section 45 makes it a criminal offence for competitors (or potential competitors) to fix, maintain, increase or control the price for the supply of a product or service (e.g., agreements to set prices, discounts, minimum prices or establish fee tariffs).  “Price” is broadly defined to include discounts, rebates, allowances, etc.

Market allocation/division agreements. Section 45 also makes it a criminal offence for competitors (or potential competitors) to allocate sales, territories, customers or markets for the production or supply of a product or service (e.g., agreements between competitors to not compete in relation to certain customers, groups or types of customers, in certain regions or market segments or in relation to certain types of transactions or products).

Output restriction agreements. Finally, section 45 also makes it a criminal offence for competitors (or potential competitors) to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product or service (e.g., agreements to limit the quantity or quality of products supplied, reduce the quantity of quality of products supplied to specific customers, limit increases in production or discontinue supply to specific customers or groups of customers).

In general, the risk for trade associations under the criminal conspiracy sections is twofold: (i) that an association may become a party to an anti-competitive agreement (or aid or abet an agreement) or (ii) that trade association members may become parties to an anti-competitive agreement.

To establish these offences, it is not necessary to prove that there have been any negative effects on any particular market (i.e., the offences are “per se” offences, which means that merely establishing that there was an agreement and intent to enter the agreement is sufficient).  It is also not necessary to show that an agreement was ever carried out (i.e., the offence is in the agreement not in the implementation).  An agreement can also be, and in a great many cases has been, established based merely on circumstantial evidence (i.e., while the existence of an agreement must be proven beyond a reasonable doubt, an actual written agreement does not need to be produced, which can be proven by other evidence or so-called “facilitating factors” – e.g., evidence of meetings, exchanges of competitively sensitive information, behaviour that can only be explained based on the existence of an agreement, etc.).

Finally, with respect to the criminal conspiracy offences, there is now a new “ancillary restraints” defense, which provides a defense under section 45 where it can be shown that an agreement between competitors is: (i) ancillary to a broader agreement, (ii) is directly related to and reasonably necessary to give effect to the broader agreement and (iii) that the broader agreement does not itself constitute an offence under section 45.  While this new defense will likely apply to agreements that are either potentially pro-competitive (e.g., certain joint venture arrangements) or “on the line” it will likely provide no defense to “hard core” anti-competitive agreements – i.e., bare price fixing, market division/allocation or output restriction agreements between competitors.

The penalties for violating the criminal conspiracy sections can be severe, and include fines of up to $25 million (per count), imprisonment for up to 14 years, or both.  In addition, court orders (so-called “prohibition orders”) may also be imposed to stop the conduct.  In addition, private parties that have suffered actual loss or damage as a result of criminal conduct under the Act, including under section 45, may commence private civil damages actions.

Bid Rigging

The criminal bid-rigging provisions of the Act are also relevant to association activities – for example, where an association’s members are engaged in competitive bids or tenders (e.g., in the construction and IT sectors, etc.) or where an association attempts to regulate or control competitive tendering processes.

Section 47 of the Act sets out three distinct criminal bid-rigging offences, making it a criminal offence to: (i) agree to not submit a bid or tender, (ii) agree to withdraw a bid or tender already submitted (which was added to the Act as part of recent amendments) or (iii) submit a bid or tender that is arrived at by agreement.

Bid-rigging is ”per se” illegal, in that no anti-competitive effects on a relevant market (or markets) needs to be established in order to make out an offence (though, like conspiracy, all elements need to be established on the criminal burden – i.e., beyond a reasonable doubt).

Some common types of bid-rigging that can violate section 47 include: (i) “cover”, “courtesy” or “complementary” bidding (some firms submit bids that are too high to be accepted, or with terms that are unacceptable to the buyer, to protect an agreed upon low bidder), (ii) bid suppression (one or more bidders that would otherwise bid agree to refrain from bidding or withdraw a previously made bid), (iii) bid rotation (all parties submit bids but take turns being the low bidder according to a systematic or rotating basis), (iv) market division (where suppliers agree not to compete in designated geographic areas or for specified customers) and (v) subcontracting (parties that agree not to submit a bid, or submit a losing bid, are awarded subcontracts or supply agreements by the successful bidder).

To establish a bid rigging offence, all of the following elements must be established: (i) an agreement or arrangement between two or more persons (or bidders or tenderers as the case may be), (ii) to not submit a bid or tender, withdraw a bid or tender already made, or submit bids or tenders arrived at by agreement, (iii) intent, (iv) a call or request for bids or tenders and (v) the agreement or arrangement is not made known to the person calling for bids or tenders at or before the submission or withdrawal of a bid or tender by any party to the agreement.

Bid-rigging cannot be established where an agreement only involves affiliates (i.e., where an agreement or arrangement is entered into only between affiliates, as defined in the Act).  In addition, a bid-rigging offence can also not be established where parties (or bidders) expressly communicate an agreement to a party calling for bids or tenders at or before the time when a bid is submitted or withdrawn.

The penalties for contravention of the bid-rigging provisions can be severe and include unlimited fines (i.e., fines in the discretion of the court), imprisonment for up to 14 years, or both.

Abuse of Dominance

The abuse of dominance provisions of the Act are also potentially relevant to trade and professional associations.  Under sections 78 and 79 of the Act, abuse of dominance occurs where: (i) a dominant firm (or firms) in a market, (ii) has engaged in or is engaging in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, (iii) with the result that competition has been, is being or is likely to be prevented or lessened substantially.

Evaluating whether conduct constitutes abuse of dominance under the Act can be highly complex and require significant economic analysis, but in general terms usually involves anti-competitive conduct by one or more dominant firms that is either predatory (e.g., predatory pricing) or exclusionary (e.g., making it more difficult for some firms to compete, such as through long-term exclusive contracts).

Some of the types of trade association activities that can potentially raise abuse of dominance issues include efforts to restrict access to essential services or markets or set educational, qualification or membership standards that make it more difficult for competitors to enter or effectively compete.

The penalties for abuse of dominance include “administrative monetary penalties” (essentially civil fines) of up to $10 million ($15 million for repeat contraventions).

Price Maintenance

The new civil price maintenance sections of the Act under section 76 can also, in some cases, be relevant to trade association activities.

The first type of price maintenance that is potentially relevant to associations involves refusals to supply products (including services) or discriminate against other persons engaged in business based on their low pricing policy, where the conduct has an adverse effect on competition in a market.

The second type of price maintenance that is potentially relevant to association activities involves inducing a supplier, by agreement, threat, promise or any like means, as a condition of doing business with the supplier, to refuse to supply to another person based on the other person’s low pricing policy.

Where the elements for price maintenance are established under section 76, the Tribunal has the power to make “remedial orders” for parties to cease the conduct.

Misleading Advertising

The misleading advertising provisions of the Act can also be highly relevant to both trade associations and their members.  In this regard, the Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations to promote the supply or use of a product, including services, or any business interest.

For a representation to be false or misleading, it must be shown that it has been made to the public, to promote a product or business interest, that it is literally false or misleading (or creates a false or misleading general impression) and that it is “material” (i.e., likely to influence a consumer into buying or using the product, or otherwise alter their conduct).  The criminal misleading advertising provision is substantially similar, but requires in addition to the above elements that a representation be made intentionally (i.e., knowingly or recklessly).

The penalties for civil misleading advertising include “administrative monetary penalties” (essentially civil fines) of up to $750,000 (for individuals) and up to $10 million (for corporations), an order to cease the activity or an order to publish a corrective notice.  The penalties for criminal misleading advertising include fines up to $200,000 and/or imprisonment for up to one year (on summary conviction) or fines in the discretion of the court and/or imprisonment for up to 14 years (on indictment).

Based on the potential liability, associations and their members should ensure that they do not engage in false or misleading representations in their day-to-day business dealings and that their rules and bylaws do not overly restrict legitimate pro-competitive advertising and marketing by members.

TRADE ASSOCIATION ACTIVITIES

Some of the specific association activities that can raise competition law concerns in some cases include: (i) association meetings, (ii) information exchanges (i.e., exchanges of competitively sensitive information relating to fees, customers, costs, bidding/tendering, etc.), (iii) association rules and bylaws (e.g., mandatory or suggested fee guidelines, advertising restrictions, etc.) and (iv) advertising or marketing restrictions.

Association Meetings

Meetings are a normal part of professional and trade association activities and can be related to a variety of legitimate and pro-competitive activities.

However, given that association meetings also in many, if not most, cases involve the interaction of direct competitors they are considered to be a high risk area for associations and their personnel.

This is because meetings between direct competitors can in some instances either result in conduct that actually violates the Act (e.g., lead to a price-fixing or other agreement that contravenes the Act) or can make it easier for a court or the Bureau to infer that anti-competitive conduct has occurred (e.g., use a meeting, if precautions are not taken, as evidence of an anti-competitive agreement).

As such, associations should adopt and comply with basic conduct of meeting guidelines.

Information Exchanges

Information exchanges (i.e., the exchange of competitively sensitive information between competitors) is another of the main risk areas for trade and professional associations, which may include the exchange of information relating to current/future pricing, market shares, costs, customers, current/future business plans and strategic plans and markets.

The reason the exchange or discussion of such information can potentially raise issues under the Act is because, when shared with competitors, it can in some cases lead to either the formation of an anti-competitive agreement (e.g., a price fixing agreement) or be used to infer the existence of an anti-competitive agreement (e.g., the exchange of pricing information between competitors followed by a stabilization of price).

Based on the potential risk, associations should adopt basic compliance guidelines for information exchanges between members in relation to legitimate association activities such as benchmarking, research, lobbying or other joint member initiatives.

