The Canadian competition law landscape in 2012 continued to be significantly impacted by two events that occurred in 2009. First, in March 2009, the Canadian government enacted the most significant amendments to the Competition Act (the Act) in its 25-year history. Most of those amendments came into force in 2009, but major changes to the Act’s conspiracy provisions only came into effect in March 2010. Second, in late 2009, the government appointed a new Commissioner of Competition, Melanie Aitken. Under Commissioner Aitken, the Competition Bureau adopted a more aggressive enforcement approach, facilitated by the 2009 amendments. While Commissioner Aitken stepped down in the fall of 2012, she indicated that the number of cartel prosecutions may increase as the Bureau’s Criminal Matters Branch improves its enforcement capacity and gains experience in taking conspiracy cases to trial. Furthermore, the Interim Commissioner of Competition, John Pecman, has said that the Bureau will continue to uphold its priorities of 2012 in the months ahead, including active enforcement.
Cartels and Competitor Communications
The conspiracy provisions of the Act were substantially amended, effective March 2010, to create a dual-track regime for competitor agreements: a per se criminal offence for 'hardcore' cartel behaviour (price fixing, market allocation and output restriction), and a new civil provision for all other competitor agreements likely to prevent or lessen competition substantially. Previously, the prosecution was required to prove anti-competitive effects in all conspiracy cases; that burden has been removed in price-fixing cases, bringing Canadian law more in line with the United States. The Bureau has issued detailed Competitor Collaboration Guidelines that describe its approach to the new dual-track regime. Companies conducting business in Canada should review their competition compliance programmes in light of these changes.
In January 2012, the Bureau announced that Domfoam International Inc. and Valle Foam Industries pleaded guilty to conspiracy under the Act and were fined a total of CAD12.5 million for participating in a price-fixing cartel for polyurethane foam. This was the first conviction under the new conspiracy provisions.
In November 2012, amendments to the Canadian Criminal Code’s sentencing provisions came into force. These amendments eliminate the availability of conditional sentences (sentences served in the community) for crimes carrying a maximum term of imprisonment of 14 years or life, such as conspiracy and bid-rigging (which have 14 year maximum sentences under the Act).
The 2009 amendments did not change the Act’s substantive merger provisions, but fundamentally changed the merger review process for proposed transactions that are the subject of a pre-merger notification filing. Under the new two-stage merger review process, the Bureau can issue 'Supplementary Information Requests' (SIR), which are analogous to the 'Second Requests' issued by US authorities. While the Bureau only issues SIRs in complex cases, this removal of judicial oversight of the Bureau’s information-gathering process from merging parties increases the Bureau’s leverage in merger cases. In January 2012, the Bureau issued revised Merger Review Process Guidelines, which reflect its general approach to administering the two-stage merger review process. The Bureau has also issued revised Merger Enforcement Guidelines (October 2011), which reflect current Bureau practice with respect to substantive merger review.
The number of remedies obtained by the Bureau in merger cases has increased since 2009. The Bureau has also demonstrated its willingness to challenge mergers that it believes to have anti-competitive effects, even where the pre-notification thresholds are not exceeded. For example, in June 2012, the Competition Tribunal ordered a divestiture of a hazardous waste landfill site in respect of a completed waste merger (Commissioner of Competition v. CCS Corporation). In this case, the Commissioner filed an application seeking to dissolve the merger or, alternatively, requiring the divesture of assets to a purchaser that had been approved in advance by the Commissioner. This was the Commissioner’s first contested merger challenge since 2005. The Tribunal’s decision addresses several important issues in merger cases, including the applicable test for a substantial prevention of competition, the assessment of the efficiencies defence and the determination of an appropriate remedy where a transaction (or proposed transaction) results in a substantial lessening or prevention of competition. This case is also a reminder that mergers of any size (the merger here was not subject to pre-notification under the Act) can be challenged by the Commissioner, including after closing.
In September 2012 the Bureau laid charges against a company for allegedly breaching a consent agreement. However, in December 2012, the Bureau withdrew the charges after it became aware of a procedural error, where certain privileged information had been inadvertently shared with Bureau investigators and the Public Prosecution Service of Canada.
