Archive for the 'Associations' Category
January 17, 2013
Yesterday the U.S. Department of Justice (DoJ) issued a business review letter concluding that it would not challenge a proposed “gainsharing” program by a New York State hospital association (the Greater New York Hospital Association).
The DoJ’s business review letter (the Canadian parallel being advisory opinions available for proposed conduct under section 124.1 of the Competition Act) is interesting in that it shows the importance of minimizing the exchange of competitively sensitive information in the context of association activities.
In this case, the hospital association sought assurance from the DoJ that its proposed program to have physicians take into account their use of hospital resources (and rewards based on shares of achieved savings) would lead to improvements in quality and efficiency and would not violate federal antitrust laws.
The specifics of the particular program in this case aside (the so-called “gainsharing” program involving some 100 hospitals), the aspect of the review letter I found interesting was the DoJ’s analysis of information exchanges. In this regard, the DoJ considered whether the proposed program would constitute a horizontal agreement among competing hospitals relating to physicians’ compensation or an information exchange between hospitals that would facilitate anticompetitive coordination to limit physician compensation (concluding that the proposed program would be unlikely to facilitate collusion or otherwise raise competitive concerns).
In making this determination, the DoJ considered the fact that the program would not involve the exchange of competitively sensitive information between participating hospitals (and would be limited to non-competitively sensitive cost and benchmark data) and would follow the DoJ/FTC antitrust safety-zone requirements set out in their Statements of Antitrust Enforcement Policy in Health Care (the “Health Care Policy Statements”), namely that the data would be at least three months old, supplied by at least five providers and appropriately aggregated.
In Canada, as in the U.S., the exchange of competitively sensitive information between competitors, such as price, cost, market, supplier or output information, particularly in the context of trade and professional associations, can raise competition law concerns (see e.g.: here).
Generally speaking, there are two potential issues that can arise from the exchange of this type of information without adequate precautions: first, that the exchange results in an agreement that violates the criminal conspiracy provisions of the Competition Act (or raises concerns under the civil agreements provision – section 90.1); and second, that an exchange may allow the Competition Bureau, a court or private plaintiff to infer the existence of illegal or problematic agreement among competitors.
In this regard, in his first public remarks, the Interim Commissioner of Competition specifically highlighted information sharing agreements among association members as a potential concern:
“… we are concerned with conduct that reduces incentives to compete vigorously. Information sharing agreements are an example of this. Competitively sensitive information exchanged among competitors who can have serious negative effects on competition, especially if these are in highly concentrated markets with relatively homogeneous product offerings. Clearly, Trade/Industry Associations must be extra vigilant in their efforts to manage and alleviate risk with respect to their activities.”
January 15, 2013
In my inbox this morning, from one of the services I subscribe to, was a very good note on buying groups and U.S. antitrust law (Ten Practical Counseling Tips for Joint Purchasing Without Violating the Antitrust Laws) by Venable LLP.
This rather good and practical note discusses a recent DoJ business review letter for STARS Alliance LLC (an association of nuclear utility operators) and the application of U.S. antitrust law to joint purchasing activities by competitors. In addition to an overview of the potential application of section 1 of the Sherman Act to concerted purchasing activities, this note also includes a number of best practices for joint purchasing activities to mitigate potential competition/antitrust law risk.
In reading the note, I thought that many of these best practices were also good counsel for joint purchasing activities under Canadian competition law including: (1) consult with antitrust counsel prior to establishing a joint purchasing program and periodically throughout the process to ensure compliance with the antitrust laws; (2) for trade associations, participation in the joint purchasing arrangement should be available to all association members and should not be limited by the size, type, or location of a member; (3) the program should not impose minimum purchasing requirements on members; (4) joint purchasing should not be used to raise, lower, or stabilize prices (or boycott suppliers); (5) any meetings of a joint purchasing group should have an agenda and minutes; (6) all discussions should be limited to the purposes of the joint purchasing group; (7) antitrust counsel should be present at meetings where competitively sensitive information is discussed; and (8) members should not share competitively sensitive information or enter any agreement or understanding on prices or other competitive conduct in the downstream market.
In Canada, since the Competition Act was amended in 2009, section 45 of the Competition Act (Canada’s equivalent to section 1 of the Sherman Act which deals with hard-core conspiracy agreements among competitors) is now focused on price-fixing, market allocation and output restriction agreements among competing suppliers. As such, the principal competition law risks associated with buying groups in Canada are generally speaking three-fold:
1. That a buying group may possess sufficient buying power (i.e., monopsony power) to substantially lessen competition in the relevant upstream purchasing market (see e.g., the Competition Bureau’s discussion of buying groups in its Competitor Collaboration Guidelines), thereby raising issues under section 90.1 of the Competition Act (the civil agreements provision).
