Canadian COMPETITION & ANTITRUST LAW

Mr. Justice Kenneth L. Campbell of the Ontario Superior Court of Justice in: Dale v. The Toronto Real Estate Board:

“Accordingly, it is not plain and obvious that the plaintiffs’ claim fails to disclose a reasonable cause of action regarding the tort of conspiracy.  Indeed, in my view the plaintiffs have alleged that the defendants engaged in a classic type of conspiracy, namely, combining together to drive a business competitor and their novel business model out of the marketplace.

While the plaintiffs candidly admit a lack of detailed knowledge as to all of the factual nuances of the conspiracy, this is hardly surprising given the nature of the allegation.  As Cumming J. aptly stated, when faced with similar circumstances in North York Branson Hospital v. Praxair Canada Inc., [1998] O.J. No. 5993 (S.C.J.), at para. 22:

‘In truth, the very nature of a claim of conspiracy is that the tort resists detailed particularization at early stages.  The relevant evidence will likely be in the hands and minds of the alleged conspirators.  Part of the character of a conspiracy is the secrecy and the withholding of information from alleged victims.  The existence of an underlying agreement bringing the conspirators together, proof of which is a requirement borne by a plaintiff, often must be proven by indirect or circumstantial evidence.  A conspiracy is more likely to be proven by evidence of overt acts and statement by the conspirators from which the prior agreement can be logically inferred.  Such details would not usually be available to a plaintiff until discoveries.  These considerations and the general theme of Hunt, instructing courts not to shy away from difficult litigation, also militate against holding pleadings in civil conspiracy cases to an extraordinary standard.’”

Given that I write about monopolies from time to time, this rather fine article in the Legal Post about the regulation of the legal profession – or perhaps the control of the profession, depending on one’s perspective – caught my eye by Vern Krishna, a prominent tax lawyer in Ontario.

His articulate note is also interesting given that the Competition Bureau has on occasion reviewed Canadian self-regulated professions, including the legal profession, most recently in its Self-regulated professions report.

It’s time to open legal doors – Vern Krishna

When it comes to monopolistic protection, no one does it better than the legal profession.

Read the rest of this entry »

JANUARY 25-26 2012 – Toronto

The Canadian Institute will be holding an Advertising and Marketing Law Conference on Wednesday, January 25-26, 2012 at the Four Seasons Hotel, Toronto, Ontario.

Read the rest of this entry »

Promotional contests in Canada are largely governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract.  In addition, Quebec has a separate regulatory regime governing contests and contest authority (the Régie des alcools, des courses et des jeux).

As such, given that the improper operation of a promotional contest can lead to civil or criminal liability, it is important to review proposed promotional contests for compliance with federal and provincial laws.

Read the rest of this entry »

Guest post from Andrei Mincov at Mincov Law

Again Lego finds itself under an attack from Mega Brands, a Montreal-based competitor and maker of Mega Bloks. This time – in U.S. District Court in the Central District of California.

Lego owns a U.S trademark for the design of its world-famous blocks. Mega Brands claims that the trademark registration should be invalidated, which would allow Mega Brands to freely export its products to the United States.

The foundation of the claim is that what Lego has is not really a trademark. Rather, it is an attempt to obtain patent-like protection under the guise of a 3D trademark.

Read the rest of this entry »

The past year has been a busy one for Canadian competition law.

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

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

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

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

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

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

Read the rest of this entry »

In his recent Thanksgiving message, the Chair of the Antitrust Section of the American Bar Association announced the forthcoming publication of the Seventh Edition of Antitrust Law Developments in the Spring of 2012:

“ … drum roll, please, we will be introducing the Seventh Edition of Antitrust Law Developments this spring, for which we all will be especially thankful whenever we need to research the law.”

For Canadian competition lawyers, who practice in a virtual jurisprudential vacuum, this book and U.S. cases are sometimes something to be thankful for indeed.

For more information about the ABA’s competition/antitrust law publications, see:

American Bar Association, Section of Antitrust Law – Publications

The Globe and Mail has launched an online debate: “How can Canada become more competitive in the global marketplace?”

For more information or to join the debate, see:

Globe and Mail Debate: How can Canada become more competitive in the global marketplace?

Chillin’Competition has reported that antitrust students at Berkeley, down the road from us (so to speak), have launched a new competition/antitrust law blog.  See: Berkeley Global Antitrust Blog

From the Berkeley Antitrust Blog:

“The Berkeley Antitrust Blog is an endeavor of current students of the Berkeley School of Law with many having been practicing antitrust lawyers but all being antitrust enthusiasts. The aim behind the blog is to create a platform for students, experts and professionals to write about the recent developments and ideologies relating to antitrust and competition law.

The blog looks to benefit from the synergies of varied viewpoints from different jurisdictions and offer a truly global perspective on antitrust law, which is crucial today owing to the growing intersection of the markets and economies with many antitrust violations resulting in parallel proceedings in various jurisdictions around the world.

Lastly, the blog hopes to work as a global networking device where students, people pursuing academia and professionals in the field can exchange thoughts, share experiences, get connected with each other.”

We wish them best of luck.  For other international competition/antitrust law blogs see: Competition/Antitrust Blogs.

Marrocco J. in The Commissioner of Competition v. Chatr Wireless Inc. and Rogers Communications Inc.:

“After the Commissioner announced that she was proceeding against Rogers Communications Inc. and Chatr Wireless Inc., Wind Mobile issued a press release claiming credit for the Commissioner’s decision to institute proceedings and Mobilicity sent a dance troupe, known as the Mobilicity Magenta Militia dance troupe, to Rogers Communications Inc. headquarters to engage in what might be termed a victory dance or demonstration of joy.  A video of a portion of this victory dance or demonstration of joy was embedded in the affidavit of Arnold Abramowitz, filed by the respondents on this application.”

The Antitrust Law Section of the American Bar Association and the International Bar Association (IBA) will be holding their bi-annual International Cartel Workshop in Vancouver from February 1-3, 2012 at the Fairmont Hotel Vancouver.

From the American Bar Association:

“The International Cartel Workshop, recognized globally as the premier international cartel program offered anywhere, is presented only once every two years. The next Workshop, which will have many new features, will be held in Vancouver, Canada during February 1-3, 2012.  The 2012 program will continue the Workshop’s tradition of instruction by demonstration, with experienced faculty from around the globe taking you inside a hypothetical international cartel matter — from detection by government enforcers to the disposition of government prosecutions and private damage claims.  The Workshop will also highlight new developments in the law and leniency practices around the world, with leading enforcers and experienced private practitioners demonstrating how critical decisions are made on both sides of the table and providing examples of important interactions between counsel and enforcers.  The 2012 Workshop’s international faculty includes many of the most accomplished cartel attorneys in the world, as well as the most senior cartel enforcement officials from a variety of jurisdictions.”

For more information about the joint ABA/IBA Cartel Workshop see:

American Bar Association – Antitrust International Cartel Workshop

We are pleased to announce the forthcoming publication by Carswell this fall of The Competition Law Guide for Trade Associations in Canada jointly authored by Steve Szentesi and Mark Katz.

The Guide, the first book of its kind in Canada, will be a practical and concise summary of Canadian competition law as it applies to trade, professional and other associations.  It will include an overview of the major areas of Canadian competition law that apply to associations, including the conspiracy (criminal and civil), bid-rigging, abuse of dominance and misleading advertising provisions of the federal Competition Act.  The Guide will also include discussions of some of the specific types of association activities that can raise competition law concerns including membership criteria and discipline, codes of conduct and standard setting, meetings and information exchanges and joint association activities (e.g., joint negotiation and marketing, joint purchasing activities and lobbying and advocacy).  A compendium of “best practices” (i.e., do’s and don’ts) will also be provided together with sample guidelines for the conduct of association meetings, document creation and responding to government investigations (principally search and seizures).  Basic sample association compliance presentations for associations will also be included.

The Guide is intended to provide a practical resource for trade and professional association executives, their personnel and counsel to better understand Canadian competition law as it applies to association activities and to assist them in anticipating and reducing potential competition law liability.

For more information about this forthcoming book see Carswell’s product catalogue:

The Competition Law Guide for Trade Associations in Canada

A Carswell webinar in conjunction with West is also available online discussing key highlights from the new book.  For more information see:

West LegalEdcenter – A Guide to Canadian Competition Law for Trade and other Associations

We are pleased to announce the upcoming online webinar offered by Carswell and West in conjunction with the forthcoming publication of The Competition Law Guide for Trade Associations in Canada, jointly authored by Steve Szentesi and Mark Katz.

From Carswell and West regarding the November 9, 2011 webinar:

“The authors of the upcoming Carswell book The Competition Law Guide for Trade Associations in Canada will discuss the risks faced by Canadian trade and professional associations under Canadian competition law and will offer practical guidance on how to avoid potential issues.  The program will include a review of the key provisions of the Competition Act relevant to association conduct; outline the specific types of association activities that can raise competition law concerns (including membership criteria and discipline, codes of conduct and standard setting, meetings and information exchanges and joint association activities); and highlight some of the practical steps that associations can take to protect themselves from investigations, prosecutions and civil proceedings.”

