2 McCarthy Tétrault LLP mccarthy.ca The 2013 Canadian Competition and Foreign Investment Law Year in Review McCarthy Tétrault LLP’s National Competition Group is pleased to provide our 2013 year in review. Executive Summary During 2013, Canadian courts, including the Competition Tribunal (Tribunal), issued more substantive decisions in competition matters than in any year in the past decade. There were also significant developments in foreign investment law in Canada, including a focus on the treatment of investments by state-owned enterprises. 2013 also saw the first known rejection of a transaction under Canada’s national security regime. Here are the highlights, including what to watch for in 2014: ¬ Criminal Matters: A corporation was found guilty of price-fixing on the basis of its general manager’s participation in the cartel, confirming that criminal liability can attach to a corporation by virtue of the actions of employees who are not the “directing minds” of the corporation. (R. v. Pétroles Global inc., August 2013) ¬ Abuse of Dominance: The Federal Court of Appeal ruled that the Tribunal erred when it dismissed the abuse application by the Commissioner of Competition (Commissioner) against the Toronto Real Estate Board (TREB). The decision casts uncertainty over who can be the subject of an abuse of dominance application. (Commissioner of Competition v. Toronto Real Estate Board, February 2014) ¬ Price Maintenance: The Tribunal dismissed the Commissioner’s application and ruled that price maintenance under the Competition Act (Act) requires that the product sold by the person influencing upward or discouraging the reduction of the product’s price be resold by the person’s customer. (Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated, September 2013) ¬ Deceptive Marketing Practices: The Commissioner’s application against a wireless carrier for misleading advertising was largely dismissed. This decision also addressed the constitutionality of administrative monetary penalties (AMPs) and the standard to be applied under the general misleading advertising provisions in the Act. (Commissioner of Competition v. Chatr Wireless Inc., August 2013) ¬ Class Actions: The Supreme Court of Canada affirmed the right of indirect purchasers to assert damage claims for violations of the Act, while confirming its rejection of the “passing on” defence. (Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Limited v. Archer Daniels Midland Company and Infineon Technologies AG v. Option consommateurs, October 31, 2013) ¬ Mergers: The Federal Court of Appeal upheld the Tribunal’s decision in a non-notifiable transaction requiring a landfill operator to divest a hazardous waste landfill on the ground that the acquisition would substantially prevent competition. (Tervita Corporation et al v. Commissioner of Competition, February 2013) ¬ Investment Canada Act: The Canadian government blocked the proposed $520 million acquisition of the Allstream division of Manitoba Telecom Services Inc. by Accelero Capital Holdings on national security grounds (October 2013).3 McCarthy Tétrault LLP mccarthy.ca ¬ What to Watch for in 2014: Industry Focus: More enforcement actions and advocacy interventions by the Competition Bureau (Bureau) in the digital economy and health care industries. Criminal Matters: More contested price-fixing and bid-rigging prosecutions. Misleading Advertising: More enforcement action with respect to misleading price representations. Class Actions: Direction on the appropriate methodology and expert evidence required at the certification stage to establish harm on a class-wide basis and to demonstrate the passing on of alleged overcharges at all levels of the supply chain. Investment Canada Act: Significant increase to thresholds that trigger a review of acquisitions by non-state-owned enterprises will likely occur in 2014. Competition Bureau Priorities ¬ Under John Pecman, appointed Commissioner in June 2013, the Bureau continued its focus on active enforcement started by his predecessor, Commissioner Melanie Aitken. The Bureau initiated 130 preliminary examinations1 and had 67 formal inquiries in its most recently completed fiscal year. As of late fall 2013, it reported 22 litigated competition cases and 81 active major enforcement investigations. ¬ Although Commissioner Pecman has shown that enforcement is a primary mandate, he has identified his main priorities as the “four Cs”: compliance: sharing the burden of complying with the Act between the Bureau and the legal and business communities; collaboration: cooperating with stakeholders across organizations and borders; communication: increasing public understanding of the Bureau’s role; and Canadians: ensuring a competitive and innovative marketplace for Canadians. ¬ On May 28, 2013, the Bureau released its Action Plan on Transparency (Plan), which intends to promote the development of a more cost-effective, efficient and responsive agency, by providing consumers and members of the business community with an increasing amount of information regarding its activities. One manifestation of the Plan is the draft Communication during Inquiries bulletin released in October 2013, which outlines how the Bureau communicates with parties being investigated, as well as with industry participants, complainants and the general public, once a formal inquiry has been commenced. 