Canadian COMPETITION LAW

April 19, 2010

On March 12, 2010, Canada’s new two-track criminal conspiracy regime came into force.  The changes, which are the final recent Competition Act amendments to come into force, will significantly change the enforcement of criminal cartels in Canada and is expected to also have significant impacts on competition law private actions and class actions.

Canada now has three new criminal conspiracy offences for “hard core” cartel conduct, making bare price fixing, market allocation/division and supply restriction agreements per se illegal – i.e., without the necessity of establishing any anti-competitive effects on a relevant market (or markets).  The penalties for contravening the newly enacted conspiracy provisions will also more than double with fines of up to CDN $25 million and/or imprisonment for up to fourteen years.

At the same time, a second civil provision has come into force under which other commercial agreements (i.e., agreements that do not fall within the scope of the new criminal offences) may be reviewed, where they may prevent or lessen competition substantially.

Some of the potential implications, key issues and practice points for commercial lawyers are discussed below.

SOME POTENTIAL IMPLICATIONS

Some of the potential key implications of Canada’s new criminal conspiracy regime include:

Increased potential risk.  Increasing the risk of engaging in hard-core anti-competitive conduct (e.g., bare price-fixing, market allocation or supply restriction agreements between competitors or potential competitors).

Reviewing commercial agreements.  Increasing the importance of reviewing commercial agreements (and other commercial arrangements) between competitors and potential competitors including information sharing, joint venture and strategic alliance arrangements.

Private actions and class actions.  Potentially leading to an increased number of private actions and class actions, as a result of lowering the bar to establish a criminal conspiracy agreement under the new provisions.

KEY ISSUES

Some of the key issues arising from the new conspiracy rules include:

Competition Bureau’s approach to sections 45 and 90.1.  How the Competition Bureau will determine what types of agreements and arrangements to review (and challenge) under section 45 (the new criminal provision) as opposed to under section 90.1 (the new civil provision).

Private parties’ approach to section 45.  What types of agreements and arrangements private parties may challenge under section 45 (and as well whether Canadian courts or private parties will necessarily endorse the Bureau’s enforcement approach, as reflected in its recently issued Competitor Collaboration Guidelines).  In this regard, while the Bureau has indicated in its recently issued enforcement guidelines that it would not review many forms of vertical (and potentially pro-competitive) arrangements under the new section 45, its guidelines are not law and not binding on the courts (or indeed on the Bureau).

Private actions and class actions.  It remains to be seen how the new two-track conspiracy regime (with a lower bar to establish criminal cartel agreements) will impact the volume of competition law private and class actions in Canada.

Intra-enterprise liability theories.  It also remains to be seen how Canadian courts, as well as the Bureau, will treat groups of individuals or firms that may be acting together in some instances for arguably legitimate and rationally economic purposes, but that do not have the benefit of the affiliates defence under section 45 (i.e., it remains to be seen whether Canadian courts will develop an intra-enterprise theory of immunity to shield certain business arrangements from the application of the new criminal conspiracy rules, where the relatively narrow existing defences under the Act do not apply).

Parties to agreements.  It will be interesting to see how Canadian courts and the Bureau deal with conduct by alleged “parties” to an agreement under section 45, where it is difficult to establish that the parties can be shown to be actual or potential competitors (e.g., in cases involving trade associations that may not compete in any respect with the business activities of members).

Ancillary restraints defence.  Finally, it remains to be seen how Canadian courts will develop and interpret the newly introduced “ancillary restraints” defence, what arguments parties will be able to successfully make that agreements fall within the scope of the new ancillary restraints defence (or indeed outside the scope of the new criminal provisions altogether) and whether and to what extent courts in Canada draw upon existing U.S. jurisprudence to develop this new Canadian defence.

KEY PRACTICE POINTS FOR COMMERCIAL LAWYERS

Some of the key practice points for commercial lawyers arising from the new conspiracy rules include:

Potential conspiracy issues.  Increasing the importance of a basic understanding of some of the potential criminal conspiracy issues that can arise in commercial dealings and transactions between competitors (and potential competitors).

Competitor-competitor agreements.  Increasing the level of scrutiny required in reviewing competitor-competitor agreements (e.g., joint venture and strategic alliance agreements), particularly those dealing with pricing, markets, production, costs, customers, marketing and distribution strategies and other competitively sensitive topics.

Trade associations.  Increasing the level of scrutiny required for association activities (i.e., trade and professional associations), including meetings, rules/bylaws, fee tariffs, advertising and marketing rules and restrictions, membership criteria and discipline, research and benchmarking exercises and joint buying arrangements.

Competition law compliance programs.  Increasing the importance to revise existing (or adopt new) competition law compliance and document retention policies.

Document retention programs.  Increasing the importance of providing basic advice to clients in relation to document retention, dealing with privileged documents and guidelines for what to do in the event of a search (including addressing potential obstruction issues that can arise in the context of a Competition Bureau investigation or search).

Competition Bureau immunity and leniency programs.  Increasing the importance of a basic familiarity with the Competition Bureau’s formal immunity and leniency programs for potential cartel participants (which operate on a “first in” principle, and which can significantly reduce the potential liability in the event the required immunity/leniency criteria are met and an application is successful).

Information exchanges.  Increasing the importance of providing advice to regulate and govern improper information exchanges between competitors (i.e., exchanges of competitively sensitive information that can, in some instances, lead to the formation of anti-competitive agreements or create the inference of the existence of an agreement).

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