Canadian COMPETITION LAW

April 6, 2010

On March 12, 2010, the last of Canada’s Competition Act (the “Act”) amendments came into force (Canada’s new two-track conspiracy regime).  The amendments, which came into effect in March, 2009 and March, 2010 are the most significant changes to Canadian competition law in twenty-five years and in some instances arguably since Canada adopted competition law.

Included are changes to most of the cornerstone provisions of the Act including changes to the conspiracy, bid rigging, misleading advertising, criminal price maintenance and abuse of dominance provisions.  The amendments, all of which are now in force, will alter the way Canadian and international companies do business in Canada and will as well have a number of potential impacts on Canadian real estate brokers, agents and real estate boards.  This note discusses the recent changes and some of the potential implications going ahead for organized real estate in Canada.

NEW CONSPIRACY REGIME

On March 12, 2010 a new U.S.-style two-track criminal conspiracy regime came into force making three types of “hard core” conspiracy agreements per se illegal (price fixing, market allocation and supply restriction agreements).  In addition, the former competitive effects test has been removed which means that agreements may be caught even where the parties have a small or negligible market presence.  This change will significantly lower the bar for the Competition Bureau (the “Bureau”) and private plaintiffs to prove conspiracy agreements.  At the same time, the penalties for contravention of the conspiracy provisions have been increased to up to $25 million and/or imprisonment for up to 14 years.

A second civil track has also been introduced for other types of non-hard core agreements between competitors (or potential competitors) that may prevent or lessen competition substantially.  Unlike the new criminal offences, the new civil provision is not subject to criminal fines or imprisonment, but rather gives the Competition Tribunal (the “Tribunal”) the power to make remedial orders following successful applications by the Bureau.

Potential Impacts for Organized Real Estate

“Hard-core” agreements.  It will now be easier for the Bureau and private plaintiffs to prove criminal conspiracy agreements, which means that the potential liability associated with “hard core” criminal conspiracy conduct will now be more significant (e.g., agreements between two or more competing brokers or agents to fix commissions or splits, divide territories or refuse to deal with competitors).  The new rules may also impact real estate boards in some instances (e.g., in some cases where membership is refused or access is denied).

Franchise and other vertical agreements.  At the same time, the Bureau has indicated in its recent Competitor Collaboration Guidelines that it will likely review most common forms of vertical agreements, such as franchise agreements where a franchisor allocates markets or customers among its franchisees, under the civil sections of the Act and not under the criminal conspiracy provisions (which also requires that any challenged agreement be shown to prevent or lessen competition substantially).

Information exchanges.  Regulating improper exchanges of competitively sensitive information (e.g., relating to pricing, marketing, markets, clients, costs, etc.) will now be more important.  It will be prudent for real estate professionals to take basic precautions when dealing with competitors and participating in board activities, outside of specific transactions, to avoid discussing commissions, marketing strategies and refusing to deal with competitors.

Compliance programs.  The recent changes increase the importance for brokers and boards to adopt new (or revise existing) competition law compliance programs and to provide competition law training to brokerage and board personnel.

Independent contractor and employment agreements.  The amendments will make it necessary in some cases for brokers to review and amend existing agreements with agents and staff to reflect the new law (e.g., to review covenants and office policies in relation to commissions, territories and advertising for compliance).  Brokers may also wish to ensure that agents and employees acknowledge compliance with the new competition laws as a condition of employment or of independent contractor agreements given that there is also director and officer liability under the Act.

NEW BID RIGGING OFFENCE

A new criminal bid rigging offence has been introduced and added to the existing bid rigging offences.  It is now an offence to agree to withdraw a bid or tender submitted in response to a call or request for bids or tenders.  In addition, the maximum prison sentence for bid-rigging has been increased to fourteen years (from the previous five years).

Potential Impacts for Organized Real Estate

Compliance.  These changes increase the importance for real estate brokers, agents and other real estate professionals that are involved in competitive bids or tenders to understand and comply with the Act’s bid rigging rules.

INCREASED PENALTIES FOR MISLEADING ADVERTISING

Significantly increased penalties for false or misleading representations have been introduced including “administrative monetary penalties” (essentially civil fines) of up to $750,000 for individuals and $10 million for corporations.

Potential Impacts for Organized Real Estate

Compliance.  While the substantive law has not changed for misleading advertising, the new penalties increase the importance for real estate brokers and agents to comply with the misleading advertising provisions of the Act.

Compliance programs.  The new penalties also make it essential to include misleading advertising compliance guidelines in brokerage competition law compliance programs.

REPEAL OF THE CRIMINAL PRICING PROVISIONS

The criminal pricing provisions of the Act, including the former price maintenance provisions (which dealt with, among other things, refusals to deal or discrimination based on another person’s low pricing policy), have been repealed.  In the case of price maintenance, the former criminal offences have been replaced with a new civil reviewable matters provision, which includes a competitive effects test and allows the Bureau and private parties to seek Tribunal remedial orders.

Potential Impacts for Organized Real Estate

Criminal liability.  The former potential criminal liability associated with price maintenance conduct (e.g., unilateral refusals to deal or otherwise discriminate against competitors based on their low pricing policies) has now been eliminated.

Private access applications.  A new “private access” right has been introduced (i.e., the new civil price maintenance rules allow private parties to make applications to the Tribunal for orders to cease conduct).

Reduction in cases.  The number of price maintenance cases will likely be reduced based on the introduction of a competitive effects test for the new civil price maintenance provision (i.e., raising the bar to establish price maintenance).

NEW PENALTIES FOR ABUSE OF DOMINANCE

For the first time in Canada significant civil fines have been introduced for abuse of dominance of up to $10 million ($15 million for subsequent orders).

Potential Impacts for Organized Real Estate

Franchisors, brokerages and boards.  The new penalties will mean that some franchisors, brokerages and boards may face increased liability for anti-competitive conduct in some instances (e.g., conduct that may make it more difficult for particular business models to enter or effectively compete).

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