CANADA’S CRIMINAL CONSPIRACY LAW
“In our criminal work, we continue to concentrate on the, admittedly, lengthy process of ‘changing the game’ – reorienting our approach at the Bureau, our processes, and our mindset to a more appropriately aggressive stance to respond, as we must, to our new more powerful criminal provisions.”
(Commissioner of Competition, Melanie Aitken, speech to the 2011
CBA Competition Fall Conference)
“[The conspiracy section] of the Act moreover is its oldest provision. Even today, it remains at the core of the criminal part of the Act. The prohibition of conspiracies in restraint of trade is the epitome of competition law, finding its place in every competition law, from Section 1 of the Sherman Act to Article 85 of the Treaty establishing the European Economic Community … [The conspiracy section] of the Act is not just another regulatory provision. It definitely rests on a substratum of values, a finding which must be kept in mind in the course of the vagueness analysis [in this case].”
(Gonthier J., R. v. Nova Scotia Pharmaceutical Society,  2 S.C.R. 606)
“Competition law treats agreements among rival firms to set the terms on which they trade as extremely serious offenses. Most of the world’s approximately 120 systems of competition law assign the prosecution of cartels a high priority. The consequences of detection can be severe. The annual global sum of civil fines and treble damages for cartel participants today routinely exceeds hundreds of millions—indeed, even billions—of dollars, and individuals in a growing number of countries face potent criminal sanctions.
Central to the operation of laws that aggressively punish collusion are the definition and proof of concerted action. Powerful consequences flow from whether price increases observed in the marketplace emerge from individual or collective initiative. A firm acting alone ordinarily can set its prices as high as it likes. If the same firm cooperates with its competitors to achieve price increases, however, its executives may go to prison. Despite the crucial role of the concept of concerted action to this framework, few elements of modern antitrust analysis in the United States and in other jurisdictions are more perplexing than the design of evidentiary standards to determine whether parallel conduct stems from collective or from unilateral decision-making.”
(William E. Kovacic, et al., “Plus Factors and Agreement in Antitrust Law” (2012))
Recent Developments: New Competition Bureau anti-cartel compliance materials including: compliance video, Competitor Collaboration Pamphlet, updated Bid-Rigging Pamphlet and Trade Associations Pamphlet – see: here.
What is the scope of Canada’s new conspiracy regime?
Following amendments to the Competition Act (the “Act”) in 2009 and 2010, Canada now has three “hard core” criminal conspiracy offences under section 45 of the Act: (i) price-fixing, (ii) market division/allocation and (iii) output/supply restriction agreements between competitors (or potential competitors).
These offences are also now “per se” illegal, in that it is no longer necessary to prove any anti-competitive effects on a market, which as a practical matter now means that small players with no significant market presence can also be caught under these offences.
A second civil agreement provision has also been enacted (section 90.1) under which other types of commercial agreements that are not “hard core” anti-competitive agreements (i.e., not price-fixing, market allocation or output restriction agreements) may be subject to review where they prevent or lessen competition substantially.
In this regard, Canada has adopted a two-track statutory conspiracy regime that has parallels to the “per se” and “rule of reason” approach to cartels under Section 1 of the U.S. Sherman Act.
When did Canada’s new two-track conspiracy regime come into force?
Canada’s new two-track conspiracy regime under the Act came into force on March 12, 2010 (following a one year transitional period from the coming into force of the other major changes to the Act in March, 2009).
Why was Canada’s old conspiracy law changed?
Canada’s new U.S.-style criminal conspiracy regime is intended to make the enforcement of hard-core criminal cartel activity (i.e., “bare” or “naked” price-fixing, market allocation and output restriction agreements between competitors) easier by removing the former competitive effects test. In this regard, before March, 2010, it was necessary to show that a challenged agreement prevented or lessened competition “unduly”, which was considered to both make the enforcement of section 45 more difficult and to be out of step with the conspiracy/cartel regimes of other major international jurisdictions.
The new rules are at the same time intended to allow a more detailed analysis of non-hard core agreements between competitors under section 90.1 of the Act, such as joint venture and strategic alliance agreements, where a more detailed review of the potential effects of an agreement may be warranted.
In short, the new regime is intended to make catching clearly anti-competitive agreements easier while allowing for a more detailed review of agreements that may be competitively neutral or pro-competitive and, therefore, not warranting criminal sanction.
What is now illegal under the amended section 45?
The following three categories of agreements are now “per se” illegal under section 45, with no requirement to establish any negative effect on a relevant market: (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 (output/supply restriction agreements).
What types of agreements may potentially be subject to review under the new civil agreements provision (section 90.1)?
Agreements among competitors that are not caught by the three new per se criminal offences (price-fixing, market allocation and output restriction agreements) may be reviewed under the new civil agreements provision (section 90.1).
