The Competition Bureau announced that would seek to block a proposed joint venture between Air Canada and United Continental which, according to the Bureau, would “monopolize ten important Canada/United States routes, and substantially reduce competition on nine additional routes.”
In making the announcement, the Bureau said:
“The proposed joint venture is effectively a merger between Air Canada and United Continental on all of their Canadian and US operations. It would allow the parties to jointly set prices, capacity and schedules. If allowed to proceed, it will result in:
a monopoly on ten transborder routes;
substantially reduced competition on an additional nine transborder routes; and
significantly higher prices.
In addition to challenging the joint venture, the Commissioner is challenging three existing “coordination agreements” between Air Canada and United Continental. These agreements allow Air Canada and United Continental to coordinate key aspects of competition including, but not limited to, joint pricing and scheduling, as well as revenue sharing. Through these existing agreements, the companies currently have the power to charge passengers inflated fares. Moreover, if these anti-competitive provisions are further implemented, with or without the joint venture, Canadians will pay even more for less choice and higher fares.”
According to the Bureau, it became aware of the proposed Air Canada/United joint venture after the parties issued a press release.
Joint ventures can be reviewed under at least four provisions of the Competition Act: as a criminal conspiracy, under the civil agreements provision, as a merger or under the abuse of dominance provisions, which also contemplates joint dominance.
In this case, the Bureau is challenging the proposed JV under the merger provisions of the Act, which allow the federal Competition Tribunal to issue orders including blocking proposed mergers or ordering the dissolution of assets or shares in the case of a completed merger.
The Bureau is also challenging three existing “coordination agreements” between the parties under the newly enacted civil agreements provision – section 90.1 – which is the Bureau’s first challenge to an allegedly anti-competitive agreement under this provision, which came into force in 2010 as part of sweeping amendments to the Competition Act.
Under the merger provisions of the Act, the Tribunal can issue orders, including blocking proposed mergers (or ordering the dissolution of assets or shares in the case of a completed merger) where a merger is found to prevent or lessen competition substantially. Under the new civil agreements provisions – section 90.1 – the Tribunal has the power to make “remedial orders” (i.e., for conduct to stop) where an agreement between actual or potential competitors prevents or lessens competition substantially.
It is, however, relatively unusual for a proposed agreement to be independently challenged by the Bureau outside of the context of parties seeking merger clearance or an advisory opinion for proposed business conduct. Possibly the parties concluded that the proposed JV was not notifiable under the merger provisions of the Act or there was a failure to adequately review whether the proposed JV may have required merger notification.
Another interesting aspect of this case is that the Bureau alleges that the proposed joint venture was intended to circumvent foreign ownership restrictions governing Canadian airlines, by allowing the parties to in essence merge though the joint venture.
With respect to market share and concentration issues, the Bureau’s concerns appear to primarily be based on increased “post-merger” market shares on specific city pair routes of between 34% and 100% (market shares typically being calculated in airline markets based on city pair routes).
Also interesting is the fact that while the Commissioner has the power to apply to the Tribunal for remedial orders, contested merger proceedings are relatively rare in Canada with the majority of issues typically resolved by way of negotiated settlement (i.e., consent agreements for the divestiture of assets and to a lesser extent the adoption of behavioural remedies).
For example, the Bureau’s recent challenge of CCS Corporation’s proposed acquisition of Complete Environmental, owner of the proposed Babkirk Landfill in Northern British Columbia, was the Bureau’s first merger challenge since 2005.
For the complete news release see:
Competition Bureau Seeks to Block Joint Venture between Air Canada and United Continental
For the Bureau’s Backgrounder see:
For the Bureau’s Competition Tribunal Application see:
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The U.S. Department of Justice, Antitrust Division (DoJ) has released an updated Policy Guide to Merger Remedies.
In making the announcement, the DoJ said:
“Although the updated policy guide reflects changes in the merger landscape, the goal of the Antitrust Division remains the same – to provide an effective remedy to eliminate the anticompetitive effects of a proposed transaction, the department said.
