Archive for the 'Competition Law' Category
December 15, 2009
As a result of recent landmark amendments to the federal Competition Act (the “Act”), the impact of competition law on trade associations in Canada is now much more significant. This article discusses some of the highlights of Canada’s new competition law and the impacts of the new criminal conspiracy provisions that will come into force in March, 2010.
December 14, 2009
ASSOCIATIONS & COMPETITION LAW
“A [compliance] program also plays a crucial role for trade associations because trade associations face unique compliance issues. Given that an association provides a forum where competitors collaborate on association activities, trade associations are exposed to greater risks of anti-competitive conduct. A number of past Bureau cases have involved trade associations that were engaged in agreements to harm competition. It is therefore critical that trade associations implement credible and effective programs with strict codes of ethics and conduct. Such programs may allow trade associations and [their] members to avoid improper actions and to protect themselves from being used as a conduit for illegal activities. They may also allow trade association members to fully benefit from the association’s activities while reducing the potential for inadvertent contraventions of the Acts.”
(Competition Bureau, Corporate Compliance Programs Information Bulletin)
November 24, 2009
CANADIAN CONTEST RULES/PRECEDENTS
Do you need contest rules/precedents
for a Canadian contest?
We offer many types of Canadian contest/sweepstakes law precedents and forms (i.e., Canadian contest/sweepstakes law precedents to run common types of contests in Canada). These include precedents for random draw contests (i.e., where winners are chosen by random draw), skill contests (e.g., essay, photo or other types of contests where entrants submit content that is judged to enter the contest or for additional entries), trip contests and more. Also available are individual Canadian contest/sweepstakes precedents, including short rules (“mini-rules”), long rules, winner releases and a Canadian contest law checklist. For more information or to order, see: Canadian Contest Law Forms/Precedents. If you would like to discuss legal advice in relation to your contest or other promotion, contact us: Contact.
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On November 23, 2009 the Competition Bureau announced that Elkhorn Ranch & Resort Ltd., a Manitoba-based company that sells vacation property time shares, has agreed to pay CDN $170,000 for operating promotional contests in contravention of the promotional contest provisions of the Competition Act.
November 9, 2009
CANADIAN COMPETITION ACT AMENDMENTS
Earlier this year, sweeping amendments were made to Canada’s Competition Act (the “Act”). The recent amendments were the most significant in twenty-five years. While most of the changes are now in effect, some of the amendments, including to the criminal conspiracy provisions, will come into effect in March next year.
Random Advertisements.
One form of Internet advertising. Office of the Privacy Commissioner of Canada, Policy Position on Online Behavioural Advertising: “These are ads that are randomly placed. Since these advertisements are not based on website content or user preferences, they would typically be less economically successful to marketers.”
Random or ‘random draw’ contest.
Contests generally fall into two categories: skill contests (e.g., judged story-writing, photography or other skill competitions) and random contests (e.g., contests where winners are selected by random draw). Random contests can include random draws, seeded games (e.g., where prizes may be found under bottle caps, etc.), scratch-and-win cards, instant win games online or so-called “match and win” games (in which participants collect game pieces for a game, puzzle, etc.).
A “random draw” type of contest is one in which winners are chosen by a random draw from all eligible entries received (as opposed to, for example, a skill contest, where a contest entrant may have to compete with other entrants to win prizes).
B. Pritchard & S. Vogt, Advertising and Marketing Law in Canada, 4th ed. (Toronto: LexisNexis, 2012): “Contests can be divided into two broad categories: skill contests and contests where prizes are awarded randomly. Until recently, skill contests – where winners are selected by experienced judges based on the contestants’ skill at story-writing, photography, etc. – were much less common. Contests where winners are chosen at random include: sweepstakes where prizes are awarded by random draw; seeded games (including Coke’s ‘under the bottle cap’ promotions and Tim Hortons’ ‘Roll Up The Rim To Win’), where prizes are randomly seeded on game cards or on-pack, and participants must scratch, unpeel or otherwise reveal the prize area to discover whether they have won a prize; online instant win games where consumers enter a code number (usually obtained on-pack); and ‘match and win’ games where participants must collect game pieces to spell specific words or match the pieces of a puzzle.”
