Developments in 2011 include new cases, enforcement and legislation in most key areas including abuse of dominance (the Competition Bureau’s ongoing challenge of The Toronto Real Estate Board and CREA settlement in late 2010), criminal conspiracy (developments in price-fixing class action litigation and some Bureau enforcement), refusal to deal (several important private access section 75 cases, including a decision of the Federal Court of Appeal), contested mergers (in the waste and airline markets), price maintenance (the merchant fees case involving Visa and MasterCard) and misleading advertising (involving Bell Canada, Rogers and others).

The Competition Bureau is testing the new rules under Canada’s Competition Act, which came into force in 2009 and 2010, and private plaintiffs are creating new law in a number of ongoing competition/antitrust class actions in Canada (principally indirect purchaser price-fixing cases relating to the sale and supply of dynamic random access, or “DRAMs”, high fructose corn syrup and computer operating systems).

At the same time, several new pieces of legislation have been introduced including a federal omnibus crime bill, which will eliminate conditional sentences for some competition law offences, and sweeping new anti-spam legislation (Bill C-28 or “FISA“) that once in force will be among the strictest anti-spam regimes in the world.

The Commissioner of Competition, and other federal enforcement officials including the RCMP, have also expressed intentions to adopt tougher enforcement stances in relation to competition law and other white collar crime.

In general, these developments mean that it remains important for Canadian companies, organizations and their executives to maintain a practical awareness of Canadian competition law.

Some of the key competition law and related developments of 2011 include:

New RCMP Commissioner Announces New “Tough Line” on White-collar Crime

The new head of the RCMP, Bob Paulson, who was named new RCMP Commissioner in November, has vowed to take a new “tough line on white-collar crime” (See: New RCMP head takes tough line on white-collar crime), particularly in relation to major fraud and securities law investigations.

This announcement follows a recent law enforcement trend by the Conservative government generally and key Canadian regulatory officials.  For example, an extensive federal omnibus crime bill was recently passed that will, among other things, significantly restrict conditional sentences (e.g., sentences served in the community for criminal offences) including for some criminal offences under the Competition Act.

Supreme Court of Canada Denies Leave in Refusal to Deal Case: Nadeau Poultry Farm v. Groupe Westco Inc.

On December 22, 2011, the Supreme Court of Canada, per Justices McLachlin, Rothstein and Moldaver, denied leave to appeal in Nadeau Poultry Farm Limited v. Groupe Westco Inc. (see: Supreme Court of Canada denies leave in Nadeau Poultry Farm v. Groupe Westco Inc. (December 22 2011)).  The applicant in this section 75 refusal to deal case under the Competition Act, Nadeau Poultry Farm, was seeking leave to appeal an earlier Federal Court of Appeal decision that affirmed a Competition Tribunal decision dismissing its application in 2009 (see: Federal Court of Appeal dismisses appeal in Nadeau Poultry Farm Ltd. v. Groupe Westco Inc.).

Federal Government Passes Omnibus Crime Bill (Bill C-10) – Eliminates Conditional Sentences for Cartel (Conspiracy) and Bid-rigging Offences

On December 5, 2011, a federal omnibus crime bill (Bill C-10) was passed that will, among other things, eliminate 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).

Privacy Commissioner Issues New Online Behavioural Advertising (Tracking) Guidelines

On December 6, 2011, the federal Privacy Commissioner issued new online tracking guidelines for advertisers which, among other things, restrict the tracking of children and tracking technologies without an opt-out mechanism.

Federal Government Raises the Possibility of Amending Canada’s Foreign Investment Rules – Again

Bloomberg reported that the federal Minister of Industry has again raised the prospect of amending Canada’s Investment Canada Act in remarks made in New York (see: Canada Open to Changing Foreign-Takeover Law, Paradis Says).  The Industry Minister’s comments closely follow a recent C.D. Howe Institute report calling for fundamental changes to Canada’s foreign investment rules to stimulate foreign direct investment in Canada, including a change to the overarching test for foreign investment approval (replacing the current “net benefit to Canada” test with a national interest test) (see: New Publications – C.D. Howe Institute Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick).

Canadian Supreme Court Grants Leave in Pro-Sys/Microsoft and Sun-Rype Indirect Purchaser Competition/Antitrust Class Actions

The Supreme Court of Canada, per Justices LeBel, Fish and Cromwell, granted leave to appeal in the Pro-Sys Consultants Ltd. v. Microsoft Corporation and Sun-Rype Products Ltd. v. Archer Daniels Midland Company cases.  These cases relate to conflicting indirect purchaser class action certification decisions in British Columbia (companion decisions of the British Columbia Court of Appeal) and Quebec (a recent decision of the Quebec Court of Appeal) (See: Quebec Court of Appeal rejects B.C. Court of Appeal passing-on defence decisions in Pro-Sys and Sun-Rype and British Columbia Court of Appeal allows Microsoft appeal in Pro-Sys v. Microsoft – creates de facto passing-on defence).