1 A preliminary examination is a stage in the Bureau’s examination/inquiry process where the Bureau gathers facts and determines whether a formal inquiry under the Act should proceed.4 McCarthy Tétrault LLP mccarthy.ca Criminal Matters A. CONSPIRACY ¬ There have been several developments in the last year in relation to the long-standing regional retail gas price-fixing case in the province of Québec: The most significant development is the August 2013 decision of the Québec Superior Court in R. v. Pétroles Global inc.,2 which found the corporation guilty of price-fixing on the basis of its general manager’s participation in the cartel. This is the first criminal trial on the merits in Canada involving section 22.2 of the Criminal Code, which came into force in 2004. Under section 22.2, a corporation can be found guilty of price-fixing as a result of the conduct of a “senior officer,” which includes any representative responsible for managing an important aspect of the organization’s activities. The Court held that the 2004 amendments broadened the scope of criminal liability for corporations and that such liability is no longer limited to the conduct of its “directing mind,” as was previously the case under the common law. The decision, currently under appeal, confirms that mid-level managers with limited decision-making autonomy may qualify as “senior officers” and therefore engage the corporation’s criminal liability. Three individuals have also been found guilty for their role in the gasoline price-fixing conspiracy and were sentenced in August 2013 to each pay a fine of $15,000. This is the first time in more than 10 years that individuals were convicted following a trial under the criminal conspiracy provisions of the Act. This case, which relies on extensive wiretap evidence, demonstrates the Bureau’s willingness to prosecute individuals involved in price-fixing. ¬ In June 2013, price-fixing charges were laid against three companies and three individuals with respect to the sale of chocolate confectionery products in Canada. A fourth corporation received lenient treatment for its cooperation with the Bureau’s investigation and was fined $4 million following a guilty plea under the former conspiracy provisions of the Act for illegal price-fixing activities that occurred in 2007. ¬ Additional guilty pleas were entered in relation to the international air cargo cartel investigation. In June 2013, a carrier pleaded guilty to fixing navigation surcharges imposed on international air cargo shipments to and from Canada between 1999 and 2003 and was fined $1.5 million. A second carrier pleaded guilty in August 2013 to fixing fuel surcharges in relation to air cargo shipments from Canada to South America and elsewhere between 2003 and 2006 and was fined $975,000. In Canada, nine carriers have pleaded guilty to date as part of this investigation commenced in 2006, and total fines imposed are in excess of $25 million. ¬ In January 2014, the Bureau announced the discontinuance of its criminal investigation into the setting of yen LIBOR rates and their use in pricing interest rate derivative products. The Bureau discontinued its investigation because of insufficient evidence to justify prosecution under the former conspiracy provision in section 45 of the Act, which requires proof of undue prevention or lessening of competition. In May 2013, the Royal Bank of Scotland had abandoned its challenge of a section 11 order compelling the production of records located outside of Canada. The bank had challenged the order on grounds related to the interpretation of section 11 of the Act and as a violation of the Canadian Charter of Rights and Freedoms. 2 2013 QCCS 4262.5 McCarthy Tétrault LLP mccarthy.ca B. BID-RIGGING ¬ In February 2013, six companies and three individuals accused of bid-rigging with respect to ventilation contracts for the construction of residential buildings in Montréal were discharged following the preliminary hearing. In R. v. Al Nashar et al,3 the Court of Québec held that there was insufficient evidence to establish the presence of a “request for bids or tenders,” an essential element of the bid-rigging offence under section 47 of the Act. The Court considered, among other things, that a privilege clause in the calls for tenders stating that the project owner reserved the right to reject some or all of the submitted bids without cause showed that the parties had not intended to create contractual obligations, and that the calls for tenders were therefore merely invitations to negotiate. The Public Prosecution Service of Canada (PPSC) has filed an application to quash the decision, and a ruling on the application is expected in early 2014. ¬ In April 2013, the Ontario Court of Appeal also considered the meaning of “request for bids or tenders” within the meaning of section 47 of the Act, and came to a different conclusion. In R. v. Dowdall,4 the Court affirmed the preliminary hearing judge’s decision to commit a number of corporations and individuals to stand trial on charges of bid-rigging with respect to the provision of IT services