The pre-merger notification transaction-size threshold for 2013 increased to CAD80 million from the 2012 threshold of CAD77 million. The pre-merger notification threshold is reviewed annually.
The 2009 amendments repealed the price discrimination and predatory pricing provisions in the Act (both of which used to be criminal offences), and decriminalised the price maintenance provisions. These changes may create opportunities for businesses to be more flexible in their pricing practices. However, the Bureau has demonstrated its willingness to seek to enforce the new civil provisions. For example, in December 2010 the Commissioner commenced an application against two major credit card companies, alleging that aspects of their arrangements with merchants contravene the new civil price maintenance provisions of the Act, and is seeking to prohibit these practices. The hearing of this case ended in June 2012. The decision is expected in 2013.
Abuse of Dominance
The 2009 amendments did not change the substantive abuse of dominance provisions in the Act but they significantly increased the potential consequences of an abuse determination. Companies found to have abused a dominant position are now subject to administrative monetary penalties of up to CAD10 million for first contraventions and up to CAD15 million for subsequent contraventions. Previously, companies were only subject to prohibition orders and related measures to restore competition.
In September 2012, the Bureau issued final Enforcement Guidelines on the Abuse of Dominance provisions under the Competition Act.
In December 2012, for the first time, the Bureau initiated proceedings which seek administrative monetary penalties under the abuse of dominance provisions. The Commissioner is suing two water heater rental companies alleging abuse of dominance relating to their return policies. The Commissioner is seeking administrative monetary penalties totalling CAD25 million.
A decision in another abuse of dominance case is expected to be rendered in 2013. In this case, the Commissioner initiated proceedings against a real estate board, alleging abuse of dominance for restricting how the board’s member agents can provide information from a multiple listing service system to their customers. The Commissioner alleges that the rules deny member agents the ability to provide innovative brokerage services over the internet.
Deceptive Marketing Practices
The 2009 amendments significantly increased the maximum penalties for deceptive marketing practices, and the Bureau has demonstrated its willingness to seek these penalties. For example, in 2010 the Commissioner commenced an application against a communications provider for allegedly misrepresenting the qualities of its telephone services. The Commissioner is asking the court to order the communications provider to pay an administrative monetary penalty of CAD10 million, among other things. In September 2012, the Commissioner initiated proceedings against three wireless communications providers for third party representations in regard to premium text messaging. Among other things, the Commissioner is seeking CAD10 million in administrative monetary penalties from each provider.
The Act provides a civil cause of action for persons who suffer damages as a result of conduct that is contrary to the criminal provisions in the Act. Such claims are most frequently advanced by way of class actions.
In December 2011, the Supreme Court of Canada granted leave to appeal from two companion class action certification decisions of the British Columbia Court of Appeal, involving claims of price-fixing brought by indirect purchasers. The central issues for the Supreme Court to decide are whether indirect purchasers have a right of action in price-fixing class actions and, if so, the appropriate standard of proof on certification, as well as other issues in relation to the economic torts. By 2-1 majorities in both cases, the BCCA ruled that indirect purchasers do not have a right of action at all, adopting the same reasoning as the US Supreme Court in its 1977 ruling in Illinois Brick Co. v. Illinois. Canadian jurisprudence on this subject is currently in conflict as other recent decisions out of British Columbia, Québec and Ontario have certified classes that include indirect purchasers.
The Investment Canada Act threshold for 2013, applicable to most direct acquisitions of Canadian businesses by non-Canadian investors from WTO member countries, is CAD344 million (an increase from 2012’s CAD330 million threshold). The threshold applies to the gross book value of the target’s assets. Under the Investment Canada Act, a 'non-Canadian' includes a Canadian-incorporated entity that is ultimately controlled outside of Canada.
The lower threshold of CAD5 million continues to apply to direct investments that relate to cultural businesses or where none of the non-Canadian parties comes from a WTO member country.
On a date still to be fixed, new regulations under the Investment Canada Act will come into force, dramatically increasing the threshold for investors (other than state-owned enterprises) from WTO member states to CAD600 million, CAD800 million and CAD1 billion over the next six years, with further increases based on a prescribed formula. When the new regulations come into force, the threshold calculation will be based on ‘enterprise value,’ a term still to be defined.