Canadian COMPETITION LAW

April 26, 2010

OVERVIEW OF CANADIAN COMPETITION LAW

“The statute proceeds upon the footing that the preventing or lessening of competition is in itself an injury to the public.  It is not concerned with public injury or public benefit from any other standpoint.”

(Howard Smith Paper Mills Ltd. v. The Queen, [1957] S.C.R. 403)

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“Competition is good for consumers for the simple reason that it compels producers to offer better deals – lower prices, better quality, new products, and more choice.”

(Sir John Vickers, former Chairman of the Office of Fair Trading, U.K.)

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“Antitrust laws … are the Magna Carta of free enterprise.  They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”

(United States v. Topco Associates Inc. 405 U.S. 596 (1972))

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“From this overview of the Combines Investigation Act I have no difficulty in concluding that the Act as a whole embodies a complex scheme of economic regulation.  The Purpose of the Act is to eliminate activities that reduce competition in the marketplace.  The entire Act is geared to achieving this objective.  The Act identifies and defines anti-competitive conduct.  It establishes an investigatory mechanism for revealing prohibited activities and provides and extensive range of criminal and administrative redress against companies engaging in behaviour that tends to reduce competition.”

(Dickson C.J., General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641)

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LEGISLATION

Canadian competition law is largely governed by the Competition Act.  The Competition Act (the “Act”) federal law of general application that contains criminal offences and civil “reviewable matters” and applies to most business activities in Canada, with very limited exceptions.

The Competition Act is administered and enforced by the Competition Bureau, a federal enforcement agency headed by the Commissioner of Competition (the “Commissioner”).

While competition law was introduced in Canada in 1889, one year before the introduction of federal antitrust law in the United States (the Sherman Act), Canada has really only seen significant competition law enforcement since the mid-1980s when the modern Act was introduced.

Before the 1980s, most Canadian competition cases were criminal conspiracy and deceptive marketing cases.  Cases relating to two of the other major areas of competition law – abuse of dominance (monopolies) and mergers – were largely non-existent before the introduction of the new Act.  For example, between 1935 and 1986 there were seven contested monopolization cases, with the Crown prevailing under the former criminal monopolization provision of the Combines Investigation Act in only one case (Eddy Match, in 1952).

PURPOSES

The Act sets out four purposes as follows: (i) to promote the efficiency and adaptability of the Canadian economy, (ii) to expand opportunities for Canadian participation in world markets, (iii) to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy and (iv) to provide consumers with competitive prices and product choices.

As a practical matter, at least from the perspective of competition law enforcement agencies, the main over-riding purpose of the Act is to ensure that consumers benefit from competitive and undistorted markets.  Having said that, it has been held that none of the four purposes listed above is paramount, and the relevant purpose may vary according to the type of case.

CRIMINAL OFFENCES & CIVIL “REVIEWABLE MATTERS”

The Act contains both criminal offences and civil “reviewable matters.”

The criminal offences of the Act include conspiracy (i.e., cartels) (section 45), bid-rigging (section 47), criminal misleading advertising (section 52), deceptive telemarketing (section 52.1) and pyramid selling (section 55.1).  Several other former criminal competition offences (predatory pricing and price discrimination) were repealed in 2009.

Criminal offences under the Act are investigated by the Bureau, prosecuted by the Public Prosecution Service of Canada (which is headed by the Director of Public Prosecutions), tried in the provincial criminal courts and subject to criminal penalties that include fines, imprisonment and “prohibition orders” (court orders to stop or modify conduct).

The Act also contains a number of civil (i.e., non-criminal) “reviewable matters”.  These include price maintenance (section 76), civil misleading advertising (section 74.01), refusal to deal (section 75), abuse of dominance (section 79), tied selling / exclusive dealing / market restriction (section 77) and mergers (section 92).  Misleading advertising may be dealt with by the Bureau as either a criminal matter (under section 52) or civil reviewable practice (under section 74.01).

Reviewable matters under the Competition Act are also investigated by the Bureau, may result in proceedings initiated by the Bureau (or private parties in certain cases with leave), are generally adjudicated generally before the Competition Tribunal (and in some cases in provincial courts or the Federal Court) and subject to a variety of potential penalties.  These include orders to stop conduct, orders to resume supply of a product, “administrative monetary penalties” (essentially civil fines) of up to Cdn. $10 million and restitution (a court order to compensate consumers harmed by the conduct).

ENFORCEMENT

Competition Bureau

The Act is administered and enforced by the Competition Bureau, a federal enforcement agency headed by the Commissioner who investigates complaints by consumers and businesses.

The Commissioner’s enforcement powers under the Act include the power to make voluntary information requests, obtain compulsory production orders for documents and written returns of information and obtain search warrants and wiretaps under the Criminal Code.  The Commissioner regularly uses these enforcement powers in the context of both civil and criminal matters.

The Commissioner also has the power to make applications to the Competition Tribunal (for civil reviewable matters under the Act, such as mergers, abuse of dominance, refusal to deal or price maintenance) or refer matters to the Director of Public Prosecutions for prosecution (for criminal offences, such as the conspiracy agreements among competitors, bid-rigging, criminal misleading advertising or deceptive telemarketing).

Proceedings may be commenced under the Act by the Competition Bureau or based on complaints from customers, competitors or other industry participants.

Proceedings may also be commenced as a result of an applicant seeking immunity or leniency under the Bureau’s formal Immunity or Leniency Programs (under which an applicant may receive full immunity from prosecution or leniency (i.e., reductions) in the imposition of penalties for cooperating with the Bureau in an investigation).

Private Damages Actions

Private parties may also in some cases commence civil actions against persons contravening the criminal sections of the Act, including sections 45 (conspiracy agreements), 47 (bid-rigging) and 52 (criminal misleading advertising)) or violating a court or Tribunal order made under the Act.

Private parties may also in certain cases make “private access” applications to the Competition Tribunal for Tribunal orders (under the refusal to deal, price maintenance and exclusive dealing / tied selling / market restriction sections of the Act).  Private parties are, however, required to obtain leave from the Tribunal before making a private access application and, unlike in the case of private actions, monetary damages are not available (only “remedial orders” from the Tribunal ordering, for example, that conduct stop or to resume supply on usual trade terms).

ADJUDICATION

Criminal matters (e.g., conspiracy, bid-rigging and criminal misleading advertising) are heard before the provincial criminal courts.

Civil reviewable matters (e.g., abuse of dominance, mergers, refusal to deal, price maintenance and tied selling/exclusive dealing/market restriction) are heard before the federal Competition Tribunal and in some cases before provincial courts or the Federal Court.

The Competition Tribunal is a federal administrative tribunal comprised of Federal Court judges and lay members (such as economists).  Judicial members alone may determine legal questions.  Lay members may determine questions of fact (or mixed questions of law and fact).  Appeals from the Tribunal are to the Federal Court, to the Federal Court of Appeal and then the Supreme Court of Canada.

PENALTIES

Violation of the Act can result in significant penalties, lost time and negative publicity for individuals, companies, associations and other types of organizations, as well as their executives and personnel.

Potential penalties under the Act include criminal fines of up to $25 million, civil “administrative monetary penalties” (essentially civil fines) of up to $10 million ($15 million for subsequent orders), imprisonment, civil damages and prohibition orders or injunctions to stop conduct.

Private parties (e.g., consumers or competitors) can also commence private actions for damages where they have suffered actual damage or loss as a result of a violation of the criminal provisions of the Act (or the contravention of a court or Competition Tribunal order made under the Act).

There is also potential director and officer liability under the Act for competition law violations.

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