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The Competition Act
The Competition Act (the Act) is the oldest antitrust statute in the western world, enacted in 1889 (one year before the Sherman Act in the US). The Act comprehensively sets out the competition law of Canada, from hard-core cartels to merger review. With few exceptions, it applies to all businesses in Canada. In enacting the legislation, it was parliament's intent to encourage competition, promote greater economic efficiency and enhance Canada's position in world markets.
The Act prohibits certain criminal offences (such as price-fixing and bid-rigging conspiracies, resale price maintenance, price discrimination and predatory pricing). The Act also contains non-criminal provisions that allow the Competition Tribunal (the Tribunal) to review mergers and certain business practices (such as tied selling, exclusive dealing, refusal to deal and abuse of dominance), and, in certain circumstances, to issue orders prohibiting or correcting the conduct so as to eliminate or reduce its anti-competitive impact. Private parties may also apply to the Tribunal seeking a review of certain business practices (such as refusal to deal, tied selling and exclusive dealing). The Act also requires pre-merger notification.
The commissioner of competition
The commissioner of competition (the commissioner) is the most senior antitrust official in Canada, entrusted with the administration and enforcement of the Act. Sheridan Scott is the current commissioner. Ms Scott has a wide breadth of experience, including senior roles at Canada's communication regulatory agency (CRTC), Canada's public broadcasting corporation (CBC) and Canada's largest telecom carrier (Bell Canada).
The Competition Bureau
The commissioner has a staff of approximately 400 at the Competition Bureau (the Bureau) that assists in the administration of the Act. The Bureau is divided into units that administer different aspects of the Act, including the following branches: mergers, civil matters, criminal matters and fair business practices. There is also a pre-merger notification unit. The commissioner and the Bureau have published numerous bulletins, interpretation guidelines, press releases and updates in respect of the various aspects of Canadian competition law. The bulletins and guidelines, along with other useful publications, can be accessed on the website maintained by the Bureau at www.competitionbureau.gc.ca.
The Competition Tribunal
Applications to the Tribunal for remedial orders in respect of reviewable practices and mergers may be brought by the commissioner. The Tribunal is a mixed quasi-judicial adjudicative body consisting of judicial and lay members. The Act provides for private access to the Tribunal (ie, private litigants may apply to the Tribunal for a remedial order) for certain reviewable practices, such as refusal to deal, tied selling, exclusive dealing and market restriction. The Tribunal also maintains a useful website at www.ct-tc.gc.ca.
Canada's attorney general prosecutes breaches of the criminal provisions of the Act in the criminal courts. Prosecutions are initiated on the recommendation of the commissioner, pursuant to an investigation conducted by the Bureau.
The commissioner and the staff at the Competition Bureau have numerous tools at their disposal to investigate alleged breaches of the Act, reviewable practices and mergers. Usually, much of the information that the Bureau collects in the course of formal and informal inquiries is provided on a voluntary basis by the parties. There has, however, recently been an increase in use by the commissioner of so-called 'section 11 orders', which compel the production of documents and information (by parties under investigation and other parties who may possess relevant information). Responding to a section 11 order can be onerous and very time-consuming. These orders are issued in respect of the criminal provisions of the Act, and also with respect to mergers and reviewable practices (such as abuse of dominance). The commissioner can avail herself of powers relating to search and seizure, and oral examinations under oath. Finally, wire-tapping is also available in respect of certain provisions.
The commissioner has entered into cooperation agreements with the United States (1995), Mexico (2001), the European Commission (1999), and Australia and New Zealand (2000), among others. These agreements provide for coordination and cooperation among agencies, notification of certain enforcement activities, avoidance of conflicts and regular meetings. Canada has also entered into mutual legal assistance treaties (MLATs) with various countries, which allow Canadian and foreign officials to use their respective local investigative powers on behalf of the other jurisdiction in respect of antitrust and other criminal matters. The Act also provides for a regime for international cooperation in the administration of civil competition law and criminal competition matters not subject to MLATs, allowing the gathering of evidence for and from foreign jurisdictions in a manner that mirrors existing arrangements in MLATs.
