Canadian COMPETITION LAW

Guest post by Jacob Kojfman (Vancouver Securities Law)

Ever year’s proxy-season brings about its share of drama, as reporting issuers fend off hostile take-over bids, or attempted changes in management.  One key player in all of this is the proxy advisory firm.

The Canadian Securities Administrators (“CSA”) have decided to take a much closer look at the role the ISS and Glass Lewis of the world play.  The Ontario Securities Commission (“OSC”) is leading a consultation paper on the possibility of regulating these proxy advisory firms.

Some of the concerns the consultation paper has raised include the potential for conflicts, a perceived lack of transparency, and potential inaccuracies and the limited engagement with issuers.  There are also potential corporate governance implications and the extent of reliance by institutional investors on the proxy advisor recommendations.

I believe that one of the potential areas of concern that the consultation paper raises is without merit.  The lack of transparency and lack of disclosure of how the proxy advisory firm determines its recommendation is not really an issue for the public.  When an institutional investor retains a proxy advisory firm to give it a recommendation, this is a private agreement between the two parties.  While  the recommendation is sometimes made public via news releases, that is often a tactic the investor may take as part of its strategy.  Forcing a proxy advisory firm to disclose its recommendation and the factors it considered could lead to a “free rider” problem – that other institutional investors or even individual investors would be able to take advantage of the recommendation, and more importantly, the reasons behind it, without having to pay for the service.

The New York Stock Exchange Commission on Corporate Governance believes that proxy advisory firms should be held to appropriate standards of transparency and accountability, and recommends that the Securities and Exchange Commission should study these firms for their impact on corporate governance and behaviour.

Proxy advisory firms provide a valuable service to their clients, the institutional investors.  Firms that advise such clients on securities are often exempt from most securities laws because of the sophistication of their institutional client.  I see no reason why proxy advisory firms should not be granted the same treatment.

More importantly, proxy advisory firms are not advising their clients to buy or sell securities, but rather to advise these institutions how to vote their securities in light of good corporate governance principles.

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Guest post by Christine Duhaime (Duhaime Law)

The U.S. government has released a revised version of the Cybersecurity Act of 2012, which would establish a public-private partnership to improve the security of the Internet. Pursuant to the proposed legislation, the private sector would develop voluntary security practices for the Internet which would be subject to oversight from a U.S. government multi-agency council. Private sector participants would be required to share with the multi-agency council, Internet generated information, particularly (but not apparently limited to) connected with potential threats.

The material aspects of the Cybersecurity Act of 2012 are as follows:

1.  Establishment of National Cybersecurity Council with representative from the U.S. Departments of Defence, Justice and Commerce and the intelligence community as well as other federal agencies. The Council will be chaired by the Department of Homeland Security. The purpose of the Council would be to conduct risk assessments of threats and to report and monitor the source of the information and the threats;

2.  Establishment of Private-Public Partnership to develop security practices for vetting and approval by the Council;

3.  Creation of incentives for the private sector to adopt security practices and report to the Council. It is proposed that by joining in the program, private sector participants will limit potential liability for future Internet security issues;

4.  Generate information sharing practices to encourage the private sector to share information about threats with each other and with the federal government. Those that engage in information sharing practices will be protected from liability to some extent; and

5.  Consolidating federal agency reporting by establishing a unified Centre for Cybersecurity and Communications at the Department of Homeland Security and streamlining reporting requirements to ensure that federal agencies are aware of, and address, network vulnerabilities.

On July 19, 2012, President Obama released an Op-Ed piece he wrote that was published in the Wall Street Journal in support of the revised Cybersecurity Act of 2012, that is available at The White House website here.

Some aspects of President Obama’s article are unmistakably reminiscent of the events in the Bruce Willis film “Live Free or Die Hard,“ wherein John McClure foils the plans of cyber-terrorists attacking the infrastructure of the U.S. with an intent to disrupt the power, public utilities, traffic and other computer-controlled systems.

