Canadian COMPETITION LAW

August 16, 2010

What is the scope of Canada’s new conspiracy regime?

Canada now has three new criminal conspiracy offences for “hard core” cartel conduct, making bare price fixing, market allocation and supply restriction agreements per se illegal – i.e., without the necessity of establishing any anti-competitive effects on a relevant market (or markets).  At the same time, a second civil provision has come into force under which other commercial agreements (i.e., agreements that do not fall within the scope of the new criminal offences) may be subject to review, where they prevent or lessen competition substantially.

When did Canada’s new two-track conspiracy regime come into force?

On March 12, 2010, the Competition Bureau announced the coming into force of Canada’s new two-track conspiracy regime.  While the majority of the recent amendments to the Act came into force in March, 2009, Canada’s new two-track conspiracy regime came into force one year later – on March 12, 2010.

Why was Canada’s old conspiracy law changed?

Canada’s new U.S.-style criminal conspiracy regime is meant to make the enforcement of hard-core criminal cartel activity easier – i.e., bare price-fixing, market division and output restriction agreements between competitors and potential competitors –  by removing the former competitive effects test.  At the same time, the new rules are meant to allow a more detailed analysis of non-hard core agreements between competitors, such as joint venture and strategic alliance agreements (i.e., where a more detailed analysis of the potential effects on a market may be warranted).  In short, the new regime is meant 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.

What is now illegal under Canada’s new criminal regime (i.e., section 45)?

Under the new criminal conspiracy provisions of the Act, three categories of agreements are now “per se” illegal (i.e., with no requirement to establish any negative effect on a relevant market or markets).  The following three types of agreements 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).

What types of agreements may potentially be subject to review under the
new civil agreements provision of the Competition Act (i.e., 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) will be potentially reviewable under the new civil agreements provision (section 90.1).  Some of the types of agreements that may potentially be subject to challenge 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.

Are vertical agreements (e.g., supplier / customer, franchisor / franchisee, licensor / licensee agreements)
caught under the new criminal provisions (section 45)?

Likely not.  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 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.  The Competition Bureau has also indicated in its recent Competitor Collaboration Guidelines that it will review the majority of allegedly anti-competitive vertical agreements under the new civil provision (section 90.1), or the Act’s other reviewable matters provisions (e.g., section 79 – abuse of dominance), not under the criminal conspiracy provisions.

Where can I get more information about the Competition Bureau’s enforcement policy
under the new two-track regime and its approach to collaborations between competitors?

For more information about the Competition Bureau’s enforcement policy under Canada’s new two-track regime and its approach to collaborations between competitors, including joint ventures and strategic alliances, see: Competitor Collaboration Guidelines (Enforcement Guidelines) and Reaching an Agreement with Competitors (Pamphlet).

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 among 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 section 45 (the criminal conspiracy provision of the Competition Act.

Does an agreement need to be carried out to violate section 45?

No.  It is settled law in Canada that the offence is in the agreement, not in the carrying out of an agreement.  While acts in furtherance of a cartel may be used as additional evidence, they are not necessary in order 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 – i.e., on balance of probabilities.

What are the potential penalties for contravening Canada’s criminal conspiracy offences under section 45?

Under the new rules, the penalties for contravention of the criminal conspiracy provisions have been increased to include fines of up to $25 million (per count) and/or imprisonment for up to 14 years (increased from the previous $10 million per count and 5 years).  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 between the Competition Bureau and an accused.

What are the potential penalties under the new
civil agreements provision (section 90.1)?

The federal Competition Tribunal now 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 in a relevant market.  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 any right to commence private actions.

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 the criminal conspiracy, bid rigging and criminal misleading advertising provisions.

What enforcement powers does the Competition Bureau generally have?

The Competition Bureau has broad powers of investigation under the Competition Act.  These include the power to obtain search warrants (including for computer searches), obtain court orders to compel document production and oral testimony under oath, as well as the ability to obtain wiretaps in some cases.  In some cases the Competition Bureau may rely on voluntary information requests, while in others it may resort to compulsory document or information requests (e.g., using its powers under sections 11 or 15 of the Act).

Are conspiracies an enforcement priority for the Competition Bureau?

