Archive for the 'Competition Bureau' Category
Earlier today, the Federal Government announced that the Minister of Industry has approved the acquisition of Viterra Inc. by Glencore International plc., a transaction announced last March. The Competition Bureau had already issued a no action letter in the transaction on May 4, 2012 (see: Competition Bureau Issues No Action Letter in Glencore/Viterra Merger).
In making the announcement, the Industry Minister made very brief comments saying only that he was “satisfied that the investment [was] likely to be of net benefit to Canada”, that he carefully considered Glencore’s proposed undertakings and referred to Glencore’s press release for details regarding commitments provided by Glencore. According to media reports, Glencore has agreed to increase capital expenditures in Canada by more than $100 million, contribute to Manitoba “grain industry initiatives” and maintain Viterra’s Regina head office.
Conventional wisdom is that the Competition Bureau will pursue most misleading advertising cases civilly, under section 74.01 of the Competition Act, not criminally (the Act also contains a criminal misleading advertising provision, section 52, as well as a number of other criminal deceptive marketing offences).
For example, in the Bureau’s 1999 Bulletin on the choice of the criminal or civil track for misleading advertising, which remains its leading statement on the question, the Bureau states that the civil track will be pursued in most instances (though it may proceed criminally where there is both clear evidence of intent – for example, continuing conduct after complaints are made – and a criminal prosecution is in the public interest).
Despite this expressed restraint to proceed criminally, there have been a steady stream of deceptive advertising and marketing cases over the past few years where the Bureau has commenced criminal enforcement proceedings. Some recent cases have involved deceptive telemarketing (see: here, here and here), employment opportunity schemes (see: here and here), a GST refund fraud scheme (see: here) and the sale of counterfeit cancer drugs on the Internet (see: here). In terms of criminal misleading advertising cases, the Bureau has appeared to be most concerned with deceptive telemarketing and fraudulent business directory schemes (although its efforts have not been restricted to those two categories of cases).
While imprisonment is rather rare in Canada for competition law offences, several individuals in these cases were also sentenced to imprisonment, ranging from conditional sentences in the community to 3 years, in addition to paying monetary penalties.
In an interesting statement made yesterday, the Federal Government announced that it was extending the list of offences that will render companies and individuals ineligible from bidding on Government contracts to include money laundering, participating in criminal organization activities, tax evasion (income and excise tax), bribing foreign public officials and drug trafficking. These new additions have been added to an existing list, which includes certain Criminal Code fraud offences against the Government and a number of Competition Act offences (including conspiracy and bid-rigging).
In making the announcement, the Government said:
“Our Government continues to stand up for accountability by ensuring we do business with companies that respect the law and act with integrity,” said Minister Ambrose. “We are taking action to protect taxpayers from fraudulent companies who seek to do business with the Government of Canada.”
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The Malaysian Competition Commission (MCC) has set out its position on information exchanges in the association context, in relation to information exchanges involving the Malaysian Automotive Association (MAA).
According to the MCC, it had previously advised the MAA as to why and how the dissemination of disaggregated information to MAA members could infringe Malaysian competition law.
In her announcement, the MCC’s chief executive officer pointed to potential risks of the formation of horizontal or vertical agreements that may raise competition concerns, principally dampening competitive rivalry among them:
“The detailed information exchanged and shared by the MAA’s members may facilitate them to coordinate their prices and such information could facilitate members to plan their marketing strategy by allocating territories or adjusting their production. This indirectly has the consequence of discouraging members from competing fairly and more effectively against one another.”
The potential issues associated with information exchanges between competitors is not, of course, unique to Malaysia, nor are the types of commonsense precautions trade and professional associations can take to reduce competition/antitrust issues from arising.
In Canada, like many other jurisdictions, the potential risk of exchanging competitively sensitive information in un-aggregated form (e.g., price, cost, market, market share, customer or supplier information) is generally twofold: first, exchanging such information can lead to agreements that violate section 45 of the Competition Act (the criminal conspiracy provision, which prohibits price-fixing, market allocation/division and output/supply restriction agreements between competitors); and second, that information exchanges can be used as evidence by the Competition Bureau, a court or private plaintiff to infer the existence of an agreement.
