Canadian COMPETITION LAW

December 15, 2009

As a result of recent landmark amendments to the federal Competition Act (the “Act”), the impact of competition law on trade associations in Canada is now much more significant.  This article discusses some of the highlights of Canada’s new competition law and the impacts of the new criminal conspiracy provisions that will come into force in March, 2010.

The Competition Act & Trade Associations

There are no specific provisions of the Act dealing with trade associations.  However, some of the general provisions that are particularly relevant to trade association activities include the criminal conspiracy, bid rigging, misleading advertising, bid rigging and abuse of dominance provisions – all of which have recently changed.

In general, the types of association activities that can raise competition law issues include those dealing with pricing, customers, territories, market shares, terms of sale and advertising.  Some specific activities that can be problematic include fee guidelines, advertising restrictions, membership restrictions, association discipline, bylaws and rules relating to key aspects of competition and price fixing, market allocation and bid rigging agreements engaged in by association members.

New Criminal Conspiracy Rules

Significant new criminal conspiracy provisions will come into force in March.  Under the new rules, it will be possible to establish price fixing, market allocation and output restriction agreements (three types of “hard core” cartel agreements) without establishing any adverse market effects.

The primary impact of these changes will be that, whereas formerly market power was a prerequisite to establish a criminal conspiracy (i.e., that a cartel agreement prevented or lessened competition “unduly” in one or more relevant markets), under the new law, parties to an agreement with modest market shares may also be caught.  As such, trade association members that engage in price fixing, market allocation or boycott agreements (and potentially where associations facilitate such agreements) will face potentially increased criminal liability.

In addition, the penalties for criminal cartels will also more than double – with fines of up to $25 million fines and/or imprisonment for up to 14 years (increased from $10 million and 5 years).   The enforcement of the criminal conspiracy provisions also remains an enforcement priority for the Competition Bureau, which has indicated in recent public statements that it is increasingly interested in detecting domestic (i.e., Canadian) cartels.

New Penalties for Misleading Advertising

The false or misleading representation provisions of the Act are also highly relevant to trade associations and their members.  The Act contains both criminal and civil misleading advertising provisions, which apply to false or misleading representations made to promote the supply or use of a product or a business interest.    As a result of the recent amendments, contravention of these provisions will now potentially be subject to civil fines of up to $750,000 (for individuals) and $10 million (for corporations).

New Penalties for Abuse of Dominance

As a result of the recent landmark amendments, civil fines have been introduced for abuse of dominance for the first time in Canada of up to $10 million ($15 million for repeat contraventions).  Under the Act, abuse of dominance occurs where a dominant firm (or firms) has engaged in a practice of anti-competitive acts that has an intended negative effect on a competitor that is exclusionary, predatory or disciplinary, with the result that competition has been, is being or is likely to be prevented or lessened substantially.

Some of the types of trade association activities that can raise abuse of dominance issues include restricting access to essential services or markets and standard setting that may prevent or impede entry.

New Bid Rigging Law

Canada has a standalone bid rigging provision that applies where, in response to a call for tenders or bids, one or more bidders agrees not to submit a bid (or where two or more bidders agree to submit bids that have been prearranged).  These rules can be relevant to members of trade associations that are involved in competitive bids or tenders (e.g., the construction industry).  After the recent amendments, it is also now a criminal offence to agree to withdraw a bid that has already been made.

Trade Association Enforcement Guidelines

Finally, the Bureau has recently issued a new draft Information Bulletin on Trade Associations specifically dealing with the enforcement of the Act in relation to trade associations.  Together with its proposed new enforcement guidelines for competitor collaborations, the new trade association enforcement guidelines are expected to further alter the analysis of the application of Canadian competition law to the activities of trade associations and their members.

Impacts on Canadian Trade Associations

The landscape of Canadian competition law has drastically changed.  Some have said the recent amendments are the most significant in twenty-five years.  In our view, the changes are the most significant since Canada introduced competition law in 1889.  The impacts on Canadian firms and trade associations will be significant.  It remains to be seen, however, what the practical outcomes will be for Canadian firms and associations as a result both of the new rules and Competition Bureau and private enforcement.

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Competition Law Compliance Tips for
Canadian Trade and Professional Associations

The federal Competition Act can apply to many trade and professional association activities in Canada, including board and membership meetings, membership criteria and discipline, member surveys and benchmarking, association codes of conduct and dealings with suppliers and customers. While trade associations can, and frequently do, serve many legitimate purposes, since trade and professional association activities typically involve direct interaction between competitors, it is prudent for association executives, members and their advisors to take basic steps to proactively reduce potential competition law risk.

The federal Competition Bureau (Bureau) has also commenced many civil and criminal association related enforcement matters, including in the areas of conspiracy (cartels), bid-rigging and abuse of dominance, as well as regularly discussing association activities that can raise concerns and the importance of Competition Act compliance. The Bureau has also released several trade association related enforcement guidelines, including its Trade Associations and the Competition Act pamphlet and Corporate Compliance Programs bulletin.

The following are some key legal tips for trade and professional associations to comply with Canada’s Competition Act:

Implement a competition law compliance program. Developing and implementing an effective and credible competition law compliance program plays a crucial role for trade associations to mitigate risk under the Competition Act. As such, implementing a compliance program should be at the top of the compliance list for all associations.

