Bill C-10, the Budget Implementation Act, 2009 received Royal Assent on March 12, 2009. The bill introduced significant changes to the Competition Act (Act), most notably in the area of competitor conduct. While the majority of changes came into force upon Royal Assent, some of the most significant amendments will come into force in March 2010.
In the last issue of the McCarthy Tétrault Co-Counsel: Business Law Quarterly we discussed the changes to the merger review provisions of the Act. In this issue, we discuss other changes to the Act that have been made under the bill and that will be of interest to our business clients.
A. Reform of Criminal Provisions
- Per se Conspiracy Offence and a Dual-Track Approach — Under the current Section 45, the Crown must demonstrate beyond a reasonable doubt that agreements among competitors "unduly" lessen competition. When the amendments to the conspiracy provisions come into force on March 12, 2010, that burden will be removed for so-called "hard-core" cartels (i.e., agreements among competitors to fix prices, allocate markets or restrict supply), making it easier for the Crown (and civil plaintiffs) to prove price-fixing conspiracies. Parties to an agreement may defend a charge under the amended provision if they can prove the arrangement is ancillary and necessary to a broader agreement that is not within an impugned hard-core category. However, this defence may not alleviate all risk that arrangements between competitors, such as co-marketing agreements or other joint ventures, could be captured by the new provisions.
Agreements or arrangements between competitors other than hard-core cartels that substantially prevent or lessen competition will be civilly reviewable. The Commissioner of Competition may bring an application to the Competition Tribunal for an order prohibiting any person from doing anything under the agreement, but the conduct would not be subject to monetary penalties or criminal sanction.
The Competition Bureau has issued draft Competitor Collaboration Guidelines that describe the approach it will take in applying the dual-track regime to collaborations between competitors. Although still out for public consultation, the guidelines clarify some potential areas of uncertainty — suggesting, for example, that vertical agreements between suppliers and customers, as well as dual-distribution agreements between a single supplier and distributor, will be assessed under the civil, rather than criminal, provisions. Bill C-10 also provides that parties may apply prior to March 12, 2010 for an advisory opinion on how the new laws will apply to existing agreements without having to pay the standard service fee.
- Higher Penalties — When the amendments to the conspiracy provisions come into effect on March 12, 2010, the maximum fine for conspiracy will increase from $10 million to $25 million, and the maximum prison term will increase from five years to 14 years.
Penalties for obstructing an investigation and bid-rigging also increased on Royal Assent: a new indictable category of obstruction offence was added with a maximum sentence of an unlimited fine and/or 10 years in prison. The maximum prison sentence for bid-rigging increased from five to 14 years, while the maximum unlimited fine was maintained.
- No Criminal Sanction for Price Maintenance, Predatory Pricing or Price Discrimination — The provisions for criminal sanction for predatory pricing, price discrimination and price maintenance have been repealed, and a new provision added to the civil enforcement track for price maintenance. Moving price maintenance to the civil enforcement track removes the prospect of criminal sanction and civil actions for damages, but allows private parties to seek leave from the Tribunal to bring applications to regain supply on usual trade terms or other remedial orders. However, predatory pricing — and, potentially, price discrimination — will continue to present risks for those who possess market power, since the Commissioner of Competition will be able to seek administrative monetary penalties (AMPs) under the Act’s abuse of dominant position provisions (as discussed below).
- Effect on Civil Actions — Section 36 of the Act permits parties to sue for loss or damages suffered as a result of conduct that is contrary to the criminal provisions of the Act. Bill C-10 may make it easier for private plaintiffs to prove violation of the new conspiracy provision as the "unduly" element will be removed, but price discrimination, predatory pricing, and price maintenance are no longer subject to civil damage claims under the Act.
B. Changes to Reviewable Conduct Provisions
- $10- to $15-Million Fines for Abuse of Dominant Position and Deceptive Marketing Practices — Those found by the Tribunal to have abused their dominant position (other than airlines) were previously not subject to monetary penalties, though the Tribunal was able to order a party to cease an offending practice and/or impose other potentially broad remedial orders. Corporations found to have engaged in civil deceptive marketing practices were subject to orders to cease the offending conduct, publish a notice, and pay an AMP of up to $100,000 for the first order and up to $200,000 thereafter.
Effective immediately, AMPs of up to $10 million are available for a first finding of abuse of dominant position or deceptive marketing practices and AMPs of up to $15 million are available for each subsequent finding.
- Other Changes — Other changes to the civil provisions of the Act include: interim injunctions for misleading representations, repeal of the consignment selling provisions, private applications for price maintenance (with leave of the Tribunal), and repeal of airline-specific provisions.
The amendments to the Act present significant risks for businesses but may also create some opportunities, particularly in the area of pricing. Companies should review their competition law compliance programs to ensure that their business practices do not run afoul of the new laws, as well as to ensure that they identify new opportunities to improve their business.