In this report, the Blakes Competition, Antitrust & Foreign Investment group outlines the key Canadian developments in the areas of competition and foreign investment law over the past year and sets out the key trends for 2014.
Over the past year, a number of significant developments occurred in this area, both on the legislative and policy fronts. Among the most notable developments were the changes to the Investment Canada Act (ICA), which conferred new powers on the Minister of Industry to assess and review investments by sovereign wealth funds and state-owned enterprises (SOEs). This past year marked the first case in which the Cabinet (the executive branch of the federal government) exercised its authority under the ICA to block an investment on national security grounds following 2009 amendments to the ICA conferring this authority on the Cabinet. We expect the federal government will continue to focus on these types of investments in 2014 and beyond, particularly once new monetary thresholds for non-SOE World Trade Organization investors enter into force. This is also expected to occur in the coming year.
Canada also welcomed a new Commissioner of Competition, John Pecman, who was appointed in June 2013 to a five-year term to head Canada’s Competition Bureau (Bureau). Commissioner Pecman’s “Bureau without borders” initiative has invited greater interagency cooperation, including with the Investment Review Division of Industry Canada, as well as other agencies, such as the Canadian Radio-television and Telecommunications Commission, and Public Works and Government Services Canada.
Armed with more information and enhanced cooperation, the Bureau and its global partners have closely scrutinized mergers and have obtained significant penalties from both international and Canadian companies for anticompetitive conduct. The Bureau currently has over 22 cases before the courts and the Competition Tribunal (Tribunal) and over 80 major investigations ongoing. We expect the Bureau will continue to actively pursue companies and individuals engaged in anticompetitive conduct, particularly in price-fixing and bid-rigging conspiracies.
Other notable policy changes at the Bureau include the increased focus on transparency initiatives.
In this vein, the Bureau’s Mergers Branch has published more position statements to inform the public about the Bureau’s analysis of particular transactions. In promoting dialogue with the business community and the bar, the Bureau has been more receptive under the new Commissioner’s leadership to more streamlined approaches in merger reviews, particularly for upstream oil and gas transactions.
While the Tribunal had not released a decision in four years on a conduct matter, it released two decisions this year (one pertaining to resale price maintenance and the other abuse of dominance), in each case, dismissing the Commissioner’s application on technical grounds. We anticipate further guidance from the Tribunal, and possibly the Federal Court of Appeal, on the interpretation of the abuse of dominance provisions in the year to come.
KEY TRENDS FOR 2014
In 2014, we expect the Competition Bureau (Bureau) to seek a permanent replacement for the recently resigned head of mergers. We also expect that the Bureau will continue its collaborative approach to resolving potential competition concerns through negotiated solutions, where possible, and will focus on reducing review times on transactions that clearly raise no substantive issues. One additional development we will be watching is the Bureau’s anticipated guidance on mergers involving state- owned enterprises (SOEs).
In light of the 2013 amendments to the Investment Canada Act (ICA) and recent policy statements by the federal government, we expect that foreign investments into Canada, particularly investments by SOEs and investments that raise potential national security issues, will continue to be closely monitored in 2014 and beyond. We also anticipate that the federal government will issue new national security regulations this coming year that, consistent with 2013 amendments to the ICA, will confer additional powers to the Minister of Industry to prolong a national security review. The coming-into-force of the new World Trade Organization (WTO) investor threshold is expected in 2014 as well.
Given the number of investigations currently ongoing at the Bureau, we anticipate that enforcement activities will continue with vigour this year, particularly in the auto parts sector. Following guidance from the Federal Court, we may see Canada’s first custodial sentence for a cartel offence issued in the coming year.
The Bureau will continue to investigate and enforce the provisions of the Competition Act, including the abuse of dominance provisions, and primarily in two priority areas: the digital economy and the health- care sector.
The Bureau will continue to focus its enforcement efforts in this area on the use of fine-print disclaimers in their price advertising and in the making of performance claims.
Following the Supreme Court of Canada decisions allowing indirect purchaser class actions to proceed
to certification, a number of claims held in abeyance will restart in 2014, with certification hearings expected to commence in 2015. We anticipate
that defendants will contest the ability of plaintiffs’ experts to establish a methodology capable of demonstrating common loss or damage, particularly in terms of demonstrating pass-through at each stage of the distribution chain.