January 12, 2013
A recent settlement between the U.S. Department of Justice (DoJ) and an Oklahoma chiropractors association (the Oklahoma State Chiropractic Independent Physicians Association) shows the potential risk of association collective bargaining in the absence of competition law immunities/exceptions.
On January 10th, the DoJ announced that it had reached a settlement with this chiropractors association that will require the association to stop jointly determining prices and negotiating contracts with insurers on behalf of competing chiropractors in Oklahoma. According to the DoJ, the association, representing approximately 45% of the state market, and its executive director negotiated at least seven contracts between chiropractors and insurers that set prices for chiropractic services, with the effect of consumers having to paying higher fees in Oklahoma. The DoJ also took issue with collective steps by the association’s chiropractors to suspend pre-existing contracts with insurers and stop offering insurers incentives or rebates. In making the announcement, the DoJ said:
“By jointly negotiating fees on behalf of competing chiropractors, the association and its executive director increased the prices that consumers paid for chiropractic services in Oklahoma. … Today’s settlement promotes competition among Oklahoma chiropractors and prevents the association and its executive director from engaging in illegal conduct that caused consumers to pay more for their health care.”
Some of the specific allegations made by the DoJ in its civil section 1 Sherman Act complaint related to a membership requirement for association members to authorize the association to contract with 3rd party insurers, terminate existing contracts with insurers, stipulate a minimum reimbursement floor for chiropractors and agree not to pay incentives or rebates (e.g., waive deductibles or co-pays). For example, the association’s website stated: “[the association] concentrates the power of [its] state chiropractic physicians into one group. Through [the association], a chiropractor can maintain an individual practice while associating with other chiropractors to increase contract-negotiating power”. The DoJ also took the position that the defendants’ joint negotiation activities in this case were not ancillary to any pro-competitive purpose or reasonably necessary to achieve any efficiencies.
December 8, 2012
The American Antitrust Institute (aai) has posted the materials from its recent 6th Annual Private Antitrust Enforcement Conference in Washington. The materials include podcasts and downloadable PDF versions of papers presented on the following topics: the AAI Jury Instruction Project, Employment Antitrust Litigation, Trends in Use of Truncated or “Quick Look” Analysis, Litigation in Regulated Industries and Class Action Developments.
For more information and copies of the materials see: 6th Annual Private Anitrust Enforcement Conference.
November 24, 2012
Competition/antitrust law penalties in Canada, of course, do not compare to the magnitude of those in the EU or U.S. (where fines can reach hundreds of millions of dollars or Euros).
Having said that, given that 2012 is drawing to a close, I was curious what the fines in Canada have been over the past year. In this regard, though not exhaustive, the following is a brief tiptoe through the cartel, bid-rigging and misleading advertising fine landscape in the last year in Canada:
$12.5 million – Two companies sentenced in relation to a price-fixing cartel for polyurethane foam (January, 2012) (see: here).
$9 million – Five companies and three individuals held to have violated the misleading advertising provisions of the Competition Act (March 2, 2012) (see: here).
$5.5 million – An airline sentenced in relation to an international air cargo price-fixing cartel (July 19, 2012) (see: here).
$2 million – Three companies sentenced in relation to a gas price-fixing conspiracy in Kingston and Brockville, Ontario (March, 2012) (see: here).
$1.5 million – A company sentenced in relation to a price-fixing conspiracy in the aftermarket automotive lights market; part of the ongoing global auto parts cartel investigation (May, 2012) (see: here).
$500,000 – A company sentenced in relation to a gas price-fixing conspiracy in Belleville, Ontario (April 13, 2012) (see: here).
$125,000 – A company sentenced in relation to a bid-rigging cartel for federal government contracts (July 30, 2012) (see: here).
November 16, 2012
The following are some of the more interesting competition, advertising and regulatory law developments that caught my eye over the past several days, at least to the extent they have a bearing on Canada or companies doing business in Canada:
BCE and Astral plan to work towards reworking their deal to obtain regulatory clearance (see: here and here), following a rejection of the deal by the federal CRTC.
The Malaysian state-owned oil company Petronas was reported to be revising undertakings to obtain Investment Canada Act clearance for its acquisition of Progress Energy (see: here).
The CRTC launched new web pages for their planned mandatory wireless code consultations that include the “top 100 liked” comments for a new wireless code (see: here).
Earlier today, Canada’s Finance Minister gave some further indications that the Federal Government may soon reveal new Investment Canada Act rules for FDI in Canada and that the new rules may include “limits” (see: here). Any such rules would replace and/or supplement existing Investment Canada Act provisions and guidelines under the ICA (e.g., those specifically relating to national security or state-owned-enterprises).
More testimony unfolded in the ongoing Quebec corruption and competition law probe relating to allegations of municipal bribes and bid-rigging in the construction sector in Quebec (Monique Muise at the Gazette in Montreal has the best feed going on this, plus she has a sense of humour and, if I may say, classic Quebecois ability to take things in stride – see: here).
