Canadian COMPETITION LAW

September 6, 2009

Overview

In many cases trade association activities serve legitimate pro-competitive purposes, such as industry lobbying, education, promoting an industry or profession and setting standards.  However, because trade association activities by their nature involve the interaction of direct competitors, they can also raise significant competition law issues.  Because of the potential competition risk associated with some trade association activities, the following are twenty things for trade associations to know about Canadian competition law.

1.  Canadian competition law

In Canada, competition law is governed by the federal Competition Act.  The Competition Act is federal legislation, so applies across Canada, and is law of so-called “general application”, which means that it applies to most business activities in Canada including most trade association activities.

The Competition Act contains criminal and civil provisions, including those relating to conspiracy (e.g., price fixing and market allocation), bid-rigging, resale price maintenance, misleading representations and abuse of dominance, among others.  In general, the legislation deals with anti-competitive behavior engaged in by multiple firms (e.g., criminal conspiracies) as well as single firms (e.g., abuse of dominance).  Many of the key provisions of the Competition Act also apply to trade associations and their activities (discussed in more detail below).

2.  Trade association investigations

The federal Competition Bureau has been investigating trade associations in Canada for over a hundred years.  During this time, hundreds of Canadian trade associations and their members have been investigated for anti-competitive conduct under Canadian competition laws or have been the subject of penalties imposed under the Competition Act and previous competition laws.

3.  Competition Act sections relevant to trade associations

There are no specific sections of the Competition Act that deal exclusively with trade associations.  However, some of the general provisions that are particularly relevant to trade associations in Canada include those dealing with agreements between competitors (i.e., the criminal conspiracy and bid rigging provisions), misleading representations, resale price maintenance and abuse of dominance provisions.

4.  Areas of risk for trade associations

In general, the types of trade association activities that can raise potential competition law issues include those that deal with pricing, customers, territories, market shares, terms of sales and advertising restrictions.  Some of the specific types of trade association activities that can raise competition law issues include:

– Mandatory or suggested fee guidelines
– Advertising restrictions
– Membership restrictions, rules and expulsions from membership
– Association discipline
– Membership bylaws and rules relating to aspects of competition
– Trade association meetings and conventions
– Exchanges of competitively sensitive information
– Voluntary codes of conduct that impact important aspects of competition

5.  New criminal conspiracy provisions

New criminal conspiracy provisions will come into force early next year.  Under these new provisions, price fixing, market allocation and output restriction agreements (three forms of so-called “hard core” cartel conduct) will be able to be established without the necessity of showing adverse market effects.

The primary impact of these significant recent amendments to the criminal conspiracy provisions is that, whereas formerly market power was a prerequisite to establish a criminal conspiracy (i.e., negative effects on a relevant market or markets as a result of the anti-competitive agreement), under the new law, parties to an agreement with modest market shares will also be potentially criminally liable.

Some of the kinds of agreements between members of trade associations that can raise potential competition law issues include agreements to fix prices, boycott other members or allocate geographic markets or customers.

6.  New increased penalties for criminal conspiracies

The potential penalties for contravention of the new conspiracy provisions that will come into force early next year will include fines of up to CDN $25 million (per count) and/or imprisonment for up to 14 years.  These penalties are significantly higher than the previous penalties, and signal that the enforcement of criminal conspiracies is a priority for both the current conservative government and the Competition Bureau.

7.  Misleading representations (criminal and civil)

The misleading representation provisions of the Competition Act are highly relevant to trade associations and their members.  The Competition Act contains both criminal and civil misleading representation provisions, which apply to false or misleading representations made to promote the supply or use of a product or a business interest.

Based on the potential relevance of these provisions and liability for trade associations and their members, it is prudent that trade associations and their members ensure that they do not engage in false or misleading representations.  In addition, it is important that trade associations ensure that their rules and bylaws do not encourage false or misleading representations or restrict legitimate pro-competitive advertising by members.

8.  New increased penalties for misleading representations

New misleading representations provisions were passed earlier this year.  Under these new provisions, misleading representations can result in civil “administrative monetary penalties” of up to CDN $750,000 (or individuals) or CDN $10 million (for corporations).