to the Federal Government. At the preliminary inquiry, the accused argued that the procurement process in question was outside of the scope of section 47 because it resulted in a list of potential qualified suppliers, with no obligation on the Government to purchase any of the IT services. The preliminary hearing judge found that there was some evidence from which to infer that the procurement process created binding contractual rights and could therefore be characterized as requests for bids. The Ontario Superior Court of Justice and the Court of Appeal both dismissed the accused’s application for certiorari, and leave to appeal to the Supreme Court of Canada was denied. The case will therefore proceed to trial and may provide valuable guidance on the scope of the bid-rigging provisions of the Act. ¬ On June 13, 2013, charges were laid against one individual accused of bid-rigging in relation to a Request for Standing Offers issued by the Federal Government for real estate advisory services. The charges include one count under the bid-rigging provisions of the Act and one count of fraud under the Criminal Code for allegedly submitting a false invoice with a value exceeding $5,000. One corporation cooperating under the Bureau’s Leniency Program has already pleaded guilty and was fined $125,000. ¬ As part of the international auto parts investigation, two Japanese suppliers of motor vehicle components pleaded guilty in April 2013. The first supplier was fined $30 million, the largest fine ever ordered by a Canadian court for a bid-rigging offence, in relation to the supply of wire harnesses sold to Honda and Toyota. The second supplier was ordered to pay a $5 million fine in relation to the supply of electrical boxes sold to Honda between 2000 and 2010. Both companies are cooperating with the investigation under the Bureau’s Leniency Program and benefited from a fine reduction. The Bureau has indicated that the auto parts investigation, which is ongoing, is the largest bid-rigging investigation it has ever undertaken. ¬ As part of the same investigation, a Japanese bearings manufacturer pleaded guilty to two counts of bid-rigging and was fined $5 million in July 2013. The company participated in the Bureau’s Leniency Program. In January 2014, a second Japanese bearings manufacturer pleaded guilty to two counts of 3 February 1, 2013, Montréal 500-73-003535-104. 4 2013 ONCA 196.6 McCarthy Tétrault LLP mccarthy.ca bid-rigging and was fined $4.5 million. These pleas relate to automotive wheel hub unit bearings supplied to Toyota Canada between 2007 and 2013. ¬ The Bureau is also engaged in a number of ongoing bid-rigging investigations in the construction industry. The Bureau confirmed that it is investigating engineering firms for certain projects in the cities of Québec and Gatineau. The Bureau is also engaged in joint investigations with the Unité permanente anticorruption (UPAC) in Québec, which resulted in bid-rigging charges against 10 companies and 12 individuals with respect to infrastructure contracts for municipalities on the South Shore of Montréal. C. BUREAU’S POLICIES ¬ In May 2013, the Commissioner announced the launch of the Bureau’s whistleblowing initiative and the introduction of a toll-free telephone number that whistleblowers can use to report information with respect to potential bid-rigging and cartel conduct. Pursuant to provisions introduced in the Act in 1999, the Bureau is required to keep the identity of a whistleblower confidential, and employers cannot take any retaliatory action against employees who report information to the Bureau. ¬ Also in May 2013, the Bureau entered into a memorandum of understanding (MOU) with Public Works and Government Services Canada (PWGSC), the Federal Government’s principal procurement department, in order to increase cooperation in the investigation of illegal cartel activity in relation to procurement or real property transaction processes under PWGSC’s responsibility. PWGSC’s Integrity Framework provides that companies that are found guilty or plead guilty to certain offences, including price-fixing and bid-rigging offences under the Act, are disqualified for contracts until they receive a pardon; such disqualification applies to companies that cooperate under the Bureau’s Leniency Program. However, the MOU confirms that PWGSC will not disqualify companies that have been granted immunity by the PPSC and are cooperating under the Bureau’s Immunity Program. ¬ In September 2013, the Bureau published revised Frequently Asked Questions (FAQs) for its Immunity and Leniency Programs. The FAQs supplement both programs and were last updated in 2010. Significant changes include the following: The Bureau has adopted a more aggressive approach to ensure complete proffers on a timely basis. If a party has sought a marker to secure its place in the line for either immunity or leniency, the marker will automatically expire after 30 days unless an extension has been granted. The revised FAQs state that the Bureau will not notify an applicant prior to the expiry date. The Bureau may ask an applicant seeking an extension to provide details on the status of its internal investigation, a detailed work plan for completing the proffer and an