____________________

For more information about this upcoming webinar on November 9, 2011 see:

West LegalEdcenter – A Guide to Canadian Competition Law for Trade and other Associations

For more information about the forthcoming Guide see:

The Competition Law Guide for Trade Associations in Canada

“Antitrust laws”: Justice Thurgood Marhall, U.S. Supreme Court Justice, United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972): “Antitrust laws … are the Magna Carta of free enterprise.  They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”

We are delighted to announce that Lisa Ridgedale has joined us to work in association with Hakemi & Company Law Corporation.

Lisa is an experienced trial lawyer who provides legal services in the areas of securities, corporate, commercial, criminal and financial services litigation for individuals, private and public companies and public authorities.

For more information about Lisa’s practice see:

Ridgedale Law Corporation

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 received, was issued concurrently with a second Court of Appeal judgment in Sun-Rype Products v. Archer Daniels.

Overview

In this case, the plaintiffs alleged that Microsoft engaged in anti-competitive behaviour allowing it to overcharge for its products.  In particular, the plaintiffs alleged that Microsoft combined with manufacturers and OEMs to exclude competition and that overcharges to upstream direct purchasers were passed through to retail purchasers resulting in actionable tort and restitution claims – in particular, claims including interference with economic interests, conspiracy and unjust enrichment.

Microsoft Corporation and Microsoft Canada Co. appealed from earlier decisions attempting to strike the plaintiffs’ statement of claim and certifying their class action.  In reply to the plaintiffs’ substantive arguments, Microsoft argued, among other things, that: (i) the action was essentially founded in abuse of dominance (the Canadian equivalent of monopolization, a matter exclusively within the jurisdiction of the federal Competition Tribunal), (ii) that the plaintiffs as indirect purchasers, had no claim (based on the theory that there is otherwise no defence to claims by direct purchasers) and (iii) that a common essential element for the plaintiffs’ claims – i.e., an unlawful act – was absent.

With respect to the earlier certification order granted to the plaintiffs, Microsoft also argued, among other things, that: (i) the plaintiffs failed to plead section 36 of the Competition Act (the “Act”) (the provision allowing private parties to commence civil actions under the Act) and (ii) that the certification judge set too low a standard of proof for the plaintiffs’ alleged overcharge at the certification stage of proceedings.

British Columbia Court of Appeal Decision

In short majority reasons issued by Mr. Justice Lowry concurred in by Mr. Justice Frankel, the Court of Appeal held that the plaintiffs had no cause of action maintainable in law, allowed Microsoft’s appeal, set aside the plaintiffs’ earlier certification order and dismissed the plaintiffs’ action.

In coming to its decision the Court of Appeal held that, as the plaintiffs had no cause of action, it was unnecessary to consider the other issues raised on Microsoft’s appeal.  The Court of Appeal based its reasoning on a consideration of the “passing-on defence”, which was raised for the first time in this action on appeal. 

In Kingstreet Investments Ltd. v. New Brunswick (Finance), the Supreme Court of Canada rejected the passing-on defence, holding that a defendant cannot reduce its liability to those that paid an unlawful charge (e.g., upstream purchasers) by establishing that some or all of the charge was passed on to others (e.g., downstream purchasers).  As such, the Court of Appeal held that any passing on of a charge is “not recognized in law and so cannot give rise to a cause of action for its recovery by those to whom the charge was in whole or in part said to have been passed on.”  According to Mr. Justice Lowry:

“… were it to be otherwise, in the absence of the passing-on defence, a defendant would be liable for both the whole of the charge passed on (liability to the direct purchasers) and for all or any portion of the charge passed on (liability to the indirect purchasers) … [that] would result in double recovery … which our law does not permit.”

In this regard, the Court of Appeal held that “Canadian law [was] consistent with American federal law” as established by the U.S. Supreme Court in Hanover Shoe v. United Shoe Machinery Corp. and Illinois Brick Co. v. Illinois, and appears to have created a de facto passing-on defence to insulate the defendants from potential double liability.

Implications

These two recent decisions are significant in that, if not reversed, they are likely to seriously circumscribe the ability of indirect purchaseers to seek recovery – at least where direct purchasers may have valid overcharge claims.  The decisions are also slightly surprising in that they both adopt the more restrictive position taken in the leading U.S. Hanover Shoe and Illinois Brick decisions and also reverse what had recently been seen as a more plaintiff-favourable judicial trend for certification in British Columbia.

Having said that, with a vigorous dissent, one would expect the decisions to be appealed to the Supreme Court of Canada.

For copies of the majority’s decisions in Pro-Sys v. Microsoft and Sun-Rype Products v. Archer Daniels see:

http://www.courts.gov.bc.ca/jdb-txt/CA/11/01/2011BCCA0186.htm

http://www.courts.gov.bc.ca/jdb-txt/CA/11/01/2011BCCA0187.htm

OVERVIEW OF CONSPIRACY (CARTELS) UNDER THE COMPETITION ACT

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.).

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 are now potentially subject to review under a second and separate non-criminal reviewable matters provision.

The following three types of agreements between actual or potential competitors 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).  Interestingly, the newly amended section 45 omits any express reference to group boycotts which can also, in some cases, also be considered to be “per se” illegal (though the distinction between anti-competitive and pro-competitive or competitively neutral refusals to deal has been challenging for both Canadian and U.S. courts).

“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 (i.e., currently) 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 (section 90.1) 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, market allocation agreements, etc.) 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 applies 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) includes an efficiencies defense that applies 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.

Civil Section – Section 90.1

Under the amended Act, agreements among competitors that are not caught by the three new per se criminal offences are now potentially reviewable under the new civil reviewable matters provision.  These 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 now has the power, on application by the Commissioner, to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.  The Tribunal may make orders: (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 under the criminal conspiracy provisions, however, the Tribunal cannot impose monetary penalties and private parties have no private action rights.

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 typically works closely with the DPP during a prosecution.

Penalties

Under the newly amended Act, the penalties for contravention of the criminal conspiracy provisions have been increased to include fines of up to $25 million (per count), imprisonment for up to 14 years, or both.  These have been increased from the previous $10 million per count and 5 years imprisonment.  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 with the 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, not having coerced unwilling parties to participate in the conspiracy, providing full, frank and truthful disclosure of all evidence and information it knows (or is available to it), disclosing all offences under the Act in which it may be involved and agreeing to provide full, timely and continuous cooperation during the Bureau’s investigation.

Private Damages Actions

In addition, 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 damages action.  Class actions are also possible for violations of the criminal provisions of the Act in some cases.

CANADIAN CONSPIRACY LAW LINKS AND RESOURCES

Competitor Collaboration 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)

Technical Bulletin on “Regulated” Conduct

INTERNATIONAL CONSPIRACY LAW LINKS AND RESOURCES

European Commission

European Commission (Cartels)

ICN

ICN (Cartel Working Group)

OECD

OECD (Cartels and Bid Rigging)

U.S. DOJ / FTC

DOJ (Antitrust Division – Criminal Enforcement)

FTC (Competition Enforcement)

U.S. Federal Trade Commission: Dealings with Competitors

OFT (U.K.)

OFT – Cartels

My colleague, Christine Duhaime, is pleased to announce the launch of Duhaime’s Anti-Money Laundering in Canada a website and blog devoted to news and legal developments on anti-money laundering, counter-terrorist financing and foreign corruption in Canada and elsewhere.  Anti-Money Laundering in Canada is the first website in Canada written and produced exclusive by legal counsel.

Christine Mingie Duhaime and Steve Szentesi will be speaking on the legal risks and litigation aspects of social media at the Canadian Life and Health Insurance Association Social Media Seminar, “Governing the Use of Social Media in Your Organization” in Toronto at the Novotel Toronto North York on November 25, 2010.  For more information and registration information see: Canadian Life and Health Insurance Association.

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

ASIA

Antitrust enforcement continues to beef up in the region with landmark decisions being issued in various jurisdictions and highest fines ever imposed in Australia and Indonesia.

Cases

The Competition Commission Of Singapore (‘CCS’) Rules That Recommended Fee Guidelines Violate Competition Law

On 18 August 2010, the CCS issued a landmark decision that fee recommendations or fee guidelines by professional and trade associations are in nature in violation of the Competition Act. The CCS decision resulted from an application filed by the Singapore Medical Association (‘SMA’) in 2009. The SMA application sought clarification from the CCS as to whether the Guidelines on Fees (the ‘GOF’) for medical practitioners breached Section 34 of the Competition Act, or, if it could benefit from the Net Economic Benefit (‘NEB’) exclusion. Although the traditional CCS’ stance was that recommended minimum fees by professional or trade associations are only likely to be a violation, this decision suggests that such recommendations are, in fact, illegal and may expose both the association and its members to monetary penalties. What emerges from this decision is that professional or trade associations with such guidelines and/or recommendations on fees should immediately review and amend or withdraw the guidelines to avoid being penalised.

