The importance of Canada’s competition laws continues to grow. The ever-increasing vigilance and enforcement activity of the Canadian competition authorities mandates that investors and businesses must, now more than ever, take the Competition Act into account in the conduct of their affairs and when considering investing in Canada.
The Competition Act
In March 2009, the Canadian government enacted Bill C-10, implementing the most significant amendments to the Competition Act (the Act) in 25 years. The result of the changes has been to bring Canadian competition law closer to that of the US, particularly with respect to cartel law and merger review. While most of the amendments came into force in 2009, the current conspiracy provisions did not take effect until March 2010. Bill C-10 also included changes to the Investment Canada Act, adding, among other amendments, a national security review mechanism.
The Competition 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. By enacting the legislation, parliament intended to encourage competition, promote greater economic efficiency and enhance Canada’s position in world markets. The Act is essentially divided into two categories of business practices that may give rise to action by the Competition Bureau (the Bureau). The first category comprises criminal offences such as price fixing, market allocation, bid rigging, deceptive telemarketing and serious instances of deliberate or reckless misleading advertising. These matters are prosecuted by the attorney general in the courts, and individuals and companies who commit such offences are subject to criminal penalties including imprisonment and fines. The second category consists of non-criminal provisions such as price maintenance, tied selling, market restriction, exclusive dealing, refusal to deal, non-hard-core cartel agreements among competitors and abuse of dominance. These matters are dealt with by the Competition Tribunal (the Tribunal), generally on application by the commissioner of competition (the commissioner), which can issue orders prohibiting or correcting the conduct to eliminate or reduce its anti-competitive impact and, in certain cases, order administrative monetary penalties. With leave of the Tribunal, private parties may apply directly to the Tribunal on matters regarding refusal to deal, price maintenance, tied selling, exclusive dealing and market restriction. The Act also contains provisions relating to mergers and notification requirements of certain acquisitions and other transactions.
The commissioner of competition
The commissioner of competition is the most senior antitrust official in Canada, entrusted with the administration and enforcement of the Act. If the commissioner concludes that there has been a breach of the criminal provisions of the Act, he refers the matter to the attorney general of Canada for prosecution. If the commissioner is of the view that a merger or reviewable practice has resulted or is likely to result in a substantial lessening of competition, he can apply to the Competition Tribunal to prohibit the conduct, for ancillary relief and, in certain cases, for an administrative monetary penalty. Any person can, with leave of the Tribunal, intervene to make representations relevant to the proceeding in respect of any matter affecting that person.
In June 2013, John Pecman was appointed commissioner of competition. Mr Pecman is an economist who has worked at the Competition Bureau as an investigator, manager and executive for more than 29 years, including as senior deputy commissioner of the Criminal Matters Branch. Most recently, he served as interim commissioner of competition after the previous commissioner of competition, Melanie Aitken, stepped down in September 2012.
Under Commissioner Aitken, and continuing under Commissioner Pecman, the Competition Bureau has taken a more aggressive approach to enforcement of the Competition Act, which has been facilitated by the 2009 amendments.
The Competition Bureau
The commissioner has a staff of approximately 400 at the Bureau that assist in the administration of the Act. The Bureau is divided into branches that administer different aspects of the Act, including 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, position statements, press releases and updates in respect of the various aspects of Canadian competition law. These publications can be accessed on the website maintained by the Bureau at www.competitionbureau.gc.ca.
Consistent with a global trend among competition authorities, the Bureau has declared domestic conspiracies and bid rigging to be enforcement priorities. However, in recent years, the Bureau has also investigated a number of misleading advertising and telemarketing cases, some of which have resulted in criminal convictions.
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, price maintenance, tied selling, exclusive dealing and market restriction, but notably not for abuse of dominance. The Tribunal also maintains a useful website at www.ct-tc.gc.ca.
Canada’s attorney general (through the director of public prosecutions) 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 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. However, in recent years there has been an increase in use by the commissioner of his formal powers under section 11 of the Act, which provides for court orders compelling the production of documents and information by parties under investigation and other parties who may possess relevant information, as well as oral examinations under oath. In February 2013, the commissioner announced that, in non-merger, civil matters, it would no longer rely on voluntary requests for information for obtaining information from the target of a formal inquiry. He declared that going forward, for all but exceptional cases, the Bureau’s first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be to obtain a legally binding section 11 order from the court. 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 reviewable practices (such as abuse of dominance).
The Bureau has other investigative powers, including the power to seek judicial authorisation to search premises and seize all relevant documents and electronic records without prior warning, as well as the power to seek judicial authorisation to intercept private communications (wiretapping) in investigating conspiracies, bid rigging and deceptive telemarketing.