For more information about Canadian contest/sweepstakes law, see: Contests, Contests and CASL, Contest FAQs, Contest Tips and Contests and Social Media.
For information about the Canadian contest/sweepstakes precedents (template rules) and checklists that we offer for sale, see: Canadian Contest Forms/Precedents.
Ransomware.
A form of online fraud.
Canadian Anti-Fraud Centre: “Computers being frozen or [locking out] their users. This happens primarily after complainants receive pop-up messages warning them their computers have been associated with child pornography and illegal music downloading. These warning messages, which claim to come from the RCMP or other Canadian government agencies, tell recipients to pay [money] so their computers can be ‘unlocked.’ These types of messages, known as ransomware, are scams designed to create shock and anxiety so that victims respond by sending money quickly.”
Rebate.
Competition Bureau, Enforcement Guidelines, Consumer Rebate Promotions (2009): “Consumer rebate promotions include any type of promotion that involves a partial refund or discount from a manufacturer or retailer to consumers upon the purchase of a product. Refunds are normally paid in the form of cash or a cheque. For the purposes of this publication, ‘rebate’ is defined as excluding gift cards and other forms of credit on future purchases, given that the term ‘rebate’ can create the general impression in the minds of consumers that a portion of the price of the product will be returned to them. Rebates can be beneficial to both consumers and businesses. For consumers, rebates can result in lower effective prices. For businesses, rebates provide a flexible tool that may increase the volume of sales. However, when rebates are not promoted or administered correctly, consumers may ultimately pay more than intended, and competitors can be unfairly disadvantaged. There are two types of rebates: Instant rebates – Consumers receive the rebate at the time of purchase. The rebate is generally available to anyone who purchases the product, without further condition; Mail-in rebates – Consumers apply for the rebate after the purchase, by mail-in application, online or by other means. ‘mail-in rebate’ includes mail-in, Internet and other delayed- payment rebates. Various market participants may be involved in promoting and administering rebates.”
Competition Bureau, News Release, “Are You Getting the Real Deal? Understand Rebate Promotions Before You Buy” (December 14, 2009): “True rebates involve a partial refund or discount on the purchase of a product, which is normally paid in the form of cash or a cheque. By contrast, some promotions offer gift cards or credits to be used on future purchases. While these may be a good deal, they are not rebates.”
Consumers Council of Canada: “True rebates involve a partial refund or discount on the purchase of a product, which is normally paid in the form of cash or a cheque. By contrast, some promotions offer gift cards or credits to be used on future purchases. While these may be a good deal, they are not rebates.”
Regulated conduct defence.
Competition Bureau contribution, OECD Policy Roundtable, Regulated Conduct Defence (2011): “The [“regulated conduct defence” (“RCD”)] is one of a number of interpretive tools developed by Canadian courts to resolve potential conflicts between validly enacted laws. Under certain limited conditions, the RCD, and other interpretive tools, may remove from the application of the [Competition Act] conduct that is authorized or required by another federal, provincial or municipal law or legislative regime.”
OECD, Policy Roundtable, Regulated Conduct Defence (2011): “The regulated conduct defence allows antitrust immunity where conduct is required by federal or state regulation. The regulated conduct defence is important to ensure that the state can exercise its sovereign power to apply regulation that it deems justified for economic and/or social reasons even though the regulation may conflict with competition policy. The defence is also important to ensure firms do not face multiple inconsistent legal demands, in particular from regulations and competition law. Nevertheless, the regulated conduct defence also bears important risks including high potential costs for society. Indeed, the defence may preserve unduly anti-competitive regulation entailing welfare cost not necessary for achieving the regulatory objective. The defence may also lead to competition law exemptions of only weakly regulated conduct.”
R. v. Independent Order of Foresters (1989), 26 C.P.R. (3d) 229 (Ont. C.A.): “The [regulated conduct defence] simply means that a person obeying a valid provincial statute may in certain circumstances, be exempted from the provision of a valid federal statute. But there can be no exemption unless there is a direction or at least authorization to perform the prohibited act.”