Commissioner of Competition Addresses Current Enforcement Priorities in Two Wide-ranging Talks

The Commissioner of Competition, Melanie Aitken, addressed current enforcement priorities in two engaging and wide-ranging talks recently in Vancouver: a keynote speech at a reception hosted by the University of British Columbia, National Centre for Business Law at the Four Seasons and a Vancouver Competition Policy Roundtable meeting organized by Professor Tom Ross of the Sauder School of Business.

Competition Bureau Has “Serious Concerns” About Potential Competitive Effects of TMX/Maple Transactions

The Bureau recently announced that it had “serious concerns” about the Maple Group’s bid to acquire the TMX Group:

“The Commissioner advised Maple and TMX Group that she has serious concerns about the likely competitive effects of the proposed transactions in the current environment, primarily in connection with equities trading and clearing and settlement services in Canada.

The Commissioner indicated that she has not reached a final conclusion and that her current views may be affected by further factual information and developments, which may include changes in the applicable securities regulatory regime, and any commitments or other remedial measures that Maple may be prepared to take to address her concerns.

Maple and TMX Group intend to continue to work closely with staff of the Competition Bureau to address the Commissioner’s concerns, including by identifying appropriate remedial measures. As Maple has stated previously, it is committed to working constructively with all of the relevant regulators, including Canadian securities regulators, to address any questions they may have so that the proposed transactions can proceed in the best interests of TMX Group, its shareholders and the Canadian capital markets. Maple and TMX Group continue to strongly believe that the proposed transactions will substantially benefit all capital market participants.”

(TMX News Release, November 29, 2011)

Madam Justice Simpson Proposes Reforms to the Competition Tribunal

In a short but interesting recent note, Madam Justice Sandra J. Simpson has proposed that changes be made to the federal Competition Tribunal, including wider powers for the Tribunal to decide references and award damages for abuse of dominance (monopolization).

Quebec Court of Appeal rejects BC Court of Appeal passing-on defence decisions in Pro-Sys and Sun-Rype

The Quebec Court of Appeal unanimously overturned the earlier 2008 Quebec Superior Court decision in Option Consommateurs v. Infineon Technologies AG, (the ongoing indirect purchaser “DRAMs” case) which had earlier denied a motion to commence class action proceedings.

Supreme Court of Canada Denies Leave in U.S. Steel Investment Canada Case

On November 24, 2011, the Supreme Court of Canada denied leave in United States Steel Corporation et al. v. Attorney General of Canada. See: Supreme Court of Canada Judgements. See also: National Post – Supreme Court Won’t Hear U.S. Steel Appeal.  This landmark Investment Canada Act dispute, between the Canadian Government attempting to enforce undertakings provided by U.S. Steel, has since been settled.

Competition Bureau Announces Quebec Sewer Services Bid-rigging Cartel

On November 22, 2011, the Competition Bureau announced that criminal charges had been laid against six companies and five individuals accused of rigging bids for provincial and municipal contracts for sewer services in Montreal (see: Competition Bureau Exposes Sewer Services Cartel in Quebec and Backgrounder – Competition Bureau Exposes Sewer Services Cartel in Quebec).  While the Bureau has yet to bring a section 45 conspiracy case under the amended conspiracy provisions of the Competition Act, it has been very active in bringing bid-rigging cases under section 47 of the Act.

C.D. Howe Institute Issues Report on Competition Bureau Enforcement and Strategic Alliances

On November 10, 2011, the C.D. Howe Institute issued a report reviewing the Competition Bureau’s enforcement of the criminal conspiracy offences of the Competition Act, enforcement efforts in relation to strategic alliances and policies regarding the issuance of binding advisory opinions.

Competition Tribunal Grants CREA Leave to Intervene in TREB Abuse of Dominance Case

On November 2, 2011, Madam Justice Simpson of the federal Competition Tribunal granted leave to Realtysellers and The Canadian Real Estate Association to intervene in the Bureau’s abuse of dominance (monopoly) case against The Toronto Real Estate Board.

CRTC and 12 International Enforcement Agencies Form International Do Not Call Network

The federal Canadian Radio-television and Telecommunications Commission announced that, together with the Australian Communications and Media Authority, it has assembled 12 international enforcement agencies to form an International Do Not Call Network.  See: CRTC announces creation of international network to facilitate cooperation on telemarketing enforcement.

Commissioner of Competition Speech Highlights Enhanced Competition Bureau Enforcement

On October 25, 2011, the Competition Bureau published the Commissioner’s speech given at the 2011 Canadian Bar Association’s Annual Competition Law Conference in Ottawa.  It is fair to say that the Commissioner’s recent speech presented a singular tone across the civil and criminal competition law areas: continued enhanced enforcement.