Yes.  Criminal conspiracies, together with abuse of dominance and deceptive marketing, remain top enforcement priorities for the Competition 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.

What industries or sectors are practically most at risk?

The Competition Actis “law of general application”.  As such, it applies, with few exceptions to all businesses and industries in Canada.  Having said that, as a practical matter, the Competition Bureau has tended to focus its enforcement resources in recent years on industries with high consumer impact, including gasoline, real estate and high profile retailers.  Historically, industries in which demand is declining, there is excess capacity, homogenous products, competition primarily on price and consolidated markets have tended to be at the greatest risk for the formation of cartels.

What defences are available under the new conspiracy rules?

The recent amendments have introduced a new ancillary restraints defence that will apply 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 defences and exceptions continue to apply (e.g., the exception for affiliates and export defence), while other defences have been repealed.

In addition, a new efficiencies defence has 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 (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.

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.  In general, it is thought that the recent amendments (which have lowered the burden to prove criminal conspiracies) together with several recent class action cases in British Columbia and Ontario (which has made it easier to certify price-fixing class actions) will lead to an increase in competition law private actions in Canada.

Have there been any recent significant
competition law private actions?

Yes.  See for example: Supreme Court of Canada Denies Leave to Appeal in DRAMS Price-Fixing Class Action.  For more information about competition law private actions see: Competition Law Litigation in Canada.

What are some examples of recent penalties imposed
for breach of the criminal conspiracy provisions?

The Competition Bureau recently announced that Solvay Chemicals has been fined Cdn. $2.5 million in relation to its role in a hydrogen peroxide price-fixing conspiracy.  See Solvay Chemicals Fined $2.5 Million in Hydrogen Peroxide Price-Fixing Conspiracy.  The Competition Bureau has also recently laid 28 additional charges in its ongoing investigation of a gasoline price-fixing cartel in Quebec.  See: Quebec Gasoline Price-fixing Case.  In the past fifteen years there have been more than eighty convictions for cartel offences in Canada with total fines of approximately $250 million.

Are reductions in penalties possible for cooperating with an investigation?

Yes. The Competition Bureau has a formal immunity program intended to encourage participants in criminal cartels to disclose their illegal conduct to potentially receive immunity from prosecution.  The Competition Bureau’s immunity program is set out in a Bureau Information Bulletin.  See: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).  Immunity applications are made to the Competition Bureau, which will determine whether to recommend to the Director of Public Prosecutions that the request be granted.

What are the requirements to qualify under the
Competition Bureau’s immunity program?

In general, a party may receive immunity where: (i) they are the first to approach the Competition Bureau with evidence of a cartel offence that the Bureau is unaware of or (ii) of which the Bureau is aware but has insufficient proof to refer the matter to the DPP for prosecution.  Both the Bureau’s immunity and leniency programs operate on a “first in” basis, and so time is of the essence in order for participants to seek immunity or leniency (where immunity is unavailable).

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, making full, frank and truthful disclosure of all evidence and information that is known (or available), disclosing all offences under the Act in which it may be involved and agreeing to provide full, timely and continuous cooperation during the Competition Bureau’s investigation.

Is more information available about the Competition Bureau’s
Immunity and Leniency programs?

Yes.  For more information about the Competition Bureau’s immunity and leniency programs see: Immunity from Prosecution (Pamphlet), Immunity Program Under the Competition Act (Bulletin), Investigating Cartels, Memorandum of Understanding, Revised Draft  Information Bulletin on Sentencing and Leniency in Cartel Cases (Bulletin) and Sentencing and Leniency in Cartel Cases (Information Bulletin).

What are some of the key impacts for individuals
and companies under the new laws?

Some of the expected impacts of the new rules include: (i) increasing the risk of engaging in hard-core anti-competitive conduct (e.g., price-fixing, market allocation or output restriction agreements), (ii) lowering the bar for the Competition Bureau and private plaintiffs to establish a criminal conspiracy under section 45 (the criminal conspiracy provision of the Act), (iii) increasing the importance of reviewing commercial agreements (and other commercial arrangements, such as information sharing arrangements or joint venture agreements) for competition law compliance and (iv) potentially leading to an increase in competition law litigation in Canada.

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