We expect that parties faced with ex parte production orders from the Bureau may continue to contest the Bureau’s disclosure to the court in light of recent case law from the Federal Court of Appeal.
Investment Canada Act
WTO investor threshold increases to C$354-million
Transaction size threshold increases to C$82-million, but the party size threshold remains at C$400-million
This past year saw a number of significant developments in merger review in Canada, including a rare merger challenge appeal to the Supreme Court of Canada (Tervita Corporation et al. v. Commissioner of Competition), as well as significant personnel changes at the Competition Bureau (Bureau). In addition, consolidation in the retail sector occupied a significant amount of the Bureau’s attention, with a number of mergers in such industries being permitted to proceed only after the parties agreed to alter the structure of their transactions, both through formal consent agreements and voluntary pre-closing structure modifications. At the same time, the Bureau took steps to streamline the review of transactions that clearly do not raise competition issues.
Amendments to the Investment Canada Act enacted this year conferred the Minister of Industry additional powers to subject investments by state-owned enterprises to a “net benefit to Canada” review. In a first under the 2009 national security amendments, the Cabinet issued an order blocking an investment on national security grounds. The decision confirms the Cabinet’s willingness to put national security ahead of foreign investment where appropriate.
This year also marked the first conviction by trial under the Competition Act applying the Criminal Code provision that assigns corporate liability for conduct of the company’s senior officers.
After four years without a substantive decision of the Competition Tribunal (Tribunal) on a conduct case, this year saw the Tribunal release two decisions, dismissing the Commissioner of Competition’s applications in both instances.
Rather than relying on guidance documents, the Bureau continues to favour an enforcement-
based approach in this area, including bringing an action against leading furniture retailers in which the Bureau has sought administrative monetary penalties and restitution.
The Supreme Court of Canada (SCC) decided a trilogy of cases holding indirect purchaser claims may be brought in class proceedings in Canada. The SCC did not accept the defendants’ inability to
raise a “passing on” defence as a bar to claiming overcharge. The decisions align Canada’s private actions regime more closely to the approach taken by several U.S. states that permit indirect purchaser claims.
The Commissioner announced a change in Bureau policy stating that the Bureau’s first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be, for all but exceptional cases, obtaining a section 11 production order as opposed to relying on voluntary requests for information.
This past year saw a number of significant developments in merger review in Canada, including a rare merger challenge appeal to the Supreme Court of Canada (SCC), as well as significant personnel changes at the Competition Bureau (Bureau). In addition, consolidation in the retail sector occupied a significant amount of the Bureau’s attention, with a
number of mergers in such industries being permitted to proceed only after the parties agreed to alter the structure of their transactions, both through formal consent agreements and voluntary pre-closing structure modifications. At the same time, the Bureau took steps to streamline the review of transactions that clearly raise no competition issues.
Precedent-Setting Merger Case Reaches Supreme Court of Canada
In July 2013, the SCC granted leave to appeal the decision of the Federal Court of Appeal (FCA)
in Tervita Corporation et al. v. Commissioner of Competition. The FCA upheld a ruling by the Competition Tribunal (Tribunal) that the completed merger was likely to prevent competition substantially in the solid hazardous waste disposal industry in an area of northern British Columbia. Only one other merger case has ever been decided by the SCC under Canada’s modern merger law framework. The decision will be important for a number of reasons, including that it is expected to clarify the proper framework for analyzing whether a merger is likely to prevent future competition substantially where the merging parties were not already competing at the time of the merger or proposed merger.
New Commissioner of Competition and Departure of Mergers Chief
In June 2013, John Pecman was appointed as Commissioner of Competition for a five-year term. He has been widely regarded as taking a pragmatic
approach to enforcing the merger provisions of the Competition Act, negotiating remedies on consent in cases that raise significant competition issues when it is possible to avoid commencing litigation. An economist by training, Commissioner Pecman is the first non-lawyer to serve as head of the Bureau. He is also a Bureau insider, having worked at the agency for more than 29 years.
Six months later, the agency experienced another change in senior staffing. In December 2013,
the Bureau announced that Kelley McKinnon had resigned from her position as Senior Deputy Commissioner of the Mergers Branch. The resignation was unexpected and left the head mergers position to be filled, on an interim basis,
by Ann Wallwork, a civil servant who has worked in the Bureau’s Mergers Branch for many years.
