Canadian COMPETITION LAW

“[The conspiracy section] of the Act moreover is its oldest provision. Even today, it remains at the core of the criminal part of the Act. The prohibition of conspiracies in restraint of trade is the epitome of competition law, finding its place in every competition law, from Section 1 of the Sherman Act to Article 85 of the Treaty establishing the European Economic Community … [The conspiracy section] of the Act is not just another regulatory provision. It definitely rests on a substratum of values, a finding which must be kept in mind in the course of the vagueness analysis [in this case].”

(Gonthier J.,
R. v. Nova Scotia Pharmaceutical Society)

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“Competition law treats agreements among rival firms to set the terms on which they trade as extremely serious offenses. Most of the world’s approximately 120 systems of competition law assign the prosecution of cartels a high priority. The consequences of detection can be severe. The annual global sum of civil fines and treble damages for cartel participants today routinely exceeds hundreds of millions—indeed, even billions—of dollars, and individuals in a growing number of countries face potent criminal sanctions.

Central to the operation of laws that aggressively punish collusion are the definition and proof of concerted action. Powerful consequences flow from whether price increases observed in the marketplace emerge from individual or collective initiative. A firm acting alone ordinarily can set its prices as high as it likes. If the same firm cooperates with its competitors to achieve price increases, however, its executives may go to prison.”

(William E. Kovacic,
“Plus Factors and Agreement in Antitrust Law”)

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FREQUENTLY ASKED QUESTIONS ABOUT
CRIMINAL CONSPIRACY OFFENCES
UNDER SECTION 45 OF THE COMPETITION ACT

What is the scope of Canada’s competition law conspiracy regime?

Following amendments to the federal Competition Act in 2009, Canada introduced three new “hard core” criminal conspiracy offences under section 45 of the Competition Act that make the following types of agreements between competitors criminal offences: (i) price-fixing, (ii) market division/allocation and (iii) output/supply restriction agreements.

These offences are “per se” illegal. It is not necessary to prove any anti-competitive effects on a market, which as a practical matter means that small entities with no significant market presence can also be caught under these criminal conspiracy offences.

Following amendments to the Competition Act in June 2022, no poach and wage fixing agreements between employers were also added as criminal offences under section 45 of the Competition Act.

In addition to the per se criminal regime introduced in 2009, a second civil agreements provision was also enacted (section 90.1) under which other types of commercial agreements that are not “hard core” anti-competitive agreements (i.e., not bare price-fixing, market allocation or output restriction agreements) may still be subject to review by the Competition Tribunal where they prevent or lessen competition substantially.

In this regard, in 2009 Canada adopted a two-track statutory criminal conspiracy (cartel) regime that has parallels to the “per se” and “rule of reason” approach to cartels under Section 1 of the U.S. Sherman Act.

For more information, see: Conspiracy (Cartels).

When did Canada’s new two-track conspiracy regime come into force?

Canada’s new two-track conspiracy regime under the Competition Act came into force on March 12, 2010.

Why was Canada’s old criminal conspiracy (cartel) law changed?

The introduction of Canada’s U.S.-style criminal conspiracy (cartel) regime is intended to make the enforcement of hard-core criminal cartel activity (i.e., “bare” or “naked” price-fixing, market allocation and output restriction agreements between competitors or potential competitors) easier by removing the former competitive effects test.

In this regard, prior to March 2010, it was necessary to prove that a challenged conspiracy (cartel) agreement prevented or lessened competition “unduly”. This former competitive effects test, which required proving both subjective and objective intent elements, was considered to both make the enforcement of section 45 of the Competition Act more difficult and out of step with the conspiracy/cartel regimes of other major international jurisdictions.

Canada’s criminal conspiracy (cartel) provisions under section 45 of the Competition Act are intended to allow a more detailed analysis of non-hard core agreements between competitors under section 90.1 of the Competition Act, such as joint venture and strategic alliance agreements, where a more detailed review of the potential effects of an agreement between competitors may be warranted to consider if the agreement is pro- or anti-competitive.

Canada’s new criminal conspiracy (cartel) regime that was introduced in 2009 and came into force in 2010 is intended to make catching clearly anti-competitive competitor agreements easier while allowing for a more detailed review of agreements that may be competitively neutral or pro-competitive and, therefore, not warranting criminal sanction.

What kinds of agreements are illegal under Canada’s conspiracy (cartel) offences (section 45 of the Competition Act)?

The following three categories of agreements between competitors (i.e., horizontal agreements) are “per se” illegal under section 45 of the Competition Act, with no requirement to establish any negative effect on a relevant market:

1. Agreements to fix, maintain, increase or control the price for the supply of a product (price-fixing agreements) (section 45(1)(a)).

2. Agreements to allocate sales, territories, customers or markets for the production or supply of a product (market division/allocation agreements) (section 45(1)(b)).

3. Agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product (output/supply restriction agreements) (section 45(1)(c)).

In addition, after amendments to the Competition Act in June 2022, no poach and wage fixing agreements between employers are also criminal conspiracy offences.

What kinds of competitor agreements can be reviewed under the civil agreements provision of the Competition Act (section 90.1)?

Agreements between competitors that are not caught by the three per se criminal offences under section 45 of the Competition Act (price-fixing, market allocation and output restriction agreements) can be reviewed under the civil agreements provision (section 90.1).

Some of the types of agreements that may potentially be subject to review under section 90.1 include non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements.

Are vertical agreements (e.g., supplier-customer, franchisor-franchisee, licensor-licensee agreements) caught under section 45 of the Competition Act?

No.

Canada’s amended section 45 of the Competition Act (criminal conspiracy agreements between competitors or potential competitors) is restricted to horizontal agreements.

