On March 12, 2009, the Canadian Government passed Bill C-10, an Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures, which includes a series of amendments to both the Competition Act and Investment Canada Act. The changes to the Competition Act in particular are fundamental in nature and represent the most significant amendments to the act since it was implemented in 1986.
While the decriminalization of the archaic pricing provisions (price discrimination, predatory pricing, price maintenance and promotional allowances) is a welcome change, several of the other changes raise potentially significant issues for companies doing business in Canada. In our view, of the most significant concern are the amendments relating to the conspiracy provisions, the introduction of significant fines under the abuse of dominance provisions, as well as the use of a US-style second request process for mergers.
Conspiracy – A Dual-Track Approach
Bill C-10 replaces the existing criminal conspiracy provisions with a dual criminal-civil track approach. Under this approach, "hardcore" cartels (e.g., price-fixing agreements) will be assessed under a per se standard (with a limited "ancillary agreement" defence) and subject to criminal sanctions that include fines of up to $25 million and jail for up to 14 years. The elimination of the competitive effects test will make it significantly easier for the Crown to obtain convictions than is currently the case.
Legitimate agreements between competitors (e.g., joint ventures, strategic alliances) that may be anticompetitive will be subject to a civil review that incorporates a competitive effects test. If the agreement is found to substantially prevent or lessen competition, the Competition Tribunal can order the agreement to be terminated or modified.
As the changes represent a complete departure from the existing law, there is a total absence of any Canadian jurisprudence or enforcement history. This lack of judicial or enforcement precedent, compounded by the Commissioner's discretion to determine whether to pursue an agreement under either the criminal or civil track, will make it very difficult for companies to assess risk under the new conspiracy provisions.
The amended conspiracy provisions may require companies to revisit any agreements or arrangements with competitors to ensure they are not potentially subject to liability under the new regime. On this issue, the Bill includes a transitional provision that stays the coming into force of the new criminal conspiracy provision for one year to allow parties with existing agreements with competitors consider how they may be treated under the new law including possibly having them vetted by the Commissioner by applying for an advisory opinion without having to pay the standard service fee. Although this is of some comfort, it is clear that the existing agreements are not grandfathered and the Bill is silent as to how companies are to remedy agreements that the Commissioner concludes are illegal under the new regime or how much time they will have to rescind or modify a problematic agreement.
A final concern is that the move to a per se conspiracy offence will almost certainly increase the number of private damages actions (generally brought by way of class action) brought under the conspiracy provisions.
Administrative Monetary Penalties for Abuse of Dominance
Another significant departure from the existing regime is the amendment to grant the Competition Tribunal the power to order administrative monetary penalties of up to $15 million for violations of the abuse of dominance provisions. Previously, the remedies under the abuse provisions were limited to prohibition orders or such other steps as were required to remedy the anticompetitive effect at issue.
The abuse of dominance provisions target conduct by a "dominant" firm or group of firms that results in a substantial lessening or prevention of competition. In virtually all cases, the conduct at issue is presumptively legal generally and is only problematic where it results in substantial lessening or prevention of competition.
The concerns raised by the introduction of fines in abuse cases are compounded by the Bureau's stated enforcement approach as iterated in the recently released Draft Updated Enforcement Guidelines on the Abuse of Dominance Provisions. (For our discussion on the draft guidelines, please click here). Specifically, the Bureau's stated enforcement approach to the abuse provisions is extremely open-ended and includes a novel approach to the concept of "joint" abuse of dominance that would capture independent, but parallel conduct (as opposed to requiring some form of coordination).
The combination of large fines and a broad enforcement approach raises significant compliance concerns for a much broader range of businesses than was previously the case. In addition to potentially chilling legitimate business practices, the imposition of fines for breaches of a civil provision of the Competition Act raises potential constitutional law issues.
US-Style Merger Review
The amendments align the merger notification process under the Competition Act more closely with that of the United States, including the "second request" process used by the US antitrust authorities to gather information and extend the review period. While there is some support for the view that the Commissioner may require more time to complete her review of mergers that raise substantive issues, simply adopting the US approach "warts and all" raises a host of new issues.
Bill C-10 replaces the previous 14 or 42-day waiting periods with an initial 30-day review period, which the Commissioner can extend by requiring the production of additional information. Under the amendments, closing will not be permitted until 30 days after substantial compliance with the information request.
In practice, the vast majority of mergers do not raise substantive competition law issues and will not be affected by this amendment. However, mergers that do raise substantive issues may face a review period of unpredictable duration. Further, this approach gives the Commissioner the unfettered right to make information requests, which raises concerns regarding the effect this could have on the costs and timing of the Canadian merger review process.
Other Points of Note
Some of the additional noteworthy aspects of the amendments in Bill C-10 include:
- Increasing the penalties for bid-rigging to jail for up to 14 years and discretionary fines;
- Eliminating the criminal price discrimination, promotional allowances and predatory pricing provisions (these types of conduct are addressed under the abuse of dominance provisions);
- Replacing the criminal resale price maintenance provisions with a civil provision that includes a competitive effects test;
- Increasing the "transaction-size" threshold for mandatory merger pre-notification from $50 million to $70 million (which is then indexed for inflation); Increasing the thresholds for review of investments by WTO investors under the Investment Canada Act from $312 million to $600 million – increasing over time to $1 billion; and
- Adding a national security test to the Investment Canada Act review criteria.
While Bill C-10 has no immediate effect, businesses need to be aware that significant amendments to both the Competition Act and Investment Canada Act have come into force – this is especially so given that these amendments are part of legislation related to the implementation of the 2009 budget. Bill C-10 will require companies doing business in Canada to reevaluate their business practices and arrangements to ensure that they continue to be compliant under the new competition law regime