As this situation is still unfolding, it remains to be seen whether there will be any long-term impact on merger review resulting from the departure.
Increase in Competition Bureau Position Statements
This past year, the Bureau issued 13 position statements outlining its analysis after completing a complex merger review. It is important for parties doing business in Canada to understand the significance and potential implications of these position statements, which the Bureau
will continue to issue as part of its transparency focus and initiative. Because they are publicly available and contain information such as the Bureau’s conclusions as to the relevant product and geographic market in its review, they could not only influence the review framework for future matters in the relevant industry in Canada, but also impact upon the analysis of other competition agencies
in future mergers that are reviewed in other jurisdictions around the world.
Simplification of Merger Review for Non-Complex Transactions
The Bureau has taken a number of steps to reduce red tape for mergers that trigger a filing requirement because of the size of the businesses involved but clearly raise no substantive competition issues. Earlier in the year, the Bureau confirmed that it would reduce the amount of information required for companies doing straightforward deals in
the upstream oil and gas industry. The Bureau also has shifted resources away from its reviews of non-complex transactions, which represent approximately 80 per cent of its cases. Its aim is to make better use of its resources by directing
companies towards the minority of transactions that raise real competition issues, while shortening the review time period in straightforward deals.
A common issue that arises in transactions involving state-owned enterprises (SOEs) is the extent to which SOEs from the same jurisdiction would be considered affiliates for purposes of the notification provisions and the substantive analysis. The Bureau confirmed that for notification purposes, foreign governments are not “persons” and, therefore, SOEs owned by the same foreign government,
but in different lines of control, are not affiliates for purposes of determining the relevant financial thresholds. Hence, such affiliates need not be described in the parties’ pre-merger notification
forms. The Bureau will, however, require information about entities in which an SOE (or its affiliates) holds a significant interest (10 per cent or more) or which compete in the relevant industry. While not required for the purposes of notification, such information may be relevant for the Bureau’s substantive analysis. Written guidance on the treatment of SOEs is expected later this year.
Focus on Consumer-Facing Industries
The Bureau has recently completed a number of complex investigations into transactions involving consumer-facing businesses. Notable examples are those in the areas of retail grocery (Sobeys’
acquisition of substantially all of the assets of Canada Safeway in June 2013), movie theatres (the sale of Empire Theatres to Cineplex Entertainment and Landmark Cinemas in June 2013), retail hardware (La Coop fédérée’s proposed acquisition of a minority interest in Groupe BMR), and retail fertilizer industries (the sale of Glencore’s agri- products business to Agrium in December 2012).
In each of these cases, the Bureau found that the original transaction structure would lead to a
substantial lessening of competition, and required modifications to the transaction. All of these cases were resolved on consent of the parties, either through voluntary restructuring of the transaction prior to closing or a formal consent agreement registered with the Tribunal.
Greater Interface with Other Agencies
In addition to regularly sharing information with other competition agencies that are reviewing the same multi-jurisdictional merger, the Bureau also interfaces with other Canadian agencies that may have a role in reviewing a merger. Such interactions are increasing. In 2013, the Bureau announced an agreement to cooperate more closely with the Canadian Radio-television and Telecommunications Commission, including in the area of mergers in Canada’s communications industry. The Commissioner has publicly stated that he is working to increase Bureau interaction
with the Canadian Transportation Agency, Transport Canada and Investment Canada during merger reviews where these agencies have concurrent mandates. While the Commissioner’s aim is to reduce duplicative efforts and prevent divergent decisions among agencies, it is also important to note that this increased interface may raise timing and political considerations, for instance where a non-competition agency chooses to challenge a transaction and the Bureau intends to permit it.
TIPS TO REMEMBER
Assess competition risks early on. Consider how such risks will be allocated in covenants and conditions to transaction agreements.
Consider timing strategies for filing. They may depend on a number of factors, including the complexity of the transaction,
whether a supplementary information request may be issued and whether potential remedies may be required.
Employ proper document management practices throughout the transaction planning and merger review.
Avoid creating documents that could be misinterpreted by the authorities that may delay or unnecessarily complicate a review.
Over the past year, the Investment Canada Act (ICA) underwent its most significant changes since the 2009 amendments that introduced the national
security review regime. Among other developments, the Minister of Industry obtained additional powers to scrutinize investments by state-owned enterprises (SOEs), as well as investments that raise potential
national security issues. This is in line with the federal government’s focus on investments by SOEs as well as a heightened attention to national security matters.