Industrial Milk Producers Association v. British Columbia (Milk Board) (1988), [1989] 1 F.C. 463 (Fed. T.D.), per Reed J.: “… I accept counsel for the plaintiffs’ argument that it is a regulated industry defence, not an exemption which is pertinent. Indeed as I read the cases it is a regulated conduct defence. It is not accurate merely to identify an industry as one which is regulated by federal or provincial legislation and then conclude that all activities carried on by individuals in that industry are exempt from the Competition Act. It is not the various industries as a whole, which are exempt … but merely activities which are required or authorized by the federal or provincial legislation as the case may be. If individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act.” [emphasis in original]
Overview of Some Aspects of the RCD in Canada
The regulated conduct defence (“RCD”), which has been partially codified in subsection 45(7) of the Competition Act as a result of the 2009 amendments to the Act, is the Canadian equivalent of the U.S. state action immunity doctrine. When met, the RCD offers a form of immunity from enforcement under the Competition Act for legislatively authorized or mandated conduct. As such, the RCD can operate as a defence to some types of activities that would otherwise be subject to the Act.
The Competition Bureau’s “Regulated” Conduct Bulletin (the “RCD Bulletin”) sets out the Bureau’s general approach to the RCD in light of the amendments to the Act. For the RCD to apply, all of the following requirements must be met: (a) valid legislation, (b) conduct is legislatively mandated or authorized, (c) the authority to regulate has been exercised and (d) the regulatory scheme has not been hindered or frustrated by the conduct (or used as a “shield” to engage in unauthorized anti-competitive conduct).
Before the 2009 amendments to the Competition Act, it was not clear whether the RCD would apply as a defence in relation to provisions of the Act that did not contain so-called “leeway” language indicating that other legislation may apply (e.g., the phrase “unduly” preventing or lessening competition under the former section 45). This uncertainty arose as a result of the Supreme Court of Canada’s decision in Garland v. Consumers’ Gas Co. which held that in the absence of such “leeway” language in the relevant federal legislation the RCD would not apply. This issue may now have been removed, at least with respect of the application of the RCD under section 45 (conspiracy agreements), given that subsection 45(7) now expressly refers to the former common law RCD as a defence.
The addition of the RCD to section 45, however, raises new questions including whether and to what extent the RCD continues to apply as a defence to other provisions of the Act. With respect to other criminal offences under the Act, the Bureau’s position in its RCD Bulletin is that it will apply Garland to determine whether Parliament intended that the particular provision apply to the conduct and, if so, it “may still refrain from pursuing the case in reliance on the RCD.” With respect to civil reviewable matters, the Bureau takes a more cautious approach stating that until RCD case law is further developed, it will consider the RCD in relation to reviewable matters but “will not consider RCD case law to be dispositive.”
The fact that this former common law defence has been partially codified under section 45 also does not resolve some of the existing uncertainties about its scope and application. These include whether the RCD: (i) operates as a defence or an exception under other provisions of the Competition Act, (ii) applies equally to regulated persons (so-called “regulatees”) as to regulators, (iii) applies to civil reviewable matters as it does to criminal offences, (iv) applies in the federal sphere (i.e., where federal legislation provides the authorization for challenged conduct) and (v) the level of legislative authorization needed to invoke the RCD.
REQUIREMENTS
Valid legislation
The first condition for the application of the RCD is that there be validly enacted provincial or federal legislation mandating or authorizing challenged conduct. This is based on the principle that competition law liability should not be incurred for activities that are directed or authorized by other validly enacted legislation.
The mere fact that a particular industry or profession is generally regulated, however, will not provide a shield from the application of Canadian competition law. For example, in Industrial Milk, the court held: “[i]t is not the various [regulated] industries as a whole, which are exempt from the application of the Competition Act but merely activities which are required or authorized by the federal or provincial legislation as the case may be.”
Conduct is mandated or authorized
The second condition for invoking the RCD is that the challenged conduct must be required or authorized by validly enacted provincial or federal legislation.
With respect to the degree of authorization, Canadian courts have held that the RCD may apply not only where conduct is mandated but also where there is specific or general authorization for the challenged activities. The Bureau has also acknowledged that the RCD may apply where conduct is merely authorized as opposed to being mandated or compelled.