update on the status of cooperation with other agencies. The Bureau may cancel an immunity or leniency marker for failure to meet any requirement of the process, but will in such circumstances provide at least a 14-day notice to allow the applicant to address the situation. If the Bureau decides not to pursue a criminal case even though it has concluded that an offence has been committed (for example, when the affected volume of commerce is small), no recommendation for immunity or leniency will be made to the PPSC. Instead, the Bureau will advise the applicant of the scope of the recommendation for immunity or leniency that it would have made to the PPSC. Should the Bureau subsequently decide to pursue the conduct in question, the Bureau will advise the applicant and will make an immunity or leniency recommendation to the PPSC on the terms described to the applicant. The revised FAQs confirm that markers are available to parties that may be prosecuted for aiding and abetting or counselling the offence under sections 21 and 22 of the Criminal Code. Only one marker will be granted for each offence, whether to a principal party to the offence or to an aider, abettor or counsellor.7 McCarthy Tétrault LLP mccarthy.ca With respect to the Leniency Program, the FAQs provide greater clarity on the determination of the fine and proposed discount in the context of bid-rigging schemes and market allocation agreements where the applicant has no commerce in Canada. The previous FAQs did not set out how the Bureau calculates its fine recommendation in the context of bid-rigging. For example, it was unclear if and how a fine is calculated against a leniency applicant for contracts that were never awarded to the applicant, because the applicant either agreed not to submit bids or provided agreed-upon cover bids to ensure that other bidders would obtain the contracts. The FAQs now indicate that fines will be calculated on the basis of the total volume of commerce of the affected contracts, and that all participants in a bid-rigging offence are subject to penalty, whether or not they were awarded contracts. Similarly, in the case of a market allocation agreement where a party agrees not to sell into Canada, the fine will be determined on the basis of the volume of commerce in Canada affected by the relevant agreement, and all participants may be subject to penalty whether or not they had sales into Canada. Finally, the FAQs state that leniency applicants should raise potential legal defences as soon as possible in the proffer process. The Bureau expects that leniency applicants will plead guilty and will not raise potential legal defences after a leniency recommendation has been made to the PPSC. Civil Reviewable Matters A. ABUSE OF DOMINANCE ¬ On April 15, 2013, in Commissioner of Competition v. Toronto Real Estate Board,5 the Tribunal dismissed the Commissioner’s application against TREB. The Commissioner brought an abuse of dominance application under subsection 79(1) of the Act against TREB, a trade association, on the basis that TREB restricts the manner in which its member real estate agents can disseminate information from the multiple listing service (MLS) it controls. More specifically, the Commissioner alleges that members cannot post MLS data online, which the Commissioner alleges has the effect of substantially lessening competition and impeding the expansion of Internet-based real estate brokerage services or “virtual office websites.” The Tribunal dismissed the Commissioner’s application, without considering the merits, on the basis that subsection 79(1) of the Act cannot apply to TREB because it does not compete with its members. The Tribunal concluded that because TREB does not compete with its members, TREB’s rules cannot have an intended negative effect on a “competitor,” as required by the Canada Pipe decision. The Bureau appealed the Tribunal’s decision and on February 3, 2014, the Federal Court of Appeal allowed the appeal and referred the matter back to the Tribunal for reconsideration on the merits. The Court disagreed with the Tribunal’s interpretation of Canada Pipe as requiring the anti-competitive practice described in paragraph 79(1)(b) of the Act to be directed against a “competitor of the person who is the target of the Commissioner’s application.” The Court found that, given its factual context, its decision in Canada Pipe did not intend to preclude abuse of dominance orders against persons who control a market “otherwise than as a competitor.” By way of example, the Court noted the Commissioner’s argument that a person who does not compete in a market could nevertheless control that market by controlling a significant input to competitors in the market, or by making rules that 5 2014 FCA 29 and 2013 Comp. Trib. 9.8 McCarthy Tétrault LLP mccarthy.ca effectively control the business conduct of those competitors. For more detail on this decision, see our article: Federal Court of Appeal Allows Competition Bureau Appeal in Toronto Real Estate Board Case. B. PRICE MAINTENANCE In September 2013, the Tribunal issued its decision in Commissioner of Competition v. Visa Canada Corporation and MasterCard International Incorporated,6 dismissing the Commissioner’s application. This