CCS Clears Merger In Dialysis Services In Singapore

On 14 July 2010, the CCS cleared the proposed acquisition of Asia Renal Care (‘ARC’), a provider of dialysis services in Singapore, by Fresenius Medical Care (‘FMC’), an integrated worldwide provider of dialysis products and services. Noting that the transaction will not lead to a significant change in the existing structure of the market for the provision of haemodialysis (‘HD’) treatments in Singapore and that the barriers to entry in this market are low, the CCS concluded that no anticompetitive horizontal effects would result from the transaction. With regards to vertical integration, the CCS concluded that FMC’s competitors in the HD products market would not be prevented from supplying their products in Singapore, at the very least to HD service providers that are not linked to FMC. The CCS, therefore, concluded, in Phase I, that the merger would not lead to a substantial lessening of competition in Singapore. Rajah & Tann LLP’s Competition & Antitrust Practice handled the clearance of the transaction.

19 Insurers Fined In Vietnam For Agreeing On Motor Insurance Premiums

In July 2010, the Vietnam Competition Council (‘Council’) fined 19 non-life insurance companies a total of VND1.7 billion (S$116,352) for agreeing on the calculation of motor vehicle insurance premiums. At a conference organized by the Vietnam Association of Insurance in September 2008, senior representatives of 15 of these non-life insurance companies agreed to execute an agreement on ‘Cooperation Among Insurance Companies In Motor Insurance’ (‘Agreement’), which notably included a clause on the ‘Rates of Premium in Motor Insurance’. Four other non-life insurance companies eventually joined in the Agreement at a later date. Under the Agreement, the 19 non-life insurance companies agreed to calculate the premiums to be charged for various types of motor vehicle insurances using a unified formula. The Council decided that the Agreement which fixed the premium rates was in violation of the Vietnam Law on Competition and, therefore, penalised each participating company an amount equal to 0.025% of its total sales for the 2007 financial year. It is relevant to note that in determining the amount of the financial penalties imposed, the Council took into account both the fact that this case was the ‘first competition restriction agreement violation handled in Vietnam’ and the cooperation of most of the non-life insurance companies with the investigation.

Drug Manufacturers Pfizer And Dexa Heavily Fined In Indonesia

On 27 September 2010, the Indonesian competition regulator (‘KPPU’) imposed a record fine of IDR 25 billion on PT Pfizer Indonesia and IDR 20 billion (S$3 million) on PT Dexa Medica for fixing the price of amlodipine tablets, a drug used to treat high blood pressure, in Indonesia. According to news publications, the two companies entered into a cartel arrangement and sold their respective drugs at an artificially high price. According to the KPPU, Pfizer sold its drug Norvask 14.6 times higher than the average international price, while PT Dexa Medica sold its drug Tensivak 13.6 times higher than the average international price. In addition to the monetary fine, the KKPU also required the two companies to reduce the prices on their respective drugs hypertensive by 65% for Pfizer and 60% for Dexa.

KPPU Fines Four Construction Companies For Bid Rigging And Issues A Warning To The Committee Supervising The Tender Process

In a tender for land clearing and development of the Muaro Bungo Airport in Jambi Province, the KPPU on 30 July 2010 found that PT Bungo Pantai Bersaudara, PT Paesa Pasindo Engineering, PT Riyah Permata Anugrah and PT Bintang Selatan Agung colluded to allow PT Bungo Pantai Bersaudara to win the tender. In its decision, the KPPU noted the similarities in the tender documents submitted by the four defendants such as the price offered and even the typo mistakes in the documents. On that basis, the companies were found guilty for bid rigging and were fined a total of IDR 1.8 billion (S$265,000). Interestingly, the KPPU also issued a warning to the head of the Tender Committee for its negligence, as it appeared that the Committee of Goods and Services Procurement for the Muaro Bungo Airport Jambi Province had ignored the fact that the bidding documents amongst the four defendants were similar and that there was only a small difference in tender prices. The KPPU, however, found that the Tender Committee was not a part of the conspiracy and the oversight was only due to the limited time available to evaluate the tender documents.

KPPU Recommends Dissolving The Indonesian Cement Association

On 18 August 2010, the KPPU concluded its investigation on an alleged price-fixing cartel between eight cement producers in Indonesia by deciding that there was insufficient evidence to show the existence of a cartel. The case resulted from an investigation initiated by the KPPU on its own motion. In its decision, the KPPU provided useful parameters that should be met to prove the existence of a cartel, viz parallel pricing, excessive pricing, production and marketing arrangements and excessive profit. Importantly, the KPPU also made a recommendation to the Government of Indonesia to dissolve the Indonesian Cement Association (‘Association’). The KPPU’s view is that the Association has the potential to facilitate price fixing as well as other anticompetitive arrangements between its members particularly those on production and marketing. In addition, the KPPU also recommended the Government to set a maximum retail price for cement, in order to protect consumers from excessive pricing.

Australian Court Fines Baxter Almost A$5 Million For Abuse Of Market Power

On 26 August 2010, The Full Federal Court of Australia imposed a penalty of A$4.9 million on Baxter Healthcare Pty Limited (‘Baxter’) for violations of section 46 (taking advantage of market power) and section 47 (exclusive dealing) of the Trade Practices Act 1974 (‘TPA’). The Australian Competition and Consumer Commission (‘ACCC’) commenced proceedings against Baxter in 2002, in relation to tenders lodged and won by Baxter for the supply of sterile fluids and peritoneal dialysis products to the State Purchasing Authority (‘Authority’), alleging misuse of market power and exclusive dealing. Baxter who was dominant in the sterile fluid market offered to supply sterile fluids at discounted prices, so long as the Authority also acquired from Baxter all peritoneal dialysis products. In August 2007, the High Court held that Baxter was not subject to Crown immunity, and in August 2008, a majority of the Full Federal Court found that Baxter had contravened the Act, but did not make a ruling as to the appropriate penalty at that point. In addition to the fine, Baxter was also ordered to pay the ACCC’s costs of the proceedings at first instance and on appeal to the Full Court.

Australian Taxi Industry Giant Fined A$15 Million

On 24 September 2010, the Federal Court in Melbourne ordered taxi-fare payment company Cabcharge to pay A$15 million in penalties and costs for misusing its market power. This is the highest penalty ever imposed in Australia for a violation to Section 46 of the Trade Practices Act, which prohibits abuses by dominant players. Cabcharge is the dominant supplier of EFTPOS terminals in taxis and charges passengers a 10% service fee to process payments by credit card, debit card or its branded charge card. The ACCC has alleged that Cabcharge used its market power in the provision of non-cash taxi fare payment processing services and taxi specific payment products by refusing to allow its charge card to be processed on alternative terminals. The Federal Court of Melbourne also found that Cabcharge had been using predatory pricing to hobble three taxi-meter rivals. In addition to a A$14 million fine and the reimbursement of A$1 million of the ACCC’s legal fees, the Federal Court also put Cabcharge in a probation about future conduct.

Appeal By The Competition Commission Of India Upheld In The Supreme Court – No Need For Prior Hearing When Conducting Investigations

On 9 September 2010, the Supreme Court of India ruled in favour of the Competition Commission of India (‘CCI’) allowing it to conduct probes and investigate market conduct without the need to hold any preliminary hearing. The appeal resulted from a complaint filed by Jindal Steel (JSPL) alleging that an exclusive agreement, of an anti-competitive nature, was in place between Indian Railways and the Steel Authority of India Limited. The CCI investigation was delayed as the Steel Authority of India secured a stay from the Competition Appellate Tribunal. The Tribunal held that the CCI must conduct a preliminary hearing before ordering a probe or initiating any investigation, which the CCI had not done. The CCI, however, succeeded in its appeal to the country’s apex court by arguing that the CCI practice was in-line with international norms and standards as well as other tribunals within India. Accepting the CCI position, the Supreme Court held that there is no need to hold preliminary hearings and that orders issued by the CCI for such investigations and also held that probes cannot be appealed to the Competition Appellate Tribunal.

Legislation / Regulation

Indonesia Issues Regulations On Notification Of Mergers And Acquisitions

In July 2010, the Indonesian Government finally issued Government Regulation No 57 Year 2010 on the Merger, Consolidation and Acquisition which may result in Monopolistic Practices and Unfair Business Competition (‘Regulation’). The Regulation makes it mandatory for a merged entity to notify the merger within 30 days after the merger has become legally effective where certain thresholds are met (assets of the merged entity amount to more than IDR 2.5 trillion (S$368 million) for non-banks and IDR 20 trillion (S$2.9 billion) for banks / financial institutions, or the turnover of the merged entity amounts to more than IDR 5 trillion (S$736 million) for non-banks). These figures include the assets or turnovers of the merged entity as well as the assets or turnovers of all the companies that control or are under the control of the merged entity. Businesses that fail to report the merger within the prescribed deadline will be fined IDR 1 billion (S$147,000) for each day that the filing is not made, to a maximum amount of IDR 25 billion (S$3.68 million). The Government Regulation No 57 Year 2010 still allows the parties that are planning a merger to consult the KPPU before implementing it, if one of the thresholds above is likely to be crossed.