In relation to non-SOE investments, amendments to the World Trade Organization (WTO) investor threshold will, when implemented, affect the number of reviews and change the types of Canadian businesses that may be subject to review under the “net benefit to Canada” provisions. Given these legislative changes and recent policy statements by the federal government, we
expect that foreign investments into Canada continue to be closely monitored in 2014 and beyond.
The 2013 amendments to the ICA conferred the Minister of Industry with additional powers to subject investments by SOEs to a “net benefit to Canada” review. The Minister was given broad discretion to assess and ultimately declare an investor to be an SOE for ICA purposes. SOEs will also be subject to a different financial threshold than other WTO investors once the new WTO investor threshold is implemented. Moreover, the Minister can determine that a minority investment by an SOE investor is an “acquisition of control” even when the investment falls below the standard control thresholds for non-SOE investors. The Minister can find that an acquisition of control has occurred or will occur if the SOE investor acquires “control in fact” over the Canadian business. Going forward, the Minister can even review SOE investments completed on April 29, 2013 or later.
Particular attention will be given to SOE investments in the oil sands. In December 2012, the federal government implemented a policy prohibiting the acquisition of controlling investments by SOEs in
oil sands businesses that exceed the threshold for review, save in exceptional circumstances. The government has not, however, prohibited minority, non-controlling investments by SOEs in this area. Transacting parties nevertheless should expect the government to focus on whether or not the SOE investor will acquire “control in fact” as a result of the investment.
The government is also expected to scrutinize other investments by SOEs, especially where such investors would exert significant control over the industry in which the Canadian business participates, where there is particular sensitivity to foreign government control over the SOE or where there are issues of reciprocal treatment
of investments by Canadian firms in the foreign government’s jurisdiction.
SOE investors are expected to make additional commitments to secure ICA approval following policy changes announced in December 2012. Undertakings that may be required of SOEs include assurances that the investor will operate the Canadian business on a commercial basis and commitments relating to transparency and disclosure, independent audit committees and equitable treatment of shareholders. The Minister may require an SOE to implement corporate
governance and reporting requirements that are no less stringent than those imposed by major stock exchanges.
This past year marked the first case in which the Cabinet (the executive branch of the federal government) exercised its authority under the ICA to block an investment on national security grounds. In October 2013, the Cabinet issued an order precluding Accelero Capital Holdings from
completing a proposed acquisition of control of the Allstream subsidiary of Manitoba Telecom Services Inc. The decision confirms the Cabinet’s willingness to put national security ahead of foreign investment where appropriate. The Cabinet exercised its discretion to block the Allstream acquisition
despite measures taken by the government to reduce foreign ownership restrictions in the telecommunication sector in 2012 and despite commitments proposed by Accelero in support of its “net benefit to Canada” application.
We anticipate that the federal government will issue new national security regulations this coming year, which (consistent with 2013 amendments to the ICA) will confer additional powers to the Minister of Industry to prolong a national security review if more time is required to refer the matter to the Cabinet or for the Cabinet to consider the matter further.
WTO Investor Threshold
The federal government signalled its intention to liberalize the rules in cases that do not raise SOE or national security issues by amending the monetary threshold for review of acquisitions by WTO investors (i.e., investors controlled by WTO nationals or permanent residents). Once amendments to the WTO investor threshold provision are proclaimed in force, the threshold will be raised to C$600-million in “enterprise value” increasing to C$1-billion over four years and potentially to C$1.5-billion for Canada’s free-trade partners once the Comprehensive
Economic and Trade Agreement with the European Union is ratified. Regulations defining the method of calculating “enterprise value” are currently under consideration and could come into force in the coming year. That said, similar amendments were passed in 2009 but were never proclaimed in force.
TIPS TO REMEMBER
Transactions requiring ICA approval potentially can attract significant media attention and public profile.
As such, coordination and communication with government officials at the federal, provincial and local levels continue to be critical components to securing ICA approval.
Understand the views of officials to the extent possible prior to commencing the ICA process.
Investors must be cognizant of the commitments or undertakings that they will be required to make to obtain a determination that the transaction is of “net benefit to Canada” (or does not raise national security concerns).
Plans and undertakings are key.
An investor’s plans for job creation, capital investment, use of Canadian suppliers and innovation play an ever more important part in securing stakeholder support and, ultimately, ICA approval for the investment.