Some of the types of agreements that may potentially be subject to review under section 90.1 include non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements – in short, agreements between actual or potential competitors that, while not hard-core agreements, may have anti-competitive effects (i.e., may prevent or lessen competition substantially).
Are vertical agreements (e.g., supplier-customer, franchisor-franchisee, licensor-licensee agreements) caught under the new criminal provisions (section 45)?
In most instances, likely not. While the previous conspiracy provisions applied to both vertical and horizontal agreements (e.g., supplier-distributor-customer and competitor-competitor agreements), the new criminal provisions appear to be restricted to horizontal agreements between competitors (and potential competitors). In this regard, it is thought that the scope of the new conspiracy provisions has been narrowed, although this remains to be tested before the courts.
The Competition Bureau has also indicated in its Competitor Collaboration Guidelines, issued following the amendments to the Act, that it will review the majority of allegedly anti-competitive vertical agreements under section 90.1 or the Act’s other civil reviewable matters provisions (e.g., section 79, abuse of dominance) and not under section 45 (criminal conspiracy agreements).
What is necessary to prove an agreement?
Canadian case law has established that while there must be a “meeting of minds” or “consensus” between parties, both informal and overt arrangements may be caught.
Moreover, it is well established that an agreement may be established based only on circumstantial evidence, which may include, among other things, evidence of meetings, exchanges of competitively sensitive information, identical or similar pricing (or sudden price stabilization), language suggesting the existence of an agreement, enforcement activities by competitors, attempts to keep meetings or other activities secret and conduct that can only be explained by the existence of an agreement.
Does an agreement need to be secret or confidential to be caught by section 45?
No. Both “overt” (i.e., non-secret) and “covert” (i.e., secret) agreements may be caught by the Act’s criminal conspiracy offences (section 45).
Does an agreement need to be carried out to violate section 45?
No. It is settled law in Canada that an offence lies in the agreement, not in the carrying out of an agreement. While acts in furtherance of a conspiracy/cartel may be used as additional evidence, they are not necessary to establish an offence under section 45.
What is the burden to prove that section 45 or section 90.1 has been contravened?
The burden for section 45 remains the criminal burden of proof – i.e., beyond a reasonable doubt. The burden for section 90.1, the new civil agreements provision, is the civil standard of proof – i.e., on balance of probabilities.
What are the potential penalties for contravening Canada’s criminal conspiracy offences under section 45?
The potential penalties for contravention of the criminal conspiracy provisions are fines of up to $25 million (per count), imprisonment for up to 14 years, or both.
Canadian courts may also issue “prohibition orders” prohibiting the continuation or repetition of an offence and order a party to take remedial steps to avoid future offences and comply with the law (e.g., implement a corporate compliance program).
Private parties may also commence civil damages actions for the violation of the criminal offences of the Act under Part VI, including under sections 45 (conspiracy), 47 (bid-rigging) and criminal misleading advertising (section 52).
Who enforces the conspiracy provisions of the Competition Act?
The Competition Bureau is responsible for the administration and enforcement of the Act, while the Director of Public Prosecutions has exclusive jurisdiction to determine whether to commence prosecutions for alleged violations of the Act’s criminal offences, including conspiracy, bid-rigging and criminal misleading advertising.
What enforcement powers does the Competition Bureau have?
The Competition Bureau has broad powers of investigation under the Act, which include the power to obtain search warrants, court orders to compel document production and oral testimony under oath and the ability to obtain wiretaps. The Bureau is also increasingly using these powers, particularly in relation to the enforcement of the criminal provisions of the Act.
What are the potential penalties under the new civil agreements provision (section 90.1)?
The federal Competition Tribunal has the power, on an application by the Commissioner of Competition, to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition substantially.
The Tribunal may make an order: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.
Unlike the criminal conspiracy provisions, however, the Tribunal does not have the power to impose monetary penalties and private parties do not have the right to commence private actions (i.e., exclusive jurisdiction to enforce section 90.1, like the abuse of dominance and merger provisions of the Act, lies with the Commissioner of Competition).
What defenses are available under the new conspiracy rules?
The amendments to the Act in 2009 and 2010 introduced a new ancillary restraints defense that will apply where it can be shown that: (i) an 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.
Most of the other pre-existing defenses also continue to apply (e.g., the affiliates and export defenses).
A new efficiencies defense has also been created under section 90.1 that will apply where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of the agreement. In this regard, the new civil provision dealing with non-criminal anti-competitive agreements is now aligned with the existing merger provisions of the Act, under which an efficiencies defense is also available.
Can private parties sue for breach of the conspiracy provisions of the Competition Act?
Yes. Under section 36 of the Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a private damages action. Class actions are also possible for violations of the criminal provisions of the Act.
