Competition, marketing and foreign investment law saw a number of changes in the past year. Many of these changes were in response to the continuing COVID-19 pandemic, which has significantly changed the way Canadians, businesses and government agencies operate. Despite the pandemic, the Competition Bureau (the “Bureau”) has actively continued its enforcement activity and provided a number of guidance documents to help businesses stay onside the Competition Act (the “Act”). Similarly, Canada’s Investment Review Division (“IRD”) of Innovation, Science and Economic Development Canada (“ISED”) has also responded to the challenges resulting from the pandemic.
Below we discuss ten key themes seen in the competition, marketing and foreign investment law space last year, and what the year ahead has in store.
- Possible Competition Act Amendments
In 2021, competition policy commentators advocated for an overhaul of the Act with a focus on abuse of dominance, the efficiencies defence and the market power of Big Tech, among other concerns. The Commissioner of Competition (the “Commissioner”) also advocated for a comprehensive review of the Act in a speech to the Canadian Bar Association and in national newspapers (e.g. the Financial Post, the Globe and Mail, etc). To date, the only formal legislative reform proposals have been (i) a report by the Parliament of Canada’s Standing Committee on Industry, Science and Technology recommending modest changes to the Act; and (ii) a consultation invitation by Senator Howard Wetston, who commissioned a paper by Professor Edward Iacobucci of the University of Toronto, an expert in the field of competition law.
While there is nothing concrete currently being proposed for consultation by the Liberal government, possible proposals to amendments to the Act may materialize this year. The Prime Minister’s December 2021 mandate letter to the Minister of ISED directs him to:
…undertake a broad review of the current legislative and structural elements that may restrict or hinder competition. This includes the mandate of the Commissioner of Competition, and in so doing, ensuring that Canadians are protected from anti-consumer practices in critical sectors, including the oil and gas, telecommunications and financial services sectors.
We anticipate that the focus of such a review will be on how to modernize the Act to address the challenges of the digital age, with a focus on digital platforms, as well as on ensuring the Act maintains competition in other critical sectors such as oil and gas, telecommunications and financial services. The review is also anticipated to extend to a variety of issues ranging from perennial complaints about the Act (e.g. the efficiencies defence, private rights of action, maximum penalties and fines, etc.) to prohibiting wage-fixing, to more radical proposals (e.g. lowering the legal test or burden of proof to establish anticompetitive effects, incorporating non-economic factors like sustainability into competition review, abandoning the consumer welfare standard, etc.), the latter being less likely to result in government reform proposals. We will be watching closely for a public consultation led by ISED, the government body that will lead any serious initiative to amend the Act.
- Possible Amendments to the Investment Canada Act
In his December 2021 mandate letter, the Minister of ISED is directed to, “…promote economic security and combat foreign interference by reviewing and modernizing the Investment Canada Act to strengthen the national security review process and better identify and mitigate economic security threats from foreign investment.” The distinction between promoting ‘economic security’ and mitigating ‘economic security threats’ is more than a simple accident of phrasing. Threats to Canada’s economic security can be summarized as anything which might generally impair our sovereignty or limit our room to manoeuvre economically. However, a threat which originates in an economic approach could be far more urgent and direct: for example, the attempted acquisition by a foreign entity of a Canadian company which manufactures life-saving medicines or personal protective equipment. While the threat originates not in espionage or terrorism – the conventional concerns of our security agencies – the scarcity created by COVID-19 has brought to the fore deep concern about Canada’s ability to see to the basic safety and security needs of its citizens, particularly in matters related to health, food, and other basic “critical infrastructure” domains. This is not the stuff of spies so much as logisticians and supply chain experts. And in 2022, it’s a ‘whole-of-government’ problem on which the Ministers of ISED, Public Safety, and Emergency Preparedness will be expected to have extremely well-defined views.