Ottawa Bid-rigging Case to Go to Trial

On October 5, 2011, the Ottawa Business Journal, Ottawa Citizen and Vancouver Sun reported that Ontario Justice Ann Alder ruled that an Ottawa bid-rigging case in the technology sector can go to trial.  In this case, the Competition Bureau alleged that a number of companies, including TGP Technology, Spearhead Management, The Devon Group, Brainhunter, Nortak Software and Tipacimowin Technology, rigged bids in relation to IT contracts totaling about $67 million issued by the Canada Border Services Agency, Department of Transport and Public Works (see: Competition Bureau Announces Charges Against Companies Accused of Rigging Bids for Government of Canada Contracts and Backgrounder).  Charges were also dismissed against several companies.

Competition Bureau Issues Updated Merger Enforcement Guidelines

On October 6, 2011, the Competition Bureau issued its updated Merger Enforcement Guidelines.  The Bureau’s new MEGs, which set out its approach to the substantive review of mergers in Canada, are the first update to the MEGs since 2004 and the result of public consultations in 2010 and 2011.

Telemarketer Receives Two-Year Prison Sentence

On October 3, 2011, the Competition Bureau announced that a deceptive telemarketer has been sentenced to two years in prison in relation to a deceptive telemarketing scheme relating to the sale of business directories (see: Deceptive Telemarketer Receives a 2-year Prison Sentence).

Competition Tribunal Grants Leave in Refusal to Supply Data Case

In a significant recent decision by the Competition Tribunal, the Tribunal granted leave to the Used Car Dealers Association of Ontario to make a section 75 refusal to deal application relating to a refusal by the Insurance Bureau of Canada to supply data to the UCDA.  This recent case, reasons for which were issued on September 9, 2011, is significant, in that the UCDA was seeking leave to make its application in light of a longstanding adverse decision – the Warner music case (which has stood as a barrier to invoking section 75 in relation to refusals to licence intellectual property).

Competition Bureau Negotiates Settlement with Canadian Distributor of Nivea Products over Allegedly Misleading Performance Claims

On September 7, 2011, the Competition Bureau announced that it had reached a settlement with Nivea’s Canadian distributor, Beiersdorf Canada Inc., relating to allegedly false or misleading performance claims in its advertising.  In particular, the Bureau took issue with claims that suggested that the use of skin cream could lead to weight loss.  Under the terms of the consent agreement negotiated with the Bureau, Beiersdorf has agreed to pay an “administrative monetary penalty” or “AMP” (essentially a civil fine) of Cdn. $300,000, refund Canadian customers and remove its products from Canadian shelves.

Competition Bureau Revisits its Self-regulated Professions Study After Four Years

On September 2, 2011, the Competition Bureau released its “ex-post assessment” of its 2007 Self-Regulated Professions Study (Self-regulated professions – Balancing competition and regulation (December, 2007)).  According to the Bureau, its new Study “surveys and assesses developments that have taken place relating to recommendations made in [its] 2007 Study” and “provides an overview of the progress made since 2007” to the earlier recommendations made by the Bureau.

Alberta Telemarketers Sentenced to Jail Time for Cross-border Deceptive Telemarketing Scheme

On August 30, 2011, the Competition Bureau announced that five individuals in Alberta were convicted and sentenced of deceptive telemarketing under the Competition Act.

Competition Bureau Issues New Merger Remedies Study

On August 11, 2011, the Competition Bureau issued a Merger Remedies Study, summarizing its review of the effectiveness of merger remedies negotiated in 23 Canadian merger cases between 1995 and 2005.  According to the Bureau, the results of its study will be used to revise its Information Bulletin on Merger Remedies in Canada first issued in 2006 (see: Information Bulletin on Merger Remedies in Canada) and its companion consent agreement outline template.

Ontario Used Car Dealers Association Attempts to Go Around Landmark Warner Decision in Data Refusal to Supply Case

In a very interesting refusal to supply case currently before the Competition Tribunal, the Used Car Dealers Association of Ontario sought leave from the Competition Tribunal for the re-supply by the Insurance Bureau of Canada of data used in one of the UCDA’s information products for members.

Montreal Company Pleads Guilty in Bid-rigging Case

On July 19^th 2011, the Competition Bureau announced that a Montreal company, Les Entreprises Promécanic Ltée, pleaded guilty to three charges of bid-rigging and was fined $425,000 for its alleged role in rigging bids in relation to residential highrise building ventilation contracts in Montreal.  According to the Bureau, the Montreal company admitted that it was involved in coordinating with competitors to pre-determine the outcome of bids. Interestingly, this case also included an internal compensation arrangement between the parties to the bid-rigging arrangement to ensure that contracts were awarded to the pre-arranged company.

The Competition Bureau’s Application to Block the Air Canada/United Continental Joint Venture – A Few Interesting Aspects

On June 27th 2011, the Competition Bureau announced that it would seek to block a proposed joint venture between Air Canada and United Continental which, according to the Bureau, would “monopolize ten important Canada/United States routes and substantially reduce competition on nine additional routes.”  This case is one of two contested merger cases recently brought by the Bureau, the first in six years, and will, among other things, test the new civil agreement provision of the Competition Act (section 90.1).