Singapore Consults On Liner Shipping Block Exemption

In July 2006, the Block Exemption Order (‘BEO’), that exempts certain liner shipping agreements from the application of the Section 34 prohibition, was issued for a period up to 31 December 2010. Having reviewed the advantages / disadvantages of this exemption, the CCS has made a recommendation to the Minister that the block exemption be extended for another five years ie until 31 December 2015. The CCS is also proposing certain minor changes to the information on liner shipping agreements that must be filed with CCS in order to fulfil the requirements of the block exemption. To illustrate, parties will be required to disclose the list of the other jurisdictions in which the agreement has been filed. The CCS is currently seeking public feedback on this proposed recommendation and will accept comments until 4 October 2010.

Hong Kong Published Competition Bill

On 2 July 2010, the Hong Kong Government gazetted the Competition Bill (the ‘Bill’), making Hong Kong the latest amongst Asian countries to introduce competition laws. The Bill prohibits agreements and conduct having as their object or effect the prevention, restriction or distortion of competition in Hong Kong. Further, mergers which would substantially lessen competition in Hong Kong are also prohibited under the Bill. The intention, however, is to have the merger provisions applicable only to parties holding a carrier licenses granted by the Telecommunications Authority. The Bill also provides for judicial enforcement of competition rules: both an independent Competition Commission (‘Commission’), with wide investigative powers, and a Competition Tribunal (‘Tribunal’), to adjudicate on competition cases, will be established. Under the proposed law, the Broadcasting Authority and the Telecommunications Authority will have concurrent jurisdiction with the Commission to investigate competition matters in the broadcasting and telecommunications sectors. The Bill also includes provisions on the disqualification of directors where the Tribunal has determined that the company has contravened a competition rule and it considers the director concerned to be unfit for managing a company due to his personal conduct. Interestingly enough, private action may be taken not only against a person who has contravened the competition law, but also against the person who aids, abets, procures or induces the contravention of the competition law.

New Zealand’s Commerce Commission Issues Guidelines On Deterring Bid Rigging

In September 2010, the New Zealand’s Commerce Commission issued three related guidelines – Guidelines on How To Recognise Bid Rigging, Guidelines on How To Deter Bid Rigging and Guidelines For Procurers – How To Recognise and Deter Bid Rigging, to assist purchasers in both the public and private sectors in recognising and deterring bid rigging. The guidelines suggest looking for suspicious bidding patterns which include: a pattern of winning bidders, for example, the bid being won in a sequence such as A, B, C, A, B, C, or particular bidders always winning contracts of a particular type or size; a bidder that bids relatively high in some tenders but then relatively low in other similar tenders; and a bidder that never wins but keeps on bidding. The guidelines also suggest looking for suspicious bidding behaviour where likely bidders don’t submit a bid, bids that are suddenly withdrawn, submitted bids have suspicious pricing or contain identical wording, particularly if the wording is unusual.

EUROPE

Europe has been very active in the enforcement of competition laws, both at the national level as well as at the EU level. Some of the recent investigations show that large companies that can exercise ample commercial muscle are not above the law and are being taken to task for engaging in anti-competitive behaviour. For instance, IBM is currently being investigated by the European Commission (‘EC’) for a possible abuse of dominance for the sale of its mainframe hardware and software. On the other hand, the UK competition regulator recently conducted dawn raids on the premises of Mercedes-Benz and also arrested the Managing Director of its UK operations.

Cases

European Commission (‘EC’) Investigates IBM For Possible Abuse Of Dominance

On 26 July 2010, the EC decided to initiate a formal investigation against IBM Corporation to determine whether IBM has abused its dominance. The EC’s investigation is based on two separate potential infringements by IBM, both in the market for mainframes. The first potential infringement arises out of a complaint by developers of emulator software and concerns bundling by IBM of its mainframe software (operating system) to the sale of its mainframe hardware. The other potential infringement arises out of the EC’s own initiative and looks at whether IBM discriminates between competing suppliers of maintenance services for IBM mainframes. In particular, the EC is investigating whether IBM has undertaken conduct that may prevent new entrants from entering the market for maintenance services by delaying or restricting access to those spare parts which are solely provided by IBM. The start of an investigation does not mean that a firm case against IBM has been made out and the EC will need to adduce sufficient evidence before it can issue its decision.

EC Closes Its Investigation In Apple’s iPhone Policy

In Spring 2010, the EC started a preliminary investigation into Apple’s business practices with regards to its iPhone. Specifically, the EC was concerned by the ‘country of purchase’ rule, which prevented consumers having bought an iPhone in a EU country from getting repairs services outside the country of purchase. Another practice investigated by the EC was Apple’s requirement that independent developers of iPhone’s applications only use Apple’s native programming tools and approved languages, to the possible detriment of third-party layers. Apple’s announcements that it had removed these restrictions on development tools for iPhone’s applications and would no longer enforce the ‘country of purchase’ rule led the EC to close its investigation into the matter.

Spain Fines Wine Makers For Artificial Increase In Prices

On 29 July 2010, the Spanish competition authority (‘CNC’) placed a total fine of EUR 6.723 million (S$12 million) on nine makers of the Jerez wine (Sherry) in Spain along with their association, the FEDEJEREZ and the regulatory board for that designation of origin. The CNC found that, in response to the drop in demand for Jerez wine both domestically and internationally, the wine producers colluded to decrease the output of the Sherry wine, thereby increasing prices. The CNC also found that the artificial increase in prices attracted more producers to enter this business thereby increasing the number of market players and creating another downward pressure on prices which was immediately addressed by the cartel participants agreeing to limit the production of Jerez wine. The cartel, which was in existence from 2001 to 2008, came to light when one of the participants applied to the CNC for leniency.

Europe-Wide Dawn Raids On Makers Of Polyurethane Foam

In late July 2010, the European Commission (‘EC’) conducted dawn raids on leading manufacturers of polyurethane foam in various countries within the European Union, including Austria and Belgium. Although the EC has not disclosed the identities of the companies being investigated, Recticel SA has confirmed that its headquarters in Belgium, along with its offices in the UK and Austria were raided by the EC. The EC believes that the companies concerned may have been party to a cartel in contravention of Article 101 of the Treaty of the Functioning of the European Union. The investigation came about after similar investigations were initiated in the United – States by the Department of Justice.

Marine Insurance Sector Not Covered By Block Exemption Commission Opens Probe

On 26 August 2010, the EC publicly announced that it has opened a formal probe into certain agreements in the marine insurance sector. In particular, the EC is investigating whether certain provisions in the claim-sharing and joint re-insurance agreements operated by the P&I Clubs, is contrary to EU competition law. In its investigation, the EC will evaluate whether certain clauses in the International Group Agreement and Pooling Agreement will restrict competition between various P&I Clubs and prevent access to the market for other mutual P&I clubs and commercial insurers. It should be noted that these arrangements do not benefit from the block exemption for the insurance sector in the EU as the market shares of the parties are well above the thresholds set out in the block exemption for benefiting from it.

EU General Court Confirms That An Undertaking Can Be Part Of A Cartel And Fined Even If Not Active In The Market Concerned

On 8 September 2010, the European General Court confirmed the EC decision in the Deltafina Case that an undertaking can be penalised for its participation in a cartel even if it is not active in the market affected by the cartel. The General Court’s decision also clarified the criteria for establishing when an undertaking can be considered to be a leader of the cartel. This is important because if determined to be a cartel leader, the EC can impose a higher fine. The judgement by the General Court arises from an appeal by Deltafina against a 2004 decision by the EC that four tobacco processors in Spain and Deltafina, a tobacco processor in Italy, had participated in a cartel to fix purchase prices and quantities on the Spanish raw tobacco market between 1996 and 2001. The EC imposed a total fine of €20 million on the five companies for their role in the cartel, with the largest fine, €11.88 million, imposed on Deltafina for being the leader of the cartel. Deltafina appealed against the EC’s decision. Deltafina’s two major arguments were that it was unjustifiably fined as it was not operating in the Spanish raw tobacco market and, in any event, was not the cartel leader. The General Court held that the fact that Deltafina was not present in the relevant market does not preclude it from being penalised for infringement on that market, as ‘an undertaking may infringe the prohibition laid down in Article 81(1) EC where the purpose of its conduct, as coordinated with that of other undertakings, is to restrict competition on a specific relevant market within the common market, and that does not mean that the undertaking has to be active on that relevant market itself’. On deciding whether Deltafina was a leader of the cartel, the General Court held that in order to be characterised as cartel leader, ‘the undertaking in question must have represented a significant driving force in the cartel and borne individual and specific liability for the operation of the cartel’, which was not established in this case.

Communications With In-House Lawyers Not Privileged For Competition Violations In Europe

On 14 September 2010, the European Court of Justice (‘ECJ’) issued its long awaited decision in what is known as the ‘Akzo case’. It ruled that for violations of competition law, communications with internal, ie in-house, lawyers are not covered by legal professional privilege. It is important to note that the issue in the Akzo case was not whether the legal privilege protection should apply to all in-house lawyers but whether it applies to an in-house lawyer who is enrolled as a member of a Bar or Law Society. The ECJ ruled against granting privilege in such circumstances as the employment contract between a lawyer and his client removes the element of independence that is required for legal professional privilege to apply. As a consequence of this judgment, the EC can seize or require the production of communications with in-house lawyers when investigating breaches of competition laws. The position in Singapore is different as the CCS guidelines provide that communications with in-house lawyers, in addition to lawyers in private practice including foreign lawyers, as being protected by legal privilege.