- National Security Reviews under the Investment Canada Act
Direction provided to the Minister of ISED in his ministerial mandate letter of December 2021 provides significant evidence that Canada will follow the US example of treating climate change as an emerging and urgent matter of national security. The Minister of ISED is directed to, “…use all tools, including the Investment Canada Act, to ensure the protection and development of our critical minerals…to position Canada…as a global leader in the production of batteries, and other clean and digital technologies….” Inherent in this direction from the Prime Minister is recognition of not only the threat posed by climate-driven emergencies but also of the very immediate reality of cascading supply chain issues being driven by an ongoing shortage of semiconductors. This phenomenon has shone a light on an element of the tech industry that has been with us for decades, but is considered so foundational that its supply woes have impacted nearly every part of our economy. Deal-making that touches on semiconductor design, manufacture, and supply will all attract Canadian federal scrutiny that might not have been present a mere 24 months ago.
- Focus on Big Tech
It is anticipated that the Bureau will continue to focus its enforcement efforts on firms operating in the digital economy, in response to growing calls for the Bureau to address the market power of Big Tech in the Canadian context. In this regard, we expect that the Bureau will continue to use the abuse of dominance, merger review, deceptive marketing and other provisions in the Act. The Commissioner has indicated that he will increase the Bureau’s capacity to take on new and more complex anticompetitive conduct, especially in digital markets. The Bureau has created a new Digital Enforcement and Intelligence Branch that is intended to be a centre of expertise on technology and data, and to act as an early warning system for potential competition issues in the digital (and traditional) economies.
The Bureau is investigating several Big Tech firms for alleged abuses of dominance and other restrictive trade practices. For example, in 2021, the Bureau initiated an inquiry into Google focused on whether the company has engaged in practices that harm competition in the online display advertising industry in Canada. In October, the Bureau obtained a court order for Google to produce records and written information that are relevant to the investigation.
- The Bureau’s Increased use of Interim Injunctions
In 2019, Commissioner Boswell noted that the Bureau would be increasing its consideration of the use of interim injunctions. This was repeated in subsequent speeches, including in relation to the regulation of misleading advertising. Active enforcement, including seeking injunctions, was also included in the Bureau’s 2020-2024 strategic plan.
This focus on injunctions continued in 2021, with the Commissioner first seeking an “interim interim” injunction preventing Secure Energy Services Inc. from closing its proposed acquisition of Tervita Corporation and subsequently seeking an interim injunction preventing Secure from integrating the Tervita assets. The Commissioner was unsuccessful on both of these applications.
Relatedly, in our experience, the Bureau has recently changed its approach to the review of complex mergers for which it may need to consider the use of interim injunctions. In particular, the Bureau seems to have adopted a significantly more quantitative approach, including requesting more detailed data from the merging parties and employing more complex econometric models than it has in the past. In our view, it is likely that that the Bureau is collecting such information for use in possible future injunction applications, and that the increased focus on quantitative evidence is in response to the recent dismissal of the Commissioner’s request for interim relief in the Secure/Tervita case noted above. In that case, the Tribunal found a lack of quantitative evidence to support the harm which would allegedly be caused by the transaction. For more information, see our previous blog post.
The Secure/Tervita decision, coupled with the Bureau’s apparent intention to increase its use of interim injunctions, means that businesses can likely expect increased requests for detailed quantitative information, such as transaction level data, in connection with complex merger reviews and should also keep in mind the increased possibility of interim injunctions.
- Increase in Merger Litigation
Since the appointment of Matthew Boswell as Commissioner of Competition in 2019, there has been an increase in the number of mergers challenged before the Competition Tribunal, including both already-consummated mergers and non-notifiable mergers.
Prior to Commissioner Boswell’s appointment in 2019, a contested merger application had not been brought before the Competition Tribunal since 2016 (with respect to the Staples/Office Depot merger). However, since his appointment, several mergers have been challenged before the Tribunal, including the Thoma Bravo / Wrangler Holdings (2019), Parrish & Heimbecker / Louis Dreyfus (2019), GFL Environmental / Terrapure Environmental (2021) and Secure/Tervita (2021) transactions. Additionally in August 2020, while no section 92 application was brought, the Bureau entered into a consent agreement post-closing with WESCO International Inc. in connection with its acquisition of Anixter International Inc., as the merging parties had closed in the face of the Bureau’s ongoing review of the transaction.