is the first decision under the new civil resale price maintenance provision, section 76 of the Act, which came into force in 2009. The Commissioner asserted that Visa and MasterCard had engaged in price maintenance by imposing rules on merchants that influenced upward or discouraged the reduction of fees paid by merchants for credit card acceptance. The highly anticipated decision clarified the proper interpretation and scope of the resale price maintenance provision. The Tribunal concluded that section 76 requires that the product sold by the person influencing upward or discouraging the reduction of the product’s price (here Visa and MasterCard) be resold by the person’s customer (here “Acquirers” providing technology and hardware to enable merchants to process credit card payments). The Tribunal held that Acquirers do not resell either Visa or MasterCard services to merchants, but rather provide a different set of services from those provided by Visa and MasterCard to Acquirers. The decision confirms that credit card networks do not engage in resale price maintenance in carrying on their business activities. Importantly, the decision also recognizes the inherent complexity of the Canadian payments system and the unsuitability of Tribunal intervention in such a multifaceted marketplace. For further discussion on this decision, see our article: Reasons in Commissioner of Competition v. Visa. C. DECEPTIVE MARKETING PRACTICES ¬ In February 2013, the Ontario Court of Appeal upheld a decision ordering an individual to pay a $500,000 AMP in connection with misleading business practices by a number of companies selling yellow pages directories in violation of the civil provisions prohibiting false or misleading representations. ¬ In July 2013, the Commissioner filed an action before the Ontario Superior Court of Justice against two furniture retailers pertaining to their advertisements of “buy now pay later” plans. The retailers are defending the action. ¬ In August 2013, the Commissioner entered into consent agreements with Hyundai and Kia, whereby the automakers agreed to compensate consumers for inaccurate fuel consumption claims based on faulty testing. Hyundai and Kia had reached out to the Bureau upon realizing that there were errors in the fuel consumption testing. ¬ In a decision released in August 2013, Commissioner of Competition v. Chatr Wireless Inc.,7 the Ontario Superior Court of Justice largely dismissed an application by the Commissioner against Rogers Communications for misleading advertising with respect to its Chatr wireless brand. The Commissioner alleged that Chatr’s representations on “fewer dropped calls” were false or misleading, and that the performance claim was not supported by adequate tests. The Court found that Chatr’s claims were true 6 2013 Comp. Trib. 10. 7 2013 ONSC 5315.9 McCarthy Tétrault LLP mccarthy.ca and that it had conducted the “adequate and proper” testing required to support its performance claims under paragraph 74.01(1)(b) of the Act. However, with respect to some cities, the Court found that Chatr contravened the Act by advertising its performance claim before conducting adequate testing. The Court will separately determine the appropriate remedy, which could include an AMP, for those contraventions. This decision is also important because it addressed the constitutionality of AMPs and the standard for the general impression test used to evaluate advertising under the general misleading advertising provision found at paragraph 74.01(1)(a). The Court rejected Rogers’ argument that AMPs are true penal consequences and therefore held that the imposition of AMPs does not engage the rights under section 11 of the Canadian Charter of Rights and Freedoms. With respect to the general impression conveyed by advertising, the Commissioner relied on Richard v. Time Inc.8 (decided under Québec consumer protection legislation), where the Supreme Court of Canada held that the standard was that of a “credulous and inexperienced” consumer. Recognizing the different purposes of consumer protection legislation and the Act, the Court in Rogers used the “credulous and inexperienced” test as a starting point, but modified the test for the “credulous and technically inexperienced consumer” due to the characteristics of the target audience of the advertisements at issue. D. BUREAU’S POLICIES ¬ In February 2013, the Bureau announced that in civil matters, with the exception of mergers, it would no longer rely on voluntary requests for information for obtaining information from the target of a formal inquiry. This means that, going forward, the Bureau’s first course of action to obtain information from targets of an investigation will be to obtain a legally binding production order from a court under section 11. Class Actions A. INDIRECT PURCHASERS ¬ In an important class action trilogy released October 31, 2013 (Pro-Sys Consultants Ltd. v. Microsoft Corporation,9 Sun-Rype Products Limited v. Archer Daniels Midland Company10 and Infineon Technologies AG v. Option consommateurs11), the Supreme Court of Canada affirmed the right of indirect purchasers to assert damage claims for violations of the Act, while confirming its rejection of the “passing on” defence. The central issue in these appeals was whether indirect purchasers may seek compensation for damages allegedly suffered as a result of anti-competitive conduct and, if so, whether classes containing a mix of both direct and indirect purchasers are permissible. Indirect purchasers are those who have purchased the product not directly from the alleged over-chargers, but from an intermediary at some point in the chain of distribution. The Supreme Court made it clear that, in both common law and Québec civil law, indirect purchasers may sue producers or manufacturers to recover the overcharge resulting from anti-competitive conduct, 8 2012 SCC 8. 