Mercedes-Benz’s Managing Director Arrested In The UK

On 17 September 2010, the Office of Fair Trading (‘OFT’) in the UK raided the premises of Mercedes-Benz in Tongwell, Milton Keynes, which is owned by Daimler, for suspected cartel activity. The OFT believes that Mercedes-Benz took part in a price fixing cartel along with other manufacturers of commercial vehicles and to that extent it has also requested information from Scania, the Swedish manufacturer, and MAN, a German vehicle manufacturer. The Managing Director of Mercedes-Benz’s UK division was also arrested as a part of the investigation, although he was later released on bail. The current investigation has been brought under the Enterprise Act, under which criminal charges can be filed, as well as the Competition Act. Criminal charges under the Enterprise Act are rare in the UK.

France Fines Eleven Banks A Total Of €384.9 Million For Fees On Cheque Transactions

On 20 September 2010, the French Autorité de la Concurrence (‘Authority’) imposed fines totalling €384.9 million on eleven banks for colluding on fees charged to customers for processing cheque transactions. The Authority found that the eleven banks colluded between January 2002 and July 2007 for fixing the fee on cheques that are exchanged in France. In addition, the authority also held that the banks colluded on the fees for the related service of cancellation of cleared operations, which continued to date. The banks were fined €381.1 million for the first infringement and €3.8 million for the second infringement, totalling €384.9 million.

Legislation / Regulation

OFT And Competition Commission Issue Joint Merger Guidance For The First Time

On 16 September 2010, the OFT and the Competition Commission (‘CC’) of the UK published their first joint Merger Assessment Guidelines (‘MAG’). So far, the guidance available for merging companies was available from the two authorities separately and in various documents. The MAG is expected to assist merging companies, and their lawyers, by providing clarity on the manner in which the competition regulators will assess their application. The MAG has revised and expanded on the guidance that was previously contained in several publications issued by the two regulators. The MAG sets out the questions the CC and OFT will ask when assessing merger applications including the definition of ‘relevant merger situation’, ‘substantial lessening of competition’ as well as the criteria and methodology applied when performing the review.

AMERICAS

Competition law is being heavily implemented in all parts of the world and the American continent is certainly no exception. The US Federal Trade Commission (‘FTC’) recently settled with Intel with respect to charges that it was abusing its dominance by bundling its products and retaliating against customers that use competing products. The Intel investigation was prompted by a European decision which scrutinised similar practices in the EU. A second investigation, also in the technology industry, has an employment angle to it. The US Department of Justice (‘DOJ’) investigated, negotiated and recently settled with six large technology companies (Google, Adobe, Pixar etc) on claims that they had entered into non-poaching agreements with each other. The DOJ held such agreements to be anti-competitive as they restricted competition between employers and harmed skilled employees who were looking to change their jobs.

Cases

FTC Settles With Intel Over Charges Of Bundling, Retaliation And Other Abuses Of Dominance

On 4 August 2010, the FTC settled with Intel its charges for illegally stifling competition in the market for computer chips. The FTC investigation into Intel was for conduct that was similar to that pursued by the European Union that led to more than one billion US dollars in fines. The FTC charges were settled as Intel agreed to terms that will promote competition in the market for computer chips and not hinder free competition in the future. In particular, the settlement covers various Intel products such as Central Processing Units, Graphics Processors and chipsets and prohibits Intel from restricting competition by bundling its products, offering additional benefits for those customers who only use Intel products and retaliating against customers who buy non-Intel products. The settlement agreement also requires Intel to, amongst others, modify intellectual property with NVidia and AMD to allow them from merging or acquiring other parties easily and to provide graphics card manufacturers access to Intel’s chipset architecture through PCI Express. The settlement agreement will be open for public consultation for 30 days before it is finalized.

Another Executive Jailed For Fixing Prices Of TFT-LCD, Travel Ban On Others

On 4 August 2010, a fourth executive from Chi Mei Optoelectronics pleaded guilty to price fixing in the TFT-LCD market and has agreed to serve jail time in the US. The DOJ placed only one charge on Mr Chen-Lung Kuo in the US District Court for San Francisco – that of suppressing and eliminating competition by fixing prices of the TFT-LCD panel sales. In this cartel arrangement, Chi Mei participated through Mr Kuo (Vice-President for Sales And Marketing). According to the plea agreement, which is pending Court approval, Mr Chen has agreed to pay US$35,000, serve 9 months in jail and cooperate with the authorities as they continue their investigation. In a related investigation, the CEO and Vice Chairman of AU Optronics (another cartel participant) are prohibited from leaving the US until the investigation and proceeding against them is complete. The ban on travel could last for six months to one year and was issued by the US District Court for Northern California. It prevents the two executives from travelling outside the Northern District of California without the Court’s permission.

On-Going Investigation Into Price Fixing In Air Transportation Sector Results In More Indictments

On 26 August 2010, a grand jury in New York returned an indictment against two executives of Asiana Airlines Inc for the charge of price fixing with several other airlines of passenger fares between US and Korea. According to the DOJ, the cartel involved fixing certain components of the price of economy class air tickets between certain US cities and Korea from January 2000 to February 2006. Both executives are vice presidents of Asiana Airlines. According to the DOJ’s investigation, a total of 16 airlines are found to have colluded to fix prices in the air transportation industry and it has imposed fines totalling US$1.6 billion to date. It should be noted that all executives that pled guilty to the charges were required to serve time in prison.

United – Continental Merger Approved Subject To Divestment

On 27 August 2010, the DOJ announced that it is closing its internal investigation, and granting the application, for a merger between United and Continental airlines. The proposed merger is aimed at combining the two airlines complementary networks within the US, which included certain overlapping routes between the airlines. The largest of such routes were between United’s hub airports in various cities within the US and the Continental’s hub at Newark Liberty Airport in New Jersey. Since Continental has a high market share at Newark airport and the number of take-off and landing slots is limited, the DOJ expressed concern that the proposed merger may restrict competition for flights to and from Newark. In order to secure clearance for its merger, United and Continental entered into an agreement to sell some take-off and landing slots to a low cost carrier – Southwest airlines. The DOJ took the view that since Southwest currently does not serve Newark airport, this move will allow a new entrant to exercise competitive pressure on the parties post-merger and is expected to benefit customers significantly. Just a month before, the merger was also cleared by the European Commission.

Novartis Given The Green To Acquire Alcon, Subject To Divestment Of Certain Drug

On 1 September 2010, the FTC granted permission for the acquisition of Alcon by Novartis after imposing a requirement to sell off the injectable miotics wing to a competitor – Bausch & Lomb. Novartis is a global pharmaceutical company that specialises in the development, production, distribution and marketing of medical products. In particular, Novartis supplies ocular lubricants, injectable miotics and anti-allergens. Alcon, on the other hand, is a global pharmaceutical company that focuses on eye care and is active in the area of ophthalmic and miotic pharmaceuticals. In its investigation, the FTC found that Novartis and Alcon were the only two producers of injectable miotics in the US and customers were benefitting from the direct competition between the two producers. As the merger would eliminate competition for the sale of injectable miotics, the settlement requires Novartis to sell its rights and assets related to its injectable miotics product to Bausch & Lomb within 10 days of consummating the merger and also provide transitional services, including third-party manufacturing services and technical assistance, to B&L to ensure that it thrives as a viable competitor. Note that, in May 2010, the merger was cleared by the Competition Commission of Singapore, without conditions.

Agreements To Not Poach Employees Under Scrutiny

On 24 September 2010, the DOJ announced that it has reached a settlement agreement with six multinational technology companies – Adobe Systems, Apple, Google, Intel, Intuit and Pixar. Unlike other antitrust cases that involve fixing product prices or abusing dominance, this matter involved technology companies agreeing to not poach each others’ employees. The companies had entered into non-solicitation agreements whereby they would not hire each others’ employees for a particular duration. The DOJ viewed these agreements as being anti-competitive as they restricted competition between employers for skilled employees and reduced the incentives available. Since the high technology sector generally has a strong demand for skilled employees, a non-solicitation agreement would restrict competition without providing any precompetitive effects. The DOJ investigation will come to an end once the settlement receives Court approval.

AFRICA

Price fixing in the aviation and travel industries have kept regulators busy. The Competition Commission of Mauritius, for instance, issued a report that the Mauritius Association of IATA Travel Agents, an association consisting of 25 travel agents, breached competition law by entering into collusive agreements with Air Mauritius. In South Africa, the decision in the air cargo fuel surcharge case should be issued soon.