Given the Commissioner’s willingness to challenge mergers over the past few years, we expect that parties to complex mergers may face increased merger litigation risk in the coming year – particularly if they opt to close their proposed transaction before the Bureau has had a chance to complete its review.
- Expansion of Deceptive Marketing and Investment Canada Act – Spotlight on Greenwashing and Right to Repair
In 2021, the Bureau investigated a wide variety of false or misleading representations. For example, a Bureau investigation led to a guilty plea by Revive You Media for promoting deceptive free trial offers for health and dietary supplements – the company had to pay millions in fines. Another Bureau investigation led to multiple charges against an Ontario resident for allegedly using deceptive telemarketing and false or misleading statements to get Canadian businesses to sign up for listings in online directories. The Bureau initiated an investigation into a company for marketing practices regarding the COVID-19 pandemic benefit programs. The Commissioner has reinforced the Bureau’s aggressive interest in curtailing deceptive marketing practices and stated that “cracking down on deceptive marketing in the online marketplace is one of the Bureau’s top priorities, and we’ll continue to do everything in our power to stop it.”
The Bureau has shown an expanded interest in consumer protection. It warned against “greenwashing” – the practice of making deceptive marketing claims related to the environment. In 2021, the Bureau initiated its first greenwashing instigation into recycling claims made by Keurig Canada, which concluded last week by way of a consent agreement. As part of the settlement, Keurig Canada will pay $3.885 million in penalties (including the Bureau’s costs and a donation to a Canadian charity focused on the environment). The Bureau supported amending the technological protection measures provisions in the Copyright Act to introduce explicit exceptions for repair and interoperability in order to improve consumer choice, lower prices, and spur innovation in the Canadian economy. The Bureau also recommended adopting a pro-competitive national strategy that would, among other things, remove barriers to businesses’ entry and expansion in aftermarkets and provide consumers with greater choice and lower prices. We anticipate that both “greenwashing” and the “right to repair” will be a hot topics in the new year.
- Competition Class Action Claims Met with Increased Scrutiny
Since the Supreme Court of Canada’s 2013 trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, and its 2019 decision in Godfrey, plaintiffs have had considerable success certifying private antitrust/competition class actions in Canada. A number of recent decisions suggest a growing judicial willingness to limit or dismiss proposed competition class actions at the certification stage or before certification through preliminary motions.
For example, in Jensen and Hazan, the Federal Court of Canada and the Quebec Superior Court each denied certification and authorization, respectively, of class actions alleging a conspiracy in respect of DRAM chips. Both courts concluded that the criteria for certification/authorization (as applicable) were not met due to the claim’s vague, imprecise and general allegations and the absence of evidence establishing of the existence of the alleged unlawful agreement. The Federal Court also discussed in detail the distinction between unlawful agreements between competitors under s. 45 of the Act, which represents a per se violation of the Act, and ‘conscious parallelism’, which refers to situations where competitors unilaterally adopt similar or identical business practices or pricing, due to rational and profit-maximizing strategies based on observations of market trends and activities of competitors. The Federal Court was explicit in its reminder that “(c)anadian law has long recognized that “conscious parallelism” (even if involved parallel conduct in oligopoly markets) falls short of conduct prohibited by section 45 of the Act.”
Further, in Mohr, the Federal Court granted a preliminary motion to strike out the claim without leave to amend. In Mohr, the plaintiff alleged a conspiracy among all the major hockey leagues in North America and Hockey Canada to deny junior hockey players career opportunities and compensation. In granting the motion, the Federal Court concluded, among other things, that s.45, the general conspiracy offence in the Act, did not apply to the alleged conduct because the defendants were not “competitors” for the product or service at issue and, further, s. 45 does not apply to agreements among competing “buyers” for the purchase of a product or service (as s. 45 is restricted to the agreements among competing suppliers). The Federal Court also concluded that s. 48 of the Act (the conspiracy provision focused on professional sports) did not apply because the provisions did not apply to the alleged inter-league conspiracy but to agreements between teams and clubs within the same league. For further information about the Mohr decision, see our previous blog post.