9 2013 SCC 57. 10 2013 SCC 58. 11 2013 SCC 59.10 McCarthy Tétrault LLP mccarthy.ca and courts may certify/authorize classes that are entirely composed of, or that include, indirect purchasers. The Court also provided important guidance on other elements of certification/authorization, including the evidentiary burden and the role of aggregate damages provisions. The indirect purchaser trilogy will not only serve as a guide for lower courts, but could have a significant effect on Canadian class action law and on consumer litigation more generally. For further discussion on the trilogy, see our article: Supreme Court Releases the Indirect Purchaser Trilogy B. DISCLOSURE OF WIRETAP EVIDENCE IN FOLLOW-ON CIVIL ACTIONS ¬ In June 2013, the Supreme Court of Canada agreed to hear appeals in two related Québec class actions that raise important issues with respect to private plaintiffs’ access to evidence obtained by the Bureau during its criminal investigations. As part of its investigation in the sale of retail gas in Québec (discussed above), the Bureau obtained warrants to intercept private communications, and approximately 5,000 communications were provided to the accused as part of the Crown’s disclosure. Two class actions were initiated under section 36 of the Act and plaintiffs sought access to the wiretap evidence. In June 2012, the Québec Superior Court ordered the Bureau and the PPSC to disclose to the civil plaintiffs all communications that had been provided to the accused. The Court held that private civil actions for damages under section 36 are part of the administration of the Act, and that evidence obtained by the Bureau in its criminal investigations may be used for any purposes under the Act, including private actions. To protect the accused’s rights to a fair trial, the Court restricted access to plaintiffs’ counsel and experts, and ordered the Bureau and the PPSC to redact the communications to protect innocent third parties’ privacy rights. The Québec Court of Appeal dismissed the defendants’ appeal on procedural grounds. The appeal before the Supreme Court will be heard in April 2014. Mergers A. NOTABLE MERGERS ¬ In February 2013, the Bureau approved WM Quebec Inc.’s acquisition of RCI Environment Inc., a company that provides solid non-hazardous waste services, and filed a consent agreement with the Tribunal. The consent agreement required the divestiture of certain landfill rights in southern Québec. ¬ In March 2013, the Bureau approved the acquisition of Astral Media by Bell, a telecommunications company, and filed a consent agreement with the Tribunal. The consent agreement required Bell to sell 13 of Astral’s pay and specialty television channels and prohibits Bell from imposing restrictive bundling requirements on any provider seeking to carry two popular premium television channels. ¬ In March 2013, the Bureau approved the acquisition of The Brick by Leon’s, both furniture retailers, after a thorough review that focused on furniture and mattresses (as opposed to appliances and electronics). The Bureau emphasized that it employed econometric analysis to determine the competitive effect that each party had on the other. ¬ In September 2013, the Bureau approved the transaction between Agrium, a supplier of agricultural products and services, and Glencore, a diversified natural resources company, for the acquisition of Viterra’s retail agri-products business by Agrium, and filed a consent agreement with the Tribunal. The consent agreement ordered Agrium to divest three of its own and four Viterra retail outlets, as well as five of its own and four Viterra anhydrous ammonia fertilizer retail businesses. ¬ In October 2013, the Bureau approved the acquisition of Safeway’s Canadian operations by Sobeys, a grocery retailer, and filed a consent agreement with the Tribunal. The consent agreement ordered Sobeys to sell 10 of its own stores and 13 Safeway stores.11 McCarthy Tétrault LLP mccarthy.ca ¬ In October 2013, the Bureau approved Empire’s sale of movie theatres to Cineplex and Landmark. The Bureau initially had concerns with the transaction, but gave its approval after the parties adjusted the mix of theatres to be purchased between Cineplex and Landmark. ¬ In November 2013, the Bureau approved the acquisition by La Coop fédérée (LCF) of a minority interest in Groupe BMR, and filed a consent agreement with the Tribunal. Both LCF and Groupe BMR are involved in the wholesale supply of hardware products and building materials, and have retail networks mostly comprised of franchised stores. The Bureau considered that the parties were in