Cases

Air Mauritius And Travel Agents Associations Agreed On Service Level Fee

On 3 August 2010, the Competition Commission of Mauritius (’CCM’) issued its investigation report regarding an agreement between Air Mauritius and the Mauritius Association of IATA Travel Agents (‘MAITA’). The CCM found that both parties have breached the Competition Act 2007 (‘Act’), which came into force late last year, by jointly agreeing on the service fee charged for various categories of tickets. Although Air Mauritius and MAITA entered into this agreement prior to the establishment of the Act, the CCM found that this agreement continued to affect the ticket prices on certain destinations even after the Act came into force. Air Mauritius and MAITA have been given the chance to present their defences before the CCM issues its final decision.

Airlines Face Price Fixing Allegation In South Africa

On 28 July 2010, the South Africa Competition Commission (‘Commission’) referred the case of price fixing in the cargo carriage market against eight airlines to the Competition Tribunal for decision on the fine. The Commission initiated the investigation in 2006, after receiving a leniency application from Lufthansa, who admitted that members of IATA agreed on various surcharges and price increases since 1996.  The Commission recommended that the Tribunal impose penalty of 10% of the annual turnover of each of the eight airlines involved, which include Singapore Airlines, British Airways, KLM-Air France and South Africa Cargo. Lufthansa was granted conditional immunity by the Commission for its cooperation in the investigation and prosecution process.

CONTACT US

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

Canada’s foreign investment regime under the Investment Canada Act was recently amended to, among other things, make “Canada more competitive in an increasingly global marketplace” and “enhance Canada’s competitiveness as a destination for capital and talent” (see: Competition Policy Review Panel, Final Report, Compete to Win (2008)).  From the growing campaign against BHP in recent days you couldn’t tell that Canada’s door was intended to be opened wider.

First the Potash board declared (somewhat according to the standard script for takeover targets) that the BHP bid was inadequate.  Then the initially apparently welcoming Saskatchewan government began to question whether the BHP bid would really be of net benefit to Canada (the overarching test under Canada’s foreign investment regime), apparently based on BHP’s indication that it would withdraw from the potash export cartel Canpotex.  Next, in a somewhat surprising development, the Competition Bureau issued a supplementary information request earlier this week moving the merger control portion of the BHP/Potash regulatory review into a second stage review (despite many outward observers speculating that the overlap appeared to be of little concern, given that that BHP’s existing potash assets are non-producing).

In addition, potential Chinese bidders are reported to be looking at options to block the BHP bid, including China’s Sinochem Corp. reported to have appointed Deutsche Bank and Citigroup to advise it of options to block the BHP bid – see Reuters, Globe and Mail and The Australian) and Potash is reported as well to have retained consultants, including one former Canadian Commissioner of Competition, to lobby against the transaction, or perhaps at minimum delay the transaction to allow Potash to search for potential alternative bidders.  Media reports indicate that some possible other bidders, including Vale and Teck, have indicated no interested in launching competing bids.

Then earlier today, the New York Times Deal Book, Fox Business, Bloomberg and others reported that Potash Corp. announced that it filed a lawsuit against BHP seeking to block BHP’s hostile bid (for a copy of the complaint see: Potash Complaint).  The lawsuit filed in federal court in Chicago alleges that BHP misrepresented to inform investors about material facts in contravention of U.S. federal securities laws.  In particular, the suit alleges that BHP attempted to drive down Potash Corp.’s perceived value by strategically timing announcements about becoming a direct competitor in the potash business, in order to make a bid without triggering a vote by BHP shareholders.

In response to the apparently growing opposition to its bid, it has been reported that BHP has hired advisers to three Canadian prime ministers to lobby for its bid for Potash Corp., namely Michael Coates (an adviser to the current Prime Minister Stephen Harper), William Pristanski (an aide in the 1980s to the former Conservative leader Brian Mulroney) and Bruce Hartley (a former assistant to former Liberal leader Jean Chretien) (see: The Sydney Morning Herald).

All in all it’s been a rather tough week for BHP.  While Canada’s foreign investment regime has technically been recently amended to further open the door to foreign investment in Canada, it must surely not seem that way to BHP in the face of apparently mounting opposition to its bid for Potash Corp.

For more information about Canada’s merger control and foreign investment regimes see: Canadian Merger Control, Canadian Merger Control FAQs, Investment Canada, Investment Canada FAQs.

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 announce our new competition policy services for our international clients and competition/antitrust enforcement agencies in conjunction with Derek Ireland.  These include:

Agency enforcement guidelines and policy documents.  Research, drafting and consultation for antitrust agency enforcement guidelines and policy documents in relation to merger control, monopoly/abuse of dominance, conspiracy/cartels, pricing and distribution and consumer protection rules. 

Research and policy papers.  Research and preparation of legal, economic and industry/sectoral studies, policy and position papers and reports.

Competition policy and reform.  Competition policy and law modernization and reform consultation services.  Our experience includes the development and revision of merger enforcement guidelines in several competition law jurisdictions including Canada, the United States, European Union, India, China, Russia and Malaysia.

Competition policy advocacy programs.  Our experience includes the design and delivery of competition advocacy programs prepared and implemented by competition agencies and their government partners, which emphasize the role and importance of a well articulated and strongly advocated competition policy in supporting enforcement of and compliance with a modern competition law.  Possible audiences include other government departments, trade and industry associations, major companies, and civil society. 

Research, policy development and advocacy services on the links between competition policy and law and broader economic and social development objectives of government.  Competition policy and law reform and advocacy requires a sound understanding of the role and importance of competition policy and law and other competition related economic reforms in promoting the achievement of the broader economic development objectives of developing countries in such areas as inclusive growth, poverty alleviation, entrepreneurship and small business development, agricultural and rural development, innovation, and the emergence of a more diversified knowledge based economy.

Research and advocacy services on the interactions of competition policy and law with other marketplace laws and regulatory frameworks.  Competition policy and law reform, enforcement and advocacy also requires a solid understanding of the positive and negative interactions between competition policy and law and trade, industrial, innovation, financial market, consumer and small business development policies, intellectual property rights, corporate, bankruptcy and consumer protection laws, and sectoral regulators. Our experience on competition policy contributions, linkages and interactions includes assignments for competition agencies, other government departments and international organizations such as the OECD and UNDP.  

Training, education and voluntary compliance programs.  Advisory services on and the preparation and implementation of training, education, voluntary compliance programs, and networking initiatives, to be implemented within and outside government in order to promote competition policy objectives and successful competition law enforcement.

Coordinating governmental policies with competition policies.  Research and advisory services that would allow competition agencies and other government ministries with competition policy responsibilities to better tailor industrial organization theory and competition law practice to better meet the merger review and other competition law enforcement and competition policy needs and constraints of developing country competition authorities and to the socioeconomic and political economy realities of developing and transition economies.  For example, our research, experience and expertise provide us with a sound understanding of how privately and state owned enterprise and business groups that are prominent in many developing countries can influence competition policy and law enforcement, corporate governance and the administration of other marketplace policies, laws, and regulations in a manner that can either promote or hurt competition.

Competition policy for the introduction of competition laws.  Advisory services, research, policy analysis and competition policy advocacy programs to facilitate the introduction of competition, commercialization, public-private partnerships and private investment, ownership and management into previously regulated state-owned industries in developing countries.

Economic research programs.  Advisory services on the establishment and operation of economic research programs on competition policy and law, consumer policy and consumer protection policy, intellectual property rights and other marketplace framework laws – including on the interactions between different policies, laws and regulatory regimes.

For more information see our Competition Policy services page: Competition Policy Services.

CONTACT US

We provide a full range of Canadian competition/antitrust law and consulting services to domestic and international clients.  For more information about our competition law and consulting services see: Competition Law Services.  To contact us see: Contact Us.

In an unexpected development, ABC and others are reporting that BHP has extended its bid for Potash Corp. a month following a supplementary information request issued by the Canadian Competition Bureau.  According to ABC, BHP has pushed forward its deadline for its bid to November 18 (from the previous deadline of October 19) to allow the Bureau to complete its review.

While BHP is reported as stating that it is “confident that the offer will receive all requisite regulatory approvals in due course”, the fact that the Bureau has issued as supplementary information request (the Canadian equivalent to U.S. second requests) by definition indicates that the Bureau views the transaction as potentially complex or very complex, and has taken the position that it requires more time to review the proposed acquisition.

This development is more interesting yet, given that many competition/antitrust commentators publicly stated that the potential issues with the BHP/Potash transaction were likely to be associated with obtaining Canadian foreign investment approval under the Investment Canada Act (not least of which based on the recent challenge of U.S. Steel by the Canadian government for its alleged non-compliance with its undertakings in connection with its acquisition of Stelco).  Many commentators felt that the potential competition law issues were not likely to be significant based on the fact that, while BHP had Potash assets in Saskatchewan, they were non-producing and therefore that the potential overlap (anti-competitive effects) were unlikely to be significant.   Having said that, since the opening days of the BHP bid, local political opposition to the bid appears to have grown, apparent issues appear to have arisen based on indications that BHP (if successful) may withdraw from the existing potash export cartel and there have as well been increasing rumours of a potentially competing Chinese bid.

Given that BHP has received a supplementary information request, the approval process will now be moved into a U.S./EU “second stage” review, with the approval clock stopped until BHP has fully complied with the Bureau’s supplementary information request (under Canada’s new U.S.-style two-stage merger control regime).