- Buy-Side Agreements
Buy-side agreements have been subject to increased scrutiny since the US Department of Justice indicated that it would – and has – criminally investigated so called naked no-poaching or wage-fixing agreements that, in its view, are unrelated or unnecessary to a larger legitimate collaboration between the employers.
The Bureau released a statement in November 2020, which clarified that no poach, wage-fixing and other buy-side agreements will not be subject to criminal sanction due to the specific language in Canada’s cartel laws. Specifically, section 45 (criminal conspiracy) of the Act only applies to supply-side agreements due to the removal of the word “purchase” from the provision in 2009. That being said, the Bureau also noted in this statement that buy-side agreements would be subject to scrutiny under section 90.1 (civil reviewable competitor collaboration) of the Act. For more information, see our previous blog post.
The updated competition collaboration guidelines which were released on May 6, 2021, and which replace the previous guidelines that were published in 2009, also reflect the guidance set out by the Bureau in its November 2020 statement. The Bureau’s guidance makes clear that the Canadian treatment of buyer-side agreements differs considerably from the United States.
The Courts in private litigation have also reflected the Bureau’s treatment of buyer-side agreements. Latifi involved allegations the defendant’s franchise agreement, which allegedly required franchisees not to ‘poach’ employees from brand restaurant locations, violated s. 45 of the Act. The British Columbia Supreme Court dismissed the plaintiff’s claim on the basis that s. 45 does not prohibit “buy-side” agreements and, in turn, did not disclose a cause of action.
- Influence of U.S. Antitrust Debate on Canadian competition policy
Joe Biden assumed the presidency of the United States in January 2021 ushering in a new era of antitrust activism. He appointed a trio of antitrust advocates who have been vocal critics of Big Tech to head the nation’s antitrust agencies. President Biden named Lina Khan as Chair of the Federal Trade Commission, nominated Jonathan Kanter to lead the US Department of Justice’s Antitrust Division, and appointed Tim Wu to serve on the National Economic Council. President Biden also issued an executive order aimed at limiting corporate concentration and promoting competition.
Democrats tabled a number of bills aimed at curbing the power of Big Tech. There are at least 9 government bills currently before the federal government proposing to revamp antitrust laws in the U.S. The most notable are two bipartisan bills co-sponsored by Senator Amy Klobuchar. The American Innovation and Choice Online Act would block tech giants from prioritizing their own products over rivals – essentially banning self-preferencing. The Platform Competition and Opportunities Act aims to stop so called “killer acquisitions” of nascent firms by the tech giants and would shift the burden to dominant platforms to demonstrate a merger is not anti-competitive. Senator Klobuchar also introduced the Competition and Antitrust Law Enforcement Reform Act which would, among other things, change the legal standard in merger review by forbidding mergers that “create an appreciable risk of materially lessening competition” which is a lower standard than the current “substantially lessen competition” standard. Senator Klobuchar is pushing the Senate Judiciary Committee to review legislation from her antitrust panel in January. It is possible that one or two of these bills will pass.
Underlying this new antitrust activism, sometimes referred to as the “New Brandeis movement”, is a philosophical debate regarding whether traditional antitrust principles (i.e. those of the Chicago School) ought to be replaced with new principles that would take into account non-economic factors such as equity, sustainability, labour rights and privacy, among others. Traditionally, the core goal of antitrust was efficiency and the measure used to assess transactions and business practices was the consumer welfare standard – a legal principle whereby a merger or practice is only deemed anticompetitive when it harms both allocative efficiency and raises the prices of goods above competitive levels or diminishes their quality. Activists view this approach – which is said to prioritize price effects over important non-price effects, ignore buyer power and monopsony concerns and only evaluates short term prices and ignore effects on innovation, among other things – as having been responsible for the reduction in competition and increase in corporate concentration.
The US debate over the fundamentals of antitrust has impacted Canada’s competition policy debate this year with the Commissioner (with respect to the size of penalties and consideration of efficiencies) and competition policy commentators (with respect to a broader ranger of issues) calling for greater alignment with the competition laws of the United States, which have under the leadership of President Biden, Khan and Kanter, and may continue to, deviate from the Chicago School principles that underly Canada’s competition laws.