Canadian COMPETITION LAW

January 4, 2011

In 2009 and 2010 sweeping changes were made to Canada’s competition laws.  They were the most dramatic in twenty-five years and in some cases since Canada adopted competition law in 1889.  Now after a little more than a year in force, it is possible to reflect on some of the impacts of the new rules.

In most cases, the drastic consequences predicted by some have not come to pass – for example, a significant increase in civil actions as a result of lowering the burden to prove criminal conspiracy agreements.  In others, however, the Competition Bureau (the “Bureau”) is taking clear advantage of the new legal landscape in its enforcement efforts.

One recent example is the Bureau’s misleading advertising case against Rogers, in which it has alleged that Rogers misled consumers about the speed and reliability of its Chatr wireless brand (and is seeking a $10 million civil fine following the increase in penalties for misleading advertising).  Another is the Bureau’s recent case against Visa and MasterCard for allegedly violating Canada’s new price maintenance rules.

While many of the impacts of Canada’s new competition laws remain to be seen, we discuss some of the key recent developments and implications for Canadian professionals.

Canadian Competition Law

Competition Law in Canada is governed by the Competition Act (the “Act”), which is federal law that applies with few exceptions to all businesses and individuals in Canada, including services and professionals.  The Act is administered by the Bureau, which is headed by the Commissioner of Competition who is responsible for administering and enforcing the Act.

Under the Act, it is illegal for individuals and companies to, among other things, fix prices, divide markets or rig bids with competitors or engage in intentional misleading advertising.  The Act also regulates a wide range of civil (i.e., non-criminal) conduct including misleading advertising, some specific forms of marketing (e.g., promotional contests, performance claims, etc.), refusals to supply, mergers and companies that abuse their dominant position (the Canadian equivalent of monopolization).

As a practical matter, most professional cases in the past have involved price-fixing (or other illegal coordinated conduct), concerted refusals to supply or deal (i.e., boycotts) or attempts by professional associations to restrict members’ pricing, advertising or other competitive aspects of their businesses.

Competition Act Amendments

In 2009 and 2010 sweeping amendments to the Act came into force that impact most Canadian businesses and individuals, including professionals and their associations.  Some of the key changes include:

Conspiracy. A new two-track criminal conspiracy regime has been introduced making three types of “hard core” agreements between competitors (price-fixing, market division and supply restriction agreements) illegal without requiring proof of any negative market effects.  The maximum penalties for conspiracy have also been dramatically increased to $25 million (per count), 14 years imprisonment, or both (increased from the previous $10 million and five years).

Bid-rigging. A new criminal bid-rigging offence has been added to the existing bid-rigging provisions of the Act, making it a criminal offence to agree to withdraw a bid or tender already made.

Misleading Advertising. The penalties for misleading advertising have been substantially increased to include civil fines of up to $750,000 for individuals and $10 million for corporations.  The types of penalties for misleading advertising have also been expanded to include restitution (i.e., compensation) for consumers that have been the targets of misleading advertising.

Abuse of Dominance. Civil fines have been added to the abuse of dominance sections of the Act for the first time, making companies that abuse their dominant position liable to pay “administrative monetary penalties” of up to $10 million.

In addition to these changes, Canada has a new Commissioner of Competition that is being seen to be more interested in enforcement than policy and is in practice more aggressively pursuing the Bureau’s enforcement priorities (criminal price-fixing and other illegal competitor agreements, abuse of dominance and misleading advertising and deceptive marketing practices).

Competition Law and the Professions

Canadian competition law did not directly apply to professionals until the 1970s.  Until that time, the Act was restricted to anti-competitive activities relating to products and not services.  However, following amendments to the Act in the 1970s, a wide variety of professionals, as well as professional trade and other associations, have been the subject of competition law investigations, searches, prosecutions and civil proceedings.

Cases have involved notaries, surveyors, pharmacists, lawyers, real estate agents and ambulance operators, among others, frequently in relation to price-fixing (e.g., fee tariffs), market division or other criminal activities under the Act.

In one case, for example, notaries in Quebec plead guilty to conspiring to fix the prices of real estate services offered in several regions of Quebec.  The notaries’ association had fixed the prices for notarized real estate transactions that were no longer regulated by the Quebec government (i.e., there was no legislative authority for rate setting by the association).

While there have been fewer individual cases brought against professionals and professional organizations more recently, the cases have tended to be more significant.  In this regard, the Bureau appears to be increasingly focusing on deterrent setting cases against more prominent organizations and interested in testing areas of the law that remain unsettled – for example, the Commissioner recently announced that the Bureau has commenced a number of investigations under amended sections of the Act.