a position to materially influence the economic behaviour of their franchisees, and it had concerns about the impact of the transaction on retail sales of hardware products and building materials by the parties’ franchisees. The consent agreement requires the parties to terminate franchise agreements in four local markets in the province of Québec. B. MERGER LITIGATION ¬ On February 25, 2013, in Tervita Corporation et al v. Commissioner of Competition,12 the Federal Court of Appeal upheld the Tribunal’s decision requiring Tervita Corporation (formerly CCS Corporation) to divest the Babkirk hazardous waste landfill site in northeastern British Columbia following its acquisition of Complete Environmental Inc., on the ground that Tervita’s acquisition of the Babkirk site would substantially prevent competition. On July 11, 2013, the Supreme Court of Canada granted Tervita leave to appeal. At issue in the appeal are two notable points. First, this case is novel in that the Commissioner alleged that the merger would result in a prevention, as opposed to a lessening, of competition, and the proper legal test for determining a “prevention of competition” is contested. As part of the prospective analysis to determine likely market entry in a “prevent” case, the Court found that competitor entry thwarted by the acquisition would have had to occur within a “reasonable period of time,” to be determined on a case-by-case basis. Second, the scope of the efficiencies defence to an anti-competitive merger is at issue: more specifically, whether certain efficiencies can be disregarded and how to determine whether efficiencies offset anti-competitive effects. C. OTHER DEVELOPMENTS ¬ In 2013, the Bureau published 13 position statements communicating the results of certain merger reviews. This represents a significant increase in comparison to previous years and increases the transparency of the merger review process. ¬ The Bureau has increasingly used econometric tools in the review of retail mergers and plans to continue doing so. This type of analysis requires extensive data from the merging parties, so the Bureau recommends early and ongoing discussions. Notable examples include the Sobeys/Safeway, Loblaws/Shoppers Drug Mart, Leon’s/The Brick and Canadian Tire/Forzani transactions. ¬ The pre-merger notification transaction-size threshold for 2014 increased to $82 million from the 2013 threshold of $80 million. The party-size threshold of $400 million has not changed. 12 2013 FCA 28 and 2012 Comp. Trib. 14.12 McCarthy Tétrault LLP mccarthy.ca Foreign Investment A. REVIEW THRESHOLD INCREASED ¬ The review threshold under the Investment Canada Act (ICA) for the direct acquisition of non-cultural businesses by World Trade Organization (WTO) investors increased to $354 million in 2014 from the 2013 threshold of $344 million. The lower threshold of $5 million will continue to apply to transactions that relate to cultural businesses or where none of the non-Canadian parties are from a country that is a WTO member. ¬ On a date still to be fixed, new regulations under the ICA will come into force, progressively increasing the WTO review threshold to $1 billion. It is proposed that the review threshold be increased from the current asset value-based threshold to, initially, a threshold of $600 million based on “enterprise value” for WTO investors. This threshold will subsequently be increased to $800 million and $1 billion. For state-owned enterprise (SOE) investments, the review threshold will remain the existing annually adjusted $354 million threshold in asset value. B. INVESTMENTS BY STATE-OWNED ENTERPRISES ¬ Investments by SOE investors may receive greater scrutiny under the ICA. At the end of 2012, the Canadian Government announced that acquisitions of control by SOEs of a Canadian oil sands business will, going forward, be approved on an exceptional basis only. In June 2013, the Canadian Government adopted amendments to the ICA which will, when they come into force, significantly impact investments by non-Canadian investors whom the Canadian Government considers SOEs. ¬ For example, the review threshold for investments by SOEs will be amended, and will not increase in the same way that the threshold for non-SOE investments will (as described above). Instead, the existing threshold of $354 million in asset value (2014) will remain in place and will be adjusted annually to reflect the change in nominal gross domestic product in the previous year. ¬ The amendments also introduced a statutory definition of SOE that includes the potentially broad concept of foreign government “influence.” Further, the Minister has been given broad powers to declare an entity to be an SOE and to declare an otherwise non-reviewable acquisition by an SOE to be subject to review. The impact of these amendments is that if the Minister determines that an investor is an SOE and it is acquiring control of a Canadian business, then the applicable review threshold will be the lower SOE-specific threshold. ¬ The amendments introduce potentially broad concepts and elements of uncertainty that will likely, without further clarity from the Government, place a significant burden on parties assessing and addressing regulatory risk when