“The 2009 amendments to the Act create a more effective criminal enforcement regime for the most egregious forms of cartel agreements, while at the same time removing the threat of criminal sanctions for legitimate collaborations to avoid discouraging firms from engaging in potentially beneficial alliances. As explained in greater detail in these Guidelines, the amended criminal prohibition is reserved for agreements between competitors to fix prices, allocate markets or restrict output that constitute ‘naked restraints’ on competition (restraints that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture). Other forms of competitor collaborations, such as joint ventures and strategic alliances, may be subject to review under a civil agreements provision that prohibits agreements only where they are likely to substantially lessen or prevent competition.”
(Competition Bureau, Competitor Collaboration Guidelines)
“A significant interest can be acquired or established under shareholder agreements, management contracts, franchise agreements and other contractual arrangements involving corporations, partnerships, joint ventures, combinations and other entities, depending on the terms of the arrangements. In addition, loan, supply and distribution arrangements that are not ordinary-course transactions and that confer the ability to materially influence the economic behaviour of the target business (for example, financing arrangements and terms of default relating to such arrangements; long-term contractual arrangements or pre-existing long-term business relationships) may constitute a merger within the meaning of section 91.”
(Competition Bureau, Merger Enforcement Guidelines)
With the exception of several specific merger control exemptions, there are no standalone joint venture provisions of the Competition Act (the “Act”). In general, joint ventures (i.e., collaborations between competitors or companies at different levels of a supply chain) may require a review or trigger issues under several criminal or civil provisions of the Act.
These include: (i) the criminal conspiracy or civil agreements provisions of the Act (sections 45 or 90.1), where a joint venture involves an agreement among competitors or potential competitors; (ii) the civil abuse of dominance provision of the Act (section 79), where a joint venture involves a firm or firms with market power and may prevent or lessen competition substantially; or (iii) the merger provisions of the Act (under Parts VIII and IX of the Act), where a joint venture may constitute a merger that may raise substantive market effects issues or require pre-merger notification.
Joint ventures are, therefore, fact specific, can be complex and require a consideration of the potential application of several different provisions of the Act. For some of the Competition Bureau’s key conspiracy, abuse of dominance and merger control guidelines that address joint ventures, see the Links and Resources below.
The following are some general key competition law points regarding joint ventures in Canada, which focus on the criminal conspiracy and civil agreements provisions of the Act (sections 45 and 90.1) and some best practices to minimize risk. Of course, every joint venture is different and should be individually reviewed and the potential application of the Competition Act considered.
Canadian Competition Law & Joint Ventures:
Some Key Points & Best Practices to Minimize Risk
1. Merely referring to a competitor collaboration as a “joint venture” will not necessarily mean there is no competition law risk nor remove the collaboration from challenge or enforcement scrutiny. Joint ventures are fact specific and can take a number of forms (and require consideration of several criminal and civil provisions of the Act).
2. In this regard, joint ventures may be pro-competitive or anti-competitive (or partially some of each, which may complicate matters and mean that questions including the primary purpose of the JV, whether competitive restraints are “ancillary”, etc. need to be considered).
3. In Canada, the Act includes both: (i) criminal conspiracy offences that prohibit, among other things, agreements between competitors to fix prices or restrict output; and (ii) a civil agreements section under which some competitor-competitor agreements, that are not “bare” or “naked” agreements to fix prices, divide markets or restrict output, may be challenged by the Bureau before the Competition Tribunal where they prevent or lessen competition substantially.
4. ”Joint ventures” or other types of collaborations between competitors are much more likely to attract liability where they are in essence merely agreements to fix prices, not compete, restrict output, etc. (i.e., joint venture partners really can’t point to any or few pro-competitive rationales for the JV or the overall purpose of the JV is to reduce competition). In this regard, in some Canadian cases companies were convicted for operating “joint ventures” that were in fact shams and in substance mere price-fixing arrangements to pool and limit production, fix price, etc.
5. The Competition Bureau is more likely it is thought, since the Act was amended in 2009, to challenge legitimate competitor-competitor joint ventures (if at all) under the civil agreement section of the Act (section 90.1) or other civil sections. One example of this was the Bureau’s challenge of certain JV agreements between Air Canada and United, in which the Bureau brought a section 90.1 (civil agreements provision) challenge in a case that was ultimately settled with an agreement reached between the Bureau and Air Canada / United.
6. Where, however, JV partners can point to pro-competitive justifications for teaming up with a competitor(s), such arrangements are less likely to be challenged as criminal arrangements/agreements. In this respect, it is generally prudent to internally document the pro-competitive justifications for any joint initiative with a competitor.
7. Some of the types of pro-competitive considerations that can be relevant include: an inability to complete projects individually; complementary resources (e.g., one party has marketing capabilities, another access to capital, expertise, etc.); efficiencies likely to be achieved through the joint venture; scale required to complete a particular project (e.g., exploration project), etc. Of course, these are merely some of the highline pro-competitive justifications that may mean a JV is less likely to face any credible competition law challenge.
8. When entering into a JV with a competitor(s), the following are a few general best practices: (i) limit coordination to the JV (i.e., keep the collaboration as narrow as necessary to achieve the pro-competitive objectives of the project); (ii) restrict / limit the flow of competitively sensitive information relating to non-JV activities; (iii) as discussed above, internally document the pro-competitive rationales for cooperation (and also reflect those pro-competitive rationales in public announcements, updates, etc.); and (iv) keep marketing / sales personnel in non-JV activities (i.e., where JV partners compete) apart.
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