The Bureau also has immunity and leniency programmes for companies and individuals who cooperate in the investigation and prosecution of offences; the terms and conditions of these programmes are set out in various documents published by the Bureau and the director of public prosecutions (DPP). The Bureau has stated that the immunity programme ‘has proven to be the Bureau’s single most powerful means of detecting criminal activity’. The immunity programme applies to the first party to disclose a criminal offence under the Competition Act. The leniency programme involves a guilty plea with decreasing levels of fine reductions for subsequent applicants implicated in cartel offences. In both cases, the commissioner makes a recommendation to the DPP, who then determines whether such recommendation is in the public interest. For leniency, the courts are ultimately responsible for sentencing following conviction.
In May 2013, the Bureau launched its whistleblowing initiative, which aims to encourage the general public and members of the business community to report suspected incidences of price fixing, bid rigging and other anti-competitive activity.
The commissioner has entered into cooperation agreements with the United States (1995), Mexico (2001), the European Commission (1999), Australia and New Zealand (2000), the United Kingdom (2003), Japan (2005) and Brazil (2008), 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. As of March 2010, the maximum fine for criminal conspiracy increased from C$10 million to C$25 million (total fines can be higher with multiple violations or ‘counts’) and the maximum prison sentence increased from five years to 14 years. 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: in abuse of dominant position and deceptive marketing practices cases, companies can be liable to pay an administrative monetary penalty (AMP) of up to C$15 million. In other cases, 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 (eg, 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 he believes to be anti-competitive, and procedural provisions relating to pre-merger notification. The Bureau’s Merger Enforcement Guidelines (2011) set out how the Bureau will conduct its substantive analysis of merger transactions. These guidelines were initially published in 1991 and subsequently revised in 2004 and 2011. The Bureau has also issued numerous guidelines on the procedural aspects of merger reviews.
The Act’s conspiracy provisions were substantially amended, effective 12 March 2010. Under the current criminal conspiracy offence, agreements among competing suppliers to fix prices, allocate markets or restrict output are per se illegal. This means that the prosecution is no longer required to show beyond a reasonable doubt that competition has been unduly lessened to secure a conviction. The current conspiracy law provides an ‘ancillary restraint’ defence to the criminal prohibition: the accused has to show on a balance of probabilities that the prohibited agreement was ancillary to a broader or separate agreement and directly related to and reasonably necessary for giving effect to the broader agreement. As mentioned above, those convicted of conspiracy are liable to a maximum fine of C$25 million and to imprisonment for up to 14 years. The current conspiracy law is intended to make it easier to secure convictions and may make it easier to establish liability in civil actions based on violations of the criminal provisions of the Act.
Other types of agreements between competitors are subject to a civil provision, also in force since 2010 (see ‘Agreements among competitors’, below).
Bid rigging is an arrangement with any other person not to bid, to withdraw a bid, or to agree on the contents of a bid. Bid rigging is a per se offence. However, a defence is available if it is established that the person calling for the bid had been made aware of the arrangement before the opening of the bid. Firms and individuals convicted of bid rigging face unlimited fines at the discretion of the court and imprisonment for up to 14 years.
As a result of the 2009 amendments, the criminal provisions dealing with predatory pricing and price discrimination were repealed. The price maintenance provision was decriminalised and transformed into a reviewable practice under the civil provisions of the Act. Relations with customers are therefore largely dealt with by the civil reviewable practices regime discussed in greater detail below.
Agreements among competitors
As indicated above, the Act was amended in 2010 to prescribe per se criminal liability for certain hard-core cartel activity (price fixing, market allocation and output restriction). At the same time, a new civil reviewable practice provision came into force that applies to other agreements among competitors. Agreements or arrangements among competitors and potential competitors such as joint ventures and strategic alliances may be subject to review, but only if they substantially lessen or prevent competition. The commissioner may bring an application to the Competition Tribunal for an order prohibiting any person from doing anything under the agreement or, on consent, requiring anyone to take any other action, but the conduct is not subject to criminal sanction or monetary penalties. The new civil regime provides for treatment similar to merger review, including an efficiencies defence that allows the parties to argue that the pro-competitive efficiencies resulting from the agreement outweigh its anti-competitive effects and would not be attained if the Competition Tribunal were to issue a prohibition order. The Bureau’s Competitor Collaboration Guidelines (2009) describe the approach it will take in applying the new dual-track regime to agreements between competitors.