Despite the fact, however, that some Canadian courts have held that mere general authorization is enough to invoke the RCD, the level of authorization required remains unclear and unsettled. For example, in the Law Society case, the Ontario General Division held that the “regulated conduct defence will apply to individuals and companies which are subject to regulation, and to regulatory agencies themselves, provided the impugned conduct is mandated, required or authorized by validly enacted legislation. Similarly, in Industrial Milk, the court held that activities that are required or merely authorized by federal or provincial legislation may be exempt from the application of the Competition Act.
Despite these cases, Canadian courts have been inconsistent in articulating the degree of authorization needed to invoke the RCD. For example, in Jabour, the Supreme Court of Canada held that a “broadly styled” mandate to determine what constituted “conduct unbecoming” lawyers was sufficient authority for the Law Society of British Columbia to invoke the RCD as a defence to regulating members’ advertising, despite the fact that the Law Society’s statutory authority did not specifically address advertising.
Based on the Supreme Court’s liberal application of the RCD, Jabour is considered to be the “high water mark” for a permissive approach to the level of authorization needed to invoke the RCD. By contrast, some later cases have taken a more restrictive approach. For example, in Mortimer, a by-law enacted by an association of land surveyors establishing mandatory minimum fee tariffs was challenged. The British Columbia Supreme Court held that the RCD did not apply because, while the association’s enabling legislation granted some tariff-making powers, it was not clear that the legislation included the power to set minimum tariffs or fees. The enabling legislation was construed strictly by the Court, which held that if the legislature had intended to give the association the power to set mandatory minimum tariffs it would have clearly done so.
Given that conduct must be mandated or authorized for the RCD to apply, courts in several cases have similarly refused to apply the RCD where there was no legislative authority for the challenged conduct. For example, the RCD was held not to apply to a county law association that had not been delegated the authority to enforce a minimum fee schedule. In another case, a Quebec notaries association pleaded guilty to conspiring to fix the prices of real estate services where the Quebec government no longer regulated notarial fees.
Regulatory authority exercised
The third requirement to invoke the RCD is that the regulatory power conferred by legislation must be exercised. The RCD will not apply where a regulator has forborne from regulating.
For example, in B.C. Fruit Growers Association, members of a fruit growers association entered into an agreement with fruit packing houses to refuse to supply services to non-member growers. The fruit growers association argued that the former Combines Investigation Act did not apply on the basis that there was authorization for the actions of the accused, given that the relevant legislation provided for a marketing board to be appointed to regulate the operation of packing houses. The Court rejected this argument, finding that although a marketing board had been legislatively established, it had not exercised any authority it might have had to restrict the supply of packing services.
Regulatory scheme not frustrated
Finally, the RCD will only apply where the exercise of regulatory authority has not been frustrated by the conduct being regulated. For example, in R. v. Canadian Breweries Ltd., it was held that if the regulation of an industry is hindered by the behavior of those subject to the regulation, the RCD will not apply to protect them.
The RCD also cannot be used by a regulatory body as a shield for anti-competitive conduct outside the scope of the statutory regime. For example, in Industrial Milk, it was held that if “individuals involved in the regulation of a market situation use their statutory authority as a spring board (or disguise) to engage in anti-competitive practices beyond what is authorized by the relevant regulatory statute then such individuals will be in breach of the Competition Act”.
Reloading.
A form of fraud.
U.S. Federal Trade Commission: “Double scammers are known as ‘reloaders.’ They use several methods to rip off consumers: (i) they call – claiming to work for a government agency, a private company, or a consumer organization that could recover money you lost or a product or prize that hasn’t been delivered yet – for a fee. The catch is that the second caller is following up on the first fraud, and may even work for the company that took your money originally. If you pay the recovery fee, you will have been fooled twice. You can expect more calls – and more convincing stories; (ii) another scam uses prizes as incentives to get you to continue to buy merchandise. If you make one purchase, chances are you will get a second call claiming you’re eligible to win a more valuable prize if you keep buying. The second caller makes you think that buying more merchandise increases your chances of winning. If you act on the offer, you may be called yet again with the same sales pitch.”