“In every case, the Antitrust Division focuses on the specific facts of the proposed transaction. We are prepared to clear a merger, block a merger or accept a remedy that maintains efficiencies as long as the result eliminates any competitive harm,” said Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division. “In the current environment of increasing transnational mergers and complex vertical transactions, the Antitrust Division must be ever nimble in its efforts to ensure that any remedies effectively preserve competition, promote innovation and protect consumers. The updated policy guide takes into account these changes.”
The updated policy guide highlights the role of the Antitrust Division’s recently created Office of the General Counsel, which will be principally responsible for enforcing division consent decrees. The updated policy guide also reflects the changes in the merger landscape and the lessons the division has learned from the remedies it has entered into since the issuance of the original guide in 2004, ensuring that it accurately details the division’s merger remedy practices.”
Like Canada, the DoJ’s Policy Guide to Merger Remedies sets out how the U.S. DoJ’s Antitrust Division analyzes proposed merger remedies, including structural remedies (divestitures of assets, businesses or intangible assets, i.e., intellectual property) or behavioural remedies (altering the conduct of a post-merger entity such as through firewalls or partitions, non-discriminatory purchase or supply terms, mandatory licensing or anti-retaliation provisions).
The DoJ’s revised Policy Guide to Merger Remedies also addresses, like the Bureau’s 2006 Information Bulletin on Merger Remedies in Canada, key considerations for the negotiation and implementation of merger remedies, including the timing for adoption of remedies (e.g., “upfront” or “fix-it-first” remedies versus post-completion adoption of remedies), the use of hold separate provisions (to prevent the integration of merger assets until a remedy is negotiated) and selling trustees.
For more see DoJ news release: Antitrust Division Issues Updated Merger Remedies Guide: Updated Guide Recognizes Change in Merger Landscape, Department of Justice Policy Guide to Merger Remedies and the Bureau’s Merger Remedies Information Bulletin: Information Bulletin on Merger Remedies in Canada.
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On June 20, 2011, the U.K. Office of Fair Trading, the U.K.’s competition regulator, announced that it was referring the proposed acquisition of Chi-X Europe Limited by BATS Trading Limited to the Competition Commission for further investigation.
In making the announcement, the OFT said:
“Both companies operate Multilateral Trading Facilities (MTFs) which enable market participants (investment banks, brokers and dealers) to trade pan-European equities through a single platform as an alternative to trading on national exchanges such as the London Stock Exchange (LSE). MTFs are relatively new, having mostly formed following the introduction of the European Markets in Financial Instruments Directive in 2007. Billions of pounds worth of equities are traded on these platforms daily.
After the LSE, the merger parties are the two largest MTFs for the trading of UK-listed equities. The merger reduces the number of significant suppliers of trading services for UK-listed equities from three to two. In addition the parties have very similar service offerings. Although the evidence is mixed, the OFT believes that there is a realistic prospect that, absent the merger, the parties would going forward have competed more strongly against each other, as well as competing against the LSE.
Ali Nikpay, OFT Senior Director and decision maker in this case said:
‘This case is not one in which we have encountered widespread customer complaints. However, we cannot rule out the prospect that such a structural shift in the marketplace would lead to a substantial lessening of competition. We have therefore referred the merger to the Competition Commission for a more detailed investigation so it can determine whether a substantial lessening of competition is probable.’”
Based on the OFT’s announcement, U.K. competition law regulators appear to have concerns that the proposed BATS/Chi-X transaction will result in the combination of the two largest alternative trading platforms for equities in the U.K. and as well based on an apparent concern arising from the product overlap (trading services) between the two exchanges. It is not yet clear, however, whether the U.K. regulator perceives post-merger concentration issues for multiple products (e.g., clearing and auction services, in addition to equity trading services) or whether there is a risk that the transaction may be blocked altogether (as opposed to the imposition of a behavioural or structural remedy).
In this regard, this most recent stock exchange merger case follows the recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. last month to acquire the NYSE Euronext, following a decision by the U.S. Department of Justice to block the transaction altogether (see: NASDAQ OMX and IntercontinentalExchange Abandon Acquisition of NYSE Euronext).
The proposed BATS/Chi-X transaction also follows the recent plays for the TMX Group Inc. by the London Stock Exchange Group plc (see Competition Bureau Issues No Action Letter in TMX/LSE Deal) and the more recent all-Canadian hostile bid launched by the Maple financial consortium (see: Maple Group Launches Cdn. $3.7 Billion Hostile Bid for TMX Group Inc.).