Consequences of anti-competitive acts
The consequences of violating the criminal provisions of the Act can be severe. The Act makes certain types of criminal offences punishable by fines of up to C$10 million (US$9.4 million) per count or imprisonment for periods of up to five years, or both. The Bureau has published an immunity programme and answers to frequently asked questions that set out its policy regarding recommending to the attorney general that immunity from prosecution be granted to parties to a criminal offence (in specified circumstances and on certain conditions including ongoing cooperation with the authorities). The Act also provides for the recovery of civil damages to compensate for harm suffered as a result of a violation of a criminal provision of the Act, or as a result of a breach of an order of the Tribunal. The application of the non-criminal provisions of the Act can also have significant consequences since orders of the Tribunal can force businesses to put an end to some of their practices or to change them with the result that significant costs may have to be incurred (for example, if a merger is prevented or a distribution system must be changed).
A merger is defined by the Act as the acquisition of control over, or of a significant interest in, the whole or part of a business. Canadian antitrust merger law consists of both substantive provisions that empower the commissioner to challenge mergers that are anti-competitive and procedural provisions relating to pre-merger notification. Canadian merger control and merger remedies are analysed later in this book.
Criminal offences - relations with competitors
The Act provides that it is an offence to 'conspire, combine, agree or arrange' with another person to prevent or lessen competition unduly. The classic and most obvious form of illegal conspiracy is price fixing. However, all agreements that lessen competition can constitute a criminal offence. A formal or written agreement among competitors is not necessary to constitute an offence - an informal agreement, even with minimal communication between competitors, may suffice. Conspiracy is not a per se offence in Canada: the prosecution must establish that it results in an undue lessening of competition - ie, that it confers a certain degree of market power. Some of the specific types of agreements that can constitute criminal offences if they result in such an undue lessening of competition are discussed below.
Price-fixing agreements are those that most obviously can violate the Act. The offence extends not only to agreements setting prices, but also to arrangements which have the effect of influencing the prices at which products are sold, such as agreements on price formulas, transportation charges, credit terms or other terms and conditions of sale, price changes or discounts, agreements to end price wars or any agreement designed to stabilise or increase prices. The prohibition could also extend to agreements among buyers on the price to be paid to suppliers or on means by which to reduce it.
Agreement concerning quantity or quality of product
Agreements among competitors relating to levels of production or quality of goods can obviously also have an anti-competitive effect and can violate the Act. The prohibition could also, for example, extend to agreements to produce or supply only certain sizes or types of a product.
Other conspiracy offences
Market-sharing agreements to divide markets or customers, for example by agreeing not to solicit a competitor's customers, and agreements to boycott certain customers or suppliers, can also constitute criminal offences under the Act.
Bid rigging is an arrangement with any other person either not to bid or on the contents of the bid. Although the general conspiracy offence discussed above requires proof that, as a result of the agreement, competition is lessened unduly (ie, to a significant degree), bid rigging is a per se offence.
In Canada, as elsewhere, trade associations are legitimate, as they perform many important and valuable functions. However, as with any other contact with competitors, trade associations present significant antitrust risk, and extreme care should be taken both in setting up such associations and in attending meetings so as to avoid discussion of any competitively sensitive matter. It is strongly recommended that trade associations take steps to minimise the risks of violating the Act. They should, for example, have formal procedures that are carefully followed, including the preparation and circulation of written agendas and minutes of meetings. In addition, the activities of the association and any minutes and agendas should be periodically reviewed by counsel retained by the association to ensure that discussions are limited to legitimate issues such as lobbying, promoting the industry and environmental control. The exchange of information between members of a trade association is particularly delicate and should be discussed with counsel.
Criminal offences - relations with customers
Businesses are, generally speaking, free to choose their customers. However, the Act imposes some important restrictions on the supplier which are criminal in nature. The Act contains four specific offences that deal with pricing practices: resale price maintenance, price discrimination, promotional allowances and predatory pricing.
Resale price maintenance
The Act contains three important criminal prohibitions against practices in support of resale price maintenance.
