Archive for the 'Competition Bureau' Category
November 9, 2012
I am attaching below a copy of our PowerPoint presentation from the recent Canadian Society of Association Executives’ (CSAE) 2012 National Conference & Showcase, held in Ottawa last week. Our presentation focused on competition law and compliance for trade and professional associations, including in relation to key association activities (e.g., fee schedules and compensation, data collection and information exchanges, association membership). Also included are a number of association related case studies: Competition Law and Associations in Canada.
November 9, 2012
Guest contribution by Dr. Derek Ireland, Ottawa (djirel@sympatico.ca)
Introduction and Background
My 2008 PhD dissertation was on the interactions between India’s business groups and the country’s competition policies and laws over the past four decades. Since then, I have continued my research on these interactions and the special challenges posed by state-owned and privately owned business and enterprise groups for competition authorities in emerging market economies as well as the more advanced OECD competition law jurisdictions. My work on this question includes several articles, working papers and conference presentations.
There is little published material on competition law cases involving state-owned and privately owned enterprise and business groups located in emerging market economies. Enterprise and business groups from emerging markets have been entering OECD country markets in a major way only in the past 10-15 years; and many emerging economies with large business group sectors such as India, China and Indonesia started to enforce their competition laws only in the past few years. However, this situation could change dramatically in the future given the “going global” strategies of many emerging economy enterprise and business groups and the more than 80 developing and emerging market economies that now have competition laws and authorities (see e.g. Ireland 2008a and 2011a).
Therefore, OECD country competition authorities and other government agencies may soon be facing complex and less familiar competition and other issues and cases as privately owned or state-owned business groups and networks in emerging economies become more prominent and influential in many advanced economies through exports, greenfield investments, mergers and acquisitions, R&D partnerships and joint ventures, strategic alliances, and other mechanisms.
The CNOOC-Nexen Transaction
Canada is currently facing such a matter under its Investment Canada Act. This matter involves the proposed CAD 15.1 billion acquisition of Nexen by CNOOC: the China National Offshore Oil Corporation. Nexen is a comparatively smaller privately owned Canadian oil and gas producer and participant in the oil sands and the Canadian and global oil and gas markets. Nexen is located in the Canadian province of Alberta.
CNOOC is a large and quite diversified state-owned corporation/enterprise group that is involved in a large number of products, services and markets. CNOOC was established by the Government of China soon after the start of the reform period in 1982 in order to exploit offshore oil and gas resources. This state-owned corporate entity has many of the attributes of an enterprise group. While CNOOC largely focuses on the oil and gas sector, the corporation now has six business sectors, including exploration and development of oil and gas, technical services, logistics services, chemicals and fertilizer production, natural gas, power generation, and financial services and insurance. The Government of Canada has recently announced that a decision on this transaction will be delayed for a month and is now expected to be provided in the middle of December 2012.
The CNOOC acquisition of Nexen is a “friendly” takeover, which has already been approved by the Nexen shareholders apparently because of the large premium over the current market valuation of the company. It is reported that the Nexen purchase represents China’s largest overseas acquisition to date and the first time that a Chinese state-owned enterprise has attempted to fully acquire a Canadian oil and gas producer.
As a consequence, this acquisition represents and important benchmark and unfamiliar territory for all of the company and government players that are involved in the transaction in Canada and China. The federal government decision under the Investment Canada Act will provide an important precedent that will strongly influence future transactions and related commercial relationships between Canadian and Chinese companies and between our two economies.
Insights for Future Mergers
and Other Competition Law Cases
While subject to Competition Bureau and Investment Canada review, the focus of this transaction has been on the Investment Canada Act review. Canadian debates on applying the “net benefit test” and national security considerations under the Investment Canada Act to this transaction, and a previous unsuccessful attempt by CNOOC to purchase an American oil company Unocal, have raised a number of difficult issues that could be relevant to the review of future mergers and other competition law cases in the OECD jurisdictions that would involve state-owned enterprises and enterprise groups from emerging market economies.
In an interesting Canadian Bar Association (Competition Law Section) teleseminar earlier today (November 6th), the Competition Bureau’s Acting Senior Deputy Commissioner of Competition, Criminal Matters Branch, discussed the enforcement of cartels in small jurisdictions from a Canadian perspective.