Association Rules and Bylaws

Association rules, policies or bylaws can also, in some instances, raise competition law issues if they deal with competitively sensitive topics such as fees/pricing, marketing, advertising or membership restrictions or discipline.  The key potential issue is that where an association enacts or enforces rules on competitively sensitive topics (e.g., fee tariffs, advertising restrictions, etc.), an allegation may be made that the association is either a party to or assisting in the formation of an anti-competitive agreement under section 45 of the Act.  Association rules and codes of conduct can also in some cases raise concerns under the price maintenance and abuse of dominance provisions of the Act.

For example, the Bureau, in its recently issued Competitor Collaboration Guidelines, takes the position that anti-competitive agreements involving industry trade associations (or association rules, policies or by-laws that prevent or lessen competition substantially, and are enacted and enforced by an association with the approval of members who are competitors), can lead to liability for an association as either a party to an offence or on the basis of aiding and abetting an agreement.

As such, associations should review any rules, policies or bylaws that touch on competitively sensitive topics including fees/pricing, discounts, marketing and advertising and membership restrictions and discipline.

Advertising and Marketing

The misleading advertising provisions of the Act, discussed above, can also be potentially relevant to associations.

As such, trade and professional associations should ensure that their advertising and marketing activities comply with the Act.  In addition, it is prudent for associations to review any association rules or codes of conduct regulating member advertising to reduce the likelihood that such rules themselves (i.e., association restrictions on member advertising) may be challenged under the Act.

SEARCHES AND INVESTIGATIONS

Finally, the Bureau has a wide range of enforcement powers available to it to investigate potential violations of the Act.

These include the ability to obtain search warrants, document production orders, orders compelling testimony under oath and wiretaps.  Moreover, the Bureau is increasingly resorting to these powers, particularly in relation to its enforcement priorities, notably the detection and investigation of criminal cartels.  The Act also contains obstruction provisions, which make it a criminal offence to impede or prevent (or attempt to impede or prevent) inquiries or examinations being conducted under the Act.

As such, associations and other organizations should adopt basic “search and seizure guidelines” in the event of a Bureau search or investigation.  Such guidelines are meant to assist associations and other organizations to protect their rights (e.g., by claiming solicitor-client privilege to protect the confidentiality of legally privileged documents) and to reduce the potential liability that can arise in the context of a search (e.g., to avoid allegations of obstruction).

OUR SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We regularly counsel trade associations and their executives and personnel on compliance with theCompetition Act. Our Canadian competition law services for trade associations include:

- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us

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.

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).

The Canadian Commissioner of Competition recently addressed the Canadian Bar Association Fall Competition Law Conference.

Her recent remarks, about a year and a half following the most significant amendments to the Competition Act since 1986 and in some cases since competition law was adopted in Canada, provide a bit of a road map to the Bureau’s enforcement priorities.  Her remarks also contain a few surprises.

The following are some of the highlights:

Mergers

Perhaps somewhat predictably, the Commissioner indicated satisfaction with Canada’s new U.S.-style two-stage merger control process, and in particular the Bureau’s increased ability to control the merger review process and timetable (as a result of Canada’s adoption of a second phase review process and supplementary information request powers for the Bureau).

The Commissioner also indicated that, with respect to mergers, the Bureau has a genuine interest in narrowing second requests for information by “refining” its practice of pre-issuance dialogue with merging parties.  Interestingly, the Commissioner said that since the 2009 Competition Act amendments, the Bureau has issued ten supplementary information requests to merging parties (out of more than 300 pre-merger notification filings).

The Commissioner also described the Bureau’s recently announced public consultations, with a view to updating its Merger Enforcement Guidelines (not updated since 2004).

Cartels

On the criminal side, the Commissioner focused on Canada’s new criminal conspiracy regime, saying that the Bureau was “seizing the opportunity” to begin work under the new criminal conspiracy rules (which have resulted in a lower enforcement burden and significantly increased penalties).  The Commissioner said: “… we are working to move from a jurisdiction often disproportionately focused on pleas – especially with respect to international cartels – to one that is appropriately aggressive in using our new tools to ensure that consumers and those who carry on business in Canada can be confident that the criminality of this activity is recognized.”  While the Commissioner’s enforcement remarks are not new, and accord with the Bureau’s longstanding view that cartels are a top enforcement priority, the Bureau’s work became significantly easier following the coming into force of Canada’s new conspiracy regime earlier this year.

The Commissioner also emphasized the Bureau’s increasing reliance on wiretaps and other powers in criminal investigations under the Competition Act, as well as its interest in promoting the Bureau’s formal Immunity and Leniency Programs.  In this regard, the Bureau recently issued its new Leniency Bulletin, which outlines the factors and principles the Bureau considers in making a leniency recommendation to the Public Prosecution Services for leniency from sentencing for criminal offences committed under the Act.

Perhaps most importantly, the Commissioner also referred to the Bureau’s recent issuance of its Competitor Collaboration Guidelines, which set out the Bureau’s enforcement approach to collaborations between actual and potential competitors.  While the Commissioner remarked that the Bureau could not simply “flick a switch” to interpret Canada’s new cartel regime in light of the new guidelines, there has been significant debate as to how the new conspiracy rules will be applied by Canadian courts and the Bureau in reality to a wide variety of commercial agreements including joint ventures, franchise and licensing arrangements, non-compete provisions in commercial agreements and collective purchasing arrangements.  Perhaps most challenging for Canadian courts and the Bureau under the new rules will be determining whether some forms of agreements and restraints that are not clearly harmful at the outset (i.e., without further analysis) should be reviewed under section 45 (criminal conspiracy offences) or 90.1 (the new civil agreements provision).  These include, for example, standard setting agreements (or agreements to fix product quality), group boycott arrangements and a variety of restrictions that can arise in common commercial activities (e.g., trade association activities).

Enforcement

With respect to enforcement, the Commissioner made several interesting points, including the fact that the Bureau currently has 42 ongoing criminal investigations underway and that it was investigating a number of cases under the new civil agreements provision of the Act (section 90.1).  The Commissioner also took a stronger stance than in the recent memory on abuse of dominance as an enforcement priority, saying that “pursuing abuse of dominance cases and seeking to provide clarity on [the Bureau’s] enforcement approach to section 90.1” were Bureau priorities.

The Commissioner also referred to recent enforcement efforts against retailers making unsupported environmental claims, and described the recent record $15 million fine against a Toronto business directory marketing company.

For a copy of the Commissioner’s speech, see: Remarks by Melanie L. Aitken, Commissioner of Competition, to CBA Annual Fall Competition Law Conference.

The Competition Bureau announced today that Cargolux Airlines International S.A. had plead guilty in Federal Court and was fined $2.5 million for its participation in an air-cargo price-fixing cartel impacting Canada.

In making its announcement, the third cartel enforcement announcement in as many days (see also: Competition Bureau Launches Investigation into Quebec Construction Industry and Embraco North America Inc. Pleads Guilty to Price-fixing Conspiracy), the Bureau said:

“Cargolux admitted that it engaged in a conspiracy to fix air cargo fuel surcharges for international air cargo transportation services from Canada between April 2002 and February 2006.

“Price-fixing is a serious crime that denies the benefits of competition and artificially increases the prices we pay for goods and services,” said Melanie Aitken, Commissioner of Competition. “The Bureau will not hesitate to take action against conspirators when it uncovers evidence that the law has been broken.”

Cargolux’s penalty brings the total fines in the Bureau’s air cargo investigation to more than $17 million. In 2009, Air France, KLM, Martinair, Qantas, and British Airways each pleaded guilty to fixing air cargo surcharges for shipments on certain routes from Canada. The Bureau’s investigation into the alleged conduct of other air cargo carriers continues.

The Bureau’s investigation has benefited from the cooperation of certain air cargo carriers through the Bureau’s Leniency Program. This program creates incentives for parties to address their criminal liability by co-operating with the Bureau in its ongoing investigation of other alleged cartel participants.”

As a result of sweeping amendments to the Competition Act in March 2009 and March 2010, Canada’s conspiracy laws have been significantly amended making it both easier to prosecute criminal conspiracies (i.e., price-fixing, market allocation and supply restriction agreements between competitors) and more than doubling the previous penalties.  Maximum penalties for contravention of the criminal conspiracy provisions of the Competition Act are now fines of up to $25 million, imprisonment for up to 14 years, or both.

It will remain to be seen, however, how Canadian courts interpret the new U.S.-style conspiracy rules in Canada, given that the former conspiracy offences were shaped by over a hundred years of case law and the fact that, unlike in the U.S., contested competition law cases are far more uncommon in Canada.

For more on criminal conspiracy and bid-rigging law in Canada see: Conspiracy / Cartels, Conspiracy FAQs, Conspiracy News, Bid-rigging, Bid-rigging News.

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.

Hotel News Resource is reporting that following an announcement by the U.K. Office of Fair Trading that it will be commencing an investigation into alleged price-fixing in the online travel market, Skoosh.com is requesting that the Canadian Competition Bureau commence an investigation into the hotel industry in Canada.

Hotel News Resource has reported:

“After the announcement last week by the Office of Fair Trading (O.F.T.), the United Kingdom’s competition bureau, that it will be investigating claims of price fixing in the online travel market, Skoosh.com has additionally urged the C.B.C. to review a similar case in Canada.

In an open letter published on the company’s blog, Skoosh director Dorian Harris, requested the C.B.C. to look again at the state of the country’s hotel industry before waiting for a conclusion to the case in the U.K., noting ‘if you wait until it is finalised it may be too late to rescue the Canadian hotel market’.

In the new claims, Harris has named Delta and SilverBirch Hotels, two of Canada’s major hotel chains, as potentially in breach of competition law. No statement has yet been made by the Canadian Competition Bureau.”

In its announcement regarding its investigation into alleged price-fixing activities in the UK online booking market, the OFT stated:

“The OFT is conducting a formal investigation into suspected breaches of competition law in the hotel online booking sector and has written to a number of parties in the industry to request information.