Also, since the passing of Canada’s relatively new civil agreements provision (section 90.1), information exchanges can also now in theory be challenged on a stand-alone basis (i.e., apart from, for example, a price-fixing agreement) where they prevent or lessen competition substantially (or as well raise issues in relation to otherwise legitimate vertical agreements and arrangements).
For more information about information exchanges and competition law in Canada, and steps associations can take to minimize competition risk, see:
Associations and Competition Law
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On July 4, 2012, the Competition Bureau announced that it had issued a No Action Letter clearing the Maple/TMX transaction (see: Competition Bureau Completes Review of Proposed Maple-TMX Transaction).
In two interesting notes yesterday and today (see: here and here) Bloomberg has reported that the Competition Bureau is seeking to overturn an earlier interim stay obtained by RBS in relation to a court order to produce records related to the Bureau’s ongoing LIBOR price-fixing investigation involving Deutsche Bank AG, HSBC, Citigroup Inc., ICAP Plc and RP Martin Holdings Ltd.
According to Bloomberg, the Bureau sought and obtained court orders for the compulsory production of documents (section 11 orders) requiring the firms being investigated to produce documents including lists of individuals responsible for making Yen LIBOR submissions and internal communications. Also according to Bloomberg, the Bureau has taken the position that its [section 11 orders] “may be the only tool available to the Commissioner to obtain evidence of an international cartel formed by foreign-based persons impacting the Canadian economy but where records are held in a foreign jurisdiction …”
Companies and other organizations, such as trade and professional associations, may exchange information for a wide range of legitimate and pro-competitive purposes. These may include industry research, benchmarking, joint ventures or other business or strategic alliances or in the context of merger negotiations.
Indeed, the exchange of information between companies or association members can have many pro-competitive purposes and effects – for example, facilitating research or production initiatives that would be impossible without cooperation, increasing market transparency and consumer knowledge, leading to enhanced products and services or supporting lobbying and industry advocacy efforts. In this regard, competition enforcement officials, both in Canada and other major jurisdictions, generally acknowledge that markets operate more efficiently when information is relatively free and openly available to industry members.
Having said that, information exchanges – that is the exchange of certain types of competitively sensitive information between competitors, such as price, cost, market, market share, customer, supplier or business or strategic plan information – can represent a significant risk for companies, trade or professional association members (as well as their management and boards) and merging or joint venture partners.
Generally speaking, the exchange of competitively sensitive information between competitors can dampen competitive rivalry by reducing competitors’ uncertainty about their rivals’ competitive and commercial responses. More specifically, the exchange of competitively sensitive information between competitors can raise significant competition law risk under the Competition Act (the “Act”).
In Canada, the principal risk of information exchanges between competitors is that they can lead to agreements that violate section 45 of the Act, which makes it a criminal offence for competitors (or potential competitors) to enter into agreements to fix prices, divide markets or restrict output. Potential penalites under section 45 include criminal fines of up to $25 million (per count), imprisonment or up to 14 years and damages arising from civil actions.
While section 45 does not criminalize information exchanges themselves, the risk of such exchanges between competitors, without appropriate safeguards, is two-fold: first, exchanging (or discussing) competitively sensitive information may result in an agreement that contravenes section 45 (e.g., a price-fixing agreement); and second, an information exchange may be used by a court, the Competition Bureau or a private plaintiff to infer the existence of an agreement that violates section 45 (i.e., be used as “circumstantial” evidence of the existence of an agreement).
Canadian courts have relied on evidence of information exchanges as one basis to conclude that an illegal conspiracy existed and such exchanges are commonly relied on in criminal and civil proceedings in Canada under section 45. Information exchanges have sometimes involved conduct as seemingly straightforward as the discussion of prices at association meetings and in one older, but noteworthy, case, an attempt by industry members to adopt an “open pricing” policy (by exchanging price information with no express agreement to follow the exchanged rates) without contravening section 45.
