Canadian COMPETITION & ANTITRUST LAW

The Competition Bureau announced last Friday in a news release that another seven individuals have pleaded guilty to criminal conspiracy charges in relation to the Bureau’s ongoing gasoline price-fixing investigation in Quebec.

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On December 5, 2011, a federal omnibus crime bill (Bill C-10) was passed that will, among other things, have the effect of eliminating conditional sentences of two years or less from being ordered by courts for violation of two of the core criminal offences under the Competition Act: criminal conspiracy agreements (section 45) and bid-rigging (section 47).

To quote the Legislative Summary issued with Bill C-10, “conditional sentencing … allows for sentences of imprisonment to be served in the community, rather than in a correctional facility.  It is a midway point between incarceration and sanctions such as probation or fines.”

Currently, a number of criteria must be met for a sentencing judge to impose a conditional sentence under the Criminal Code as follows: (i) the offence is not a “serious personal injury offence” (as defined in the Code), (ii) the offence is not a terrorism offence, (iii) the offence is not a criminal organization offence prosecuted by way of indictment for which the maximum term of imprisonment is 10 years or more, (iv) the offence is not punishable by a minimum term of imprisonment and (v) the sentencing judge has determined that the offence should be subject to a term of imprisonment of less than two years, is satisfied that serving the sentence in the community would not endanger the safety of the community and the conditional sentence would be consistent with the fundamental purpose and principles set out in the sentencing guidelines of the Code.

Bill C-10 amends section 742.1 of the Criminal Code to remove the current reference to serious personal injury offences and to provide that a conditional sentence of two years or less may be ordered unless, among other things, the offence is an indictable offence with a maximum term of imprisonment of 14 years or life.

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The Competition Bureau has announced that a further individual has pleaded guilty and has been fined in the Quebec gas price-fixing cartel.  In making the announcement, the Bureau said that Micheline Lapointe-Cabana, owner of a service station in Magog, Quebec operated under the Petro-Canada banner, was sentenced to personally pay a fine of $20,000.

In this case, which was one of the largest criminal cases in the Bureau’s history, charges were laid against thirty-eight individuals and fourteen companies accused of fixing the price of gasoline at the pumps at several locations in Quebec.  According to the Bureau, to date six companies and eleven individuals have pleaded guilty in the case.

The case is also somewhat noteworthy in that six individuals have been sentenced to total imprisonment of 54 months (served in the community).  While the penalties for contravening the criminal conspiracy provisions of the Competition Act include imprisonment for up to fourteen years, prison sentences have been, at least to date, relatively rare in Canada with liability in many cases being negotiated down to corporate liability and fines.

For the Bureau’s news release see:

Individual Fined in Quebec Gasoline Price-Fixing Cartel

For more on the gasoline sector see:

Gouging, Gasoline and a New Parliamentary Committee to Grill Producers

Criminal Charges Against 25 Individuals and 3 Companies in Quebec Gas Price-fixing Case

Criminal Charges Laid by Competition Bureau in Gas Price-fixing Case

Canada’s Minister of Industry Tony Clement announced May 12^th that he will be asking members of Canada’s oil production industry to appear before a new parliamentary committee to “explain their pricing methods to Canadians”.

In making the announcement, Clement said:

“And we are hearing the questions and concerns Canadians have about fluctuating fuel prices. We know that the high cost of gas can be a burden for Canadian families. Everyone is feeling the pinch at the pumps. And especially at a time when household budgets are already tight, Canadians want and deserve answers.

That is why I will be asking refiners, distributors and retailers to come to Ottawa to appear before a parliamentary committee and explain their pricing methods to Canadians. Members of Parliament will get the chance to ask them the common-sense questions we’ve been hearing from Canadians.

I should note that this is not the first action the Harper Government has taken on this issue. We passed the Fairness at the Pumps Act to ensure that consumers are getting what they pay for when they fill up. We have expanded the powers of the Commissioner of Competition, who broke up a significant price-fixing cartel in Quebec last year.”  (see: Statement from the Honourable Tony Clement)

Yesterday’s announcement came as part of an escalating public debate about rising gasoline prices in Canada, some of which have raised renewed questions about whether the recent high gasoline prices were the result of anti-competitive coordination among suppliers. 

Gasoline prices have been the subject of earlier parliamentary committee scrutiny (see for example the 2003 Industry Standing Committee Report, Gasoline Prices in Canada, which met with national, regional and multinational producers to study the “causes of the recent increase in the price of gasoline, and the significant negative effects” that it was having on the economy in 2003).  The Competition Bureau has also conducted a number of inquiries into the gasoline industry in various parts of Canada in the past and has issued materials for consumers relating to gas prices (see for example, Competition Bureau – Gas Prices).

The most recent gasoline price debate has also again raised the nonsensical term “gouging” by some commentators (see for example the recent Globe and Mail article that reported past investigations by the Competition Bureau stating that “the Bureau … found no evidence of price-gouging on a national scale”).

The federal Competition Act, however, does not regulate individual competitors except in relatively rare circumstances – the Act is commonly said to regulate competition not individual competitors – and has nothing whatsoever to say about “gouging” or high prices per se – for example, high pricing alone does not constitute abuse of dominance under the Act.

The Act does, however, prohibit criminal conspiracies (cartels), including price-fixing conspiracies, which, however, requires evidence of an agreement between actual or potential competitors.  For example, in 2010, the Competition Bureau concluded its largest criminal investigation in the Quebec gasoline price-fixing case involving 38 individuals and 14 companies (see: criminal charges against 25 invididuals and 3 companies in Quebec gas price-fixing case, criminal charges laid by competition bureau in gas price-fixing case).

Also, while the Minister has the power to cause the Commissioner of Competition to commence inquiries, and contravention of the criminal conspiracy provisions of the Act can lead to severe penalties (including fines of up to Cdn. $25 million and/or imprisonment for up to 14 years, per count), a Bureau investigation is unlikely to be the quick fix Canadians may be looking for the high gas prices and is more part of the current political theatre.  For example, the Bureau’s last major investigation, in the Quebec gasoline price-fixing case, took about three years to conclude. 

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

In announcing the new charges, the Bureau stated:

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

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

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

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

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

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

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

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

CANADA’S NEW CRIMINAL CONSPIRACY REGIME

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

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

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

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

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

Criminal Offences - Section 45

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

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

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

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

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

Defences

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

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

Civil Section – Section 90.1

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

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

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

Enforcement

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

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

Penalties

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

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

Competition Bureau Immunity Program

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

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

Private Damages Actions

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

OUR CONSPIRACY & COMPETITOR COLLABORATION 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 competition law services in relation to criminal conspiracies and competitor collaborations include:

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

CONTACT US

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