The teleseminar, which included enforcement agency panelists from Canada (Matthew Boswell, Competition Bureau), Ireland (Patrick Kenny, Irish Competition Authority), New Zealand (Mary-Ann Borrowdale, New Zealand Commerce Commission) and Israel (Gadi Perl, Israel Antitrust Authority), focused on three aspects of “Cartel Enforcement in Smaller Jurisdictions”: the preparation of effective cartel laws; practical cartel enforcement issues; and enforcement results. In sum, the spectrum from the preparation of cartel rules to carrying them out.
The Senior Deputy Commissioner’s remarks focused on the Bureau’s Immunity and Leniency Programs and recent enforcement results. Interestingly, the Deputy Commissioner also discussed Bureau efforts to detect domestic (i.e., Canadian) cartels, a renewed focus on associations and the Bureau’s participation in the ongoing Quebec corruption/competition probe, which resulted in the resignation of Montreal’s Mayor last night and involved searches of four Laval engineering-consulting firms this morning.
Continued Reliance on Immunity and Leniency Programs
With respect to the Bureau’s Immunity and Leniency Programs, the Senior Deputy Commissioner summarized some of their key elements, confirmed that they continue to be the Bureau’s most important cartel detection tools (calling them “extremely important to the successful detection” of cartels in Canada), reminding applicants that the threshold to obtain markers was extremely low (to encourage participants to come forward at their “earliest opportunity”), while emphasizing that the Bureau continues to expect strict compliance with the timelines in both programs.
With respect to the latter point, the Senior Deputy Commissioner made it clear that while the Bureau is willing to grant extensions to perfect markers beyond its 30-day guideline, extensions are not granted lightly and the Bureau looks for applicants to justify delays – for example, with reference to internal company investigations, a concrete work-plan to provide information and status updates on the progress of cooperation with other jurisdictions.
The Senior Deputy Commissioner also confirmed the Bureau’s continued expectation for Immunity and Leniency applicants to provide waivers for the Bureau to communicate and cooperate with foreign agencies (although backstopped his waiver comments by noting that the Bureau rarely exchanged documents and understood immunity/leniency applicants’ interest in maintaining a paperless process generally, including through the proffer process).
He also discussed the importance of predictability and transparency for the Bureau’s Immunity and Leniency Programs to operate effectively, noting the fact that the requirements for both Programs are set out in detail on the Bureau’s website (and in its Immunity and Leniency Bulletins), including key requirements, director and officer rights and guidelines for fine calculations.
Interestingly, however, the Senior Deputy Commissioner did not raise the recent Federal Court decision in the Maxzone case, which has created uncertainty of whether the Federal Court will accept mathematically derived joint sentencing submissions (see e.g.: here) particularly around the Bureau’s 20% of affected Canadian volume of commerce figure historically used as a starting point for fine negotiations.
Enforcement Priorities & Recent Developments
With respect to enforcement, which was in some ways the more interesting aspect of the Deputy Commissioner’s remarks earlier today, he discussed the Bureau’s practical need to divide its enforcement resources between international and domestic cartel cases, saying at one point that the Bureau could, if it wished, “completely fill its [cartel enforcement] dance card with international cases”. He did, however, emphasize the Bureau’s continued interest in detecting and commencing enforcement in relation to domestic (i.e., Canadian) cartels.
In this regard, the Deputy Commissioner indicated that while the Bureau’s Immunity and Leniency Programs had been very successful in attracting cross-border cartel immunity/leniency applicants, they had been less so for domestic cartels (saying that they had had “moderate success” in Canada to date).
As such, in order to find new ways to detect Canadian cartels, he discussed a four-pronged enforcement approach currently being utilized by the Bureau involving: (i) developing relationships with Canadian public procurement authorities, (ii) partnerships with Canadian law enforcement agencies, (iii) outreach efforts to Canadian companies and other organizations (e.g., trade and professional associations), and (iv) media and public awareness efforts (e.g., Bureau news releases, education, speeches, etc.).
On November 5th, in somber but not altogether unexpected remarks, Montreal Mayor Gerald Tremblay resigned following the termination or suspension of a number of City of Montreal employees in the midst of the ongoing Quebec construction corruption probe.