While the Competition Bureau has issued a no action letter clearing the proposed TMX/LSE merger, it is not yet clear what competition issues might ultimately still prove to be an issue for the Maple bid for the TMX (which, like the proposed BATS/Chi-X deal, would involve the combination of the largest alternative stock exchange to the TSX).
For the OFT’s full news release see:
OFT Refers Equity Trading Merger to the Competition Commission
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According to the United States Department of Justice (Antitrust Division), a former executive of an Illinois refuse disposal container company has been sentenced to 16 months in prison in relation to a city of Chicago bid-rigging case (see: Former Executive of Illinois Refuse Container Repair Company Sentenced to Serve 16 Months in Prison for Conspiring to Defraud the City of Chicago).
In making the announcement, the DoJ said:
“According to the indictment, Fenzl, Ritter and their co-conspirator conspired to deceive city of Chicago officials about the number of legitimate, competitive bids submitted for the contract. Specifically, Fenzl and his co-conspirators fraudulently induced other companies to submit bids for the contract at prices determined by Fenzl and his co-conspirators and greater than the price for which Fenzl’s company had submitted a bid. The department said that included in these bids were fraudulent documents indicating that, if awarded the contract, the bidder would enter into subcontracts to purchase goods or services for a specified percentage of the contract from a minority-owned business and a women-owned business, as required by the city of Chicago. According to the indictment, Fenzl and his co-conspirators also fraudulently certified to the city on Fenzl’s company’s bid that it had not entered an agreement with any other bidder relating to the price named in any other bid submitted to the city for the contract.”
This case is interesting as an example of “cover” or “courtesy” bidding, in which some bidders submit bids that are too high to be accepted (or with terms that are unacceptable to the party calling for tenders to protect an agreed upon low bidder).
Other common forms of bid-rigging that have been prosecuted in the past, both in the U.S. and Canada, include:
Bid suppression – one or more bidders that would otherwise bid agree to refrain from bidding or agree to withdraw a previously made bid.
Bid rotation – all bidders submit bids but take turns being the low bidder according to a systematic or rotating formula.
Market division – suppliers agree not to compete in designated geographic areas or for specified customers.
Subcontracting – some bidders that agree not to submit a bid or submit a losing bid are awarded subcontracts or supply agreements from the successful low bidder.
In Canada, bid-rigging is a criminal offence under section 47 of the federal Competition Act, under which it is an offence to enter into an agreement, in response to a call or request for bids or tenders, to: (i) not submit a bid or tender, (ii) withdraw a bid or tender already made or (iii) submit bids or tenders that are arrived at by agreement.
Like criminal conspiracy agreements under section 45 of the Act, bid rigging is a per se criminal offence, in that it is not necessary to establish any adverse market effects (though all elements of the offence must be proven on the criminal burden of proof – i.e., beyond a reasonable doubt).
Parties contravening the bid-rigging provisions of the Act are liable to unlimited fines (i.e., a fine in the discretion of the court), imprisonment for up to 14 years, or both. It is also common for the Bureau to seek prohibition orders in bid-rigging cases to prohibit the continuation of an offence. Private parties that have suffered loss or damage as a result of a breach of the criminal provisions of the Act, including the bid-rigging offences under section 47 of the Act, may also commence private actions.
For more information about Canadian bid-rigging law, see: Bid-Rigging and Bid-Rigging News. For recent Canadian bid-rigging cases see: Competition Bureau Charges Eight Companies and Five Individuals in Alleged Bid-Rigging Scheme and Competition Bureau Launches Criminal Investigation into Quebec Construction Industry.
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On June 13, 2011, the Maple Group Acquisition Corp., a consortium of 13 Canadian financial institutions, launched a Cdn. $3.7 billion hostile bid to acquire 70% of the TMX Group Inc. for $48 per share.
(Maple is composed of 13 banks, pension funds and institutional investors: Scotia Capital Inc., TD Securities, National Bank of Canada, Canadian Imperial Bank of Commerce, Alberta Investment Management Co., Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan Board, Fonds de Solidarite FTQ, Manulife Financial Corp., Dejardins Financial Group, GMP Capital Inc. and Dundee Capital Markets.)