The investigation is at a very early stage and the OFT will not be in a position to conclude whether it considers the law has been infringed until it has completed its investigation and assessed the available evidence.”

For the OFT’s announcement see: Investigation into the hotel online booking sector.

As a result of recent amendments to Canada’s Competition Act, price-fixing agreements between actual or potential competitors are now per se illegal (i.e., without the necessity to prove any adverse market effects) and subject to potential fines of up to $25 million.   As a practical matter, Canada’s new conspiracy regime means that it is more important for parties involved in competitor collaborations (e.g., joint ventures, strategic alliances, etc.) and activities involving competitors (e.g., trade association activities) to take steps to reduce potential competition/antitrust law risk.

For more see: Trade Associations & the Competition Act, Conspiracy and Competitor Collaborations, Conspiracy FAQs, Competition Law Compliance Programs.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us.

On September 29, 2010, the Competition Bureau issued its final Leniency Program Bulletin and Leniency Program FAQs.  The Bureau’s final Leniency Bulletin sets out the factors the Bureau considers when making sentencing recommendations to the Public Prosecution Service of Canada (“PPSC”) and the process for seeking leniency recommendations in criminal cartel cases.  Under the Bureau’s Leniency Program, the Bureau may recommend to the PPSC that applicants that qualify with the terms of the program be granted leniency in exchange for cooperating with the Bureau in an investigation and any subsequent prosecution.

While the federal Competition Bureau is responsible for the enforcement of the Competition Act and investigating alleged violations of the Act, jurisdiction for prosecuting criminal offences under the Competition Act (and granting immunity or leniency) rests with the Director of Public Prosecutions.  In reality, however, the Bureau and DPP work closely together during a criminal investigation under the Act.

The Leniency Bulletin was subject to extensive public consultations in 2008 and 2009 and, together with, the Bureau’s Immunity Program Bulletin, are the two core enforcement policy documents for the Bureau’s formal Immunity and Leniency Programs.

Some of the key aspects of the Bureau’s new Leniency Bulletin include:

Immunity v. leniency.  The Bureau confirms that full immunity from prosecution is only available for the first individual (or business organization) that applies for a marker under the Bureau’s Immunity Program and complies with all other requirements of the Bureau’s Immunity Program.

Leniency eligibility and requirements.  While full immunity is not available, other parties to criminal cartel activities (e.g., price-fixing, market allocation or supply restriction agreements between actual or potential competitors) that disclose their involvement and cooperate with the Bureau may qualify for leniency in sentencing.  A leniency recommendation will be made when an individual (or business organization) has: (i) terminated its participation in the cartel, (ii) agrees to full and timely cooperation with the Bureau’s investigation (and any subsequent prosecution) and (iii) agrees to plead guilty (the latter requirement being an important distinction between the Bureau’s Leniency Program and its Immunity Program, where no guilty plea is required, and which emphasizes the importance of early detection given that both of the Bureau’s programs operate on a “first in” basis).

Timing.  Where the Bureau has already referred a matter to the PPSC for potential prosecution, leniency is no longer available.

Disclosure requirements.  Like the Bureau’s Immunity Program, applicants are required to provide full, frank and truthful cooperation with the Bureau’s investigation.  The Bureau also states that “full and prompt cooperation at an early phase in the Bureau’s investigation” will likely secure a recommendation for a more substantial mitigation of a sentence than cooperation at a later phase.  In essence, the Bureau is attempting to give parties more incentive to both initially report an offence and cooperate to a greater extent early in an investigation.

Calculation of fines.  The Bureau maintains its previous position of using 20% of a party’s volume of commerce as a proxy or starting point in fine recommendations.

Penalty reductions.  The first leniency applicant is eligible for a 50% reduction of the fine that would otherwise have been recommended and the second leniency applicant is eligible for a 30% reduction in fine, provided that the requirements of the Leniency Program are met.  According to the Bureau, subsequent leniency applicants “may benefit” from fine reductions, provided they meet all requirements of the Leniency Program (the Bureau also states, consistent with its Leniency and Immunity Programs as intended to create incentives for parties to report and cooperate, that “later leniency applicants will not be eligible for a greater leniency discount than earlier applicants”).

Aggravating and mitigating factors for sentencing.  The Bureau will consider aggravating and mitigating factors in making sentencing recommendations to the PPSC, as set out in the Criminal Code, with the Bureau’s 20% volume of commerce fine proxy increased or reduced accordingly (the sentencing guidelines under the Criminal Code apply to violations of the criminal offences under the Competition Act).

“Immunity plus”.  A leniency applicant may be eligible for “Immunity Plus”, where an applicant discloses evidence of other offences under the Act that the Bureau was unaware of (in which case, an applicant may be entitled to full immunity from prosecution for the additional offence, despite being ineligible for full immunity from the main offence under which leniency is sought).

Director and officer liability.  The Bureau will recommend that no separate charges will be laid against an applicant’s current directors, officers or employees, provided they cooperate with the Bureau’s investigation.  This is both a benefit to an immunity applicant’s directors and officers, but also emphasizes the importance of counselling directors and officers of the importance of complying with the Bureau’s program in order to maintain leniency rights.

Marker requests.  Like the Bureau’s Immunity Program, marker requests must be made to the Senior Deputy Commissioner of Competition, Criminal Matters Branch.  Initial marker requests are typically made on a no-names and hypothetical basis.  The Bureau allows four days for a marker applicant to determine whether to participate in the Bureau’s Leniency Program and a further 30 days to complete its proffer to the Bureau (i.e., provide initial information regarding participation in a cartel, on a without prejudice basis, subject to settlement privilege).

Leniency recommendation.  The Bureau will make a leniency recommendation to the DPP after an applicant has made a “complete and timely” proffer (i.e., provided all relevant information pertinent to leniency and sentencing).

Plea agreement.  Unlike the Bureau’s Immunity Program, the Leniency Program involves the negotiation of a plea agreement, which the Bureau states will be conditional on the full and timely cooperation of a leniency applicant.  Plea agreements, like the leniency and immunity processes generally, require applicants to continue to provide “full, frank, timely and truthful disclosure” of information relating to the offence, except information covered by solicitor-client privilege, that are followed by joint sentencing submissions based on an agreed statement of admissions.

Other jurisdictions.  The Bureau confirms its earlier position that it will not give applicants special consideration solely where they have been granted immunity in another jurisdiction.  The Bureau will also not disclose a leniency applicant’s identity to a foreign antitrust agency and will only disclose information with a waiver from the applicant “absent compelling reasons”.

OUR SERVICES – CONSPIRACY & COMPETITOR COLLABORATIONS

We offer a range of services in relation to the conspiracy provisions of the Competition Act and competitor collaborations, including advice in relation to trade association activities, joint ventures and strategic alliances, joint negotiations, joint marketing, joint buying, research and development and other competitor-competitor collaborations.  Our services include:

- Application of the new criminal conspiracy rules to commercial activities.
- Application of the new civil agreements provision.
- Structuring agreements and joint ventures to comply with the Competition Act.
- Competition law compliance programs for companies and trade associations.
- Conduct of meetings and information exchange guidelines.
- Advice regarding the Competition Bureau’s Immunity and Leniency Programs.
- Applications for binding Competition Act advisory opinions.

For more see: Conspiracy and Competitor Collaborations.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us.

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.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us.

The Competition Bureau announced today that it has issued its new Bulletin on “Regulated” Conduct (see: “Regulated” Conduct Bulletin).  This new Bulletin outlines the Bureau’s current approach to the enforcement of the Competition Act where conduct may be regulated by other valid provincial or federal legislation (potentially subject to the “regulated conduct defence” or “RCD”).  The Bulletin replaces two former Bureau Bulletins: its 2006 Technical Bulletin on “Regulated” Conduct and its earlier 2002 Information Bulletin on the Regulated Conduct Defence, which was criticized for not accurately reflecting existing regulated conduct case law.

In issuing its new Bulletin, the Bureau stated:

“The Bulletin on “Regulated” Conduct outlines the Bureau’s approach to the enforcement of the Competition Act in situations where conduct is regulated by other laws enacted by various levels of government. The updated Bulletin replaces the Bureau’s 2006 Bulletin on “Regulated” Conduct, and reflects current Bureau priorities.”

The Bureau’s new Bulletin remains largely unchanged from its earlier 2006 Bulletin, in that it continues to reflect a cautious approach by the Bureau to the regulated conduct defence generally, a hesitation to apply the RCD in the same way to federally regulated conduct as to provincially regulated conduct as well as continuing to indicate (based on undeveloped case law) that it will apply the RCD more cautiously to the civil reviewable matters provisions than the criminal offences of the Act (under which the RCD primarily developed).  The Bureau’s position also remains largely unchanged in that it continues to recognize that while the RCD may apply where conduct is required or merely authorized by other valid legislation, that it will apply “greater scrutiny” to the activities of parties that are legislatively regulated than to regulators themselves (despite continuing to acknowledge that no Canadian court has expressly held that such a distinction should be made).

At the same time, the Bureau’s new Bulletin addresses some of the new issues that have arisen as a result of the recent amendments to the Act in 2009, including how the RCD applies to conduct under section 45 of the Act (the criminal conspiracy provisions), how the doctrine applies to other criminal offences under Part VI of the Act, as well as perhaps the most interesting issue of whether, and to what extent, the Bureau views the RCD as applying to the civil reviewable matters provisions of the Act (e.g., abuse of dominance, price maintenance, tied selling, exclusive dealing, etc.).  In essence, the Bureau needed to consider (and has now articulated in its new Bulletin) its position regarding the application of the RCD under provisions where it is now codified (section 45 – criminal conspiracy offences), other criminal offences where it is not codified (Part VI of the Act) and in relation to the Act’s civil reviewable matters provisions (under which the RCD is also still not codified and there is little authority for its application, outside of cases where its application was conceded by the parties and not in issue).