Cartel enforcement remains a top priority for the Competition Bureau (Bureau), which has been active on both the domestic and international fronts.
The Bureau has secured several convictions for cartel conduct over the last 12 months, although most of the convictions have been in relation to domestic cartels, particularly in the retail gasoline sector. This year, seven companies and five individuals entered guilty pleas for involvement in cartel conduct, generally consistent with the figures from 2012 and significantly above the figures for 2011. In the last 12 months, over C$46-million
in fines have been ordered—double the amount ordered in the previous year. Nearly two-thirds of that total (C$30-million) was obtained through a guilty plea by a single company for bid-rigging in relation to the supply of auto parts. No individual has been sentenced to actual incarceration over the last 12 months, although incarceration penalties should increase, particularly in future domestic cartel prosecutions, following the Federal Court’s ruling in R. v. Maxzone Auto Parts (Canada) Corp. and following recent legislative amendments to the Criminal Code regarding conditional sentencing.
Retail Gasoline: Conviction of a Corporation for the Conduct of Its Senior Officers
This year also marked the first conviction by trial under the Competition Act applying the Criminal Code provision that assigns corporate liability for
conduct of the company’s senior officers. In R. c. Les Pétroles Global Inc., the Quebec Superior Court convicted the defendant corporation of price-fixing after its general manager (who pleaded guilty to
the same offence four years earlier) was found to have directly supervised price-fixing activities of the territory managers under his supervision. The decision confirms that the conduct of individuals who do not sit within the highest levels of management still can result in criminal liability
for a company in Canada and that an employee with significant operational authority rather than
traditional decision-making power can be considered a “senior officer” for the purpose of establishing corporate liability.
Chocolate Confectionary: Prosecution Even After Civil Settlement
Charges were laid against three companies and three individuals accused of fixing the price of chocolate confectionary products in Canada. A fourth company pled guilty and was fined
Auto Parts and Air Cargo: Significant Fines Collected
Pleas in the international air cargo cartel resulted in fines totalling almost C$2.5-million. Pleas in certain international bid-rigging arrangements in the auto
parts industry resulted in fines totalling C$39-million and the payment of the highest bid-rigging fines in Canadian history.
Yen LIBOR: Investigation Discontinued
The Bureau discontinued its investigation, which it had commenced in 2011, noting insufficient
evidence to justify a prosecution under the criminal conspiracy provision. Of particular note, one of the targets of the investigation had refused to provide the information requested by the Bureau pursuant to a section 11 production order and brought a challenge to both the validity of the order and the provision of the Competition Act itself. While Royal Bank of Scotland Group abandoned its challenge
in May 2013, it is expected that production orders against foreign corporations will be the subject of future challenges on the basis that such orders violate the legal rights provisions of the Canadian Charter of Rights and Freedoms.
In September 2013, the Bureau published a revised set of Frequently Asked Questions (FAQs) for
each of its Immunity and Leniency Programs. The updated FAQs provided guidance on additional topics, such as the Bureau’s treatment of markers in the context of investigations it does not intend to pursue, and provided clarity in other areas, such as
the proffer process, indirect sales and the Bureau’s determination of fine recommendations.
Earlier in the year, the Bureau introduced a new Whistleblowing Initiative, aimed at encouraging the general public and the business community to report possible violations of the criminal cartel provisions of the Competition Act. The Bureau’s commitments in this regard build on the statutory protections of the Competition Act and provide additional assurances to keep the identity of a whistleblower confidential.
Whistleblowing through the immunity program is an especially important investigative tool for the Bureau.
TIPS TO REMEMBER
Have in place an effective Competition Act compliance program that provides training for company employees.
Regularly update your company’s compliance program and actively enforce it.
Immediately contact competition counsel if cartel or bid-rigging conduct is discovered.
After four years without a substantive decision from the Competition Tribunal (Tribunal) in cases involving a conduct case, the Tribunal released two decisions in 2013. The Tribunal dismissed the Commissioner of Competition’s applications for failing to establish the
requisite elements of the provision of the Competition Act in issue, though one of the cases (Commissioner of Competition v. Toronto Real Estate Board) is currently under appeal to the Federal Court of Appeal.