November 13, 2012
Given the ongoing testimony at the Charbonneau Commission in Montreal, which has included allegations of bid-rigging among Quebec construction firms, I thought I would post a short overview of bid-rigging under the Competition Act – a sort of “bid-rigging 101” list of FAQs. While much of this will likely be intuitive to most, Canadian bid-rigging law has a number of interesting aspects (and, like criminal cartels, can be very difficult for tendering authorities to detect).
What is bid rigging?
Unlike some jurisdictions, notably the U.S., Canada has a standalone bid-rigging offence, or to be more accurate related offences. Under section 47 of the federal Competition Act it is a criminal offence to:
1. Agree to not submit a bid or tender;
2. Agree to withdraw a bid or tender already made (an offence recently added to the Competition Act as a result of amendments in 2009); or
3. Submit a bid or tender arrived at by agreement.
In essence, the Competition Act prohibits most types of agreements or arrangements between competing bidders or tenderers (though there is one key exception).
Is it necessary to prove
anti-competitive effects on a market?
No. In Canada bid-rigging is referred to as a ”per se” offence, in that no anti-competitive effects need to be proven to make out an offence – in other words, the offence lies in the agreement to not submit a bid, withdraw a bid already made or submit bids arrived at by agreement.
Like the other criminal offences in the Competition Act, however, and criminal offences generally in Canada, it is necessary to prove all elements under section 47 on the criminal burden of proof (i.e., beyond a reasonable doubt).
What are some common types of bid-rigging
(i.e., ways parties attempt to avoid detection)?
Like criminal cartel (i.e., conspiracy) agreements, bid-rigging agreements are often structured in a handful of key ways to avoid detection. These include:
1. “Cover”, “courtesy” or “complementary” bidding: Some firms submit bids that are too high to be accepted (or with terms that are unacceptable to the tendering authority) to protect an agreed upon low bidder.
2. Bid suppression: One or more bidders that would otherwise bid or tender agree to refrain from bidding (or withdraw a previously made bid).
3. Bid rotation: All parties submit bids but take turns being the low bidder according to a systematic or rotating basis.
4. Market division: Suppliers agree not to compete in designated geographic areas or for specified customers.
5. Subcontracting: Parties that agree not to submit a bid (or submit a losing bid) are awarded subcontracts or supply agreements from the successful low bidder.
The above types of bid-rigging arrangements are typically intended to achieve several goals, including keeping the bid-rigging arrangement secret and dividing contracts/markets among the parties.
What must be proven to establish
an illegal bid-rigging agreement?
To establish an illegal bid-rigging agreement under section 47 of the Competition Act, all of the following elements must be established:
1. An agreement or arrangement between two or more persons (or bidders or tenderers as the case may be).
Like section 45 of the Competition Act (criminal conspiracy agreements), an agreement is an essential element to establish a bid-rigging offence under section 47. Also like the criminal conspiracy provisions, Canadian courts have held this element to require a “consensus of minds” or “mutual understanding” between the parties.
Mere consultations between parties bidding in relation to pricing, where there has been no agreement or arrangement between the parties and their respective bids are not communicated to the other before tenders are submitted, has been held not to contravene section 47.
November 11, 2012
In an interesting note earlier today, the National Post reported (from The Canadian Press) that the federal Competition Bureau was working with Quebec’s corruption unit in the ongoing Quebec corruption and competition investigation which has so far led to the resignations of the mayors of Montreal and Laval and involved testimony that working in this area for some years now I can only describe as astonishing.
The articles published earlier today confirmed that the Bureau is working with Quebec’s provincial anti-corruption authorities in relation to a number of cartel and bid-rigging cases under investigation in Quebec (which was also recently confirmed by the Acting Senior Deputy Commissioner of Competition, Criminal Matters Branch, Matthew Boswell in recent remarks, including the fact that Bureau officers have been included in recent dawn raids in Quebec – see: here).
According to the Post’s reporting, the Competition Bureau, in addition to cooperating in searches, is “keeping tabs” on the ongoing Charbonneau inquiry, where testifying witnesses have made criminal and competition law allegations in relation to a wide range of conduct that includes bribery of public officials, illegal political campaign contributions and competition law violations, including criminal bid-rigging and conspiracy under sections 47 and 45 of the Competition Act. The Post also cites correspondence with the Bureau stating that criminal bid-rigging remains an enforcement priority for the Bureau.
While the Bureau’s enforcement powers include the ability to obtain court orders for search warrants and wiretaps, and uses enforcement partnerships as part of its efforts to detect and investigate Competition Act offences, it may be some time yet until any charges or laid or formal Bureau announcements are made given the relatively slower pace of criminal matters under the Act. For example, developments (e.g., pleas) and announcements are still being made in the Quebec’s Quebec gas price fixing investigation, which first began about five years ago.
Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