The Bureau indicates that it will continue to consider whether the RCD applies to conduct under the criminal conspiracy provisions according to the Supreme Court of Canada’s leading decision in Jabour, which is considered to be the “high water mark” of RCD case law in that the Law Society of British Columbia was permitted to invoke the RCD based on mere general legislative discretion to regulate “conduct unbecoming” lawyers.

With respect to the Act’s other criminal offences, the Bureau states that, based on the Supreme Court’s decision in Garland, it will first attempt to determine whether Parliament intended the provision to apply and, if so, “may still refrain from pursuing the case in reliance on the RCD.”  In Garland, while not a case decided under the Competition Act, the Supreme Court held that in the absence of so-called “leeway” language in the relevant provision (i.e., language indicating that another legislative regime may apply), the RCD would not apply.  In this regard, the Bureau’s position that the RCD may continue to apply to other criminal offences under the Act would appear to be correct, given that the newly codified RCD defence under section 45 (criminal conspiracies) does not on its face foreclose the application of the doctrine to other criminal provisions of the Act, or indeed to the Act generally.

Perhaps the most interesting aspect of the Bureau’s new Bulletin is in regard to the application of the RCD to the Act’s civil reviewable matters provisions.  While the Bureau also does not foreclose the possibility that the doctrine may continue to apply to the Act’s civil provisions, despite the codification of the doctrine only under section 45, it takes a cautious approach consistent with that in its former Bulletins:

“RCD caselaw is extremely limited in respect of the reviewable matters provisions of the Act.  While the jurisprudential preference for avoiding (where possible) an application of the federal paramountcy rule supports the application of the RCD to the reviewable practice provisions of the Act, neither the “public interest” nor the “mens rea” rationales relied upon by the courts in RCD cases support the application of the RCD to the reviewable matters provisions of the Act. Moreover, in Garland, the Supreme Court applied a federal law resulting in penal sanctions to conduct expressly authorized by a provincial regulatory body because there was no clear Parliamentary intent to do otherwise. In this context, and absent further judicial guidance, the Bureau cannot responsibly limit its statutory mandate by the general application of the RCD to the reviewable matters provisions of the Act.

Accordingly, until RCD caselaw is further developed in respect of the reviewable matters provisions of the Act, the Bureau will consider RCD caselaw in its examination of reviewable matters but will not consider RCD caselaw to be dispositive of such matters. Consistent with Garland, the Bureau will strive to determine Parliament’s intention with respect to the application of the relevant Competition Act provision(s) to the impugned conduct. Unlike Part III of this Bulletin, however, the Bureau will not refrain from pursuing regulated conduct under the reviewable matters provision(s) simply because the provincial law may be interpreted as authorizing the conduct or is more specific than the Act given that the Bureau’s mandate is to enforce the law as directed by Parliament not a provincial legislature or its delegate.”

This recent enforcement policy update by the Bureau is another in a number of recent updates relating to recent amendments to the Competition Act, which are the most significant since the modern Act was passed in 1986 (and in some cases since Canada introduced competition law in 1889).  For more on the amendments see: Competition Act Amendments.

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We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us.

“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues.  Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct.  A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition.  It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct.  Such programs may allow trade associations and its members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities.  They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.”  (Competition Bureau, Corporate Compliance Programs Information Bulletin)

Overview

Trade associations often serve many legitimate purposes, including promoting common interests to the public, lobbying, advocacy, research, education and promoting and improving product standards.  However, because trade association activities involve the interaction of direct competitors, associations can in some cases raise competition law issues under the federal Competition Act (the “Act”).  Recent public criminal and civil association investigations have involved the Saskatchewan Roofing Contractors Association and The Canadian Real Estate Association, among others.  There have also recently been historic amendments to the Act that have resulted in, among other things, significantly increased penalties for conspiracy (fines of up to $25 million and/or imprisonment for up to 14 years) and misleading advertising (with civil fines of up to $10 million for corporations).

Some common association activities that can, in some instances, raise competition law issues include membership criteria and discipline, codes of conduct (particularly fee tariffs and advertising restrictions), standard setting and certification (including mandatory or standard terms of sale), meetings and information exchanges and joint member activities (including joint negotiation, marketing, research, production and lobbying and advocacy).

In this regard, numerous competition law cases in the past century have involved associations, or their members, including associations of ambulance operators, banks, building contractors, business forms, coal dealers, corrugated box manufacturers, corrugated metal pipe manufacturers, electrical contractors, fruit growers, gypsum dealers and manufacturers, insurance salespersons, lawyers, mandarin orange importers, notaries, pharmacists, paper mills, plumbing contractors and suppliers, radio and television performers, real estate agents, softwood lumber dealers, surveyors and wholesale grocers, among many others.

Sections Relevant to Trade Associations

There are no specific sections of the Act dealing exclusively with trade associations.  However, some of the general sections that are particularly relevant to trade association activities include the criminal conspiracy, abuse of dominance, price maintenance and misleading advertising sections of the Act (discussed below).

Criminal Conspiracy

Section 45 of the Act, which is in many cases the most important section for trade associations, contains three criminal conspiracy offences.  The investigation and prosecution of criminal conspiracies is also a top enforcement priority for the Bureau.

Under section 45, three types of “hard core” anti-competitive agreements will be illegal as of March 12, 2010:

Price fixing agreements.  Section 45 will make it a criminal offence for competitors (or potential competitors) to fix, maintain, increase or control the price for the supply of a product (e.g., agreements to set prices, discounts, minimum prices or establish fee tariffs).  “Price” is broadly defined to include discounts, rebates, allowances and price concessions.  Based on the potential liability for price fixing agreements, it is important that prices, discounts and other aspects of price are determined independently by association members and that members do not discuss price or other competitively sensitive topics.

Market allocation/division agreements.  Section 45 will also makes it a criminal offence for competitors (or potential competitors) to allocate sales, territories, customers or markets for the production or supply of a product (e.g., agreements between competitors to not compete in relation to certain customers, groups or types of customers, in certain regions or market segments or in relation to certain types of transactions or products).

Supply restriction agreements.  Finally, section 45 will make it a criminal offence for competitors (or potential competitors) to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product including services (e.g., agreements to limit the quantity or quality of products supplied, reduce the quantity of quality of products supplied to specific customers, limit increases in production or discontinue supply to specific customers or groups of customers).

In general, the risk for trade associations under the criminal conspiracy sections is twofold: (i) that an association itself may become a party (or be seen as aiding or abetting) to an anti-competitive agreement and (ii) that trade association members themselves may become parties to an anti-competitive agreement.

To establish these offences, it is not necessary to prove that there have been any negative effects on any particular market (i.e., the offences are “per se” offences, which means that merely establishing that there was an agreement and intent to enter the agreement is sufficient with no adverse market effects).

It is also not necessary to show that an agreement was ever carried out (i.e., the offence is in the agreement not in the implementation).  An agreement can also be established based merely on circumstantial evidence (i.e., while the existence of an agreement must be proven beyond a reasonable doubt, an actual written agreement does not need to be produced, which can be proven by other evidence – e.g., evidence of meetings among competitors followed by a stabilization of prices, etc.).

Finally, with respect to the criminal conspiracy offences, there will now be a new “ancillary restraints” defense, which will provide a defense where it can be shown that an agreement between competitors is: (i) ancillary to a broader agreement, (ii) is directly related to and reasonably necessary to give effect to the broader agreement and (iii) that the broader agreement does not itself constitute an offence under section 45.  While this new defense will likely apply to agreements that are either potentially pro-competitive (e.g., certain joint venture arrangements) or “on the line”, it will likely provide no defense to “hard core” anti-competitive agreements – i.e., bare price fixing, market division/allocation or output restriction agreements.

The penalties for violating the criminal conspiracy sections can be very severe and, as of March 12^th, will include fines of up to $25 million (per count), imprisonment for up to 14 years and/or “prohibition orders” to stop the conduct.  In addition, private parties that have suffered actual loss or damage as a result of criminal conduct under the Act (including s. 45 – criminal conspiracies), including competitors or customers, have the right to commence private civil damages actions.

Abuse of Dominance

Abuse of dominance is another section that potentially applies to trade associations and their activities.  Under sections 78 and 79 of the Act, abuse of dominance occurs where a dominant firm (or firms) in a market has engaged in or is engaging in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, with the result that competition has been, is being or is likely to be prevented or lessened substantially.

Evaluating whether conduct constitutes an abuse of dominance can be highly complex and require significant economic analysis.  Having said that, some of the types of trade association activities that can potentially raise abuse of dominance issues include efforts to restrict access to essential services or markets or setting educational, qualification or membership standards that result in impeding entry.

The penalties for abuse of dominance include “administrative monetary penalties” (essentially civil fines) of up to $10 million ($15 million for subsequent orders).

Price Maintenance

The new civil price maintenance sections of the Act can also, in some cases, be relevant to trade association activities.

The first type of price maintenance that is potentially relevant involves refusals to supply products (including services) or discriminate against other persons engaged in business based on their low pricing policy, where the conduct has an adverse effect on competition in a market.  The second type of price maintenance that is potentially relevant to association activities involves inducing a supplier, by agreement, threat, promise or any like means, as a condition of doing business with the supplier, to refuse to supply to another person based on the other person’s low pricing policy.

Where the elements for the new price maintenance sections are established, the Competition Tribunal (the “Tribunal”) may make an order prohibiting a person from engaging in the conduct.

Misleading Advertising

The false or misleading representation provisions of the Act (often referred to as “misleading advertising”) can be highly relevant to both trade associations and their members, depending on the level of advertising and marketing engaged in by an association and its members.

The Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations made to promote the supply or use of a product, including services, or any business interest.  Subsection 74.01(1) of the Act contains the general civil prohibition against false or misleading representations:

“A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, makes a representation to the public that is false or misleading in a material respect.”

For a representation to be false or misleading, it must be shown that a representation has been made, to the public, to promote a product or business interest, that is literally false or misleading (or with a false or misleading “general impression”) and that the representation is “material” – i.e., likely to influence a consumer into buying or using the product or changing their conduct.

The criminal misleading advertising provision is substantially similar, but requires in addition to the above elements that a representation be made with intent (i.e., knowingly or recklessly).

The penalties for civil misleading advertising include “administrative monetary penalties” (essentially civil fines) of up to $750,000 (for individuals) or up to $10 million (for corporations), an order to cease the activity or an order to publish a corrective notice.  The penalties for criminal misleading advertising include fines up to $200,000 and/or imprisonment for up to one year (on summary conviction) or fines in the discretion of the court and/or imprisonment for up to 14 years (on indictment).

Based on the potential liability, it is prudent for trade associations and their members to ensure that they do not engage in false or misleading representations in their day-to-day business dealings and as well that associations ensure that their rules and bylaws do not encourage misleading advertising (or restrict legitimate pro-competitive advertising by members).

OUR SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We regularly counsel trade associations and their executives and personnel on compliance with the Competition Act. Our Canadian competition law services for trade associations include:

- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.

CANADIAN COMPETITION LAW LINKS

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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Steve Szentesi & Tom Hakemi

On September 14, 2010, the European Court of Justice (“ECJ”) held that communications between a company’s management and its in-house counsel are not insulated from discovery or disclosure in competition/antitrust law investigations by the European Commission (see: Akzo v. Commission).

This case involved an appeal commenced by Akzo Nobel Chemicals and its subsidiary Akcros Chemicals (“Akzo”), both of which were involved in a price-fixing investigation in connection with which the European Commission and U.K. Office of Fair Trading investigated the companies’ U.K. premises.

During the European Commission’s investigation, a dispute arose as to whether several documents, including two e-mails between Akcros’ Director General and Akzo’s coordinator for competition law, who was a member of Akzo’s legal department (and employed by Akzo), were covered by legal professional privilege (“LPP”).  In reviewing the e-mails, European Commission investigators concluded that they were not covered by LPP and Akzo lost its appeal in the Court of First Instance (Court of First Instance judgment of 17 September 2007 in Joined Cases T-125/03 and T-253/03 Akzo Nobel Chemicals and Akcros Chemicals v. Commission).

Akzo’s appeal to the ECJ concerned the two disputed e-mails, with the ECJ rejecting Akzo’s argument that they were covered by LPP.

In coming to its decision, the ECJ relied on AM & S Europe v. Commission, which held that the confidentiality of written communications between lawyers and clients should be protected at the Community level, subject to two cumulative conditions:  first, that the exchange with the lawyer must be connected to “the client’s rights of defence”; and second, that the exchange must emanate from “independent lawyers” (i.e., lawyers who are “not bound to the client by a relationship of employment”). 

According to the ECJ, the requirement of independence means “the absence of any employment relationship between the lawyer and his client, so that legal professional privilege does not cover exchanges within a company or group with in-house lawyers.”  The ECJ concluded that, based on an in-house lawyer’s economic dependence and close ties with his employer, an in-house lawyer does not “enjoy a level of professional independence comparable to that of an external lawyer”, and therefore concluded that the CFI correctly applied the test set out in AM & S Europe.

The ECJ also rejected a number of alternative arguments made by Akzo, including that refusing to apply LPP to correspondence exchanged with an in-house lawyer violates the principal of equal treatment under European Union law, arguments based on distinctions between national legal systems and EU law and that the findings of the CFI violated the principle of national procedural autonomy and the principle of the conferred powers.

Implications

This important decision essentially means that European in-house counsel have no LPP rights in relation to competition investigations carried out by the European Commission.  Practically, it means that the role of in-house counsel in Europe has been confirmed to be weaker than their counterparts in, for example, North America, potentially making it more difficult and expensive for European companies to obtain timely and effective legal advice entitled to the disclosure protections taken for granted in many other jurisdictions, including Canada.  From the perspective of outside observers, it also appears that the approach taken both in the past in confirmed by this recent decision takes an overly technical, rather than a principled, approach to solicitor-client privilege, somewhat puzzlingly with the result that clients, who should be the beneficiaries for the privilege, are disadvantaged when seeking advice from in-house rather than outside counsel.  The decision will likely also practically mean, again to the detriment of clients, that legal costs will rise given that outside (rather than in-house) advice may now be sought in some cases, based on the potential risk associated with in-house legal advice.

Solicitor-Client Privilege in Canada

In Canada, there is no solicitor-client privilege distinction between external and in-house counsel. Communications with counsel for the purpose of obtaining or providing legal advice are generally privileged in Canada irrespective of whether or not the counsel is external or in-house.  Competition law advice frequently involves advice in relation to establishing and preserving legal privilege, as well as asserting privilege in the event of a criminal or civil search by the Competition Bureau, other compulsory production orders or document production requests in the context of civil proceedings.

Competition and litigation counsel also often counsel their clients to take commonsense precautions to establish and maintain privilege including: (i) marking all documents created in the context of receiving legal advice “Privileged and Confidential”, (ii) inserting “Privileged and Confidential” in the subject lines of correspondence to counsel (to make privilege claims easier to make in the event of a search and increasing the likelihood that privileged documents can be identified), (iii) marking all documents created at the request of counsel “Privileged and Confidential – Created at the Request of Counsel”, and (iv) ensuring that all privileged documents are kept in segregated files (and that care is taken to restrict circulation of privileged communications to intended recipients so as not to inadvertently waive privilege). Search and seizure compliance guidelines also typically contain guidelines as a matter of course, with the objectives to both claim and maintain privilege over documents (including electronic documents and e-mails) covered by solicitor-client privilege.

For the ECJ’s decision see: Akzo v. Commission.  For more on the ECJ’s decision see: Antitrust and Privilege: An EU Court Restricts Attorney-Client Confidentiality, ECJ Deals Blow for In-House Professional Legal Privilege in Akzo Nobel Ruling and Europe Court Limits In-house Legal Privilege.

CANADIAN COMPETITION LAW LINKS

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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We are pleased to provide this global competition/antitrust law update from our friends at the leading Singapore firm Rajah & Tann LLP.

Introduction

The European Commission issued a press release on 26 August 2010 announcing that it has commenced an investigation into marine insurance agreements by the Protection & Indemnity Clubs (‘P&I Clubs’) within the International Group of P&I Clubs (‘IG’). According to the European Commission, certain provisions in the agreements may lessen competition between P&I Clubs as well as restrict the access of commercial insurers and / or other mutual P&I insurers to the relevant markets.

P&I Clubs

P&I insurance covers third party liabilities and expenses arising from owning ships or operating ships as principals. Such insurance insures against claims for damage or compensation in respect of, for example, collision liabilities, personal injury to or illness or loss of life of crew members, cargo liabilities, etc. P&I Clubs are mutual non-profit making associations which provide P&I insurance to their members, the ship owners. The IG is a worldwide association of thirteen P&I Clubs.  

The Suspected Infringement(s)

According to the European Commission, in the framework of the IG, the P&I Clubs operate two separate agreements: the International Group Agreement and the Pooling Agreement which contain rules on the sharing of insurance claims and joint reinsurance as well as rules on the contractual relationships between the P&I Clubs and their members. These agreements are not automatically covered by the block exemption for the insurance sector in force in the European Union (‘EU’). This is because the block exemption provides for certain exemptions only where the parties involved have a market share of below 20-25% and according to the European Commission, the members of the IG provide P&I insurance to about 93% of the world’s ocean-going tonnage.

The European Commission’s investigation is seeking to uncover whether, as a result of certain provisions in the International Group and Pooling Agreements, competition between the P&I clubs would be reduced, thus infringing Article 101 of the European Community (‘EC’) Treaty which prohibits agreements which appreciably adversely affect competition in the relevant market(s). Additionally, where provisions in the International Group and Pooling Agreements establish barriers to entry in the market, IG may be liable also for abusing its dominant position in the relevant market, thus infringing Article 102 of the EC Treaty which prohibits the same. Having said this, it is not clear at this stage which direction the European Commission’s investigations will take.

Asia Perspective, Including Singapore & Malaysia

Many of the competition laws of the various Asian countries have similar provisions to that of the EU which prohibit anti-competitive agreements and abuses of market dominance.

In Singapore, for example, the Competition Commission of Singapore (‘CCS’), the competition regulatory authority tasked with the administration and enforcement of competition laws in Singapore, has the power to commence investigations into any sector or any agreement / conduct on its own initiative under the Competition Act (Cap 50B). Similarly, the Malaysian Competition Act 2010, which is slated to come into force in 2012, provides for the power of the Malaysian Competition Commission (‘MCC’) to launch investigations into sectors, agreements or conduct which may adversely affect competition in the relevant market. This is also reflective of the Asian countries’ competition laws. Hence, it is possible that similar reviews could find their way into Asia.

Concluding Words

Given the wide powers of investigation awarded to competition authorities and the very high financial penalties imposed for an infringement of competition laws, businesses should undertake regular review of their activities to ensure compliance with competition laws in every jurisdiction they operate in.

CANADIAN COMPETITION LAW LINKS

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.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  Contact Us

We are pleased to provide this global competition/antitrust law update from our friends at the leading Singapore firm Rajah & Tann LLP.