The Commissioner is currently engaged in proceedings against Direct Energy and Reliance under the abuse of dominance provisions for discouraging consumers from terminating their residential hot-water-heater rental agreements with the parties and from switching to competitors. For the first time since the 2009 amendments to the abuse of dominance provisions were implemented, the Commissioner is seeking the maximum administrative monetary penalty (AMP) of C$10- million against Reliance, and C$15-million against Direct Energy (an AMP of up to C$15-million can be imposed against parties that have previously been found in breach of the abuse of dominance provisions). The matter is ongoing.
Resale Price Maintenance
In July 2013, the Tribunal dismissed the Commissioner’s application challenging Visa and MasterCard’s No Surcharge and Honour All Cards Rules finding that the conduct did not satisfy
the elements of the resale price maintenance (RPM) provision of the Competition Act and that the Commissioner’s legal interpretation of the RPM provision was incorrect (Commissioner
of Competition v. Visa Canada Corporation and MasterCard International Incorporated et al.). Moreover, even if the Tribunal had accepted the
Commissioner’s arguments regarding RPM, the Tribunal would have declined to issue an order because the order requested by the Commissioner would have significant unintended consequences including potential harm to consumers.
Abuse of Dominance
In April 2013, the Tribunal dismissed the Commissioner’s application challenging the Toronto Real Estate Board’s (TREB) rules related to the restrictions on members’ rights to make use of listings on the Multiple Listing Service (MLS) and related data. In dismissing the Commissioner’s application, the Tribunal noted that the TREB
does not compete with its members or other real estate brokers and, therefore, no assessment
of whether the TREB was dominant was made, nor could TREB have imposed its restrictions for the purpose of harming a competitor, which are necessary elements under the abuse of dominance provisions. The Tribunal also noted, in obiter, that the Commissioner may have erred in making the application under the abuse of
dominance provisions, rather than its civil competitor collaboration provisions.
Advocacy Initiatives and Priority Areas
In addition to enforcement, the Commissioner has focused the Competition Bureau’s (Bureau) attention on advocacy initiatives regarding anticompetitive
rules, policies and guidelines that hinder competition in various industries in which federal or provincial agencies have primary responsibility for licensing and supervising market participants. In particular, the Commissioner emphasized the impact of such rules in “regulated industries” can be significant.
Following an invitation to the public last year to elicit recommendations on advocacy initiatives, we anticipate that the Bureau will be more actively engaged with market participants on this front.
Consistent with the focus of the federal government, the Bureau’s Civil Matters Branch has identified two priority areas that we expect will attract greater scrutiny in the coming years: digital economy and health care. On the digital economy, the Bureau has been actively engaged on the wireless file, participating in consultations with the Canadian Radio-television and Telecommunications Commission on the Wireless Code. In view of
the age of the Bureau’s Intellectual Property Enforcement Guidelines (IPEGs), which were released in 2000, and the development of antitrust policy in the intervening years (including in Actavis), we anticipate the Bureau will update the IPEGs, including indicating whether and how it intends to apply the Competition Act to reverse payments.
TIPS TO REMEMBER
Audit ongoing contracts and joint ventures. Market conditions will change, meaning that contracts or joint ventures that previously did not raise competition issues could do so in future.
Abide by document creation protocols. Avoid creating documents that could be misinterpreted by the authorities that may delay or unnecessarily complicate a review.
Rather than relying on guidance documents, the Competition Bureau (Bureau) continues to favour an enforcement-based approach in this area, most notably in its ongoing investigations and pursuit of companies that use fine-print disclaimers in their price advertising and in the making of performance claims.
Since 2011, the Bureau has actively investigated and pursued companies in a number of consumer- facing industries for using fine-print disclaimers. The Bureau has sought and obtained information from target companies through voluntary requests and court-ordered subpoenas (section 11 orders), and its
enforcement measures have precipitated changes in a number of industries as companies have adopted “all in” pricing models. Regulations implemented under the Canada Transportation Act requiring that airlines advertise fares on an “all in” pricing basis also came into force in December 2012.