The recent amendments, which has lowered the burden under section 45 of the Act, will make it easier to private plaintiffs and the Bureau to prove criminal conspiracy agreements (although the Bureau has acknowledged that the actual detection of conspiracy agreements remains challenging).
What are some examples of recent penalties imposed for breach of the criminal conspiracy provisions?
In the past fifteen years there have been more than eighty convictions for cartel offences in Canada with fines totaling approximately $250 million. In addition, in one recent case brought partly under the new conspiracy offences, companies in the polyurethane foam industry that plead guilty to a price-fixing conspiracy paid a total of $12 million in fines.
Are reductions in penalties possible for cooperating with an investigation?
Yes. The Competition Bureau has formal Immunity and Leniency Programs under which applicants may receive full immunity from prosecution (or a reduction in penalties) for cooperating with a Bureau investigation (see: Immunity and Leniency).
What are the requirements to qualify under the Bureau’s Immunity and Leniency Programs?
Under the Bureau’s Immunity Program, a party or company implicated in criminal conduct under the Act may offer to cooperate with the Bureau in its investigation and request immunity (i.e., full immunity from prosecution for criminal offences).
The criminal provisions of the Act include section 45 (price-fixing, market allocation and supply restriction agreements between actual or potential competitors), section 47 (bid-rigging) and section 52 (criminal misleading advertising).
In general, in order to be eligible under the Bureau’s Immunity Program, the Bureau must either (i) be unaware of an offence (and the immunity applicant is the first to disclose it) or (ii) the Bureau is aware of an offence, but does not yet have enough evidence to refer the matter for prosecution.
There are a number of other requirements including: (i) termination of participation in the illegal activity, (ii) not being the “ringleader” (i.e., not having coerced others to be a party to the illegal activity) and (iii) providing “complete, timely and ongoing co-operation” with the Bureau during an investigation.
The process for obtaining immunity is generally a multi-step process that involves seeking a “marker” from the Bureau (essentially a place in line, typically made on a hypothetical basis), making an initial “proffer” of information to determine eligibility in the Program (typically made by an applicant’s counsel on a without prejudice basis), negotiation of an immunity agreement (setting out the obligations of the immunity applicant and protections if the requirements of the Program are met) and disclosure and cooperation with the Bureau in the investigation and any subsequent criminal prosecution.
Importantly, immunity under the Act is a “race” in that full immunity is only available to the first applicant that complies with the Bureau’s requirements under its Program. As such, it is important for counsel advising individuals or companies that may have been involved in criminal conduct under the Act to immediately explore the potential benefits of seeking immunity, which can significantly reduce potential liability.
Under the Bureau’s Leniency Program, parties that have contravened criminal provisions of the Act that are not entitled to full immunity under the Bureau’s Immunity Program may nevertheless be eligible for leniency in sentencing.
In general, to be eligible under the Bureau’s Leniency Program, an applicant must: (i) have terminated its participation in the illegal conduct, (ii) provide full, frank, timely and truthful cooperation with the Bureau in its investigation and (iii) agreed to plead guilty (not required for immunity applicants).
Importantly, like the Bureau’s Immunity Program, timing is critical for immunity applicants. This is because the first leniency applicant is eligible to receive a 50% reduction of the fine that would have otherwise been recommended, the second leniency applicant is entitled to receive a 30% reduction in fine with subsequent applicants possibly receiving reductions in fines. Also, once the Bureau has referred a matter to the DPP for prosecution, leniency will no longer be available.
In addition, a leniency applicant that discloses evidence of another criminal offence under the Act may be eligible for so-called “Immunity Plus” – i.e., full immunity from prosecution for a second previously unknown offence, assuming that all requirements of the Immunity Program are met.
Successful leniency applicants may also be required to attend interviews and testify in prosecutions of other parties involved in the criminal conduct.
What are some of the key impacts for individuals and companies under the new conspiracy rules?
Some of the impacts of Canada’s new conspiracy rules include:
Increasing the risk of engaging in hard-core anti-competitive conduct (e.g., price-fixing, market allocation or output restriction agreements between competitors).
Lowering the bar for both the Competition Bureau and private plaintiffs to establish a criminal conspiracy under section 45.
Increasing the importance of reviewing commercial agreements, and other commercial arrangements, such as information sharing arrangements or joint venture agreements, for competition law compliance.
Likely leading to an increase in competition law litigation (i.e., private civil actions).
LINKS AND RESOURCES
Legislation: Competition Act, Criminal Code – Competition Bureau: Competition Bureau, Investigating Cartels – Enforcement Guidelines: Competitor Collaboration Guidelines – Bulletins: Immunity Program, Leniency Program – Pamphlets: Bid-Rigging, Competitor Collaboration, Trade Associations – Public Prosecution Service of Canada (PPSC): Public Prosecution Service of Canada.
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