they become law. For further discussion on the challenges for SOEs arising from the amendments to the ICA, see our article: Challenges for State-Owned Enterprises Arising From Proposed Amendments to the Investment Canada Act C. REJECTION OF INVESTMENT ON NATIONAL SECURITY GROUNDS ¬ In October 2013, the Minister blocked the proposed $520 million acquisition of the Allstream division of Manitoba Telecom Services Inc. (Allstream) by Accelero Capital Holdings (Accelero) on national security grounds. This is the first known rejection of a transaction under the ICA’s national security review regime, introduced in 2009. The Minister provided the following singular statement as the reason for the rejection: “MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada.” Unfortunately, other than what can be gleaned from the Minister’s Accelero/Allstream press release and news reports surrounding the Minister’s 2008 rejection of the sale of Macdonald, Dettwiler and Associates Ltd. to Alliant Techsystems Inc., there is limited guidance from the Canadian Government on the types of transactions that are more prone to national security attention. The rejection of Accelero’s proposed acquisition highlights the importance of early identification and careful management of13 McCarthy Tétrault LLP mccarthy.ca potential national security issues. With this decision, the Government of Canada has shown that it will avail itself of the powers it has under the ICA to reject foreign investments based on national security concerns. For further discussion on this development, see our article: Investment Canada Act: Minister of Industry Blocks Acquisition of Allstream by Accelero Capital Holdings on National Security Grounds What to Watch for in 2014 ¬ We can expect more enforcement actions and advocacy interventions with respect to the digital economy and the health care industry, two sectors that are current priorities of the Bureau. For example, in December 2013, in keeping with its focus on the digital economy, the Bureau obtained a production order against Google as part of an abuse of dominance inquiry into Google’s search and advertising services. In the pharmaceutical sector, the Bureau is focusing on the interface between competition law and patent law. ¬ Criminal Matters: We expect more contested price-fixing and bid-rigging prosecutions as a result of the following developments: higher corporate fines sought by the Bureau and the PPSC; the Bureau’s continued commitment to pursue sanctions and jail sentences against individuals involved in cartel conduct, combined with the coming into force of amendments to the Criminal Code in 2012 that restrict the availability of conditional sentences (or house arrest) for individuals accused of crimes, such as price-fixing or bid-rigging; and risks of being disqualified for public contracts following guilty pleas under new debarment regimes, both at the federal level in view of PWGSC’s policies (discussed above) and in the province of Québec. ¬ Class Actions: Following the Supreme Court of Canada’s trilogy allowing indirect purchaser claims, the courts will have to address the appropriate methodology and expert evidence required at the certification stage to establish harm on a class-wide basis and to demonstrate the passing on of an alleged overcharge at all levels of the supply chain. ¬ Misleading Advertising: In its October 2013 Throne Speech, the Government of Canada stated that “Canadians are tired of hidden fees.” We therefore can expect more enforcement action with respect to alleged misleading price representations. In October 2013, the Bureau obtained production orders against Avis Budget with respect to alleged improper disclosure of fees associated with car rentals. ¬ Developments in Ongoing Litigation: In addition to the matters discussed above, in February 2014, the Québec Court of Appeal will consider whether a stay of proceedings in a price-fixing matter was the appropriate remedy following the repudiation from the PPSC of a plea agreement. In R. v. Couche-Tard inc.,13 the Québec Superior Court held that although the repudiation of a plea agreement does not generally constitute an abuse of process, in this case it caused irreparable harm to the fairness of the 13 2012 QCCS 4721.14 McCarthy Tétrault LLP mccarthy.ca trial process, which justified a stay of proceedings. In this case, the PPSC reneged on the plea agreement after the accused’s counsel had disclosed their defence strategy. ¬ Developments Regarding Legislation: Canada’s Anti-Spam Legislation will begin to take effect on July 1, 2014, when most of the new provisions come into force. The Act will be amended to specifically prohibit, under both civil and criminal provisions, misleading representations in electronic messages, including false or misleading sender or subject matter information, or in the locator (e.g., URL, metadata). The amendments to the ICA (Bill C-60), which will significantly impact foreign investors whom the Canadian Government considers SOEs, may come into force. New ICA regulations from the Federal Government regarding foreign investments may be enacted. These regulations are expected to significantly increase the financial threshold in relation to investments by non-SOEs.