In July 2013, the Bureau commenced its first legal proceedings in respect of this conduct (Commissioner of Competition v. Leon’s Furniture Limited and The Brick Ltd.), suing Leon’s and
The Brick in the Ontario Superior Court of Justice (OSCJ) for failing to include non-optional administrative fees in the headline prices in their advertisements, specifically fees associated with deferred payment plans (e.g., “No Payments, No Interest” claims). This case, should it proceed
to trial, will provide the first judicial guidance on whether companies are permitted to advertise a “base price” for a product but include reference to additional, non-optional and non-governmental fees in the fine-print. The Bureau alleges that the
deferred payment representations entice customers to visit the defendants’ stores, encourage impulse
buys and facilitate upselling—strategies that can be particularly effective (harmful) when directed at credit-needy consumers. The Bureau has sought the full panoply of remedies available under the
Competition Act for misleading advertising, including administrative monetary penalties (AMPs), a prohibition order, a requirement to publish corrective notices, legal costs and, most notably, restitution
for affected customers, effectively displacing the role normally assumed by class action plaintiffs. We will watch keenly to see whether the Bureau will continue the practice of seeking restitution in future cases.
Performance Claims and Comparative Claims
Unsubstantiated performance claims and comparative claims vis-à-vis competitors’ offerings also remain a focus of the Bureau. In August 2013, the OSCJ found Rogers (Chatr) liable for failing
to conduct “adequate and proper” testing of its “fewest dropped calls” claims prior to introducing those claims in its advertising (Commissioner of Competition v. Chatr Wireless Inc. and Rogers Communications Inc.). The OSCJ made a number of determinations that are broadly applicable to
businesses operating at all levels of the supply chain, including manufacturers, importers, distributors and retailers.
The OSCJ applied the standard established in 2012 by the Supreme Court of Canada in Richard v. Time Inc. holding that the OSCJ will assess the general impression created by the
advertisement from the perspective of “a credulous and technically inexperienced consumer.” It also rejected the “technological fact” defence, noting that technological advantages do not relieve a company from undertaking testing in respect of
a performance claim. Moreover, the testing must be conducted prior to the use of the claim in
advertising, meaning that even if the claim ultimately proves true (as was the case in Rogers), liability still attaches to the conduct.
The Bureau also entered into consent agreements with Hyundai and Kia following admissions by those companies that fuel-efficiency testing conducted offshore resulted in incorrect fuel- consumption ratings for certain vehicle models. Following an agreement to reimburse affected customers (including additional compensation
for inconvenience) and make efforts to promote participation in the reimbursement program, the Bureau agreed not to seek AMPs but did require the companies to implement a compliance program for a 10-year period.
TIPS TO REMEMBER
An advertisement’s general impression is considered from the perspective of a credulous and technically inexperienced consumer.
Supplementary non-optional fees should not be buried in fine print disclaimers.
Such fees should be incorporated either in an “all in” price or prominently displayed in addition to the base price.
Liability for misleading advertising can arise even if the products are resold by an importer.
The most significant development this year was the Supreme Court of Canada’s (SCC) decisions in the indirect-purchaser trilogy, in which the SCC provided clarity on the ability of indirect purchasers to bring a class action claim for damages under section 36 of the Competition Act. Also of interest was a decision by the Alberta Court of Appeal dismissing a private action in respect of a joint purchasing agreement.
Indirect Purchaser Claims
In October 2013, the SCC issued long-awaited decisions in three indirect-purchaser class actions: Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Ltd. v. Archer Daniels Midland Company and Inifineon Technologies AG v. Option consommateurs. The SCC was tasked with resolving conflicting appellate court jurisprudence on the availability of indirect-purchaser claims in respect of damages arising from cartel conduct involving upstream suppliers. The SCC determined that both direct and indirect purchasers can bring claims for damages and/or restitution (disgorgement of profits) against upstream suppliers under the Competition Act and at common law.
The SCC made a number of findings. Most importantly, it noted that indirect purchasers may have a cause of action against a defendant that is alleged to have effectuated an overcharge at the top of the distribution chain, which has injured the indirect purchasers as a result of the overcharge being passed on to them. Such purchasers should not be foreclosed from claiming losses passed
on to them and that the risk of double or multiple recoveries in actions brought by both direct and indirect purchasers could be managed by the court. However, indirect purchasers willingly assume the burden of establishing that they have suffered loss. Whether they have met their burden of proof is a factual question to be decided on a case-by-case basis.
The certification process is not an assessment on the merits of the claim but is concerned with
the form of the action and whether the action can properly proceed as a class action. There must be some “basis in fact” that establishes each of the individual certification requirements. While the standard of proof to meet the certification requirements is not “a balance of probabilities,” certification is to be a “meaningful screening device.”