For more information about Canada’s merger control and foreign investment regimes see: Canadian Merger Control, Canadian Merger Control FAQs, Investment Canada, Investment Canada FAQs.

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

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

The Alliance for Canadian Real Estate Education (ACRE) and The Canadian Real Estate Association (CREA) will be launching a national competition law course for Canadian REALTORS: Competition Law & REALTORS.

This half-day competition law course, prepared by ACRE and CREA and aimed at Canadian real estate professionals, will provide an overview of Canadian competition law as it applies to organized real estate in Canada.  Topics will include: (i) how the criminal conspiracy, misleading advertising, price maintenance, deceptive telemarketing and abuse of dominance rules of the Competition Act apply to the real estate industry in Canada (ii) an overview of the recent amendments to the Competition Act and how they apply to Canadian real estate professionals, (iii) basic compliance guidelines (do’s and don’ts) for real estate agents, (iv) guidelines for real estate board and association meetings, (v) practical competition law case studies and (vi) Canadian competition law compliance resources. 

This new national course, that is being designed by Competition Law Canada, is to be launched this spring.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to clients across Canada and internationally.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.

DISCLAIMER

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

The Competition Bureau has announced that a national phone card supplier has been required to pay refunds and a penalty of Cdn. $300,000.

Ontario-based Phonetime Inc. will  offer refunds to consumer that bought Bravo! and Bravo! Atlantic prepaid long-distance phone cards.

According to the federal Competition Bureau, this settlement followed a Bureau investigation into misleading representations relating to Phonetime’s advertising of pre-paid long-distance phone cards, including hidden fees and and per-minute rates (as well as fewer minutes than advertised).

The Bureau stated in its News Release:

“This is the second case involving prepaid long-distance telephone calling cards that the Competition Bureau has investigated and resolved,” said Andrea Rosen, Deputy Commissioner of Competition, Fair Business Practices Branch. “The Bureau has clearly communicated its concerns to the phone card industry and any company found to be misleading consumers could become the target of an investigation.”

This case shows that misleading advertising and deceptive marketing practices, together with criminal cartels, remain enforcement priorities for the Bureau.

OUR MISLEADING ADVERTISING & MARKETING LAW SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally 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.  Our misleading advertising and marketing law services include advice in relation to:

- The general misleading advertising provisions of the Competition Act.
- “Ordinary selling price” provisions (sales).
- Promotional contests.
- Multi-level marketing plans.
- Pyramid selling.
- Telemarketing.
- Deceptive prize notices.
- Double ticketing & bait and switch advertising.
- Performance claims & comparative advertising.
- Scope of the recent Competition Act amendments.
- Consumer packaging and labeling legislation.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.

The Financial Post has reported that the British Columbia Court of Appeal has approved the DRAM memory class action.  The Court of Appeal has reversed a lower court ruling certifying a class action against a group of five technology manufacturers accused of fixing their prices for computer memory chips.

In this case (Pro-Sys Consultants Ltd. v. Infineon Technologies AG) the Court 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).

This latest case is the most recent in a number of price-fixing class actions commenced under the Competition Act including a recent plaintiff-favourable Ontario indirect purchaser certification judgment relating to hydrogen peroxide.

In this case, the respondent computer firms include Infineon, Hynix Semiconductor Inc., Samsung Electronics Co. Ltd., Micron Technology Inc. And Elpida Memory, Inc.  Together, these firms represesent approximately 76% of the global production of “dynamic random access memory” (DRAM) 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.  All of the respondents (except Micron) have pleaded guilty to criminal cartel charges in the U.S. and have paid fines totaling about USD 731 million.  In addition, several executives of the companies have either paid fines or served prison terms.

With the recent sweeping changes to Canada’s Competition Act this past spring, private action activity (including class actions commenced under the Competition Act) is expected to increase.  Key changes to the criminal conspiracy provisions of Canada’s competition legislation include increasing the penalties for criminal conspiracies to fourteen years imprisonment and/or criminal fines up to CDN $25 million (up from five years and CDN $10 million) and introducing new U.S.-style “per se” criminal conspiracy offences for price fixing, market allocation and output restriction agreements (with no competitive effects test or adverse market effects required).

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging, Canadian Competition Law Resources, Competition Law Links or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to clients across Canada and internationally.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us at +1 604 687 0555 or +1 778 867 5558.

DISCLAIMER

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

I.      CANADIAN MERGER CONTROL:  OVERVIEW

As in many other major jurisdictions, Canada has a well established merger control regime.  The pre-merger notification provisions of Canada’s federal Competition Act (the “Act”) require parties to specified types of large transactions that exceed the relevant statutory monetary thresholds under the Act to pre-notify the federal Competition Bureau (the “Bureau”).

In addition, regardless of size, transactions that fall within the statutory definition of “merger” under the Act, which is broad and includes both de jure acquisitions of control as well as acquisitions of a “significant interest”, are also potentially reviewable by the Bureau.

As a result of sweeping amendments to the Act earlier this year, significant changes were made to Canada’s merger control regime which now means that Canada’s law is more closely aligned with the merger notification process in the U.S. under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”).  While beyond the scope of this paper, together with the changes to Canada’s merger control rules a new foreign investment regime and national security test were also introduced.

This paper discusses Canada’s previous merger control regime, the significant recent amendments, areas of convergence with other major jurisdictions and some of the key impacts for domestic and international companies.

II.     CANADA’S NEW MERGER CONTROL REGIME

As a result of sweeping amendments to the Act earlier this year, fundamental changes were made to Canada’s competition law. 

Some of the key amendments include: (i) introduction of a U.S. style per se criminal conspiracy rule (for price fixing, market allocation and output restrictions) with expanded potential civil liability, (ii) increased penalties for cartels consistent with international jurisdictions (fines up to Cdn. $25 million per count and imprisonment up to 14 years), (iii) decriminalization of the price discrimination and predatory pricing provisions, (iv) repeal of the former per se criminal price maintenance provision, (v) introduction of significant fines for abuse of dominance in line with other major jurisdictions such as the EU (up to Cdn $10 million and Cdn. $15 million for repeat contraventions), (vi) increased penalties for misleading advertising and (vii) introduction of a private right of access for civil resale price maintenance.

With respect to merger clearance, Canada has adopted a two-track merger notification and review regime that aligns Canadian law with the U.S. under the HSR Act.

Some of the specific key changes to Canada’s merger control regime include: (i) increasing the “size of transaction” threshold for notification, (ii) introducing a new U.S.-style two-stage waiting period process, (iii) giving the Bureau the power to issue U.S.-style second requests, (iv) reducing the post-closing period during which the Bureau may challenge a completed transaction and (v) new rules for hostile bids.

The introduction of Canada’s new merger control regime is based on recent recommendations of a federal Government Competition Policy Review Panel (the “Competition Review Panel”) which issued a report last year which, in addition to making a number of recommendations to update core areas of Canadian competition law, also made recommendations to more closely align Canada’s merger control regime with the U.S.:

“In assessing the effectiveness of Canadian competition law and policy, the Panel believes that it is desirable to conform Canadian legal requirements with those of the U.S., where practicably feasible, with a view to minimizing unnecessary procedural or substantive differences, given the high level of integration of business operations in the two countries.”

While the recent changes to Canada’s merger control laws are the most significant in two decades, they follow several years of increased merger control policy activity by the Bureau, which has led to increased convergence with other major jurisdictions, notably the U.S. and EU, and as well an increasingly formalized approach by Canada’s regulator (the Competition Bureau) to merger control.

Some of the key recent initiatives of the Bureau in this regard include the adoption of new merger review process guidelines, a template consent agreement for negotiated settlements, guidelines on merger remedies, guidelines on the role of efficiencies in merger review and a report on dynamic efficiencies in the context of mergers.

(a)          INCREASED SIZE OF TRANSACTION THRESHOLD

In order for a transaction to be notifiable in Canada it must, in addition to involving the acquisition of an “operating business” in Canada and falling into one of five specified types of transactions, also exceed statutory monetary thresholds set out in the Act.  In this regard, a transaction must exceed both the “size of parties” and “size of transaction” thresholds.

With respect to the size of parties threshold, for share and asset acquisitions, the parties and their affiliates’ Canadian assets (or total gross revenues from sales in, from or into Canada) must exceed CDN $400 million.

As part of the recent amendments, the size of transaction threshold was increased such that in order for a transaction to be notifiable the book value of the target’s assets in Canada, or annual gross revenues from sales in or from Canada generated by those assets, must now also exceed CDN $70 million (increased from the former CDN $50 million).  Consistent with the U.S., this threshold will now be increased annually based on inflation.

For share acquisitions, there are additional thresholds.  For the acquisition of public companies, the acquisition must also result in the acquirer holding more than 20% of the voting shares of the target (more than 50% if more than 20% is already held).  For the acquisition of private companies, the acquisition must result in the acquirer holding more than 35% of the voting shares of the target (more than 50% if more than 35% is already held).

(b)          U.S. STYLE TWO-STAGE WAITING PERIOD PROCESS

The most significant change to Canada’s merger control regime is the introduction of a new U.S.-style two stage merger review process, together with new provisions for second requests and amplified penalties for failure to comply with the pre-merger notification provisions.