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The Canadian council of Chief Executives (CCCE) has published its draft agenda for the upcoming Canada in the Pacific Century conference, to be held in Ottawa from September 24-25, 2012: Canada in the Pacific Century – Draft Agenda.

Topics are to include “Asia’s Rise and the Opportunities for Canada”, “Powering Asia’s Rise: Opportunities and Challenges for Canadian Energy Producers”, “Success Stories and Cautionary Tales From the Executive Suite”, “Canadian Trade Strategy in the Pacific Century” and “Foreign Direct Investment in the Pacific Century”.

Tentative speakers are to include a rather diverse range of representatives from CIBC, the University of Singapore, Canada Pension Plan Investment Board, Munk School of Global Affairs, University of Alberta, BMO, Rotman Institute for International Business, Manulife, McKinsey, Asia Pacific Foundation of Canada, Richardson International, Power Corporation and the BC First Nations Energy and Mining Council, as well as the Minister of Foreign Affairs John Baird and Bank of Canada Governor Mark Carney.

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The American Bar Association’s Section of Antitrust Law has issued its Summer 2012 issue of Antitrust Magazine, which includes story and article contributions from:

Deborah L. Feinstein (“Process Divergence as an Obstacle to Substance Convergence”); Christopher Wolf and Winston Maxwell (“So Close, Yet So Far Apart: The EU and U.S. Visions of a New Privacy Framework”); Ian G. John and Joshua B. Gray (“The Future of the ICN”); Benjamin Bradshaw, Julia Schiller and Ramesh Nagarajan (“Foreign Sovereignty and U.S. Antitrust Enforcement”); Greg Olsen and Daniel Harrison (“Tightening the System: The Nature and Likely Effect of UK Competition Reforms”); Jenine Hulsmann (“Exclusive Territorial Licensing of Content Rights After the EU Premier League Judgments”); Scott Sher and Andrea Murino (“Unilateral Effects in Technology Markets: Oracle, H&R Block, and What It All Means”); Douglas Richards (“Is Market Definition Necessary in Sherman Act Cases When Anticompetitive Effects Can be Shown with Direct Evidence”); Thomas P. Brown and Samuel Zun (“Patent Aggregation: Guidance from the DoJ’s Recent Approval of Three Major Patent Portfolio Acquisitions”) and Ellen Meriwether (“Class Action Waiver and the Effective Vindication Doctrine at the Antitrust/Arbitration Crossroads”).

For a copy of the Summer issue see:

Antitrust Magazine: Summer 2012

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Guest post by Jacob Kojfman (Vancouver Securities Law)

A favorite topic of discussion of mine on Vancouver Securities Law has been take-over defence tactics.  A recent Ontario Securities Commission (“OSC”) decision has emphasized what the OSC will consider to be valid reasons to keep a shareholder rights plan or “poison pill” in place.

For a while, it seemed as though the securities commissions could not get their reasons for keeping or overturning poison pills straight.  Every decision that comes out of a securities commission now helps corporate counsel better advise their clients.

In a recent decision, the OSC hearing panel threw out the shareholder rights plan of Thirdcoast Limited, which was facing a hostile takeover from Parrish & Heimbecker, Limited.  The reasons were that Thirdcoast’s rights plan was adopted in response to the hostile offer and there was no shareholder support, and there was no other viable option for Thirdcoast, and since P&H kept upping its offer, the poison pill had really run its course.

Once again, this decision reiterates the fact that a company should put together a shareholder rights plan well before it is faced with a hostile takeover.  Shareholders should have an opportunity to vote on adopting the plan.  A board of directors has to remember why it put the plan in place: to find other viable options for the company, and if none exist, then it is time for the poison pill to go.

Contact Jacob at: Jacob@vancouversecuritieslaw.ca

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On July 19, 2012 the Competition Bureau announced that Korean Air Lines Co., Ltd. pleaded guilty in the ongoing air cargo cartel case and was fined $5.5 million for its involvement from 2002 to 2006.

The Bureau’s investigation has led to seven convictions to date and fines of approximately $22 million (other airlines that have pleaded guilty in this case to fixing air cargo surcharges for shipments on some routes from Canada include Air France, Martinair, KLM, British Airways and Qantas).