Bell Canada Agrees to Pay $10 Million Fine in Misleading Advertising Case

On June 28th, the Competition Bureau announced that Bell Canada has agreed to stop making allegedly misleading claims relating to the prices for its services and to pay an administrative monetary penalty or “AMP” (essentially a civil fine) of $10 million, the maximum penalty for misleading advertising under the Competition Act.

Maple Group Launches Cdn. $3.7 Billion Hostile Bid for TMX Group Inc.

On June 13, 2011, the Maple Group Acquisition Corp., a consortium of 13 Canadian financial institutions, launched a Cdn. $3.7 billion hostile bid to acquire 70% of the TMX Group Inc. for $48 per share.

Two More Individuals Plead Guilty in Quebec Price-fixing Case

On June 10, 2011, the Competition Bureau announced that two more individuals pleaded guilty in the Quebec gasoline price-fixing case to fix the price of gasoline at the pump in Quebec regional markets.

U.S. Federal Trade Commission Brings $450 Million Internet Fraud Case Against Alberta Online Operator

The U.S. Federal Trade Commission announced that it has filed a $450 million internet fraud civil suit against an Alberta online operator.

Competition Bureau Issues No Action Letter in TMX/LSE Deal

The Wall Street Journal reported that the Competition Bureau issued a no action letter in the proposed TMX Group Inc. / London Stock Exchange Group plc transaction.

Further Guilty Plea in Quebec Gasoline Price-fixing Cartel

The Competition Bureau announced that a further individual pleaded guilty and was 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.

Competition Bureau Files Abuse of Dominance Case Against the Toronto Real Estate Board

On May 27, 2011, the Competition Bureau commenced an abuse of dominance case against The Toronto Real Estate Board before the Competition Tribunal.

Competition Bureau Issues New Fee and Service Standards Handbook for Written Opinions

On May 18, 2011, the Competition Bureau issued its new Fee and Service Standards Handbook for Written Opinions to reflect the significant amendments to the Competition Act that came into force in 2009 and 2010 (see: Competition Bureau Updates Fee and Service Standards Handbook for Written Opinions).

Customer Allocation Conspiracy in the Refrigeration and Food Service Equipment Industry

The Competition Bureau announced that Kason Industries Inc. plead guilty for participating in a customer allocation conspiracy and was fined $250,000 by the Federal Court of Canada.

British Columbia Court of Appeal Allows Microsoft Appeal in Pro-Sys v. Microsoft

On April 15, 2011, the British Columbia Court of Appeal allowed Microsoft’s appeal in the Pro-Sys v. Microsoft class action case.  This important decision, in which the Court of Appeal dismissed the plaintiffs’ action and set aside the earlier class certification order, was issued concurrently with a second Court of Appeal judgment in Sun-Rype Products v. Archer Daniels.  These decisions are now subject to an appeal to the Supreme Court of Canada, based on the unsettled ability of indirect purchaser plaintiffs to commence competition/antitrust class actions in Canada.

Competition Bureau Announces New Size of Transaction Threshold for Mergers for 2011

The Competition Bureau announced that the pre-merger notification transaction-size threshold for 2011 will increase to $73 million (see: 2011 Pre-Merger Notification Transaction-Size Threshold).

Competition Bureau to Challenge Completed BC Landfill Merger

The Competition Bureau announced that it has applied to the Competition Tribunal for a Tribunal order to dissolve CCS Corporation’s acquisition of Complete Environmental Inc., owner of the proposed Babkirk Secure Landfill in Northeastern British Columbia (see: Competition Bureau Challenges BC Landfill Merger).  Final arguments were recently heard by the Tribunal in this merger to monopoly case which, together with the ongoing Air Canada / United Continental case, is one of two contested mergers, the first in Canada in six years.

Spa Retailers Out of Hot Water After Settlement with Bureau for Allegedly False Energy Savings Claims

The Competition Bureau announced that it reached a settlement with two spa retailers in relation to allegedly false energy savings claims (see: Spa Retailers Required to Stop Making False ENERGY Star Claims). According to the Bureau, the retailers made misleading representations incorrectly conveying the impression that their hot tubs or insulation met the criteria of the ENERGY STAR Program.

Canada Passes Federal Anti-Spam Legislation – Bill C-28 – the Fighting Internet and Wireless Spam Act

In late 2010, Canada passed new anti-spam legislation (Bill C-28) which will, once in force, be among the strictest anti-spam regimes in the world.

The Industry Minister’s comments closely follow a C.D. Howe Institute report also issued last week calling for fundamental changes to the ICA to stimulate foreign direct investment in Canada, including a change to the overarching test for foreign investment approval (replacing the current “net benefit to Canada” test with a national interest test) (see: New Publications – C.D. Howe Institute Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick).