Overview

On 19 August 2010, the CCS issued a landmark decision that recommended fees or fees guidelines by professional or trade associations are generally in violation of the Competition Act. As a result of this decision, professional or trade associations which have guidelines on fees or on any other critical commercial term in place would be well advised to immediately review and if necessary, withdraw those guidelines to mitigate the risk of a fine being imposed on them for violating the Competition Act. Whilst this is a decision of the Competition Commission in Singapore, the principles enunciated are equally applicable in other jurisdictions.

The decision arises from the application in 2009 by the Singapore Medical Association (‘SMA’) for a decision by the Competition Commission of Singapore (‘CCS’) as to whether its Guidelines on Fees (the ‘GOF’) for medical practitioners were in breach of the Competition Act or rather excluded from the Section 34 prohibition in view of the Net Economic Benefit (‘NEB’) flowing from them. Whilst the CCS had in the past taken the view that recommended minimum fees by professional or trade associations are likely to be in violation of the Competition Act, the decision issued on the GOF suggests that any type of fees recommendations by associations of undertakings are illegal and expose both the association and the members of the association to fines under the Competition Act.

This update reviews the reasons for this decision and the lessons to be drawn from it.

The Guidelines On Fees Issued By The SMA

The GOF were first issued by the SMA in 1987 and were amended in 1992, 2000 and 2006. Through the GOF, the SMA recommended a range of fees, meant as a guide for a number of services provided by doctors in private practice in Singapore

The recommended fees were categorized under three parts: (i) general consultations fees for General Practitioners (‘GPs’) or Specialists; (ii) professional fees for office surgery and medical procedures, immunisation,  medical examinations and reports as well as for specific procedures in a number of specialty care such as obstetrics, paediatrics, cardiology, etc; and (iii) fees for surgeons and anaesthetists in relation to hundreds of specific procedures.

In 2007, the SMA abolished the GOF published in 2006 amidst concerns that the GOF may infringe Section 34 of the Competition Act which prohibits decisions by an association of undertakings having as object or effect the limitation of competition in the relevant market in Singapore. However, in 2009, the SMA applied to the CCS for a decision as to whether the GOF were indeed anti-competitive or whether they were excluded from the Section 34 prohibition on the basis of NEB. In its decision, the CCS concludes that the GOF are prohibited under the Competition Act and could not benefit from any exclusion in the Competition Act. In particular, the CCS considered that no NEB resulted from the GOF.

The Recommendation Of Fees, Whether Minimum Or Maximum, Is Anti-Competitive Unless Exempted

In 2008, the CCS issued a guidance in relation to decisions by associations of undertakings relating to fees or prices. The matter arose from an application by the Institute of Estate Agents (‘IEA’) to the CCS for guidance on whether the fees guidelines it had issued, which recommended the fees payable and the fee structures (ie, which party should pay) applicable to real estate agents for their services (‘IEA Guidelines’), were likely to have the object or effect of restricting competition on the real estate agency market in Singapore. The IEA Guidelines set out the level of fees and the fee structures for sales, rental, assignment and management transactions involving all types of properties.

The CCS held that the adoption of the Guidelines was a decision by an association of undertakings that had the object of appreciably restricting competition. Importantly, however, the CCS highlighted ‘that the fees payable by property sellers are couched as a minimum fee recommendation in the Fees Guidelines. This practice discourages any price competition below the recommended rate. More efficient estate agents or agencies, which are able to charge lower rates, will have little incentive to do so’. This suggested that the fees recommendation was anti-competitive as it was setting out a minimum recommended price.

The decision issued by the CCS in relation to the GOF goes much further as the CCS takes the view that ‘[E]ven if the GOF comprised only recommended maximum fees (ie without recommended minimum fees), it would still be deemed to be anti-competitive in its nature’. In short, this means that, through its decision, the CCS effectively declares that any type of fees recommendations by professional or trade associations in Singapore are prohibited under the Competition Act.

The Recommendation Of Fees By A Trade Association, Whether Binding Or Not, Is Anti-Competitive Unless Exempted

In its decision, the CCS concluded that the GOF restricted competition even though compliance was voluntary, confirming its view that even non-binding recommendations can amount to a violation of the Section 34 prohibition. The decision lacks clarity on this front, however, as the CCS’ reasoning considers that ‘although the GOF was stated to be voluntary, SMA had an objective mechanism in place to foster compliance’. It seems, therefore, that in this case, the CCS took the view that the recommendation was nevertheless binding on its members, despite the fact that compliance with the Guidelines was said to be voluntary.

It is worth noting, however, that in 2008, the CCS had already publicly taken the view that non-binding recommendations by professional or trade associations may have as object or effect the restriction of competition. This statement was made by the CCS in relation to the recommendation by the Singapore School Transport Association (‘SSTA’) of a fuel surcharge to its school bus operator members. In this case, the CCS only issued a warning to the SSTA. The Media Statement issued by the CCS on 1 August 2008 on the case made clear that a recommendation of prices by an association of undertakings, whether binding or not binding, was likely to be anti-competitive:

“[The] CCS holds the view that price recommendations or guidelines tend to restrict independent pricing decisions.  The circulation of such recommended prices by a trade association, even if it is non-binding, is likely to prompt industry players to cluster their prices around, if not exactly matching, the recommended prices. This is not helpful to free competition”.

Based on this, it seems that the CCS has decided to take a strong stance against any type of price or fees recommendations by professional or trade association and will, as a rule, consider them as being anti-competitive by object and therefore contrary to the Competition Act unless exempted.

The GOF Do Not Result In Net Economic Benefit

In its application for a decision by the CCS, the SMA argued that the GOF resulted in NEB and were, therefore, exempted from the application of the Section 34 prohibition.

In particular, the SMA alleged that in the healthcare market, there is a high degree of information asymmetry between medical practitioners and patients, which afford medical practitioners the ability of overcharging their patients. In addition, patients are not armed to make informed choices on pricing and quality of medical practitioners prior to consultation. By preventing overcharging, the GOF, therefore, promoted the consumption of medical services at socially and economically optimal levels, which, in turn, translated into increased investment in health capital and a boost in productivity. Hence, the GOF promoted economic progress.

The CCS, however, took the view that in the two relevant markets identified, namely the primary care market in Singapore and the hospital care market, either there was no concern of over-charging or the concern was very limited, and, in any event, the GOF did not prevent medical practitioners from overcharging. The CCS analysed that the services in the primary care market related to common and recurring ailments, so that patients would generally know what kind of treatment they need and what would be a reasonable price for the service provided. As such, patients were able to exercise choices and eventually easily switch to another practitioner if overcharged. Therefore, the CCS concluded that over-charging was not a major concern in the primary care market which was, in fact, recognized by the SMA.

In relation to the hospital care market, the CCS recognized that, due to the complexity of the medical conditions, information asymmetry was possibly more severe than in the primary care market and that, effectively, the risk of over-charging existed. However, the CCS highlighted that, in Singapore, the major supplier of hospital care was the public sector which did not refer to the GOF in setting prices of hospital in-patient and specialist outpatient services. On this, the CCS noted that the Ministry of Health had taken various measures to increase transparency of hospital care costs, notably by publishing hospital bill sizes on its website and by requiring hospitals to provide financial counselling to patients and medical bills given to patients to be itemised. As a result, the CCS concluded that over-charging was not an issue for those patients electing the public sector for the provision of hospital care services and was, therefore, an issue only for patients choosing services provided by the private sector. The CCS found, however, that contrary to what was argued by the SMA, the GOF did not provide those patients with greater transparency on private fees and were, therefore not helpful in preventing over-charging. For the CCS, the use in the GOF of ‘highly technical medical terminologies which only doctors would be expected to understand’ made the GOF useless to patients who ‘would not be able to identify or match the medical procedures by themselves, let alone estimate the likely size of the overall bill, based on the information provided in the GOF without any doctor’s assistance’. The CCS, therefore, concluded that there was no support to the SMA’s point that the GOF could, even remotely, prevent overcharging in the hospital care market.

Further, the CCS also found that the SMA had not produced any evidence to establish that medical services in Singapore will fall or has fallen below socially and economically optimal level without the GOF or further to the withdrawal of the GOF. It appears from the decision that the SMA submitted that this would be a ‘complex endeavour’, although the SMA tried to give anecdotal evidence of its allegation.

As an aside, it is worth highlighting here that submissions to the CCS that an agreement or a decision by an association of undertakings should be excluded from the application of the Section 34 prohibition either based on the NEB exclusion or on any other exclusion in the Third Schedule to the Act have to be thoroughly substantiated with evidence. The onus is on the party alleging that the Section 34 prohibition does not apply to prove its case and the CCS can be very demanding when it reviews and eventually accepts the evidence provided to that effect. In practice, applying to the CCS for guidance or for a decision that an agreement results in NEB and is, therefore, not anticompetitive requires a considerable amount of upfront preparation and gathering of comprehensive evidence in support of the applicant’s argument that NEB applies. Without strong evidence being provided, it is unlikely that the CCS will issue a favourable guidance or decision.

In the particular case of the GOF, since the condition of promoting economic progress was not met by the GOF, the CCS decided that there was no NEB resulting from the GOF, with no need to assess whether the other conditions establishing NEB were present. The CCS, nevertheless, considered that the GOF was not indispensable to achieve the benefits alleged by the SMA and, in addition, eliminated competition for a significant part of the relevant markets.

CCS Action In Relation To The GOF

The CCS decided, therefore, that the GOF violated the Section 34 prohibition. As the GOF had been withdrawn prior to any CCS investigation, the CCS chose not to issue any direction vis-à-vis the SMA. It is worth highlighting, however, that in the case where the CCS had opened an investigation, it could have imposed a fine on the SMA for violation of the Competition Act.

On this, it is worth noting that under the Competition Act and its subsidiary legislation, the CCS can impose a financial penalty of up to 10% of the infringing undertaking’s turnover in Singapore for the period of the infringement up to a maximum of three (3) years. In the case of an association of undertakings, the applicable turnover is the aggregate applicable turnover of the undertakings that are members of the association.