However, following amendments to section 90.1 of the Competition Act in December 2023, the civil agreements provision will potentially also apply to vertical agreements in addition to competitor agreements once those amendments to section 90.1 come into force in December 2024.

What is necessary to prove an agreement under section 45 of the Competition Act (criminal conspiracy agreements)?

Canadian case law has established that while there must be a “meeting of minds” or “consensus” between parties, both informal and overt arrangements may be caught.

It is also well established that a price-fixing or other criminal conspiracy agreement between competitors under section 45 of the Competition Act may be established based only on circumstantial evidence.

Such evidence may include, among other things, evidence of meetings, exchanges of competitively sensitive information, identical or similar pricing (or sudden price stabilization), language suggesting the existence of an agreement, enforcement activities by competitors, attempts to keep meetings or other activities secret and conduct that can only be explained by the existence of an agreement between competitors.

A criminal conspiracy agreement under section 45 of the Competition Act must, however, still be proven on the criminal standard of proof (i.e., beyond a reasonable doubt) and if circumstantial evidence is adduced, such evidence must be sufficient to prove the existence of an agreement.

Does a conspiracy agreement need to be secret or confidential to be caught by section 45?

No.

Both “overt” (i.e., non-secret) and “covert” (i.e., secret) conspiracy (cartel) agreements may be caught by the conspiracy offences under section 45 of the Competition Act.

Does an agreement need to be carried out to violate section 45?

No.

It is settled law in Canada that a conspiracy offence lies in the agreement, not in the carrying out of the agreement.

While acts in furtherance of a conspiracy/cartel, such as attempts by a party to enforce the agreement or discipline parties that are not complying with the agreement, may be used by the Competition Bureau in an investigation or in a prosecution as additional evidence, such acts are not necessary to establish an offence under section 45 of the Competition Act.

What is the burden to prove that section 45 or section 90.1 of the Competition Act has been contravened?

The burden of proof for section 45 of the Competition Act (criminal conspiracy agreements) is the criminal burden of proof (i.e., proof beyond a reasonable doubt).

The burden of proof for section 90.1 of the Competition Act, the civil agreements provision, is the civil burden of proof (i.e., proof on a balance of probabilities).

What are the potential penalties for contravening the conspiracy offences under section 45 of the Competition Act?

The potential penalties for violating section 45 of the Competition Act are a fine in the discretion of the court (i.e., with no legislatively prescribed limit), imprisonment for up to 14 years, or both.

The record Canadian conspiracy (cartel) penalty to date is CDN $50 million, in a bread price-fixing investigation in which Canada Bread agreed to pay a $50 million fine after pleading guilty to fixing wholesale bread prices (see: here).

Canadian courts may also issue prohibition orders ordering that conduct stop and that a party (or parties) take steps to avoid future offences and comply with the law.

Private parties may also commence civil damages actions or class actions for the violation of the criminal offences of the Competition Act under Part VI, including under sections 45 (conspiracy), 47 (bid-rigging) and criminal misleading advertising (section 52). For more information, see: Competition Litigation.

Who enforces the conspiracy provisions of the Competition Act?

Canada’s federal Competition Bureau, which is headed by the Commissioner of Competition, is responsible for the administration and enforcement of the Competition Act.

The Director of Public Prosecutions (DPP) has exclusive jurisdiction to determine whether to commence prosecutions for alleged violations of criminal offences under the Competition Act, including conspiracies (section 45), bid-rigging (section 47) and criminal misleading advertising (section 52).

In practice, the Competition Bureau and DPP work together in criminal prosecutions under the Competition Act.

What enforcement powers does the Competition Bureau have?

The Competition Bureau has broad powers of investigation under the Competition Act, which include the power to obtain search warrants, court orders to compel document production and oral testimony under oath and the ability to obtain wiretaps.

What are the potential penalties for violating the civil agreements provision (section 90.1)?

Under section 90.1 of the Competition Act, the Competition Tribunal may, on application by the Commissioner of Competition, make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.

The Competition Tribunal may make orders: (i) prohibiting any person, whether or not a party to the agreement, from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.

What defences are available under the criminal conspiracy provisions of the Competition Act (section 45)

Under section 45 of the Competition Act, defences are available for agreements between affiliates (as defined under the Competition Act) and where an agreement relates only to exports.

There is also a potential defence under section 45 of the Competition Act for conduct that is regulated by federal or provincial legislation under the regulated conduct doctrine. For more information, see: Regulated Conduct.

In addition, an ancillary restraints defence may apply where it can be shown that: (i) an agreement is ancillary to a broader or separate agreement that includes the same parties, (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement and (iii) the broader or separate agreement does not itself constitute an offence under section 45 of the Competition Act.

Can private parties sue for breach of the conspiracy provisions of the Competition Act?

Yes.

Under section 36 of the Competition Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions under section 45, may commence a private damages action.

To commence a private action under section 36 of the Competition Act, all of the elements of section 36 must be met and the elements of the underlying criminal offence (e.g., the elements of a price-fixing conspiracy under section 45).

Class actions are also possible for violations of the criminal provisions of the Competition Act.

For more information, see: Competition Litigation.

Does the Competition Bureau offer immunity from prosecution or leniency in sentencing for cooperating with an investigation?

Yes.

The Competition Bureau has established formal Immunity and Leniency Programs under which parties to criminal offences under the Competition Act, including criminal conspiracies, may apply for full immunity from prosecution or, where unavailable (e.g., they are not first in line to apply for full immunity), leniency in sentencing.

Both of the Bureau’s Immunity and Leniency Programs have a number of formal steps that must be complied with by applicants in order to be eligible for full immunity from prosecution or leniency in sentencing.

For more information, see: Immunity and Leniency Programs.

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SERVICES AND CONTACT

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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.

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