In the C.D. Howe Institute’s report, its authors Philippe Bergevin and Daniel Schwanen criticize the current test for approval under the ICA as “highly subjective and unpredictable”, arguing that by adopting a national interest test “Canada could reduce uncertainty and costs to businesses while improving transparency and accountability with respect to Canadians and foreigners alike, without compromising the federal government’s ability to implement national objectives and policies.”

Some of the highlights of the C.D. Howe Institute’s recent report include:

- The OECD ranks Canada as one of the most restrictive places in which foreigners can invest, especially among its OECD peers.

- Canada receives poor FDI rankings internationally based on the fact that it is one of the few countries with a formal investment review or screening process for all proposed foreign investments above a certain threshold (which is also lower than in most other advanced countries with similarly general and compulsory screening processes).

- Concepts that are not formally recognized under the ICA are “creeping into” Canada’s foreign investment review process: “[w]hile national security is a concept whose application sometimes can be used to shield industries from change for purely protectionist reasons, an even more elastic concept, and one that is creeping into Canadian debates on FDI even though it has no basis in the Investment Canada Act is that of ‘strategic’ economic sectors, firms, or other assets such as natural resources.  Simply by virtue of being dubbed ‘strategic’, these assets, the argument goes, should be protected from foreign ownership.”  One recent example being the debate around BHP’s proposed $40 billion hostile bid for Potash Corporation last year, for which approval was refused (which raised widespread debate about whether Potash was a “strategic asset”).

- The authors of the report argue that the current reliance on a net benefit test is unsatisfactory from the point of view of both openness to productive foreign investment and also the desirability of maintaining “a clear, predictable, transparent, and accountable foreign investment review regime”.

- On this basis, they argue that a “more encompassing, but clearer and more meaningful test” should be adopted – namely, a national interest test, which would consider if a proposed investment would threaten the Canadian government’s ability to (i) apply Canadian laws as to a similar Canadian investor or (ii) achieve significant policy objectives (including national security).

In an interesting, though critical, op-ed article in last Friday’s National Post (see: Foreign Investment Needs a Better Test), the authors of the C.D. Howe Institute report had this to say about the current test for review under the ICA:

“What difference does the net benefit test make? That’s not possible to quantify because we don’t know what future economic activity would have occurred had a blocked acquisition taken place. What’s more is that while sounding objective, the net benefit test is secretive and unpredictable, and often prevents the government from clearly articulating why it would oppose a proposed investment.

If the federal government examined large acquisitions of Canadian-owned firms by other Canadian-owned firms on the same basis, we would be correct in concluding that its actions represented an intrusive and ineffectual form of interventionist industrial policy. In the context of the Investment Canada Act, however, such intervention is acceptable because the investor is foreign – that is, the policy discriminates against foreign investors, and against Canadians who want to sell what they own to foreign investors.”

In his recent remarks following the C.D. Howe Institute’s report, Minister Paradis said that “we are always open to improving the regime” and that “if there are some things we can do to better address this and provide certainty, we will certainly be happy to look into it.”

Given, however, that some amendments to the ICA made in March 2009 are still not in force, including raising the monetary threshold for review of direct investments by WTO investors and altering the test to calculate a Canadian business’ assets (based on the “enterprise value”, or essentially market value, of the assets of the Canadian business rather than gross book value), it is unclear whether any significant changes to the ICA can be expected anytime soon.

Having said that, following the failed BHP bid for Potash last year, then Minister of Industry Tony Clement said that Canada’s existing foreign investment review regime needed to be reviewed to provide “greater clarity to Canadians and greater certainty to international investors.”

This led to a move for the federal Industry Committee to review the ICA, including based on concerns relating to the level of transparency of Ministerial review.  While the Industry Committee’s review of the ICA was interrupted by the last federal election, it remains to be seen whether the recent renewed criticisms of the ICA will result in another Government review of the existing ICA review regime.

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For more information about Canada’s Investment Canada and merger control rules see:

Investment Canada

Merger Control

For the C.D. Howe’s recent report, entitled Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick see:

Better Foreign Investment Rules Needed for Canada

In issuing the report, whose principal recommendation is to amend the test for foreign investment review in Canada from a “net benefit to Canada test” to a “national interest test”, the C.D. Howe Institute said in its news release earlier today:

“’Canada needs a regime that casts the net wider in protecting Canada’s national interests, but is less obtrusive to any single investment,’ according to Daniel Schwanen, Associate Vice President, International and Trade Policy at the C.D. Howe Institute. ‘The current lack of transparent criteria risks setting dangerous precedents for investment into Canada and Canadian investments abroad.’

Canada benefits from foreign investment, say the authors, but the Investment Canada Act creates unnecessary barriers to it.  Currently, before approving any foreign investment above a specific dollar threshold, Canada imposes a test of its “net benefit to Canada,” including its potential effect on Canadian employment, exports, and productivity. The test requires a prospective foreign investor to share confidential plans with the federal government and to demonstrate how these plans would be of net benefit to Canada. As a condition of approval, investors also may be obligated to make legally binding promises, or undertakings, concerning the net benefit of the investment over a period of a few years.