Reviewable practices (non-merger)
The Act contains several civil provisions dealing with certain trade practices that are not objectionable as such, and are therefore not prohibited. However, if certain conditions are fulfilled – notably, in most cases, where the conduct has the effect of substantially lessening competition – the commissioner can make an application to the Tribunal for an order to prohibit the continuance of such practice, overcome the anti-competitive effect of the practice or even, in some situations, order the payment of significant AMPs. The Act also affords private litigants a right to seek relief from the Tribunal, with leave, from certain reviewable practices (refusal to supply, exclusivity, tied selling, price maintenance and market restriction). The following trade practices are subject to review.
Refusal to deal
The Tribunal may order the supply of the product on usual trade terms if it finds that there is a refusal to supply and that:
- the would-be purchaser is substantially affected in its business by the refusal;
- such person is unable to obtain adequate supplies because of insufficient competition among suppliers (for example, the refusing supplier has a monopoly or a very strong market position);
- such person is willing and able to meet the usual trade terms of suppliers;
- the product is in ample supply; and
- the refusal to supply is having, or is likely to have, an adverse effect on competition.
In certain situations, the Tribunal can make an interim order for supply pending its determination of the main application. The Act does not prohibit a refusal to supply based on valid business reasons, such as the buyer not meeting the supplier’s standard credit policies or the supplier having legitimately concluded that it has enough distributors in a given market.
Price maintenance is influencing upward or discouraging the reduction of the price at which anyone else resells or advertises a product, or refusing to supply a product to or otherwise discriminating against any other person because of that person’s low-pricing policy. The commissioner, or a private party granted leave by the Tribunal, has to demonstrate an ‘adverse’ effect on competition resulting from the conduct. Where price maintenance is found to have occurred, the Tribunal can prohibit the supplier from continuing the practice or require the supplier to accept the customer on usual trade terms.
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:
- the supplier is a major supplier of the product;
- the practice impedes entry or expansion of a firm or product in a market or has some other exclusionary effect in the market; and
- the practice is likely to substantially lessen competition.
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, with 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 likely to result in the exercise of market power such that competition is or is likely to be 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, having a dominant position is not in itself a contravention of the Act. However, where the Tribunal finds that a person who substantially or completely controls a class of business has engaged in a practice of anti-competitive acts with the effect of substantially preventing or lessening competition, it may make an order prohibiting the person from engaging in that practice and requiring other steps to overcome the effects of the anti-competitive practice. In addition, the 2009 amendments to the Act provide that corporations found to have abused their dominant position may be liable to pay an AMP of up to C$10 million for the first finding of abuse of dominance and of up to C$15 million for each subsequent finding.
In order for the Tribunal to issue an order in respect of abuse of dominance, three conditions must be met:
- one or more entities have a dominant position in a market;
- the entity or entities have engaged in a practice of anti-competitive acts; and
- this practice has the effect of preventing or lessening competition substantially in a market.
The existence of a monopoly is not a prerequisite to establishing dominance, but there must be a relatively high market share allowing the firm (or firms) in question to exercise ‘market power’ or substantially dictate market conditions and exclude competitors. The Bureau released revised Enforcement Guidelines on the Abuse of Dominance Provisions in September 2012 to update the 2001 guidelines that set out the Bureau’s general approach in evaluating allegations of abuse of dominance. The updated guidelines maintain the 35 per cent market share safe harbour and increase the joint market share safe harbour from 60 to 65 per cent. A firm with a market share between 35 per cent and 50 per cent will generally only prompt further review if the firm is likely to increase its share through the alleged anti-competitive conduct within a reasonable period of time. The updated guidelines provide only minimal guidance on the Bureau’s approach to abuse of dominance; they provide less guidance than prior iterations.
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; and
- acquisition in advance of scarce resources.
An essential requirement of an anti-competitive act is proof that it was adopted with a predatory or exclusionary intent.
Misleading advertising and other deceptive practices
The Act contains numerous important criminal and civil provisions relating to misleading advertising and promotion, as well as criminal provisions prohibiting deceptive telemarketing. It is a criminal offence for someone to knowingly or recklessly make a representation to the public that is false or misleading in a material respect for the purpose of promoting the sale of a product (which includes a service) or generally to promote any business interest, whether or not any person was actually deceived or misled. In a prosecution for false or misleading representations, the attorney general may choose to proceed by way of indictment – in which case a conviction would result in a fine at the discretion of the court, or imprisonment for up to 14 years, or both – or by way of summary conviction, which would result in a maximum fine of C$200,000 or imprisonment for up to one year or both. Where deceptive marketing practices are governed by the civil process, in accordance with the new changes to the Act, the Tribunal may impose an AMP of up to C$10 million for a first finding of a deceptive marketing practice and up to C$15 million for subsequent findings.