According to the Globe and Mail and other media reports, the Maple bid is a cash and share offer with Maple valuing its offer for TMX at Cdn. $3.7 billion ($2.5 billion in cash with the balance in Maple shares or Cdn. $33 cash per share plus Maple shares).
The launch of the rival Maple bid follows the earlier proposed friendly TMX/London Stock Exchange Group (LSE) merger and also follows in the wake of a recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. last month to acquire the NYSE Euronext, following a decision by the U.S. Department of Justice to block the transaction (see: NASDAQ OMX and IntercontinentalExchange Abandon Acquisition of NYSE Euronext).
In the failed NASDAQ/NYSE transaction, it appears from public statements by U.S. regulators that their concerns included overlap in several relevant markets, including stock listing services, stock auction services (used at the open and close of trading and periodically during market imbalances) and trade reporting facilities (used for the reporting of stock trades occurring outside of a stock exchange).
It is not yet clear whether the Maple hostile bid for the TMX will raise substantive competition law issues for the Bureau of the kind that resulted in the failed NASDAQ/NYSE transaction, or for the parties to the Maple/TMX transaction to avoid the imposition of remedies if successful.
Potential competition concerns include Alpha/TMX overlap in trading or market information services (five Maple investors have existing holdings in Alpha), Alpha having been described as “the TMX’s biggest domestic competitor” and “Canada’s main alternative trading platform” in the stock trading market. The TMX itself described Alpha in its 2010 Annual Report as having posed the “largest competitive impact” on its trading business.
The integration of CDS, which handles the clearing of share trades and is Canada’s major stock clearing facility, with the TMX may also raise potential issues, based either on overlap with existing TMX clearing services or possible impacts on non-Maple investor customers. In this regard, Maple’s bank investors and the TMX hold interests in CDS.
In this regard, existing remaining competition is a key substantive factor for the Competition Bureau in merger review under the Competition Act (see: Competition Bureau, Merger Enforcement Guidelines).
It also remains to be seen whether the proposed entry of Alpha in the listing services market will be a concern for the Bureau – i.e., whether the Bureau may see the Alpha/TMX merger as essentially removing a potential new entrant.
Having said that, unlike some other major jurisdictions including the U.S. and EU, fully contested merger proceedings are generally speaking rare in Canada with most substantive issues being resolved through negotiated settlements with the Bureau – i.e., through the imposition of structural or behavioural remedies to alleviate competition law concerns (see: Competition Bureau, Information Bulletin on Merger Remedies in Canada).
Potential remedies in this case, in the event the Maple bid is successful, may include the divestiture of the Maple investors’ holdings in Alpha. If significant competition concerns are raised, “behavioural” remedies may also be possible – for example, steps to alter the Maple investors’ representation on the Alpha board or control provisions in Alpha shareholder agreements.
According to some media reports, Maple has in fact indicated that it may be willing to divest its interests in Alpha and CDS to obtain regulatory approval for the transaction.
With respect to the timing for the proposed transaction, the parties will be subject to an initial 30 day waiting period for a review of the transaction during which the Bureau may request additional information extending its review to a second phase review (or a timing agreement negotiated between the parties extending the time for the Bureau’s review, without the issuance of an additional information request).
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On June 9, 2011 the European Commission announced that it had commenced an investigation into an alleged cartel in the seatbelts, airbags and steering wheels manufacturing sector with dawn raids (unannounced inspections) of manufacturers’ premises.
In making the announcement, the Commission stated:
“The European Commission can confirm that, starting on 7 June 2011, Commission officials carried out unannounced inspections at the premises of companies that supply car seatbelts, airbags and steering wheels, known in the industry as automotive occupant safety systems. The Commission has reason to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty on the Functioning of the European Union).
Automotive occupant safety systems cover safety products such as seatbelts, airbags and steering wheels that are supplied to car manufacturers.
The Commission officials were accompanied by their counterparts from the relevant national competition authority.
Unannounced inspections are a preliminary step into suspected anticompetitive practices. The fact that the Commission carries out such inspections does not mean that the companies are guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself. The Commission respects the rights of defence, in particular the right of companies to be heard in the Commission’s proceedings against them.”