Canadian law on price maintenance is different from US law in some important respects; in particular, Canadian law not only prohibits agreements on resale prices, but is also aimed at some forms of unilateral conduct. The recent decision of the US Supreme Court in Leegin Creative Leather Products Inc v PSKS Inc (decided on 28 June 2007) has accentuated the differences between the two regimes. The Court held that agreements that set the resale price, which had been per se offences, are now subject to the rule of reason: in Canada, price maintenance continues to constitute a per se offence.
It is an offence to adopt a practice of granting a discount, rebate, price concession, allowance or any other price-related advantage to one customer that is not made available to competing customers who purchase like quantity and quality. Three important aspects of the offence should be noted. First, it only applies to sales to competing purchasers. It is, therefore, permissible to have different price structures for different categories of customers provided that they do not compete with one another. Second, the offence only requires that the same prices and discounts be made available in respect of sales of like quantity; this means that the granting of quantity discounts is legitimate as long as they are available to competing purchasers. Third, price discrimination is only illegal where there is a practice of discriminating. Accordingly, offering lower prices on a one-shot basis, such as to meet a competitor's price or for a special event such as a store opening or anniversary, does not constitute an offence.
Although the principle of price discrimination is similar in Canadian and US law, Canadian law is different in two important respects. In Canada, quantity discounts need not be justified by cost savings. Quantity discounts merely need to be 'available' to all competing purchasers. Also, there is no requirement in Canada that injury to competition result from the discriminatory practice.
Discounts, rebates, price concessions and other price-related advantages which are granted to one customer for advertising or display purposes must be proportionately offered to all competing customers. The allowances must be proportionate to the value of sales to such customers. Thus, a customer who purchases twice as much by dollar value as another competing customer must be offered a promotional allowance that is twice as great as that offered to that other customer. These allowances need not be offered at the same time to all competing customers, but must reach equivalent levels within a reasonable period of time.
Under the Act, it is a criminal offence to engage in a policy of selling at unreasonably low prices that has the aim - or has the effect or tendency - of eliminating a competitor. Prices will not be seen as unreasonably low unless they are below cost, although the mere fact that they are below cost is not necessarily sufficient. Below-cost pricing can be legitimate in certain circumstances. Whether prices are unreasonably low will depend on how far below cost they are, and on the circumstances of each case. However, even very low pricing is not sufficient; there must be a policy of selling at unreasonably low prices. Isolated unreasonably low prices do not constitute a policy of predatory pricing as required by the Act. Temporary below-cost pricing can be legitimate if designed to meet competition, keep existing customers or obtain new clients. In the guidelines on predatory pricing, the commissioner has indicated that she will not bring proceedings alleging predatory pricing when the alleged predator has less than 35 per cent of the relevant market. The commissioner's reasoning is that, unless a supplier has a strong market presence, the below-cost pricing is unlikely to substantially lessen competition or eliminate a competitor. As it is not always easy to distinguish legitimate from illegitimate situations, below-cost pricing should always be carefully considered before it is implemented.
A related offence makes it illegal to sell in one part of Canada at prices lower than those exacted by the supplier elsewhere in Canada, where the practice is intended to, or results in, a substantial lessening of competition or the elimination of a competitor in that part of Canada.
In the commissioner's most recent Predatory Pricing Enforcement Guidelines, it is indicated that predatory pricing complaints will be, at first instance, analysed under the abuse of dominance provisions of the Act (see below). Nonetheless, at any stage of the enforcement process, the Bureau may determine that the conduct merits being examined under the criminal predatory pricing provisions. The commissioner has indicated that this could include cases where the conduct is egregious, such as using predatory pricing in furtherance of actual or attempted cartel activity. Recourse to the criminal predatory pricing provisions may also be taken where the person or firm has a history of non-compliance with the Act, including past instances of predation.