Canadian Department of Justice, Report of the Canada – United States Working Group on Telemarketing Fraud (Updated December 1, 2011): “These target the same victims again and again. Persons victimized once are most likely to be deceived repeatedly. Unfortunately, victims’ understandable desires to recover their original losses make them more vulnerable to further schemes. This is known as ‘reloading’ or ‘loading.’ Those who ‘invest’ money are ‘reloaded’ for more to protect or increase their investment, those asked for customs or shipping fees are ‘reloaded’ for additional charges, and those who give to a spurious ‘worthy cause’ are often ‘reloaded’ for further donations. ’Recovery room’ schemes exploit the victim’s desire to recover losses from previous frauds. Offenders, often from the same organization which defrauded the victim in the first place, call with inside knowledge of the fraud and a promise to recover the losses if ‘taxes’ or ‘fees’ are paid. A common tactic of callers is to represent themselves as law-enforcement or other government or professional employees (e.g., bank or stock-exchange officials), using inside knowledge of the victim and the fraud to establish credibility. ‘Recovery room’ operations frequently deprive victims of their last remaining funds.”
Robocall.
A term used in the telemarketing industry to refer to the use of “automated calling devices”.
See e.g., CRTC: “Automated calling devices are used to dial telephone numbers and automatically deliver a pre-recorded message. The CRTC’s Automatic Dialing and Announcing Device Rules prohibit telemarketers from using these devices to sell or promote a product or service unless a consumer has consented to be called by them. They can, however, be used by police and fire departments, schools and hospitals if they have a valid public service message to communicate. Automated calling devices can also be used for appointment reminders and thank you calls.”
U.S. Federal Trade Commission: “If you pick up the phone and hear a recorded message instead of a live person, that’s a robocall. If the recording is a sales message (not a call from your healthcare provider or a charity), and you haven’t given your written permission to get calls from the company on the other end, the call is illegal. Period.”
Romance scam.
A type of fraud.
Canadian Anti-Fraud Centre: “Generally, Romance scams involve the victim and the fraudster meeting through a social networking site. The fraudster will gain the trust of the victim through displays of affection. While the fraudster is usually located in a far away country, eventually want to meet the victim in person. It is at this time the fraudster will advise they can’t afford to travel and will seek assistance from the victim in covering travel cost. Other variations include the fraudster presenting situations of emergency/ urgency, such as a sick family member, and seeking financial assistance from the victim for various costs. Some incidents have also occurred at the local level and involved the victims actually meeting the suspects to go out on dates and meeting at the victim residence. These cases are creating concerns for personal safety. For example, in one incident the victim reported having her wallet and some jewelry stolen from home.”
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SERVICES AND CONTACT
We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
Our experience includes advising clients in Toronto, Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.
To contact us about a potential legal matter, see: contact
For more information about our firm, visit our website: Competitionlawyer.ca
QR code or “quick scan response code”.
Canada Business Network blog: “As mobile technology develops and smartphone ownership increases, your customers may want to access your business through QR codes. By using a camera on their cell phone to scan quick response (QR) codes, potential customers can reach your website immediately for more product information or a special offer linked directly to the code. But why not also target your mobile-equipped audience to measure the success of specific marketing campaigns? QR codes are black modules of pixels arranged in a square pattern on a white background that can ease the offline-to-online consumer experience. These specific matrix codes hold up to 7,089 characters compared to the 20-digit capacity of a typical bar code, so you can embed more information. Analytics tools show your codes’ performance, allowing you to use the data for future decisions. (…) Let QR codes build business by placing them: in print ads to drive customers to your website where they can enter a contest, claim a coupon or access exclusive content; on packaging to link directly to product reviews or detailed information that can help drive the purchasing decision; on your storefront to entice savvy customers in for a freebie; on your business card to link to a promo video about your work or your latest blog post.”
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SERVICES AND CONTACT
We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
Our experience includes advising clients in Toronto, Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.
To contact us about a potential legal matter, see: contact
For more information about our firm, visit our website: Competitionlawyer.ca
October 23, 2009
CANADIAN MERGER CONTROL
I. Overview
The pre-merger notification provisions of the federal Competition Act (the “Act”) require both parties to specified types of transactions that exceed the statutory monetary thresholds under the Act to file pre-merger notification filings with the federal Competition Bureau (the “Bureau”).