The Commission has not yet identified the targets of its investigation. For the complete European Commission news release see:
Like the European Commission, the Competition Bureau has a wide range of enforcement powers available to it to investigate potential violations of competition law under the Competition Act, including the power to obtain search warrants, document production orders, orders compelling testimony under oath and wiretaps. The Bureau is increasingly resorting to these powers, particularly in relation to its enforcement priorities that include the detection and investigation of criminal cartels and deceptive and fraudulent marketing.
The Competition Act also contains obstruction provisions, which make it a criminal offence to impede or prevent (or attempt to impede or prevent) inquiries or examinations under the Act (see for example: Morgan Companies Fined $1 Million for Obstruction and Price-fixing).
As such, it is prudent for companies and organizations that may realistically face the prospect of a competition law investigation or search at some point – for example, companies engaged in higher risk industries and activities including construction, oil and gas and trade associations – are well advised to adopt basic search and seizure guidelines to reduce the likelihood of breaching Canadian competition law in the event of a search.
These commonly include guidelines dealing with how to deal with Bureau officials during a search, advising company/organization personnel, the control of information and PR, inspecting the search warrant and reducing the risk of breaching the obstruction provisions of the Act which can lead to significant additional liability (such as by breaching sealed boxes or rooms or impeding Bureau officers during a search).
For more information about the Competition Bureau’s enforcement powers see: Competition Bureau Enforcement.
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On June 10, 2011, the Competition Bureau announced that two more individuals have pleaded guilty in the ongoing Quebec gasoline price-fixing case to fix the price of gasoline at the pump in Thetford Mines, Quebec.
In making the announcement, the Bureau said:
“The two individuals, Claude Bédard and Stéphane Grant, former Irving employees, were sentenced to personally pay fines of $15,000 and $10,000, respectively. Messrs. Bédard and Grant were both area sales managers for ‘Les Pétroles Irving Inc.’ responsible for the Thetford Mines market.”
In this case, which was one of the largest criminal cases in the Bureau’s history, charges were laid against 38 individuals and 14 companies accused of fixing the price of gasoline at the pumps at several locations in Quebec. According to the Bureau, to date 6 companies and 13 individuals have pleaded guilty in the case.
The case is also somewhat noteworthy in that six individuals have been sentenced to total imprisonment of 54 months (served in the community). While the penalties for contravening the criminal conspiracy provisions of the Competition Act include imprisonment for up to fourteen years, prison sentences for individuals have been, at least to date, relatively rare in Canada with liability in many cases being negotiated down to corporate liability and fines.
For the Bureau’s news release see:
Two Individuals Plead Guilty in Quebec Gasoline Price-Fixing Cartel
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On June 9, 2011, the European Commission released updated statistics on cartels for 2007-2011, including statistics on fines imposed, highest fines imposed per case and firm and data regarding cartel enforcement in Europe. Some of the highlights of the Commission’s report include:
– € 315 million imposed in fines in 2011 (a significant decrease from € 2.86 billion imposed in fines in 2010).
– € 10.39 billion imposed in fines between 2007 and 2011.
– € 17.2 billion imposed in fines between 1990 and 2011.
– Top ten per case fines including € 1.38 billion imposed in the car glass cartel in 2008 (the highest fines imposed per case since 1969). Other record fines in the past ten years include: € 1.1 billion (gas, 2009), € 992 million (elevators and escalators, 2007), € 799 million (air freight, 2010), € 790 million (vitamins, 2001) and € 744 million (gas insulated switchgear, 2007).
– Top ten per firm fines including € 896 million imposed against Saint Gobain (car glass, 2008), € 553 million imposed against E.ON (gas, 2009), € 553 million imposed against GDF Suez (gas, 2009), € 479 million imposed against ThyssenKrupp (elevators and escalators, 2007) and € 462 million imposed against F. Hoffmann-La Roche AG (vitamins, 2001).
– 194 cartel decisions in 29 cartel cases between 2007 and 2011.
– About 35% of firms fined between 5% and 10% of their global turnover.
For the complete report see: European Union Cartel Statistics.
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Templates/precedents and checklists to run promotional contests in Canada
Templates/precedents and checklists to comply with Canadian anti-spam law (CASL)