Reviewable trade practices (non-merger)
Relations between suppliers and their customers are also subject to the civil provisions of the Act. These provisions deal with certain trade practices that are not objectionable as such, and are therefore not prohibited. If, however, certain conditions are fulfilled - notably, where the conduct has the effect of lessening competition - the commissioner can refer the matter to the Tribunal for review. If the Tribunal finds that the conditions are met, it may issue an order prohibiting the continuance of such practice and in some cases make such other orders to overcome the anti-competitive effect of the practice. The Act also affords private litigants a limited right to seek relief from the Tribunal, with leave, from certain reviewable practices (refusal to supply, exclusivity, tied selling and market restriction). The following trade practices are subject to review.
Refusal to deal
If the Tribunal finds that there is a refusal to supply and that:
It should be re-emphasised that certain refusals to deal may constitute criminal offences under the price maintenance or conspiracy provisions discussed above.
Exclusive dealing is the practice of requiring or inducing a customer to deal only or primarily in products of the supplier by means of more favourable terms or conditions. Exclusivity agreements are subject to review if:
If the practice is carried on for a reasonable time only in order to facilitate entry of a new supplier or a new product into the market, the Tribunal will not prohibit the practice.
Tied selling is the practice of requiring or inducing a customer to buy a product as a condition of supplying the customer with another product. The Tribunal will not prohibit this practice unless the conditions referred to above relating to exclusive dealing are met. However, even if such conditions are met, no order will be issued if the Tribunal finds that the practice is reasonable, having regard to the technological relationship between the products.
Market restriction is the practice of requiring a customer to sell a product only in a defined market as a condition of supplying that product. Again, if the practice is engaged in by a major supplier and is likely to result in the exercise of market power such that competition is substantially lessened, the Tribunal can put an end to the practice. It will not, however, make an order if the practice is engaged in for a reasonable period of time only to facilitate entry of a new supplier or a new product into a market.
Abuse of dominant position
In Canada, a dominant position is not in itself illegal. Abuse of a dominant position by resorting to anti-competitive acts in a market can, however, give rise to an order by the Tribunal if such abuse results in substantial restriction of competition.
In order for the Tribunal to issue an order in respect of abuse of dominance there are essentially three conditions that must be met:
The existence of a monopoly is not a prerequisite to establishing dominance, but there should be a relatively high market share allowing the firm (or firms) in question to substantially dictate market conditions and exclude competitors. The commissioner has indicated in the Enforcement Guidelines on the Abuse of Dominance Provisions that the Bureau's general approach in evaluating allegations of abuse of dominance is as follows. A market share of 35 per cent or more will generally prompt further examination. In the case of a group of firms alleged to be jointly dominant, a combined market share equal to or exceeding 60 per cent will generally prompt further examination.
The Act includes a non-exhaustive list of acts that could constitute anti-competitive acts that may result in an abuse of a dominant position. These include: a vertically integrated supplier charging more advantageous prices to its own retailing divisions; selling at prices lower than the acquisition cost; inducing a supplier to refrain from selling to competitors; acquisition in advance of scarce resources. What characterises an anti-competitive act is that it is adopted with a predatory or exclusionary intent.
Misleading advertising and other deceptive practices
The Act contains numerous and important criminal and civil provisions relating to misleading advertising and promotion. The Act also contains criminal provisions regulating deceptive telemarketing.
Report of Canada's Competition Policy Review Panel
On 26 June 2008, Canada's Competition Policy Review Panel released 'Compete To Win', its highly anticipated report on recommended policy changes to enhance Canada's competitiveness. The Panel recommends many important policy changes to improve Canada's productivity. These include changes to Canada's Competition Act and Investment Canada Act.
Among other things, the Panel proposes amending the conspiracy provisions of the Competition Act to make 'hard core' cartel activity, such as price fixing, illegal per se, ie, without proof of a negative effect on competition. The Panel also recommends decriminalising price maintenance, price discrimination, promotional allowances and predatory pricing. The Panel endorses Canada's substantive merger provisions, but recommends changing Canada's merger review process to closely resemble the US 'second request' model. The recommendations also include permitting the Canadian Competition Tribunal to impose administrative monetary penalties of up to C$5 million for abuse of dominant position.