In his resignation speech, the Mayor said that his father told him politics was a “dirty business”, that he had heard of “brown envelopes” for the award of construction contracts in Quebec though denied that he had ever seen them, accepted full responsibility, said that some of his staff had “betrayed his trust” and concluded by saying to Montreal residents that he never betrayed them.
This case has involved testimony of allegations of violations of federal and provincial criminal and competition laws, including violations of the criminal bid-rigging provisions of the Competition Act.
A new global competition/antitrust law text that caught my eye is the soon to be published by Kluwer: Landmark Cases in Competition Law: Around the World in Fourteen Stories (forthcoming, January, 2013). I noticed this upcoming new book based on its unique approach to competition law in key jurisdictions, including Canada: a discussion of one “landmark case, scenario or ‘saga’ from each jurisdiction.” Evidently a sort of competition law Canterbury Tales. In addition to Canada, the survey also includes discussions of Australia, Brazil, the EU, Germany, Japan, New Zealand, South Africa, the UK and U.S.
Abstract:
“It is the thesis of this fascinating and highly instructive book on competition law that an examination of one landmark case, scenario, or ‘saga’ each from a range of legal systems leads to a thorough understanding of the issues informing and arising from competition policy, law, and legal practice. To this end, leading scholars from 14 jurisdictions enhance their academic authority and rigour with an element of panache to describe a particularly salient case in each of their countries, commenting in depth on the contribution of the case to the development of their particular competition law culture and to the case’s enduring significance for competition law and its enforcement from a global perspective. There are chapters for each of thirteen countries as well as the European Union, preceded by an informative and thoughtful introduction. For each landmark case selected, the legislative background, the case facts, and the legal ruling and reasoning are all minutely described, along with commentary, critique, and assessment of the case’s impact and contemporary significance. The cases cover vast swathes of the competition law territory in terms of substance and procedure, dealing with cartels, abuse of dominance, mergers, and vertical restraints, and involving diverse forms of public and private enforcement processes.
Aspects covered include the following: the tension between the objective of economic efficiency and that of low prices; the public interest test; bid-rigging in public procurement; entitlement of dominant companies to compete as other firms do; the hard-to-draw line between legitimate competition and unlawful monopolizing conduct; the dangers of eclectic borrowing in the development and interpretation of competition law rules; price-fixing collusion; ‘hub and spoke’ cartels; resale price maintenance agreements and the U.S. ‘rule of reason’; the increasing use of private enforcement and the right for victims of a competition law infringement to seek compensation; merger control in energy markets and the political use of merger review rules to benefit domestic firms; cooperation with criminal enforcement agencies and prosecutors; the role courts play in undertaking adequate legal supervision of competition authorities; leniency processes and obtaining access to ‘confidential’ whistleblowing documentation; imposition of administrative fines and other deterrence-based sanctions; and how the ‘consumer welfare’ standard is interpreted.
In an interesting story reported by the Montreal Gazette, the Quebec Federation of Real Estate Boards (“QFREB”) has filed a misleading advertising complaint with the Competition Bureau against the sale-by-owner real estate firm DuProprio (see also REM’s article and real estate industry commentary: QFREB files complaint against DuProprio with the Competition Bureau). DuProprio operates as ComFree in other provices (Ontario, Saskatchewan and Alberta).
According to allegations being made by QFREB, DuProprio is misleading Quebec consumers with respect to price and savings claims being made in relation to its real estate sales services (allegedly misleading claims being made “both in terms of their rates and the hypothetical savings that … promised to consumers”).
According to media reports, while the QFREB has not disclosed any specific examples of DuProprio advertisements being challenged as misleading, client testimonials being used by the firm include cost savings between $12,000 and $22,000 and the founder of DuProprio has made public claims that his firm can help clients save an average of $15,000 on broker costs.
While the scope of the QFREB’s Competition Bureau complaint against DuProprio is not yet clear, and it is also not clear if the Bureau will take any enforcement steps against DuProprio, comparative commission claims have caused friction between real estate firms before (both between members and non-members of Canadian real estate boards).
In a speech earlier today, the new Interim Commissioner of Competition, John Pecman, in his first published remarks as Commissioner, discussed compliance, current Bureau enforcement policies and ongoing cases.