Competition compliance options for associations range from formal compliance programs, which encompass all association activities to compliance guidelines for key activities based on risk (e.g., meetings, surveys/benchmarking and other types of information exchanges and specific initiatives that may raise competition law issues, such as joint negotiations with suppliers or customers, discussions or projects involving competitively sensitive topics).

Some of the key benefits of a competition law compliance program include reducing the risk of violating federal competition law, reducing the costs of investigations and proceedings should they occur and potentially mitigating penalties. Association board and other members may also consider requiring that their associations have a credible and effective competition compliance program to participate in association activities. For more information, see: Associations, Association Compliance, Compliance and Immunity & Leniency.

Prepare agendas and meeting minutes. Associations should prepare written agendas for all meetings involving competitors (including board of director meetings) and meeting minutes.  Discussions at meetings should also stay within the boundaries of legitimate agenda items and discussions (or exchanges) of “competitively sensitive information” should be avoided, including discussions of current or future pricing, costs, individual customers and suppliers, markets, market shares, output, competitive bidding and business or strategic plans.

The Bureau recommends that associations provide a clear copy of the agenda before trade association meetings for competing firms to participate in the meeting. For more information, see: Association Compliance and Information Exchanges.

Prepare and adopt conduct of meeting guidelines. Adopting and strictly following conduct of meeting guidelines is a proactive method to reduce competition law risks for associations. Such guidelines commonly include restrictions on the exchange of competitively sensitive information and topics that may lead to conspiracy risks under section 45 of the Competition Act (e.g., discussions relating to pricing, markets, concerted refusals to deal or limiting the production or supply of goods or services). For more information, see: Information Exchanges, Conspiracy (Cartels), Conspiracy FAQs and Refusal to Deal.

Compliance guidelines should also address steps to take if inappropriate discussions or activities arise during association meetings or events, including when attendees should leave meetings, report incidents to association executives and/or legal counsel and record efforts to prevent anti-competitive discussions from continuing. In certain cases, individuals or organizations that have participated in potentially illegal activities may also qualify for immunity from prosecution or lenient treatment under the Bureau’s Immunity and Leniency Programs. For more information, see: Immunity & Leniency.

Conduct compliance audits and appoint a compliance officer. One practical way for associations to monitor compliance is to conduct periodic audits of association activities, which can be performed on an association-wide, activity-specific or spot basis. Appointing a compliance officer to monitor, audit and assist with compliance can also help ensure that association members understand and comply with the Competition Act. For more information, see: Association Compliance and Compliance.

Conduct compliance orientations for new executives and personnel. Another practical step associations can take to assist with competition law compliance is to conduct compliance orientations for new board members, executives and other key personnel (e.g., staffers who are routinely involved in association surveys or benchmarking). The Bureau also recommends requiring company/member representatives to complete competition law compliance training before joining trade associations and participating in association activities. For more information, see: Association Compliance and Compliance.

Obtain legal advice for key association initiatives. Care should be taken in relation to specific types of trade association activities where there is increased potential risk.  Associations should obtain advice from qualified legal counsel for key activities that may raise competition law concerns, including surveys and benchmarking, standard setting, member discipline and joint member initiatives (e.g., joint marketing, purchasing or negotiations with significant purchasers).

Avoid “off the record” meetings. Associations should discourage informal or “off the record” meetings between members, particularly on the “fringes” of association meetings or using association facilities. Private meetings between competitors under the pretext of association meetings should also be discouraged. Association members should also be aware that merely because a meeting is held “off the record” or “in camera” (i.e., a discussion is not recorded in meeting minutes) does not mean that discussions (which may be recorded in other ways such as attendee notes, e-mails or texts, etc.) or the fact of the meeting itself cannot be used as evidence in competition law proceedings.  The Bureau and private plaintiffs can, and often have in the past, used such “circumstantial evidence” to establish a criminal conspiracy agreement.

Review association activities and rules. Associations should generally review their initiatives and activities through a “competition lens”. For example, if a particular association activity may lead to higher prices, less quality or choice, increase barriers for some members or competitors to compete or generally reduce competition, this may well raise competition law concerns (or at minimum the need to consult knowledgeable legal counsel).

It is also prudent for associations to ensure open consultations among members when developing or reviewing existing rules, codes of conduct and standards and include a clear statement of objectives, expectations and responsibilities that comply with the Competition Act. For example, associations should avoid rules (e.g., in association codes of conduct) that establish prices, mandate levels or types of services, restrict advertising or exclude viable competitors from the market.

Require associations to adopt credible and effective competition compliance programs. Before allowing company personnel to participate in trade or professional association activities, ensure that the association has adopted and follows a credible and effective competition compliance program. As a practical matter, if competition law issues arise (or enforcement) the association, member firms and their participating directors and officers and other personnel may be exposed to risk or penalties under the Competition Act. For more information, see: Association Compliance and Compliance.

Consider using third parties for surveys, benchmarking and other information exchanges. Before collecting and sharing competitively sensitive information within the association, consider using third parties to collect such information and distribute it with precautions to minimize potential competition law risk (e.g., circulating information in aggregated form, not distributing raw competitively sensitive data to competing board or other members, etc.). For more information, see: Information Exchanges.

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SERVICES AND CONTACT

I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

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