Canadian COMPETITION LAW

September 13, 2009

I.  Overview

The federal Competition Act (the “Act”) contains both criminal and civil provisions prohibiting a range of anti-competitive activities, many of which can arise in ordinary commercial dealings (e.g., in the context of distributor/customer relations, trade association activities and in relation to many common commercial agreements including IP license agreements, joint venture and strategic alliance agreements and franchise agreements).

II.  Competition Act

The criminal provisions under the Act include provisions relating to criminal conspiracies (i.e., price fixing, market allocation and output restrictions), bid rigging and deceptive marketing and telemarketing.  Civil provisions include provisions relating to abuse of dominance, civil misleading representations, refusal to deal, price maintenance and exclusive dealing.

III.  Penalties

The potential penalties for contravention of the Act include fines of up to CDN $25 million (and in some cases without limit – i.e., in the discretion of the court), imprisonment for up to fourteen years and prohibition orders (for contravention of the criminal provisions) and civil fines of up to CDN $10 million (potentially higher on subsequent contraventions or settlement in certain instances) and orders to cease the conduct (in relation to the civil provisions).

IV.  Director & Officer Liability

Enforcement under the Act can include both prosecutions of corporate entities and individuals (i.e., employees, officers and directors that violate the provisions of the Act).  In some instances, when a corporate entity violates the Act, directors and officers that were in a position to direct or influence the corporation’s policies can be deemed to be parties of the conduct and exposed to potential liability together with the corporation.

In this regard, it is common for employees and directors and officers of companies to be involved both in Competition Bureau (“Bureau”) investigations and to be parties in settlements with the Bureau.

For this reason, it is prudent for boards and senior officers to implement effective and credible competition compliance programs in order to reduce the potential risk of contravening the Act.  Implementing such policies can have many benefits, not least of which is reducing the potentially significant penalties in the event of a contravention of the Act (see below).

V.  Compliance Programs

Competition compliance programs are not mandatory under the Act, though can in certain cases be ordered by a court (for example, as part of a negotiated consent agreement or prohibition order).  However, a well-designed and effective corporate competition compliance program can have many benefits for companies and trade associations.

Moreover, the importance of a corporate competition compliance policy is greater now than in the past for a number of reasons including:

– The enactment of new criminal conspiracy provisions with no market effects test.
– Significantly increased penalties for criminal conspiracies, misleading representations and bid rigging.
– Criminal conspiracies and deceptive marketing remain top enforcement priorities for the Bureau.

VI.  Benefits of an Effective Compliance Program

Some of the benefits of a credible and effective competition compliance program include:

– Reducing the risk of contravening the criminal and civil provisions of the Act.
– Identifying the boundaries of acceptable conduct.
– Reducing costs in relation to investigations and proceedings.
– Identifying circumstances when legal advice should be sought.
– Detecting illegal conduct.
– Potentially mitigating penalties in the event of an investigation.
– Strengthening goodwill and reputation.
– Avoiding negative publicity as a result of an investigation or legal proceedings.
– Reducing potential director and officer liability for contravention of the Act.
– Reducing the potential risk and exposure of criminal and civil liability.

While a corporate competition compliance policy will not automatically insulate a company (or its directors and officers) from potential criminal or civil liability under the Act, both the Bureau and the Crown may give weight to a credible and effective compliance program in determining how to proceed in respect of a particular matter.

A credible competition compliance program may also be a mitigating factor in the assessment of penalties under the Act or assessing the availability of certain due diligence defenses.

VII.  Recent Competition Bureau Initiatives

The Bureau has recently issued a new Information Bulletin on Corporate Compliance Programs (the “Bulletin”).  The Bureau’s new Bulletin replaces its earlier Corporate Compliance Programs Bulletin that was issued in 1997.  See: Corporate Compliance Programs.

The Bulletin sets out five elements which, in its view, are essential for corporate competition compliance programs.  These are as follows:

1.  Senior management involvement and support.  As senior management are required to exercise care, skill and diligence and act in the best interests of a company, senior management should indentify the principal risks faced by a business and implement appropriate systems to manage such risk (which includes the adoption of competition compliance programs).

2.  Corporate compliance policies and procedures.  The development of a corporate compliance program tailored to a business and relevant industry is critical to a program’s success (and also that any compliance program should be periodically updated).

3.  Training and education. A credible and effective corporate compliance program should involve ongoing training and education focused on staff that are in a position to potentially engage in conduct that may contravene the Act.

4.  Monitoring, auditing and reporting mechanisms.  Monitoring, auditing and reporting mechanisms are in the Bureau’s view essential to an effective compliance program and to help prevent and detect conduct that violate the Act.

5.  Consistent disciplinary procedures and incentives.  Finally, consistent disciplinary procedures and initiatives demonstrate the seriousness of a company’s compliance with the Act and are important not only for deterrence purposes, but also as a reflection of a company’s policy against such conduct.

VIII.  Trade Associations

With respect to trade associations, the Bureau has in the past several years both maintained its investigation and enforcement of the Act against trade associations.  It has as well been working on a number of trade association specific initiatives, including enforcement guidelines tailored specifically to trade association activities.  See for example: Competition Bureau – Information Bulletin on Trade Associations (Draft).

In terms of competition compliance programs in the trade association context, the Bureau states:

“A program also 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 Bureau 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 provide themselves from being used as a conduit for illegal activities.  They may also allow trade association member to fully benefit form the association’s activities while reducing the potential for inadvertent contraventions of the Acts.”

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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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