Under Canada’s former merger notification regime, transactions that triggered the statutory thresholds were prohibited from being completed before the expiry of a single statutory waiting period of either 14 or 42 days, which depended on the type of filing that was made (i.e., a short form or long form filing) which was based on the level of complexity of the transaction.

In addition to these prescribed statutory waiting periods, the Bureau had also adopted three different non-statutory “service standard periods” for its review of a transaction which ran on a parallel but distinct timetable.  Like the statutory periods, which review period applied depended on the complexity of the transaction and could range from two weeks (for non-complex transactions) to over five months (for very complex transactions).

The former system of waiting and review periods was highly confusing for clients, challenging to apply in many instances (e.g., in determining how to file and negotiations with the Bureau as to the time to review a transaction) and out of step with more straightforward and transparent systems, notably in the U.S.  Moreover, the Bureau’s non-binding service standard periods, under which the Bureau would routinely require five months to review what it considered to be very complex cases, had no legal force and were criticized by merging parties and their counsel.

Canada’s new two-stage merger control process arose as a result of recent recommendations made by the Competition Review Panel, again to bring Canada’s system more in line with international norms:

“Given the identification of these issues and the importance of our merger review process being better harmonized with that of the U.S, the Panel is of the view that it would be beneficial to adjust our merger review process into a two-stage regime that would more closely align our procedures with those in the U.S.  This change would separate merger cases into two categories: those cases that are concluded (and effectively cleared) within 30 days of the initial filing and ‘second stage’ cases that raise complex competition issues.  So-called ‘second-stage’ cases would be subjected to an additional review period that would terminate 30 days following full compliance with a ‘second request’ for information.”

Under the new regime, following notification, there is an initial 30 calendar day waiting period during which parties to a transaction are not permitted to complete (unless clearance has been received).  During the initial waiting period, the Bureau may advise the parties that it does not intend to challenge the transaction or, alternatively, issue second request for information where it takes the position that there are potential issues.

The Bureau’s approach to the new two-stage review regime is set out in its new Merger Review Process Guidelines, in which it indicates that it will only issue a second request “when a proposed transaction raises significant competition issues and additional information is required.”

Notably, the recent amendments also give Canadian courts and the Competition Tribunal (the “Tribunal”) new powers for non-compliance with the pre-merger notification provisions.  These include, for proposed transactions, the power to issue interim injunctions or compel the filing of information and, for completed transactions, the power to order that a merger be dissolved, divestiture orders and “administrative monetary penalties” (essentially civil fines) of up to CDN $10,000 for each day of non-compliance.

The introduction of a two-stage waiting period process and increased penalties for failure to comply with the merger notification provisions are two further aspects of Canadian merger control that have now been aligned with other major jurisdictions notably the U.S. and Europe.

Where the Bureau decides to challenge a transaction, the process has not changed: the Bureau may bring an application before the federal Competition Tribunal (the “Tribunal”) for a remedial order and also has the power to seek an interim injunction preventing merging parties from completing. In practice, however, contested merger proceedings are rare in Canada, and the vast majority of issues are resolved through negotiated settlements.

Similarly, while the waiting periods under the Act have changed, the circumstances during which parties may close have not.  Parties to a transaction may complete a transaction when an Advance Ruling Certificate (“ARC”) is received (the strongest form of clearance under the Act), (ii) a “no action letter” is received or (iii) the applicable statutory waiting period has expired.

(c)          U.S. STYLE SECOND REQUESTS

Together with the introduction of a U.S.-style two-phase waiting period process, the recent amendments to the Act have also given the Bureau to power to issue supplementary information requests (the new Canadian equivalent to U.S. second requests).

Under Canada’s former merger control regime, in cases where the Bureau wanted additional time to review a transaction, it was required to either seek compulsory production orders under section 11 of the Act or seek an interim injunction to prevent the parties from completing.

As with many of the other recent amendments, the decision to introduce U.S.-style second requests also arose from the recommendations of the Competition Review Panel, which was concerned that in some instances, where the Bureau wanted more time to review a problematic transaction, it had to either seek a compulsory production order or an injunction.  The addition of second requests to the Bureau’s choice of information gathering options also practically arose as a result of a recent high profile case in which the Bureau sought (and was refused) a Tribunal order preventing Labatt from completing its take-over bid for rival brewer Lakeport.

The Bureau’s position with respect to its former information gathering powers is that the previous regime provided inadequate tools and time to review problematic mergers and that the new system provides both increased transparency and more closely aligns Canada’s merger clearance regime with the U.S.

Under the new second request provisions, the Bureau has wide discretion as to scope of information it may request.  In this regard, the only statutory requirement is that the requested information must be “relevant” to a competitive assessment of a proposed transaction.  As such, the new regime gives the Bureau an additional tool to extend the timetable for review and gives it significantly broader powers than it formerly had.

Where a second request is issued, the waiting period stops until a complete response has been filed upon receipt of which a second 30 day waiting period begins during which the parties are again prohibited from closing (unless clearance is received).  As the burden under the new regime is on the merging parties to complete the request and, where a second request is made, the “clock” will not start again until the order has been fully complied with, the result is that there is no fixed time limit for a second stage review.

It is also worth noting that, in contrast to the U.S., the new Canadian second request process is more stringent than that in the U.S. in that merging parties must fully comply with the second request (as opposed to “substantial compliance”) before the clock will resume again.  In addition, while parties are free to complete a transaction after 30 days of full compliance with a second request, the Bureau is not required to have finished its review by the end of the second waiting period.

Some of the impacts of the new U.S.-style second request process may include the increased adoption of timing agreements (addressing, for example, closing and production requirements) and forcing parties to determine whether to opt to wait for the Bureau to complete its second stage review or assume the risk that the Bureau may challenge the transaction post-completion.  Moreover, merging parties may also consider implementing some U.S.-style strategies in some cases to avoid the issuance of a second request, such as withdrawing and refilling pre-merger notification filings.

(d)          POST-CLOSING REVIEW & HOSTILE BIDS

Two final noteworthy changes to Canada’s merger control regime are in relation to post-closing review and hostile bids. 

In this regard, as a result of the amendments, the time period during which the Bureau may challenge a transaction post-completion has now been reduced to one year from the former three years.  This change arose based on a debate as to whether the Bureau in practice required a three-year window in which to challenge completed mergers and as well a desire to bring post-closing review of Canadian mergers in line with the U.S. and EU.  In reality, however, this change is unlikely to have much impact on Canadian mergers, as in more than twenty years of formal merger review the Bureau has never challenged a merger transaction within the three year period following an initial determination that the transaction did not raise competition concerns.

With respect to hostile bids, there were formerly special notification rules for hostile transactions (i.e., unsolicited take-over bids) that provided that, where the Bureau received a notification from the bidder, it would notify the target giving the target ten days to file a notification.  This former system has remained intact, with adjustments that provide that both the initial and second 30 day waiting periods begin on receipt of a complete filing from the bidder (i.e., regardless of when the target complies with the request to file).  This new rule is intended to prevent targets from stalling a hostile transaction by delaying its filing(s).

IV.    IMPACTS FOR CANADIAN & INTERNATIONAL FIRMS

As a result of the recent amendments, merger clearance in Canada has changed significantly.  Some of the key impacts for Canadian and international firms may include:

- Reducing post-closing uncertainty based on the shorter post-closing challenge period.
- Leading parties in some cases to close transactions without clearance.
- Increasing the time to review some complex mergers beyond the previous review periods.
-  The adoption of strategies to avoid the issuance of second requests.
- Adopting closing conditions in Canada that parallel those used in U.S. transactions.
- Increasing compliance costs for merging parties (where second requests are issued).

OUR CANADIAN MERGER CONTROL SERVICES

We practice federal competition law, have provided competition law and compliance advice to clients across Canada and internationally 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 have provided pre-merger notification and foreign investment advice in relation to numerous domestic and cross-border mergers.  Our Canadian merger control and foreign investment services include:

- Advice on the application of the Competition Act to mergers.
- Application of the Investment Canada Act to foreign investment in Canada.
- Preparing pre-merger notification filings and submissions.
- Drafting transaction documents.
- Merger-related compliance guidelines (pre-merger conduct memoranda).
- Coordinating and advice in relation to multi-jurisdictional merger review.

CANADIAN COMPETITION LAW LINKS

For more information about Canadian competition law or our competition law services visit our Blog Homepage, Competition Law Services, Canadian Competition Law, Competition Act Amendments, Merger Control, Merger Control FAQs, Abuse of Dominance, Conspiracy,  Advertising and Marketing, Promotional Contests, Trade Associations, Refusal to Deal,  Investment Canada Act, Canadian Competition Law Compliance, Private Actions, Bid Rigging or Global Competition Law and Policy pages or visit our website at www.NortonStewart.com.

CONTACT US

We provide Canadian competition law services to Canadian and international clients.  For more information about our Canadian competition law and consulting services contact us at steve@nortonstewart.com, info@competitionlawcanada.com or call us on +1 604 687 0555 or +1 778 867 5558.