Some of the noteworthy aspects of the Interim Commissioner’s remarks include highlighting the Bureau’s continued enforcement in key areas (notably criminal cartel enforcement, including its Immunity and Leniency Programs, and abuse of dominance), highlighting the recent signals in the Maxzone case that the Federal Court will take a stricter approach to sentencing in cartel matters, and in particular compliance programs urging Canadian companies to adopt compliance programs (and discussing the risk of non-compliance and reputational benefits of adopting a credible program).
Compliance
Given that this speech was Mr. Pecman’s first official one as Interim Commissioner, and delivered at a national law firm seminar for firm clients, it is perhaps not surprising that his remarks focused on compliance:
“… the Bureau promotes compliance through enforcement and it provides the education and the tools that assist the corporate community in developing corporate compliance programs. We all know businesses and individuals have a duty to act lawfully — and, the Bureau expects that businesses and their senior management, on the whole, want to comply with the law. It is our hope that by now, it is clear that the legal, economic and reputational risks of non-compliance far outweigh any perceived advantages. Non-compliance costs businesses dearly – not just in terms of financial and legal penalties, but through negative publicity, loss of business opportunities and lost management time. While I suspect that you recognize the value of a compliance program and that many of you have clearly established compliance policies that identify and address questionable behaviour — and aim to prevent it from occurring in the first place, let me take a few minutes to expand on the benefits of such a program.”
The Commissioner reiterated the five elements that are in the Bureau’s view necessary for an effective compliance program: senior management involvement and support; compliance policies and procedures; training and education; monitoring, auditing and reporting mechanisms; and consistent disciplinary procedures and incentives.
Some of the specific compliance themes the Commissioner discussed included compliance programs that are not followed, the importance of senior management promotion of compliance policies and monitoring and internal power to enforce policies. The Commissioner was particularly critical of compliance programs that were well prepared but not followed or effectively delivered. In this regard, the Interim Commissioner said that “the issue is not [a compliance program’s] content, or [its] quality – the issue is internal enforcement …”
Trade Association Compliance
Interestingly, the Interim Commissioner also made a number of specific remarks relating to trade associations. These included highlighting the particular potential risks of associations (saying that associations face “unique compliance issues” and are “naturally exposed to greater risks of anti-competitive behavior”) and emphasizing the importance for associations to have effective compliance programs.
The Interim Commissioner also said that the Bureau would be likely to show an interest in trade association conduct where they engaged in three categories of conduct: (i) restricting the types of professional service practice offerings (e.g., setting limits on things like office location or size); (ii) limiting the number or range of members’ ability to compete (e.g., through mandatory or suggested fee schedules or product standards); or (iii) conduct that reduces incentives to compete vigorously (e.g., information sharing agreements and the exchange of competitively sensitive information).
The Criminal Matters Committee of the Canadian Bar Association’s Competition Law Section will be offering a webinar on cartel enforcement in smaller jurisdictions with the ABA’s Section of International Law on November 6, 2012. From the CBA:
“Cartel enforcement in smaller economies can involve unique issues, including as a result of relatively thin markets that accommodate fewer players of appreciable scale and the existence of industrial policies and business cultures that may clash with competition law principles. In addition, leniency-driven cartel enforcement in relation to alleged international cartel conduct can raise challenging issues for competition agencies and investigated parties alike, especially outside the United States and European Union, where leniency applicants (and investigated parties) are incentivised to concentrate their efforts.
Register for this teleseminar to hear how enforcement officials in Canada, Ireland, New Zealand and Israel are tackling a variety of issues in cartel enforcement, including: drafting anti-cartel laws that clearly distinguish between unlawful cartels and beneficial, efficiency-enhancing, competitor collaborations; working with corporations and government to promote a culture of compliance; drafting and administering effective leniency programs that account for and mitigate parties’ natural pre-occupation with ‘primary’ competition jurisdictions; leveraging international networks and cooperation with other competition agencies; accessing evidence and witnesses in foreign countries; establishing jurisdiction over alleged cartel conduct originating abroad; avoiding resource fatigue from foreign leniency applications and maintaining a credible enforcement program targeting domestic cartels; building a strong enforcement culture and obtaining precedent-setting sanctions in the face of penalties and class action suits for the same conduct in other jurisdictions.”
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