In addition, regardless of size, any transaction that falls within the statutory definition of “merger” under the Act is potentially subject to substantive review by the Bureau to determine whether it is likely to result in a substantial prevention or lessening of competition in a relevant market or markets.
In other words, while the Act contains statutory monetary thresholds requiring that notification be made for transactions exceeding a certain size, mergers that fall below the statutory thresholds are also potentially subject to substantive review by the Bureau.
For mergers that exceed the statutory monetary thresholds, notification is mandatory and failure to notify is a criminal offence.
II. Pre-merger Notification
In order for a transaction to be notifiable in Canada it must: (i) involve the acquisition of an “operating business” in Canada, (ii) be one of five specified types of transactions, (iii) exceed the statutory monetary thresholds and (iv) not fall within one of the statutory exceptions in the Act.
(a) Canadian Operating Business
In order for a transaction to be notifiable in Canada, it must involve the acquisition of an “operating business” in Canada, which is defined under the Act as a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work. In this regard, the Bureau has taken the position that employees may include both independent contractors and part time employees.
(b) Types of Transactions
The five types of transactions that require pre-merger notification filing, assuming all of the other requirements are met, are: (i) asset acquisitions, (ii) share acquisitions, (iii) amalgamations, (iv) non-corporate combinations and (v) acquisitions of interests in non-corporate combinations.
(c) Thresholds
A transaction must exceed the “size of parties” and “size of transaction” thresholds under the Act, which are cumulative.
With respect to the size of parties threshold, the parties and their affiliates’ Canadian assets (or gross revenues from sales in, from or into Canada) must exceed CDN $400 million. With respect to the size of transaction threshold, the book value of the target’s assets in Canada (or annual gross revenues from sales in or from Canada generated by those assets) must exceed CDN $70 million.
For share acquisitions, there is an additional threshold. For the acquisition of public companies, the acquisition must result in the acquirer holding more than 20% of the voting shares (more than 50% if more than 20% is already held). For the acquisition of private companies, the acquisition must result in the acquirer holding more than 35% of the voting shares (more than 50% if more than 35% is already held).
(d) Exceptions
The Act also contains a number of exceptions from the pre-merger notification requirements, including certain ordinary course acquisitions of real property and goods, an underwriting exception, transactions between affiliates and where an Advance Ruling Certificate (”ARC”), which is one form of pre-merger clearance under the Act, is obtained.
III. Who Must Notify
Both parties to a transaction (i.e., both the acquirer and the target) are required to file a pre-merger notification filing. Parties may request that an ARC or “no action” letter be issued. Parties will also often file a separate competitive effects brief with a pre-merger notification filing setting out the reasons why the proposed transaction is unlikely to prevent or lessen competition substantially in the relevant market(s).
IV. Waiting Periods
Canada is a “suspensory” jurisdiction (i.e., parties to a notifiable transaction are not permitted to complete a transaction after filing unless the applicable waiting period has expired or clearance has been received). Following recent significant amendments to the Act, Canada now has a U.S. style two-stage merger review process.
Under the new regime, filing triggers an initial 30 calendar day waiting period during which the parties to a transaction are not permitted to complete unless clearance has been received (either by receipt of a no action letter or ARC).
During this initial 30 day waiting period the Bureau may advise the parties to the transaction that it does not intend to challenge the transaction. Alternatively, where the Bureau takes the position that there are potential issues, it may make a supplementary information request (the equivalent of a U.S. second request). If the Bureau does so, the waiting period stops until a complete response has been filed whereby a second 30 day waiting period begins in which the parties are not permitted to close (again, unless clearance is received).
Under the new regime, there is no limit as to how long the second request process can take. This is because the burden is on the merging parties to complete the request and, where a second request is made, the “clock” will not start again until the order has been fully complied with (compared to the lesser standard of substantial completion in the U.S).
In addition, while parties are free to complete a transaction after 30 days of complying with a second request, the Bureau is not required to have finished its review by that time. As such, parties may either opt to wait for the Bureau to complete its review or close and assume the risk that the Bureau may challenge the transaction post-closing.
The recently amended Act also now gives a court or the Competition Tribunal new powers relating to non-compliance with the statutory waiting periods. These include, for a proposed transaction, the power to issue an interim injunction or compel the filing of information and, for a completed transaction, the power to order that the merger be dissolved, an order for the divestiture of shares or assets or “administrative monetary penalties” (essentially civil fines) of up to CDN $10,000 for each day of non-compliance.