For the Bureau’s earlier announcements in this case see: Air Carriers Plead Guilty to Price-Fixing Conspiracy (the initial round of fines was as follows: Air France – $4 million; KLM – $5 million; and Martinair – $1 million), Fourth Guilty Plea in Air Cargo Price-Fixing Conspiracy (Qantas was fined $155,000) and Cargolux Pleads Guilty in Air Cargo Price-fixing Conspiracy (Cargolux was fined $2.5 million).

The Bureau generally bases fine negotiations on the affected volume of commerce in Canada (see e.g.: Leniency Program – FAQs).  In this respect, the Bureau will often begin with a “proxy” for a cartel party’s volume of commerce in Canada of 20% (i.e., based on the party’s volume of Canadian sales during the cartel period).

Under the Bureau’s Immunity and Leniency Programs a party that fulfills all requirements of the Bureau’s Immunity Program is entitled to full immunity from prosecution, while subsequent applicants may be entitled to 50% (for the “second in”), 35% (for the “third in”) and subsequent lesser reductions in penalties under its Leniency Program (although a critical distinction between the two programs is the latter requires applicants to plead guilty).  Speed is, therefore, of the essence in evaluating whether to apply for immunity or leniency, as both of the Bureau’s programs involve a “race”.

For more about Canada’s conspiracy rules see:

Conspiracy (Cartels)

For more about the Bureau’s Immunity and Leniency Programs see:

Immunity and Leniency Programs

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I am pleased to be participating in the Canadian Bar Association’s upcoming CBA Canadian Legal Conference in Vancouver on a panel on August 13th, part of which is still to be announced, discussing recent competition law developments for in-house counsel:

“Canada’s competition and foreign investment laws are being enforced more vigorously than ever. The Competition Bureau has wide powers allowing them to investigate conduct that might have an anti-competitive impact on the Canadian marketplace, and investigations often involve high-stakes consequences for companies including public stigma, criminal penalties, or unneeded complications arising in the middle of a strategic merger. Learn how to minimize your risk and limit liability with practical guidance from our experienced panel on how to ensure regulatory approval for mergers, strategic alliances and joint ventures. (90 min)”

For more information about the CBA’s conference or this panel see:

CBA Canadian Legal Conference

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Global Competition Review (GCR) has published its 2012 edition of The Handbook of Trade Enforcement:

Introduction

“World trade faces a number of challenges that are having a negative impact on demand dynamics across the globe, including instability of regional markets and local crises that unbalance regional trade. A deficit of banking investment in production development, coinciding with increasing measures to reduce state budget expenses, is pushing many manufacturers to more fiercely competitive markets and still lower demand potential. Sovereign debt crises, fluctuations in currency parities and rapidly rising oil prices form new geopolitical risks that national governments cannot ignore. According to the World Trade Organization (WTO), in 2011 world trade expanded by 5 per cent (a fall from 13.8 per cent in 2010) and this growth is expected to slow down to 3.7 per cent in 2012.

Taking into account the macroeconomic developments and the ever-increasing pressure of businesses, both national governments and regional integration organisations may shift towards policies of protectionism. However, it is vital to give credit to another current trend – the development and deepening of regional integration. It creates new opportunities for trade enforcement across larger expanded markets of several countries unified by common regulation. The key players of global trade also look for opportunities in regional integration and the solutions to problems in inter-regional dialogue.

On a regional level we can generate a significant stimulus for cross-border trade. Within one year of the lifting of customs barriers at the internal borders of the Customs Union (between Russia, Belarus and Kazakhstan), the turnover of trade increased by 37 per cent.

The strictness, or otherwise, of the regulations formed by regional integration communities is immaterial; what is important is that supranational regulation is constantly deepening and increasing its influence over regional economies.

The dark side of regionalisation is the risk of new and excessive inter-regional trade barriers replacing similar barriers that previously existed between countries. Such new barriers between larger market entities may become even higher than bilateral barriers between countries.

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