Whilst, under Section 69 of the Competition Act, a financial penalty can only be imposed where the CCS is satisfied that the infringement was committed negligently or intentionally, it will be difficult for a professional or trade association still recommending today prices or fees to argue that it did not act negligently even. The decision issued by the CCS states clearly its position that fees or prices guidelines by professional or trade association should be banned.

Practical Points

The decision issued by the CCS is a strong signal to the professional or trade associations in Singapore, as well as their members. Clearly, any fees or prices guidelines issued by professional or trade associations in Singapore, whether binding or not on its members, whether setting maximum fees only or otherwise,  whether they are followed or not followed by the members of the association are viewed as being anti-competitive in nature. In addition, recommendations on critical commercial terms and conditions to be inserted in the contracts entered into by the association’s members may also be viewed as anticompetitive, notwithstanding the fact that prices or fees are not subject of the recommendation. In taking such an approach, the CCS appears to have taken as strict a position in Australia, where such recommendations are per se prohibited.

It must also be emphasised that a decision by a professional or trade association may, in some instances, be also treated as an agreement between the members of the association, which, in most cases, will be competitors. In such cases, it is likely that a fine be imposed on and/or a direction be given to both the association and its members. This means that associations in Singapore that still have such guidelines in place should carefully review and, if necessary, consider withdrawing such guidelines before being investigated and possibly subsequently subjected to financial penalties by the CCS. Similarly, members of such associations should be aware that guidelines on fees or other critical contractual terms and conditions of the association they are members of may trigger their liability under the Competition Act.

A point that business which operate across several countries, including in the region, must note is that this GOF decision could quite easily be adopted in any of the other countries, particularly given the limited apetite for cartel type behaviours amongst various regulators. The Vietnamese and Indonesian regulators, for instance, have uped their ante and have been investigating and penalising businesses remotely in cartel type operations. The recommendation of minimum or maximum prices, where it is adopted and followed by competitors, whether as part of an association or otherwise, will be viewed as cartel behaviour, and so could be subjected to investigations in these countries.

It is thus imperative for businesses and associations operating in Singapore and across region, including Malaysia, Vietnam, Indonesia, India and Taiwan to take positive steps to review their operations.

Conclusion

The decision issued by the CCS is of importance both to professional and trade associations and to their members. In view of the hard stance taken by the CCS against certain types of guidelines, associations in Singapore that still have such guidelines in place should carefully review and, if necessary, consider withdrawing such guidelines before being investigated and eventually fined by the CCS. Similarly, members of such associations should be aware that guidelines on fees or other critical contractual terms and conditions of the association they are members of may trigger their liability under the Competition Act in Singapore as well as under the competition laws of other jurisdictions in the region.

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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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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.

OUR SERVICES

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 Chronicle Herald has reported that some Nova Scotia automobile dealers recently received a reminder from their trade association regarding the conspiracy rules under the federal Competition Act.

According to the Executive Vice-president of the Nova Scotia Automobile Dealers Association, the association wanted to “make sure that [its] members know this legislation exists.”

The association sent a warning to its member dealers (as well as its associate members) in response to a letter received from the Competition Bureau, with information relating to potential conspiracy issues raised by Sydney automobile dealers.  According to the Bureau, there had been “allegations that the automobile dealers agreed not to purchase individual advertisements in the Yellow Pages and to co-ordinate their hours of operation.”

According to the association’s Executive Vice-President, the Bureau may have responded to an inquiry received from a Sydney automobile dealer who wanted to clarify the legality of local discussions among dealers in relation to collective advertising in the Yellow Pages and coordinating weekend hours in the summer.

While the Bureau has not commenced a formal inquiry in this case, it raised the possibility that it may do so in the event of further complaints.

As a result of recent amendments to the Act, the criminal conspiracy provisions of the Act (section 45) have been significantly changed making it easier for the Bureau (and private plaintiffs) to commence proceedings under section 45.  In addition, three new “hard core” criminal conspiracy offences have been introduced, including agreements between competitors (and potential competitors) to restrict output, which can take a number of forms including agreements to eliminate or reduce production, collectively refuse to deal with certain customers or competitors, restrict or limit advertising or standardize products or services (including collectively adopting standard terms of sale, limiting hours of operation, etc.).

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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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We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  To contact us see: Contact Us.  You can also visit us online at www.hakemi.com and in Toronto at www.torontocompetitionlaw.com.

The Saskatchewan Roofing Contractors case involved an inquiry by the Bureau that was focused on allegations that some of the members of the Saskatchewan Roofing Contractors Association had discussed not submitting bids in reply for a tender request for a roofing project in La Loche Saskatchewan.  The Bureau obtained a five year prohibition order prohibiting the association from taking action directed towards committing an offence under the bid-rigging and conspiracy provisions of the Competition Act (the “Act”).  The order also requires the association to educate its members regarding the relevant provisions of the Act, impose a membership condition for members to acknowledge that they will comply with the association’s corporate compliance program and to advise the Bureau of any unauthorized communications or activity relating to the pricing of products by members.

OUR COMPETITION LAW SERVICES FOR TRADE ASSOCIATIONS

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and provide a full range of competition law services in relation to the criminal conspiracy, merger, abuse of dominance, misleading advertising and deceptive marketing provisions of the federal Competition Act.  We regularly counsel trade and professional associations and their executives and personnel on compliance with the Canadian Competition Act.

Our Canadian competition law services for trade associations include:

- Trade association competition law compliance programs.
- Competition law compliance seminars and talks for association executives.
- Audits and compliance reviews of trade association activities.
- Advice on the application of the recently amended Competition Act.
- Vetting trade association meetings, conventions and communications.
- Reviewing trade association rules, bylaws, policies and voluntary codes.
- General competition law and competition compliance advice for associations.

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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.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  To contact us see: Contact Us.

COMPETITION LAW PRIVATE ACTIONS

Significant changes have recently been made to the federal Competition Act (the “Act”) that impact private actions in Canada (making it easier for private plaintiffs to commence private actions under the Act’s criminal conspiracy provisions).  At the same time, there have recently been several plaintiff-favourable class action decisions in Ontario and British Columbia that make it easier to certify competition law class actions.  The combined result of these recent developments is that competition law private actions are now of more importance to plaintiffs seeking remedies for anti-competitive conduct under the Act.  At the same time, there appears appears to be an increasing number of private and class actions currently being commenced in Canada.

Generally speaking, parties may commence private actions under the Act for contraventions of either the criminal provisions of the Act or a breach of a court or Competition Tribunal (“Tribunal”) order made under the Act.  Private competition law actions in Canada have typically been commenced in the context of (i) consumers alleging damages as a result of a conspiracy between suppliers (e.g., a price fixing conspiracy relating to a product or key input), (ii) consumers alleging damages as a result of misleading advertising claims (e.g., false or misleading claims in relation to a product, investment or other business opportunity, etc.) or (iii) competitors alleging damages based on misleading claims made by a competitor or alleged conspiracy entered into among other competitors.

Process

Section 36 of the Act creates a statutory cause of action for private parties seeking to commence a private action under the Act. 

Section 36 provides that any person that has suffered loss or damage as a result of conduct that is contrary Part VI (the criminal provisions of the Act, which include the criminal conspiracy, bid-rigging and criminal misleading advertising provisions), or failure to comply with a Tribunal or court order under the Act, may commence a private damages action.

Private actions cannot be commenced, however, under the Act’s civil “reviewable matters” provisions (e.g., under the Act’s abuse of dominance, tied selling, exclusive dealing or market restriction provisions, although limited rights of private access are available, with leave, under the latter three provisions, as well as under the Act’s refusal to deal provision).  For example, see: British Columbia Supreme Court Rejects Novus’ Section 79 Predatory Pricing Claim Against Shaw

Private actions may be commenced for contravention of the criminal conspiracy (e.g., price fixing agreements), bid-rigging or criminal false or misleading representations provisions.  Private parties do not, however, have a right to commence private actions for breaches of the civil “reviewable matters” provisions of the Act, which include the merger, abuse of dominance, price maintenance and civil misleading advertising sections.

In the past, the majority of competition law private actions have been commenced for alleged breaches of the criminal conspiracy or criminal misleading advertising provisions (e.g., in relation to alleged price fixing conspiracies, misleading representations in relation to the sale of products or claims in relation to business opportunities). 

It has been relatively uncommon for private plaintiffs to commence proceedings under other criminal provisions, although there have been some cases – for example, one case brought for alleged predatory pricing which was, until recently, a criminal offence. 

With respect to private actions commenced under the conspiracy provisions of the Act, private action activity may increase following the coming into force of new U.S.-style “per se” criminal cartel rules in March, 2010.

This is because, whereas formerly private plaintiffs, as well as the Competition Bureau (the “Bureau”), were required to establish anti-competitive effects as a key element of a conspiracy offence (i.e., that the alleged illegal conduct prevented or lessened competition “unduly” in one or more relevant markets), this competitive effects test has now been removed from three forms of “hard core” criminal cartel offences as follows: price fixing, market allocation and output restriction agreements.  The key impact of this amendment is that both private plaintiffs and the Bureau will have a lower burden to establish these three forms of “hard core” criminal cartel conduct.

Moreover, the fact that both the former and impending new cartel rules can have a bearing on many forms of common commercial agreements (e.g., joint venture, franchise, dual distribution and licence agreements, among others), it remains to be seen how the Bureau, private parties as well as Canadian courts treat the application of the new cartel rules on commercial agreements and arrangements in Canada.  In this regard, while the Bureau has issued new enforcement guidelines in relation to dealings between competitors, and which address some of the commercial contract issues associated with the new cartel rules, the Bureau’s guidelines are not law and are not binding on either the courts or private parties seeking remedies under the Act.