The current test is subjective and unpredictable, the authors argue, and does not necessarily cover many situations where Canada’s interests might be involved beyond the narrow calculation of a net benefit. Furthermore, the test is a throwback to an outdated industrial policy that was detrimental to the economy’s long-run growth.

The authors recommend scrapping the current test and replacing it with a national interest test.  This would require the federal government, if denying a proposal, to show that the proposed foreign investment was contrary to Canadian interests. The new test would address concerns over national security or state-owned investors, and could replace existing sectoral investment restrictions. When a proposed investment does not affect governments’ abilities to apply Canadian laws or pursue legitimate policy goals, the national interest test would lower obstacles to that investment.”

For the complete report see:

C.D. Howe Report – Reforming the Investment Canada Act: Walk More Softly, Carry a Bigger Stick

To appeal a decision of a court of appeal in a civil case to the Supreme Court, the party wishing to appeal must first obtain leave (i.e., permission) to do so.  Under the Supreme Court Act, an application for leave to appeal may be granted if the Supreme Court finds that the case: (i) raises an issue of public importance and (ii) should be decided by the Supreme Court.  Any case must raise an issue that goes beyond the immediate interests of the parties.

The Supreme Court does not issue reasons for its decisions to allow or dismiss applications for leave to appeal.  Judgments on applications for leave to appeal are also generally final (under the Supreme Court of Canada Rules, an application for leave to appeal will not be reconsidered unless there are exceedingly rare circumstances in the case that warrant consideration).

This U.S. Steel case relates to the federal government’s lawsuit against U.S. Steel in relation to the performance of undertakings U.S. Steel provided in its 2007 acquisition of Hamilton-based Stelco Inc.  The Federal Court had previously allowed the government’s lawsuit to proceed.

Where an investor fails to comply with the Investment Canada Act (e.g., fails to file an application for review or notification, fails to comply with undertakings or completes a reviewable investment without the requisite approval) a number of penalties may be imposed.  These include divestiture of assets, the revocation (or suspension) of voting rights and financial penalties of up to Cdn. $10,000 per day that an investor is in contravention of the Investment Canada Act (being sought by the government in this case).

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For the Supreme Court of Canada’s leave decision see:

Supreme Court of Canada Judgements

For more about the Investment Canada Act see:

Investment Canada

The Bureau’s new MEGs, which set out its approach to the substantive review of mergers in Canada, are the first update to the MEGs since 2004 and the result of publication consultations across Canada in 2010 and 2011.

The Bureau has also recently issued a number of new (or updated existing) merger related guidelines, policies and reports.  These include: Merger Review Performance Report (2010),  Competition Bureau Merger Remedies Study Summary, Competition Bureau Fees and Service Standards Handbook for Mergers and Merger-Related Matters, Procedures Guide for Notifiable Transactions and Advance Ruling Certificates Under the Competition Act, Hostile Transactions Interpretation Guidelines, Pre-Merger Notification Interpretation Guidelines and Merger Review Process Guidelines.

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For the Bureau’s news release issued with the new MEGs see:

Competition Bureau Issues Final Merger Enforcement Guidelines

For more information about Canadian merger control see:

Merger Control

In making the announcement, the U.S. DoJ said:

“’The combination of H&R Block and TaxACT would likely lead to millions of American taxpayers paying higher prices for digital do-it-yourself tax preparation products,’ said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. ‘In addition, TaxACT has aggressively competed in the digital do-it-yourself tax preparation market with innovations such as free federal filing. If this merger is allowed to proceed, that type of innovation will be lost.’

…

According to the department’s complaint, H&R Block’s acquisition of 2SS Holdings would eliminate a company that has aggressively competed with H&R Block and disrupted the U.S. digital do-it-yourself tax preparation market through low pricing and product innovation. By ending the head-to-head competition between TaxACT and H&R Block, American taxpayers would be left with only two major digital do-it-yourself tax preparation providers. This would lead to higher prices, lower quality, and reduced innovation. In addition, by taking control of the TaxACT business, which has been a maverick in the market, it would be easier for H&R Block to coordinate on prices, quality, and other business decisions with the other remaining industry leader – Mountain View, Calif.-based Intuit, which makes personal finance programs such as Quicken and TurboTax – the department said.”

This case is interesting in that in addition to considering market shares and existing remaining competition (according to the DoJ, the top three players including H&R Block and TaxAct account for about 90% of the relevant market), the DoJ is basing its challenge on the fact that in its view TaxAct is also a maverick.  Like the U.S., in Canada whether a merging party is a maverick can also be a relevant factor for considering whether competition will be substantially lessened post-merger (though, not surprisingly, whether a party is a maverick can be the subject of considerable debate and maverick cases are relatively rare).  In this regard, the Competition Bureau states in its Merger Enforcement Guidelines:

“Pre-merger, effective coordination may be constrained by the activities of a particularly vigorous and effective competitor (a ‘maverick’).  An acquisition of a maverick may remove this constraint on coordination by reducing incentives to behave in an aggressive manner.  Such an acquisition increases the likelihood that coordinated behaviour will be effective.”