On June 15, 2012, the Competition Tribunal released the public version of its decision in the contested BC landfill merger case Commissioner of Competition v. CCS Corporation, allowing the Commissioner’s application and making a divestiture order.
As we wrote in our earlier post, the case, which involves the acquisition by CCS Corporation of Complete Environmental Inc. and its wholly-owned subsidiary Babkirk Land Services, is noteworthy for being the first contested merger case in Canada in six years (since 2005) and an uncommon example of a “prevent” case (mergers in Canada may be challenged under the Competition Act where they either lessen or prevent competition substantially, being the two aspects of the substantive test under section 92 of the Act). While there have been three previous prevent cases considered by the Tribunal in Canada, all of those focused on the substantial lessening aspect of the substantive test under section 92.
The Bureau’s overarching concern in this case was that the completed merger was likely to prevent competition in the hazardous waste disposal service market in the relevant market in Northern British Columbia, given that, in the Commissioner’s view, Complete was ready to enter and compete with the acquirer CCS. In this regard, Complete had obtained regulatory approvals to operate a secure landfill for hazardous solid waste.
The case is also noteworthy as an example of the Bureau’s apparent increased willingness to challenge some transactions post-closing, regardless of size, that may raise competition concerns.
In granting the Commissioner’s application, albeit with a lesser remedy than that sought by the Bureau (i.e., divestiture not dissolution), the Tribunal had some interesting things to say about the analytical framework for “prevent” cases and the competitive effects in this case (all forward looking), efficiencies and the assessment of the appropriate remedy.
A few interesting points from the Tribunal’s decision include:
Substantial Prevention of Competition
The Tribunal found that the completed merger was likely to result in a substantial prevention of competition in the market for the supply of secure landfill services, and in particular that a decrease in average tipping fees of at least 10% would be prevented by the merger.
In coming to this conclusion, the Tribunal applied a “but for” test in assessing competitive effects (i.e., comparing whether the market would, “but for” the merger, be substantially more competitive, or in the Tribunal’s words: “comparing a world in which CCS owns the relevant Secure Landfills … with a world in which Babkirk is independently operated as a Secure Landfill”).
In adopting this test, the Tribunal drew on the Federal Court of Appeal’s decision in Canada Pipe, an abuse of dominance case under section 79 of the Act, finding a parallel between the language in sections 92 (which sets out the substantive test for merger review) and 79 (abuse of dominance).
Interestingly, the Tribunal refused to rely on U.S. authorities suggested by both the Commissioner and CCS to interpret the appropriate analytical framework in a prevent case, finding that they had developed in relation to a different statutory test and were not recently decided.
Entry
In its prevent analysis, the Tribunal held that it should focus on entry, both with respect to existing firms and new entrants. Entry is a key component of the Bureau’s analysis of competitive effects as set out in its Merger Enforcement Guidelines and barriers are a relevant factor under section 93 of the Act that the Tribunal may consider in evaluating the competitive effects of a merger.
Citing Hillsdown, the Tribunal said that “conditions of entry into a relevant market can be a decisive factor in [its] assessment of whether a merger is likely to prevent or lessen competition substantially … because, ‘[i]n the absence of significant entry barriers it is unlikely that a merged firm, regardless of market share or concentration, could maintain supra-competitive pricing for any length of time.’”
While CCS argued that the relevant market was not characterized by significant barriers, pointing to a permissive regulatory approval regime, growing demand for secure waste facilities and short-term contracting practices in the industry, the Tribunal found that effective new entry would likely take a minimum of 30 months from site selection to a complete operational landfill, with no evidence of proposed new entry.
The Tribunal also found that, absent the merger, the vendors (Complete Environmental) would have constructed a new competing secure landfill that would likely have been operational by the fall of 2012 or early 2013.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