At the same time, however, some of the former criminal offences in the Act have been repealed, with the result that private actions are no longer possible for certain types of conduct – for example, for predatory pricing, which used to be a criminal offence, but is now dealt exclusively under the Act’s civil abuse of dominance provision.  Also repealed as a result of the recent amendments are the criminal promotional allowance, price discrimination and criminal resale price maintenance provisions (which has been replaced with a civil “reviewable matters” provision, under section 76 of the Act).

Jurisdiction

Under the Act, private action proceedings may be commenced in provincial superior courts or the Federal Court.  However, as the Federal Court has limited jurisdiction, plaintiffs that wish to rely on causes of action in addition to those under the Act – for example, common law causes of action – must commence their proceedings in provincial superior court.

With respect to asserting jurisdiction in relation to cross-border cases, Canadian courts have generally relied on the “real and substantial connection test” to determine whether a court has jurisdiction in the private action context.   The jurisdiction of Canadian courts to hear private actions under the Act is particularly relevant in the context of international price fixing conspiracies, where the agreement may have been formed outside Canada with potential anti-competitive effects in Canada.  There is now, however, authority for the proposition that where a conspiracy is formed abroad, with anti-competitive effects in Canada, a Canadian court will have jurisdiction.

Test

To establish a private action claim under section 36 of the Act, a private plaintiff must establish that the defendant contravened one of the criminal provisions of the Act (e.g., establish all of the elements of a criminal price fixing conspiracy) or breached a Tribunal or court order under the Act and that it has suffered actual damage or loss as a result of the conduct.  In other words, a private plaintiff must establish both the elements of the alleged criminal offence and that it has suffered actual loss or damage as a result of the conduct (and that the damage or loss was caused by the defendant).  Moreover, the absence of a prior criminal conviction does not act as a bar to parties commencing private actions.

The necessity under section 36 for private plaintiffs to establish actual damage may, in many cases, mean that it is easier for downstream purchasers (as compared to a direct competitor) to establish and quantify damages (e.g., consumers paying an overcharge as a result of a price fixing conspiracy engaged in by suppliers, based on misleading claims made by a supplier in relation to a product that does not work, etc.).

Rebuttable Presumption

Section 36, which is the provision under which private actions under the Act are commenced, also contains a helpful rebuttable presumption for plaintiffs.  It provides that the “record of proceedings” in a matter that results in the conviction for a criminal offence under the Act (or a failure to comply with a Tribunal order) is “prima facie” evidence of the alleged conduct in a civil action.  The impact of this presumption is that unless sufficient evidence is adduced to the contrary, a guilty finding in a criminal proceeding, and likely pleadings and agreed statements of fact where a defendant is convicted or has plead guilty, can lead to potential civil liability in subsequent civil proceedings.

Burden

It has been held that the elements of a private action claim under the Act must be established on a higher burden than the normal civil burden of proof (i.e., on balance of probabilities), as a private action is based on an alleged breach of a criminal provision of the Act.

Class Actions

It is also possible to commence class actions under the Act.  For example, competition law class actions can be commenced in British Columbia under the British Columbia Class Proceedings Act and Ontario under the Ontario Class Proceedings Act.  To date, Ontario, Quebec, British Columbia, Alberta, New Brunswick, Saskatchewan, Manitoba and Newfoundland have adopted class action legislation.

The introduction of class action legislation has led to a relative increase in competition law private actions in Canada, largely as a result of consolidating the considerable expenses of commencing competition law private actions.  Competition law class actions are also in many cases “follow on” actions, following announcements by the Bureau or international investigations (and which in many cases did not seriously proceed until guilty pleas or convictions had been obtained).

In order to commence a competition law class action a representative plaintiff must as a first step obtain leave (“certification”) to commence the action as a class action after which, if certification is granted, the action will proceed on its merits.

The test for certification of a class action in most provinces is as follows: (a) the pleadings of notice of application disclose a cause of action, (b) there is an identifiable class of two or more persons, (c) the claim of the class members raises common issues, (d) a class proceeding is the preferable  procedure for the resolution of the common issues and (e) there is a representative plaintiff that: (i) would fairly and adequately represent the class, (ii) has produced a workable plan for advancing the proceedings on behalf of the class and of notifying class members of the proceeding and (iii) with respect to the common issues, does not have interests that may conflict with other members of the class.

One of the primary issues relating to the certification of competition law class actions to date has been difficulties arising from the calculation of damages and, in particular, the challenges in some cases of calculating damages in the context of indirect purchasers (i.e., where it is alleged that that direct purchasers passed on, for example, a price-fixing overcharge to a second downstream level of consumers).  As a result, much of the contested activity in relation to Canadian competition law class actions has been at the certification stage of proceedings. 

The leading Canadian case on indirect purchaser class actions had been Chadha v. Bayer, in which certification was denied on the basis that the plaintiffs in that case had not adduced sufficient evidence to establish or calculate harm for the entire class.  As such, the Ontario Court of Appeal found that a class action was not the preferable procedure for resolving the claims (and therefore, that the action should not be certified).

However, as a result of several recent plaintiff favourable class action certification cases in British Columbia and Ontario, these earlier obstacles are thought to have been overcome in part, and it is expected that competition law class action activity in Canada (as well as competition law private actions generally) will increase. 

In particular, the British Columbia Court of Appeal, in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, involving a class action on behalf of a class of purchasers of dynamic random access memory referred to as “DRAMS” (the “DRAMS” case), recently took a highly flexible and plaintiff favourable approach to the certification of competition law private actions in British Columbia.

The DRAMS case followed shortly after another plaintiff—favourable competition law class action decision in Irving Paper Limited v. Atofina Chemicals Inc. et al., in which the Ontario Superior Court of Justice certified a contested price-fixing class action involving indirect purchasers.  This was, in fact, the first Canadian decision certifying a contested price-fixing class action on behalf of indirect purchasers.

It is now widely thought that the recent amendments to the Act (removing the competitive effects test from section 45), together with several plaintiff-favourable competition class action decisions, has substantially lowered the bar both to commence private actions in Canada, as well as to commence class actions.

The DRAMS Case

On June 3, 2010 the Supreme Court denied leave to appeal in the DRAMS case.

In this important case, leave to appeal to the Supreme Court was sought from the British Columbia Court of Appeal that had approved the DRAM memory price-fixing class action.  The British Columbia Court of Appeal had reversed the British Columbia Supreme Court’s decision and certified the class action against a group of five technology manufacturers accused of fixing their prices for computer memory chips.

The Court of Appeal held that the British Columbia Class Proceedings Act should be “construed generously in order to achieve its objectives” – for example, to improve access to justice and avoid duplication in legal proceedings.  The impact of the recent Supreme Court decision to deny leave in this case is that the British Columbia Court of Appeal’s decision is now the latest appellate judgment on the certification of competition law class actions in Canada and the first Canadian appellate decision certifying a contested competition law class action.

It is also thought that the Court of Appeal’s decision has significantly lowered the bar to certify competition law class actions in Canada, including those involving indirect purchasers, which has been a significant obstacle to obtaining certification in past cases.

The respondent computer firms in this case include Infineon, Hynix Semiconductor Inc., Samsung Electronics Co. Ltd., Micron Technology Inc. and Elpida Memory, Inc., who together represent approximately 76% of the global production of dynamic random access memory that provides electronic memory and information retrieval for computer and telecommunications products.  Three of the respondents have settled U.S. class action proceedings for USD $160 million and all of the respondents, with the exception of Micron, have pleaded guilty to criminal cartel charges in the U.S. and have paid fines totalling about USD $731 million.

This case is one of several recent plaintiff-favourable price-fixing class actions under the Competition Act, including a recent Ontario indirect purchaser certification judgment (the hydrogen peroxide case) in which the Ontario Superior Court granted certification in a case involving an indirect and direct class.

Together with the recent sweeping changes to the Competition Act, which have significantly lowered the bar to establish criminal conspiracies in Canada, this most recent plaintiff-favourable price-fixing class action case is expected to lead to a marked increase in competition law class action activity in Canada.

Limitation Period

The limitation period during which plaintiffs must commence a private action under the Act is two years from the later of: (a) the day on which the relevant anti-competitive conduct was engaged in (or court or Tribunal order was contravened) or (b) the day when any criminal proceedings were “finally disposed of”.

Remedies

Under section 36 of the Act, the potential remedies for a successful competition law private action are the actual damages (i.e., compensatory damages) proven as a result of the criminal violation (or breach of a Tribunal or court order).

In contrast to the United States however, only single damages, not treble damages, are available to successful plaintiffs in Canada.  This is intended as one of several procedural safeguards against strategic litigation.  Moreover, there is some authority in Canada that punitive or exemplary damages are not available.  As a practical matter, however, the majority of private actions in Canada have resulted in settlements.

In addition, in Canada the general rule is that the successful party in an action, whether the defendant or plaintiff, is entitled to recover the costs of a proceeding, including its legal fees and disbursements.

As a result of the potential remedy limitations under the Act, it is common for private plaintiffs to argue common law causes of actions together with claims under the Act (e.g., common law conspiracy, unjust enrichment, unlawful interference with economic interests, etc.).

Implications of Recent Competition Private Action Activity

This is a very interesting time for competition law private actions, class actions and private access cases in Canada based on the recent sweeping amendments to the Act and recent plaintiff favourable class action cases in British Columbia and Ontario.

Some of the potential key impacts of the recent developments include: (i) an increase in the number of competition law private actions commenced following the March, 2010 implementation of the new criminal conspiracy rules, (ii) an increase in the number of competition law class actions commenced following the recent British Columbia and Ontario class action certification cases, (iii) increased compliance costs for firms to review their policies and comply with the new rules and (iv) possible increased strategic litigation.

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