This case is also interesting, if only for being a cautionary tale, in that the DoJ is basing its challenge of the proposed transaction in part on the merging parties’ own internal documents.  According to the DoJ, these include statements from H&R Block’s internal emails and presentations that a primary benefit of acquiring TaxAct is “elimination of a competitor” and the “strategic opportunities” include to “eliminate the brand to regain control of industry pricing and further price erosion”. 

Given that “4c documents” are a routine and required part of merger notification in the U.S., and that strategic planning documents are also now required for merger notification filings in Canada regardless of complexity (see Notifiable Transactions Regulations, 16(1)(d)),[1] merging parties are well advised to seek competition/antitrust counsel early in the planning stages of a proposed transaction to avoid similar potential issues from arising.

For the complete DoJ news release see: Justice Department Files Antitrust Lawsuit to Stop H&R Block Inc. From  Buying TaxAct.

For Canada’s merger control rules see: Competition Act, Part IX – Notifiable Transactions and Notifiable Transactions Regulations.

For an overview of merger control in Canada see: Merger Control and Investment Canada.

[1] Subparagraph 16(1)(d) of the Notifiable Transactions Regulations requires that parties to a transaction, and their affiliates, file “all studies, surveys, analyses and reports that were prepared or received by an officer or director of the corporation … for the purpose of evaluating or analysing the proposed transaction with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into new products or geographic regions …”  This requirement to file strategic planning documents as part of a pre-merger notification filing was recently added to the Canadian Notifiable Transactions Regulations as part of amendments to the Competition Act in 2009, and further aligns Canadian merger control rules with that in the U.S. under the HSR Act (the existing 4c documents requirement).

For a copy of the Bureau’s News Release see: Competition Bureau Approves Remaining Divestitures in Waste Services Merger.

For a copy of the Consent Agreement see: Consent Agreement.

For more information about Canadian merger control and foreign investment law see: Canadian Merger Control, Merger Control FAQs, Investment Canada Act and Investment Canada FAQs.

“My reputation is not important here … ego does not come into this, and all that matters is whether this is value-creating for our shareholders”  See: The Australian.

Stephen Harper

“On the positive side, Prime Minister Stephen Harper referred to the deal as the takeover of a U.S.-controlled company by an Australian one.”   See: The Australian.

Tony Clement

“I have not made a determination.”  See: Winnipeg Free Press.

“I am neither a headwaiter to the premier of Saskatchewan, nor am I butler to the president of BHP.”  See: Winnipeg Free Press.

“He’s ‘working hard’ to meet the Nov. 3 deadline for the Investment Canada Act review.”   See: Bloomberg.

Brad Wall

“In the interests of jobs for Saskatchewan families, in the interest of quality of life that we prize that is funded by revenues to the government, we must say no to this hostile takeover … this is not a normal market transaction or a normal takeover. There hasn’t been a takeover in the history of takeovers, that we’re aware of, that involves almost a third of the world’s supply of something as strategic as potash.”  See: BBC.

“In the past decade, promises about maintaining jobs, corporate headquarters and future investment have all been broken. … We simply cannot take that risk with this valuable resource.”  See: Financial Times.

“BHP Billiton’s public statements about Canpotex and about operating at full production create serious concern about the future of Canpotex” … “This in turn puts $6 billion worth of capital expansion and thousands of jobs at risk.”  See: DealBook / New York Times.

“In the interest of jobs for Saskatchewan families, in the interest of the quality of life that we prize that’s funded by revenue to government, in the interest of the place of our province and our country in the world, we must say no to this hostile takeover.”  See: Winnipeg Free Press.

BHP executives

It’s a “special deal” for a special situation.  See: Globe and Mail.

Media on the tax concessions

“BHP has proposed to essentially waive two of its biggest tax advantages stemming from the proposed acquisition. BHP has offered to give up the deduction it would get from development costs of a new potash mine, which could be used to reduce taxes on Potash Corp.’s future production. And, BHP has offered to only use about a third of the interest-cost deduction from acquisition debt that it could legitimately take under Canada’s thin-capitalization regime.  In both cases, BHP is giving up something that it would be legitimately entitled to under existing (and longstanding) tax rules.  The result is a package that BHP says will save Saskatchewan about $300-million a year in tax revenue that otherwise would be lost. Of course, BHP shareholders are the ones that would pay that price.”  See: Globe and Mail.

BHP Chairman, Jac Nasser

“Any acquisition or investment must create value for our shareholders. … If shareholder value is not demonstrated, we will not proceed with the proposed acquisition.”  See: The National Business Review.

Andrew Mackenzie, BHP’s chief of non-iron ore operations

“I’m engaging with the federal government to see how many of the commitments I’ve made thus far can be turned into binding undertakings, and I will take those undertakings and I will find ways of convincing the Saskatchewan government that those undertakings will be commitments written with real power and things that we will not disappoint on.”  See: Winnipeg Free Press.

