Canadian COMPETITION LAW

Reading some of the recent coverage of the global LIBOR price-fixing investigation made me think about how this case illustrates the sometimes subtle distinction between legitimate and anti-competitive industry “regulation” by associations.

For example, in this particular case, the U.K. Treasury announced today that it had accepted all of the recommendations of an independent review of the LIBOR benchmark, which will include the removal of the British Bankers’ Association (the “BBA”) as the “operational LIBOR administrator” (see also: Libor to be regulated ‘without delay’).  LIBOR regulation is, therefore, set to be shifted away from the BBA (a trade association comprised of UK banking and financial services firms) to a new legislatively authorized Financial Conduct Authority.

Specific changes are to include: bringing LIBOR activities within the scope of statutory regulation (Including the submission and administration of LIBOR); creating a new criminal offence for misleading statements in relation to benchmarks, including LIBOR (and amending the language for existing offences); and giving the new Financial Conduct Authority specific power to make rules requiring banks to submit to LIBOR (including a code of conduct).

While the conduct in this specific case, LIBOR and the resulting competitive effects (or potential effects) are all clearly complex, and any wrongdoing not established, the case seemed to me as I said to raise the issue of when an association may assume an industry “regulatory” role and when industry association coordination, rules or barriers may raise competition/antitrust concerns.

Many trade associations may see their roles as naturally including the “regulation” and oversight of members and their industries and, in many cases, this is unlikely to be problematic.  For example, when such “regulation” is pro-competitive – for example, enhances the quality of members’ products or services, raises the profile of an industry or an association’s members or ensures that members’ adhere to objective and uniform standards of legal or ethical conduct.

When, however, association “regulation” moves into competitively sensitive areas that may lead to coordination or the dampening of competition among members (e.g., coordination or restrictions on price, output, advertising/marketing, etc.), such “regulatory” efforts can potentially lead to serious conspiracy (i.e., cartel) concerns.  In Canada and the U.S. these types of activities have typically been challenged by the enforcement authorities under section 45 of the Competition Act (criminal conspiracy agreements) or Section 1 of the Sherman Act.

Another general category of association “regulation” that can raise competition/antirust issues is where an association enacts rules that prevent (or otherwise makes it more difficult) for some members to access facilities or assets that may be characterized as “essential” to compete effectively.  In Canada, such “unilateral” steps by associations can, depending on the circumstances, be challenged under the abuse of dominance provisions of the Competition Act (sections 78 and 79), which has been the case with recent Competition Bureau challenges of The Canadian Real Estate Association and The Toronto Real Estate Board (in the ongoing TREB abuse of dominance case).  Both of these cases relate to allegedly anti-competitive membership rules which the Bureau has taken the position make it more difficult (or impossible) for some types of real estate services models to compete.

It is also key for associations to consider whether they have legislative authority for some activities that may otherwise raise competition law concerns (in which case regulation, including which may otherwise violate the Competition Act, may be immune under the regulated conduct defence).  (Industry members, associations or their members will not necessarily be immune from competition laws, however, merely because some aspects of an industry are regulated.)

Given that trade association “regulation” may therefore be either perfectly benign (and in fact pro-competitive) in some cases, while raising serious criminal or civil competition/antitrust concerns in others, it is incumbent for associations to review rules, codes of conduct and key initiatives to assess whether they are likely to be pro- or anti-competitive (and in particular, whether they may raise issues under the conspiracy or abuse of dominance provisions of the Competition Act).

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