A prominent recent example was the CREA abuse of dominance case, in which The Canadian Real Estate Association was accused of abusing its dominant position in the market for residential real estate brokerage services in Canada.  Some of the many interesting competition law issues that arose in that case included the extent to which CREA could determine membership rules and access to the MLS system, its power to impose conditions for licensing its own intellectual property (including its MLS trade-mark) and whether CREA as a trade association could be proven to be in the same market as its professional members such that it could abuse its dominance in that market.  After a prolonged investigation and negotiations with the Bureau, the case was recently settled.

In addition, even when the Bureau does not have any direct enforcement powers over professional activities (i.e., when they are regulated), it has taken a keen interest in the regulation of the professions and taken steps to advocate for more competition in the markets for Canadian professional services.  For example, in 2007 the Bureau issued a study of self-regulated professions in Canada, in which it scrutinized restrictions on fees, advertising, business models and barriers to entry in five professions (accountants, lawyers, optometrists, pharmacists and real estate agents).

Recent Competition Law Enforcement

Recent Competition Bureau enforcement has included an increased number of criminal price-fixing and other cases (in the construction, air cargo and gasoline industries, among others), several significant misleading advertising matters (including its recent case against Rogers, seeking a $10 million civil fine for alleged misleading advertising) and the recently settled abuse of dominance case against CREA, which has further altered how real estate is listed and sold in Canada.

In 2010, fines of over $30 million were imposed for price-fixing and other illegal activities under the Act against companies and individuals, including $3 million against suppliers of air compressors, $17 million against air cargo suppliers, $4.5 million against Quebec gasoline suppliers and $5.6 million against hydrogen peroxide suppliers.  The Commissioner also recently noted that the Bureau had 42 on-going criminal investigations.

There have also been significant changes in the past year in relation to competition law civil actions.  In particular, recent decisions in Ontario and British Columbia now make it easier for private plaintiffs to commence class actions for violations of the Act.  As such, it is important for professionals and their associations to have a basic understanding of Canadian competition law to avoid not only potential enforcement by the Bureau but also the potential of civil actions for violations of the Act.

While most recent cases have involved international price-fixing cartels (e.g., the recent “DRAMS” price-fixing class action case in British Columbia against international computer memory manufacturers), the rules and law are equally applicable to domestic (i.e., Canadian) companies and individuals including professionals and their associations.

Tips for Canadian Professionals

Many professionals and companies will be well aware that price-fixing, bid-rigging and other types of coordinated activities among competitors can be illegal and subject to severe penalties.  However, competition law issues, including in the context of professional activities, can arise in relation to a variety of other (and in some cases much more subtle) commercial activities.  These include joint ventures and strategic alliances, collective or industry wide negotiations with customers and trade association activities.

The Bureau’s recently stepped up enforcement and the increased penalties under the Act also means that there is a heightened risk associated with some types of business activities.  As such, Canadian professionals should have a basic understanding of Canadian competition law and take some commonsense precautions to reduce the potential risk.  These include:

Compliance programs. Companies and trade associations should consider adopting a competition law compliance program, which may range from a comprehensive program complying with all of the Competition Bureau’s recommended elements to basic guidelines for key activities (e.g., dealings with customers, suppliers and competitors, conduct of meetings, information exchanges, document creation, etc.).

Trade associations. Trade associations have historically been one of the highest risk areas for Canadian professionals.  As such, professionals may consider confirming that any associations they participate in have compliance programs in place (or at minimum basic compliance guidelines for key activities) and know what to do if a competition law issue arises during an association meeting or other activity.

Pricing, marketing and business decisions. Generally speaking, all pricing, marketing and business decisions should be made independently without agreement or discussion with competitors.  Importantly, because a criminal conspiracy agreement can be proven based on mere “circumstantial evidence” (i.e., without producing an express agreement – the “smoking gun”), competing professionals should avoid activities that may allow a court or the Bureau to infer the existence of an illegal agreement or other activities contrary to the Act (e.g., informal meetings with competitors, exchanging competitively sensitive information, suggesting coordination with competitors in internal or external communications, etc.).

Accurate communications. Most Competition Bureau investigations rely on companies’ own internal documents, either through voluntary or compulsory information requests (e.g., search warrants).  As such, it is important for professionals to be aware of the importance of accurate internal and external communications and not incorrectly or inadvertently suggest that illegal activities are occurring (e.g., that competitors have fixed prices, divided markets or customers, collectively limited supply or come to other “arrangements”, such as collectively refusing to deal with certain competitors).

Information exchanges. Professionals should avoid exchanging competitively sensitive information with competitors (e.g., current or future pricing, costs, margins, customers or business or strategic plans).  Canadian enforcement officials are inherently suspicious when competitors share competitively sensitive information, which is as a practical matter an area of high risk.

Dealing with competitors. Finally, professionals should be aware that under Canada’s new competition law rules some types of concerted refusals to deal (e.g., boycotts) can more easily violate the criminal conspiracy provisions of the Act.  As such, as with pricing and other competitively sensitive topics, decisions whether to deal with a particular supplier, customer or competitor should be made independently based on internal business justifications.

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