Canadian COMPETITION LAW

August 20, 2013

Lately I’ve been seeing a lot more media and other coverage of cartels in Canada.  These have included recent record fines of $5 million and $30 million achieved by the Competition Bureau in two auto-parts related bid-rigging cases (see: here), the ongoing gas price-fixing case in Quebec in which three more individuals were recently sentenced and fined (see: here), commentary relating to export cartels and Canpotex/potash production and policy commentary on regulated markets (see for example the C.D. Howe’s recent report: Beer, Butter and Barristers: How Canadian Governments Put Cartels Before Consumers).

There have also, it seems to me, been a variety of calls from the media and the public to break up regulated “cartels” ranging from beer regulation in Ontario, to some remaining Canadian agricultural marketing schemes and of course the recent and ongoing debate about the regulation of wireless in Canada.

In all, or at least most, of these developments the terms “cartel”, “conspiracy”, “monopoly”, “export cartel”, “price-fixing” and collusion are used, sometimes interchangeably, sometimes apparently with different meanings.

So it seemed to me that a short note on what a cartel is (and isn’t) in Canada might be an interesting write (and I hope read) on a Tuesday morning.

So first, what is the difference between a “cartel” and a “conspiracy”?  Nothing really.   Both terms are used in the competition/antitrust world to mean illegal agreements between competing companies to, for example, fix the prices of their products (i.e., agree on prices, discounts, etc.).  That’s a garden variety price-fixing agreement in Canada (and most other major jurisdictions) and a criminal offence.  Other types of illegal agreements between competitors in Canada (i.e., other kinds of “cartels” or competition law “conspiracies”) include agreements between competitors to restrict production/supply, divide/allocate markets or enter agreements before submitting bids or tenders.    There are also the drug type cartels, but those have nothing to do with competition law.

Second, what is an “export cartel” or why is it that competing companies in Canada can coordinate on export prices and terms of supply?  This is because there is a little section in the Competition Act that offers a defence for conspiracy agreements between competing companies (such as price-fixing, market division or output restriction agreements) that relate only to the export of products.  So it seems that the Canadian drafters of the Competition Act cared a lot about Canadian consumers, but no so much about consumers in other countries (thus this “export cartel” defence).  So are export cartels still bad?  Perhaps from the perspective of foreign consumers, but they are, subject to some qualifications in the Competition Act, not illegal in Canada.

Third, why is it that governments can fix prices, quotas, output, etc. in regulated markets (ranging from agricultural products, to beer and liquor to telecom)?  Aren’t those cartels too and illegal?  Generally they’re not illegal (assuming there is valid legislative authority, it has been exercised and some other requirements of the regulated conduct defence apply).  But aren’t they bad for consumers?  This really depends on what side of the regulatory/political fence you sit on and whether you believe that markets should operate on their own (the old “invisible hand” approach) or should be controlled, adjusted and fine tuned by regulators seeking to achieve certain economic and political goals.  I will try to resist the urge here to call such regulation of prices and other competitive elements political meddling, protecting domestic incumbents, etc., which I expect would reveal my own views.  Suffice it to say that the distinction between a number of regulated markets in Canada and unregulated markets remains largely a puzzle to me.

So in sum, in Canada it’s illegal for competitors to agree to fix prices, divide markets, restrict production/supply or coordinate bids/tenders; not illegal, in many cases, for companies to conspire relating to only the export of products from Canada; and, in the case of legislatively authorized price-fixing, output restrictions and other limitations on the free operation of the market, that’s the kind of conspiracy that we call “regulated markets”.

Finally, how are competition law “cartels” (i.e., the non-drug dealer / gangster kind) in Canada proven, what are the penalties and what can directors and officers do to take commonsense precautions that they are not involved in a criminal investigation (like the five year plus gas price-fixing investigation in Quebec – see: here)?:

1.  Cartels or criminal conspiracy agreements under the Competition Act can be proven in a variety of ways, including direct or indirect (i.e., “circumstantial”) evidence, Competition Bureau enforcement powers (e.g., wiretaps or search warrants) and commonly through participants in the Bureau’s Immunity and Leniency Programs or through corporate whistleblowers (who have the benefit of substantial protections for reporting illegal activities under the Competition Act).

2.  Penalties in Canada for price-fixing and other “cartels” involving competitors include criminal fines of up to $25 million per count and/or 14 years imprisonment.

3.  Commonsense steps for directors and officers to reduce risk include adopting a competition law compliance program, compliance guidelines for key corporate or association activities that may raise competition law issues and, specifically with respect to avoiding criminal cartel risk, ensuring that sales and marketing personnel know that they should not be discussing prices, markets, output and other competitively sensitive topics with competitors.  It’s also a very good idea for trade and professional associations to have compliance programs and companies that are members of associations may also consider requiring associations to have compliance programs as a condition of membership and participation.

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