While these decisions have facilitated the ability of plaintiffs’ counsel to bring forward indirect-purchaser class actions and although a large number of certification hearings are anticipated to be scheduled in the near future, potential class action plaintiffs should not expect certification to be a trivial hurdle in the wake of the decisions. Indeed, plaintiffs continue to bear the burden of advancing a “sufficiently credible” methodology, and as such, defendants’ counsel may now insist that plaintiffs’ experts articulate the basis upon which they plan to quantify pass-through at each level of the distribution
chain more precisely. Furthermore, although the plaintiffs are not required to quantify damages by the certification stage, the data upon which they intend to base their calculations must be readily available, meaning that the analysis conducted by the plaintiffs’ experts will need to be sufficiently advanced to demonstrate the availability of the data.
Joint Purchasing Agreement
Another development of interest in connection with private actions was the Alberta Court of Appeal June 2013 decision in 321665 Alberta Ltd. v. Husky Oil Operations Ltd., in which the court dismissed a civil claim that alleged a breach of the former criminal conspiracy provision (which was recently amended to be a per se provision). That section required
proof that competition was lessened or prevented “unduly.” The judgment effectively endorsed the principle that joint purchasing agreements are highly unlikely to give rise to competition law concerns and that criminalization of competitor collaborations designed to increase efficiencies and reduce
unnecessary costs could not have been the intent of the Competition Act. The decision also recognized that cooperation is an important aspect of oil and gas development in Alberta, and as such, legitimate joint venture activity by oil and gas industry participants will not be treated under the criminal provisions of the Competition Act when the activity is directed toward a legitimate business purpose.
TIPS TO REMEMBER
Immediately contact counsel.
Class action cases can raise a number of complex substantive and procedural issues, and actions may arise in multiple Canadian provinces.
Preserve your documents.
Establish a joint defence arrangement. This will allow co-defendants to discuss joint strategy and exchange information without waiving privilege.
The Competition Bureau (Bureau) continued to use the investigative tools set out in the Competition Act with relative frequency, including supplementary information requests in merger matters as well as section 11 production orders for both merger and non-merger matters.
Section 11 Orders
In January 2013, the Commissioner of Competition announced a change in Bureau policy stating that the Bureau’s first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be, for all but exceptional cases, obtaining a section 11 order as opposed to relying on voluntary requests for information. Unlike a voluntary request for information, the courts have imposed extensive disclosure requirements on
the Commissioner and the Bureau following the Federal Court’s 2008 decision in Commissioner of Competition v. Labatt Brewing Company Limited.
The Federal Court of Appeal (FCA) expanded on those requirements in the February 2013 decision in Canada (National Revenue) v. RBC Life Insurance Company. The FCA held that government officials who seek ex parte production orders are to be
held to a “high standard of good faith” to make “full disclosure” to “fully justify” an ex parte order. When seeking an order, officials must provide the court with information relevant to the exercise of the court’s residual discretion, including information previously provided to the official, the extent of inconvenience and cost on the respondent as a result of the order, any additional motivations or purposes behind the application, and any facts or
determinations regarding whether the conduct being
investigated complies with the applicable statute. In the coming years, we expect that targets faced with section 11 orders will point to the RBC Life
decision to compel further disclosure by the Bureau of the need for the information sought in a
section 11 order.
Given the volume of information and data being created by companies, both the Bureau and companies facing requests for information are evaluating the processes for collecting, processing and reviewing documents. This year marked
the creation of a Joint Working Group between the Bureau and members of the Canadian Bar Association’s National Competition Law Section to discuss ways to address developments and practices for e-discovery and to comment on and prepare draft guidelines for the production of
electronically stored information, which we expect will be released this year.
As in the U.S., the use of technology-assisted review tools such as predictive coding is becoming commonplace in Canada. While there is yet to be a judicial decision in Canada that has recognized predictive coding as an appropriate review tool (nor has the Bureau made any statements about predictive coding), Canadian civil courts have
encouraged parties in private actions to make use of technological solutions in the discovery context. As we move further into the era of “big data,” technology-assisted review tools are going to be an integral part of the e-discovery process, particularly parties in the U.S. use such tools in preparing their productions to the U.S. Federal Trade Commission or Department of Justice (as we saw in connection with the merger of Anheuser-Busch InBev SA/NV and Grupo Modelo S.A.B. de C.V.).