Ralph Goodale, Deputy Liberal Leader

“There are going to be consequences if the prime minister effectively gives the premier a slap in the face.”  See: Winnipeg Free Press.

Jack Layton, NDP Leader

“Even he recognizes ideology takes a backseat to basic math. And the numbers here don’t add up for Canadians.”  See: Winnipeg Free Press.

The principal obstacle in BHP’s ongoing discussions with the Saskatchewan Government has been a forecasted loss in tax revenues of approximately $2 billion (based on a Conference Board of Canada report commissioned by the Saskatchewan Government).  On this basis, BHP now faces not only increased pressure to increase its bid, but also raises the question of what concessions it might seek with Saskatchewan in the next two weeks (e.g., commitments to remain in the Canpotex export cartel).

According to the Globe and Mail, the Saskatchewan Government’s decision, expected to be announced tomorrow, is the result of BHP refusing to a “one-time, special tax of more than $1 billion, as well as hundreds of millions of dollars worth of infrastructure funding”, which was sought to offset the Saskatchewan Government’s anticipated tax revenue losses.  Saskatchewan’s current Premier, Brad Wall, a member of the Saskatchewan Party (that has been described as a “center” party), is scheduled to make an announcement to the media tomorrow morning and to the Regina Chamber of Commerce on Thursday.

While a number of Saskatchewan government officials have been indicating growing dissatisfaction with the proposed transaction over recent weeks, today’s media announcements indicate the toughest stance yet by Saskatchewan that could either be its final position, or merely a strategic move to seek further commitments from BHP.  The Saskatchewan Government’s current position is not altogether surprising, however, given the renewed criticisms relating to the “hollowing out” of corporate Canada (and Canada’s resource sector in particular) and the unfortunate timing of BHP’s bid in relation to the Government’s litigation with U.S. Steel over U.S. Steel’s alleged breach of its undertakings following its acquisition of Stelco.

The timing of the Saskatchewan Government’s (expected) announcement is particularly interesting given that the 75 day review period under the Investment Canada Act for BHP’s proposed investment expires November 3^rd which, again, may indicate that the timing of the Saskatchewan Government’s expected announcement this week are intended to press BHP into making more significant commitments.

Having said that, time is not up for BHP given that the 75 day review period can be further extended on consent of the investor (i.e., BHP), as well as the fact that even if the Minister was to conclude that the proposed investment was not of net benefit to Canada, BHP could request a further round of negotiations (i.e., investors have a right to make further representations and undertakings before a final decision is issued).  Of course, further delay may have significant adverse market impacts.

The Saskatchewan Government also does not formally have any power to block or veto BHP’s proposed transaction, given that while the Minister is obligated under the Investment Canada Act to “take into consideration” the economic policy objectives of the provinces, the final decision rests with the Minister.  This important distinction, i.e., the requirement for the Minister to consider provincial views with no formal obligation to consult with the provinces, was one of the Federal Government’s political wins during the drafting of Canada’s former foreign investment legislation (the Foreign Investment Review Act). 

Legal niceties aside, however, while the ultimate decision rests with the Minister, it is difficult to see how the Saskatchewan Government’s position on a transaction that will have such significant impacts on the Saskatchewan economy will not be a key factor in the analysis.  Having said that, the Investment Canada process is, by its nature, a largely political process and no single factor under section 20 of the Investment Canada Act is determinative, including the factor relating to regional economic policies, nor is there any meaningful authority as to which factors should be given particular weight.  The process is intended to be, well, a flexible political process.  This uncertainty and lack of transparency is amplified by the fact that the Federal Government has only refused one proposed investment since 1985 on non-cultural grounds (out of more than 1500 investments reviewed).

The reality at the end of the day, however, is that the key political players both in Saskatchewan and Ottawa (Brad Wall and Tony Clement) are center or right of center (Saskatchewan Party and Conservatives), time still remains for BHP in the process (with further review extensions possible) and of more than 1500 investments reviewed since 1985, only one proposed investment has been refused on non-cultural grounds.

Perhaps most importantly, both Canada’s competition laws and foreign investment laws were recently significantly amended to, among other things, liberalize foreign investment in Canada and align Canada’s merger and foreign investment regimes with that of its major trading partners, including the U.S.  This is more than mere policy trivia, given that these very recent changes (in March 2009) were intentionally and consciously the result of Conservative policy to make Canada more investor-friendly, and resulted in sweeping changes to Canada’s competition and foreign investment law regimes.  A refusal to approve BHP’s bid, assuming reasonable concessions are made by BHP, would be very difficult to reconcile with the Conservative Government’s recent policy initiatives to liberalize Canada’s foreign investment laws.

In sum, will the BHP transaction be approved?  We think it is more likely than not, but will likely require more from BHP (including, in our view, more significant up-front commitments than may have been required in the past to reduce the perception of another U.S. Steel/Stelco transaction).

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