V. Clearance
Parties may complete a transaction when: (i) an ARC is received, which is the strongest form of clearance under the Act and typically issued in non-complex transactions where there are few or no issues and no overlap, (ii) a “no action letter” is received stating that the Commissioner does not, at that time, intend to apply to the Tribunal for remedies or (iii) the applicable statutory waiting period have expired.
It is worth noting, however, that the Bureau has the power to continue to review a transaction after the applicable waiting periods have expired if clearance has not been received.
VI. Hostile Transactions
There are special rules under the Act for hostile transactions. Under these rules, the initial 30 day review period begins on receipt of a complete filing from the bidder and the Bureau will notify the target that a filing has been received from the bidder and give the target 10 days to file from the date the target is notified.
In addition, the second 30 day waiting period, where a supplementary information request has been issued, begins when the Bureau receives the requested information from the bidder (i.e., regardless of when the target complies), which is intended to prevent targets from stalling a transaction by delaying filing.
VII. Filing a Merger Notification
The Bureau’s Merger Notification Unit (“MNU”) is responsible for all pre-merger notifications in Canada. The MNU also gives guidance to parties regarding timing and information requirements for merger notification filings and enforces compliance with the pre-merger notification provisions of the Act.
VIII. Substantive Review
Broadly speaking, the substantive review of a merger involves an analysis as to whether a proposed transaction is likely to prevent or lessen competition substantially in one or more relevant markets post-merger (i.e., to assess what the potential anti-competitive effects of a merger may be). Whether a merger is likely to prevent or lessen competition substantially in a relevant market turns largely on whether the merged firm will be able to exercise a materially greater degree of market power in a relevant market(s) post-merger.
The framework to analyze the potential anti-competitive effects of a transaction includes evaluative criteria in the Act, Competition Tribunal (“Tribunal”) merger decisions and the Bureau’s Merger Enforcement Guidelines (“MEGs”).
In assessing potential competition issues associated with a merger, the Bureau considers both “unilateral effects” (i.e., whether the merged firm alone is likely to be able to exercise market power post-merger) and “coordinated effects” (i.e., whether a group of firms together are likely to be able to exercise market power post-merger).
This analysis of market power involves, among other things, the review of a number of factors including the estimated market shares of the parties, concentration in the relevant market (or markets), barriers to entry and other so-called “evaluative criteria” including effective remaining competition, foreign competition and countervailing power of customers.
Where the Bureau takes the position that a proposed merger is likely to prevent or lessen competition substantially, the Commissioner may seek remedial orders from the Tribunal including an order to block the merger (in the case of a proposed merger) or an order for the dissolution of assets of shares (in the case of a completed merger). The Bureau has also sought injunctions in the past to allow more time for substantive review.
With respect to market shares, the Bureau takes the position in the MEGs that it will generally not challenge a merger on the basis of a concern of a unilateral exercise of market power where the post-merger share is less than 35% and will not generally challenge a merger on the basis of a concern of a coordinated exercise of market power if: (i) the combined post-merger share of the four largest firms in the relevant market (CR4) is less than 65% or (ii) the post-merger share of the merged entity is less than 10%.
IX. Challenging a Merger
The Bureau has exclusive jurisdiction to challenge mergers under the Act and may challenge a merger either before or after closing. The Bureau may seek an injunction to prevent closing or make applications to the Tribunal for remedial orders.
Remedial orders that the Tribunal may make include an order to block the merger, an order for the dissolution of the merger or for the disposition of assets or shares. The Bureau may also challenge a transaction for up to one year after closing (which has recently been shortened from the previous three years).
However, while the Commissioner has the power to make applications to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues being resolved by way of negotiated settlements (i.e., consent agreements).
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SERVICES AND CONTACT
I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.
My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.
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September 29, 2009
Earlier this year, sweeping amendments were made to the federal Competition Act (the “Act”). The recent amendments were the most significant in twenty-five years. While most of the changes are now in effect, some of the changes, including to the criminal conspiracy provisions, will come into effect early next year in March.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
