On February 6, 2009 the Government of Canada introduced Bill C-10 (Budget Implementation Act, 2009) (the “Bill”), which, among other changes, proposes broad reforms to the Competition Act R.S.C. 1985, c. C-34 (the “Act”), and certain amendments to the Investment Canada Act R.S.C. 1985, c. 28 (the “Investment Act”). We find it unusual to include such sweeping amendments to the Act in budget implementation legislation, which may limit the amount of debate and revision the provisions are subject to. The Bill comes on the heels of the final report of the Canadian Competition Policy Review Panel (the “Review Panel”), released in June 2008, following which the Conservative Government of Stephen Harper indicated it would consider incorporating many of the Panel’s recommendations. This is reflected in the Bill, which, among other matters proposes to:

1. Replace the existing criminal conspiracy provisions of the Act with a per se criminal offence for cartel-type activities, similar to the U.S. regime, and addition of a civil provision to address an “agreement or arrangement” that “prevents or lessens, or is likely to prevent or lessen, competition substantially”. This proposal establishes a dual track approach to dealing with behaviour that may have anti-competitive effects, and attempts to distinguish “hardcore” cartel activities from other types of agreements that may have anti-competitive effects. In theory this approach may not be objectionable but it is replacing a provision that has had the benefit of over a hundred years of judicial consideration and enforcement experience. We are concerned that the amendments will result in years of uncertainty until its application has been settled by the courts and through enforcement policies.

2. Repeal the criminal price discrimination, predatory pricing and promotional allowance provisions (previously ss. 50 and 51 of the Act). This leaves these activities subject only to the civil abuse of dominance provisions of the Act.

3. Replace the criminal resale price maintenance provision (s. 61 of the Act) with a new civil framework applicable when the impugned conduct “has had, is having or is likely to have an adverse effect on competition in a market”. Section 103.1 of the Act is amended to permit any person to make an application to the Competition Tribunal with respect to conduct contrary to the new resale price maintenance provisions (paralleling the existing access for reviewable practices contained in ss. 75 and 77 of the Act, which contain, inter alia, the refusal to deal, tied selling and exclusive dealing provisions of the Act).

4. Permit the Competition Tribunal to administer monetary penalties for abuse of dominance offences “in an amount not exceeding $10,000,000 and, for each subsequent order…an amount not exceeding $15,000,000.” The availability of administrative monetary penalties for abuse of dominance had previously been limited to domestic air services (under s. 79(3.1), now proposed to be repealed). Interestingly, the penalties proposed in the Bill are substantially higher than the $5 million threshold suggested by the Review Panel. These changes are likely to be controversial. Under the existing legislation conduct that may give rise to abuse of dominance (which includes common practices such as loyalty rebates, tied selling, bundling and exclusivity arrangements) is presumed to be lawful and it is not easy to tell in advance when the conduct should be the subject of a remedial order. Imposing multi-million dollar penalties when there are no clear rules for knowing in advance when the conduct will attract such a sanction seems unfair and may chill pro-competitive activity.

5. Increase the fines and length of imprisonment for certain offences under the Act. For instance, the maximum term of imprisonment for failure to comply with a prohibition order is increased from two years to five, and the punishment for committing an offence under the revised criminal conspiracy provisions is amended to imprisonment for a term not exceeding 14 years (up from 5) or to a fine not exceeding $25 million (up from $10 million), or to both.

6. Increase the notification thresholds for mergers to transaction sizes of $70 million or greater, an increase from the current $50 million (except for the case of amalgamations, where the threshold is already set at $70 million). The thresholds will now be subject to annual revision pursuant to a formula that accounts for inflation.

7. Reduce the period within which a completed merger may be challenged before the Competition Tribunal to one year (from three).

8. Introduce a second stage merger review process that permits the Commissioner of Competition, in its discretion, to require additional information from applicants. The initial review period of 30 days would be extended in the case of a second stage request to 30 days from the date on which all the information requested in the second stage has been provided. This proposal follows the recommendations of the Review Panel and brings Canadian practice closer to the regime followed in the U.S. In our view the revisions may result in substantially increased compliance costs to merging parties, and could introduce significant delays and uncertainties into the Canadian merger review process. Interestingly, while this was probably the most controversial recommendation made by the Review Panel, it was not an issue on which the Review Panel sought submissions and as such did not benefit from a fulsome consultation process.

9. Introduce a national security test for investments under the Investment Act, and increase the thresholds for review under the act (to $1 billion in most cases).

The proposed amendments to the Competition Act encompass most of the Panel’s recommendations. As indicated above some of these are controversial and may in our view harm the competitiveness of the Canadian economy, which is ironic given that the Review Panel’s mandate was to make recommendations to enhance Canada’s competitiveness. Notably the introduction of a second request merger review process is, in our opinion, a mistake. While there may be some mergers the Competition Bureau needs more time to review, a shift to a U.S. second request model is not necessary to accomplish this and has the potential to impose long delays and enormous costs on the merging parties. We do not believe that the amendments to the cartel provisions, given the uncertainty that they are likely to bring, are warranted. Finally, the proposed changes to the abuse of dominance provisions also have the potential to cause unintended harm, as noted above.

The remainder of the changes to the Competition Act we believe, on balance, are long overdue and will likely be beneficial. Similarly, we view the changes to the Investment Canada Act to be positive.