Canadian COMPETITION LAW

August 3, 2010

Legislation

Competition law in Canada is governed by the federal Competition Act (the “Act”).  The Act is federal law of general application that contains criminal and civil sections and applies to most business activities in Canada, with few exceptions.  The Act is administered and enforced by the federal Competition Bureau (the “Bureau”), which is a federal enforcement agency headed by the Commissioner of Competition (the “Commissioner”).  While competition law was introduced in Canada in 1889 (one year before the introduction of the Sherman Act in the United States), Canadian competition law has for the most part only been actively enforced in Canada since 1986 when Canada’s new Act was introduced and when a number of changes were made to Canadian competition law to mark Canada’s modern era of competition law.

Purposes

The Act sets out four objectives of Canadian competition law as follows: (i) to promote the efficiency and adaptability of the Canadian economy, (ii) to expand opportunities for Canadian participation in world markets, (iii) ensuring that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and (iv) to provide consumers with competitive prices and product choices.  As a practical matter, at least from the perspective of competition law enforcement agencies, the main over-riding purpose of competition law is to ensure that consumers benefit from competitive and undistorted markets.

Criminal and Civil Sections

The Act contains a number of criminal competition law sections.  These include the criminal conspiracy (section 45), bid rigging (section 47), criminal misleading advertising (section 52) and deceptive telemarketing (section 52.1) sections.  The Act also contains a number of civil (non-criminal) sections.  These include the price maintenance (section 76), civil misleading advertising (section 74.01), predatory pricing (section 79 – abuse of dominance), refusal to deal (section 75), abuse of dominance (section 79) and tied selling, exclusive dealing and market restriction sections (all contained in section 77).

Enforcement

The Act is administered by the Bureau, which is a federal enforcement agency headed by the Commissioner, who investigates complaints by consumers and businesses.  Under the Act, the Commissioner’s enforcement powers include the power to make voluntary information requests, obtain compulsory production orders and search warrants and orders to interview employees under oath.  In addition, the Commissioner has the power to make applications to the federal Competition Tribunal (the “Tribunal”) for orders, including orders to stop conduct and/or pay civil penalties and refer criminal matters to the Director of Public Prosecutions (“DPP”) for criminal prosecution.  Proceedings may be commenced under the Act by the Bureau or based on complaints from customers, competitors or industry participants.  In addition to Bureau investigations, private parties may also in some cases commence private civil actions against persons contravening the criminal sections of the Act (including the criminal conspiracy and criminal misleading advertising sections) or seek “private access” to the Tribunal for Tribunal remedial orders (e.g., for a party to cease a particular type of conduct found to be anti-competitive).

Penalties

Contravention of the Act can be a serious matter and lead to significant penalties, lost time and negative publicity for individuals, companies, other types of organizations and their executives and personnel.  The potential penalties under the Act include criminal fines, civil “administrative monetary penalties” (essentially civil fines), imprisonment, damages as a result of private civil actions and prohibition orders or injunctions to stop conduct.

For example, some of the specific potential penalties under the Act include criminal fines of up to CDN $25 million (for criminal conspiracy as of March 12, 2010), civil fines of up to CDN $10 million (for abuse of dominance) and imprisonment for up to 14 years (for criminal conspiracy as of March 12, 2010).  Private parties (e.g., consumers or competitors) can also commence private actions for damages where they have suffered actual damage or loss as a result of a violation of the criminal provisions of the Act (e.g., criminal conspiracy).  In addition, there is also potential director and officer liability under the Act for competition law violations.  In other words, directors and officers of companies may, in addition to a company itself, also be exposed to criminal or civil penalties including fines or imprisonment.

As a practical matter, the Bureau is more likely to proceed criminally (as opposed to civilly) where there has been intentional or fraudulent anti-competitive conduct, as opposed to where, for example, conduct has been engaged in accidentally or negligently and where an organization takes immediate remedial steps to correct the conduct.  With respect to the size of penalties, while the potential fines and other penalties can be very significant, in most cases the maximum penalties are not imposed.  Having said that, the fines or other penalties that may be imposed for conduct that contravenes the Act can nevertheless have serious negative consequences for companies and individuals.  For example, in one recent case involving a Manitoba real estate investment company, the company paid more than $150,000 in penalties as a result of operating an allegedly misleading promotional contest to promote real estate investment opportunities.

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