9.  Abuse of dominance

Abuse of dominance is another section that potentially applies to trade associations and their activities. Under sections 78 and 79 of the Competition Act, abuse of dominance occurs where a dominant firm (or firms) in a market has engaged in (or is engaging 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 potentially raise abuse of dominance issues include efforts to restrict access to essential services or markets or set standards that result in impeding entry (or restricting membership) into an important or necessary association.

There are also new significant penalties for abuse of dominance that include “administrative monetary penalties” (essentially civil fines) of up to CDN $10 million (CDN $15 million for repeat contravention of the abuse of dominance provisions).

10.  Resale price maintenance

The previous criminal resale price maintenance provision, which was highly relevant to trade associations (prohibiting among other things, refusals to supply based on a person’s low pricing policy and attempts to maintain certain prices), has been repealed and replaced with a new civil provision.  While this will reduce criminal risk for trade associations, there is now under the new civil provision a private right of access whereby private parties can seek and obtain remedies from the federal Competition Tribunal.

11.  New bid rigging law

In addition to the criminal conspiracy provisions, there is also a separate standalone bid rigging provision under the Competition Act.  This provision applies where, in response to a call for tenders or bids, one or more bidders agree not to submit a bid or where two or more bidders agree to submit bids which have been prearranged among the bidders.

In addition, as a result of recent amendments, it is also now a criminal offence to agree to withdraw a bid that has already been made.

Common forms of bid rigging arrangements include bid suppression, cover bidding, market allocation and bid rotation.  Like the criminal conspiracy provisions, bid rigging is a criminal offence with potential penalties including imprisonment and criminal fines.

Bid rigging raises potential risk particularly in industries where bids or competitive tenders are a common form of competing for projects and contracts (e.g., the construction industry).

12.  New trade association enforcement guidelines

The Bureau has recently issued draft enforcement guidelines (Information Bulletin on Trade Associations) specifically dealing with trade associations and their activities in Canada.

13.  New competitor collaboration guidelines

The Bureau is currently in the process of issuing enforcement guidelines specifically for collaborations between competitors.

14.  Compliance programs

The Competition Bureau strongly recommends that trade associations adopt competition compliance policies:

“A [compliance] program plays a crucial role for trade associations because trade associations face unique compliance issues.  Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct.  A number of past cases have involved trade associations that were engaged in agreements to harm competition.  It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct.  Such programs may allow trade associations and its members to avoid improper actions and to protect themselves form being used as a conduit for illegal activities.”

In addition, the Competition Bureau has recently reissued its guidelines for corporate compliance programs, which specifically deal with trade association compliance policies.

An effective compliance policy can have many benefits for trade associations.  These include reducing the risk of non-compliance, contributing to a good reputation in the market, lowering compliance and litigation costs, avoiding adverse publicity, providing early warnings of anti-competitive conduct and lowering the risk and exposure for senior management, employees and association members.

15.  Director and officer liability

Directors and officers can face both criminal and civil liability for contravention of the Competition Act (i.e., in addition to an association itself and its members).

16.  Civil damages actions

In addition to enforcement by the federal Competition Bureau, civil damages actions are possible under the Act for violations of the criminal provisions.  For example, in the case of trade associations, such actions can be commenced by competitors or customers that have suffered damages as a result of trade association activities or the conduct of its members.

17.  Binding advisory opinions

Binding advisory opinions are available from the Competition Bureau as to whether conduct violates the Competition Act.  In addition, following the recent significant amendments to the Competition Act, the Competition Bureau will provide advisory opinions for no charge until the new provisions come into force in March, 2010.

18.  Competition Bureau immunity program

The Competition Bureau has established formal criminal immunity and leniency programs.  These programs can have significant benefits for parties to illegal conduct that contact the Bureau first (i.e., being “first in” can result in avoiding criminal liability), but can also result in significant liability for other parties to illegal conduct that do not have the benefit of immunity or leniency.  As such, it is critical that where an association or its members may be involved in potentially criminal conduct, the availability of the Bureau’s leniency program be assessed quickly.

19.  Recent association cases

Hundreds of trade associations across Canada have been investigated or been exposed to civil or criminal liability over the past century.  Public trade association cases over the past twenty years have involved The Canadian Real Estate Association, Saskatchewan Roofing Contractors Association, Kent County Law Association and the Alberta Ambulance Operators’ Association to name a few.

20.  Competition Bureau enforcement priorities

The enforcement of criminal conspiracies, misleading representations and deceptive marketing practices remain top enforcement priorities for the Bureau.

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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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