On March 12, 2009, major changes to Canada’s Competition Act and Investment Canada Act came into effect upon passage of the most recent federal budget. Using the budget implementing legislation introduced in February, Canada’s ruling Conservative Party amended the Competition Act to create a new US-style merger review process, as well as a number of per se offences. The revised Investment Canada Act will create a new national security review process and remove existing constraints on transportation and other sectors. Although foreign investors will welcome changes to the Investment Canada Act, Canadian businesses will face increased compliance costs with the amended Competition Act, which may hurt Canada’s competitiveness.
The legislative changes flow from several recommendations of the government-appointed Competition Policy Review Panel, which published its report, “Compete to Win,” in June 2008. Although the government stated in its most recent budget that it would incorporate the Panels’ recommendations, it is highly unusual to include amendments of this magnitude in budget implementation legislation instead of stand-alone amending legislation. Typically, Parliament and relevant parliamentary committees would consider and debate such amendments, sometimes for many months. Indeed, many of the changes were proposed in previous legislation (that did not pass due to the legislative session ending) and have been debated, although a number of the major changes (particularly the changes to the merger review regime) have not. By including the amendments in the budget bill, the government signaled its intention to see these changes pass with limited debate and consideration.
Overview of the Amendments
What follows is an overview of the amendments to the Competition Act and the Investment Canada Act.
The Competition Act
The most noteworthy proposed amendments to the Competition Act include:
- Introduction of a two-stage (second request) merger review process. A new merger review process replaces the current 14/42-day review periods for short-form and long-form notifications. The new process replicates the US Hart-Scott Rodino Antitrust Improvements Act process by requiring — for all transactions subject to notification — the submission of prescribed information, followed by an initial 30-day review period. During that time, the proposed transaction cannot be completed. The Commissioner of Competition can extend this initial review period by making a “second request” for further information, after which closing could only occur 30 days following receipt of the additional information (barring a challenge to the transaction by the Commissioner).
- Increased merger notification thresholds. The monetary transaction-size threshold for mandatory merger notification increases from $50 million to $70 million.The threshold will be reviewed annually and adjusted based on GDP. The party-size threshold remains unchanged at $400 million.
- Reduced merger review limitation period. The amendments reduce the current three-year period during which the Commissioner may challenge a completed merger to only one year.
Conspiracy and Bid-Rigging
- Introduction of a dual-track approach and increased penalties for anti-competitive arrangements between competitors. The criminal anti-cartel provisions will be limited to hardcore “cartel-like” agreements aimed at fixing or otherwise controlling prices; maintaining, lessening or eliminating the production of a product; and allocating sales, territories, customers or markets. They will become per se offences for which it will no longer be necessary to prove an undue lessening of competition. Maximum prison terms under this new criminal anti-cartel provision increase from five to 14 years, while maximum fines increase from $10 million to $25 million. A new civil conspiracy provision permits the Competition Tribunal to address other types of agreements between competitors that have anti-competitive effects. These changes will come into force on March 12, 2010, one year later than the other changes introduced by the bill.
- Broadened bid-rigging provisions and increased penalties. The bid-rigging provisions now include not only the undisclosed submission of bids arrived at by agreement or arrangement, but also the withdrawal of contract bids or tenders. Maximum prison terms for bid-rigging offences increase from five to 14 years.
Abuse of Dominance
- Introduction of administrative monetary penalties (AMPs) for all abuse cases. The amendments empower the Tribunal to impose AMPs of up to $10 million for corporate violations of the abuse of dominant position provision and $15 million for each subsequent violation. Such penalties are currently restricted to conduct by a domestic airline.
- Airline industry. All abuse of dominance provisions dealing specifically with the airline industry are repealed.
Misleading Advertising and Deceptive Marketing Practices
- Targeted individuals outside Canada. The amendments extend the false and misleading advertising and deceptive marketing practices provisions to apply to companies targeting individuals who are outside Canada.
- Clarifications. The amendments provide that in false or misleading advertising proceedings, it is no longer necessary to establish that the impugned representation was made to the Canadian public or in a place accessible to the public. The “general impression test” –– that the general impression and literal meaning will be considered in an assessment if a representation is reviewable –– applies to the deceptive marketing practices outlined in sections 74.01 and 74.02.
- Increased penalties. The amendments increase maximum terms of imprisonment from five to 14 years for criminal offences. The Tribunal can now impose AMPs of up to $10 million ($15 million for subsequent violations) for corporate false and misleading advertising and deceptive marketing practices.
Other Important Amendments
- Price discrimination and predatory pricing. The amendments repeal the criminal provisions dealing with price discrimination, promotional allowances and predatory pricing.
- Resale price maintenance. The criminal resale price maintenance provision has been repealed and is replaced by a new civil price maintenance provision to address this practice when it has an “adverse” effect on competition. The amendment also provides a right of private-party access to the Tribunal for price maintenance.
- Increased penalties for obstruction and contraventions of section 11 court orders. The amendments introduce penalties of up to 10 years’ imprisonment and increased fines (from $50,000 up to $100,000) or both, for obstruction in connection with an inquiry or examination under the Competition Act. The amendments also increase sanctions for contraventions of section 11, ordering imprisonment of up to two years, fines at the discretion of the court or both.
The Investment Canada Act
Important amendments to the Investment Canada Act include:
- Increased threshold for investments made by a WTO investor. The review threshold for acquisitions of control of a Canadian business (other than a cultural business) increases to $1 billion from $312 million –– phased in over five years. The measurement standard has been changed from gross asset value to the enterprise value of the acquired assets. The new threshold will take effect upon a date fixed by an Order of the Governor in Council.
- National security test and review procedure. The amendments introduce a broad national security test and analysis, authorizing the Minister of Industry to review investments that “could be injurious to national security,” regardless of the size of the transaction. Following the minister’s review and consultations with the Minister of Public Safety and Emergency Preparedness, the minister must refer transactions concerning to national security to the Governor in Council, which is empowered to take any measures in respect of the investment that the Governor in Council considers advisable to protect national security, including prohibiting investments made by non-Canadians.
- Elimination of lower threshold for transactions in noncultural sectors. The amendments eliminate the existing lower thresholds for review of transactions in the transportation, uranium production and financial services sectors. Only cultural businesses remain subject to a lower threshold.
- Reasons for not approving an investment. Where the Minister of Industry is not satisfied that an investment is of net benefit to Canada, the minister must now provide reasons for deciding to block the investment.
- Disclosure of privileged information. The Minister of Industry may communicate or disclose privileged information obtained during the review of an investment to prescribed investigative bodies, or investigative bodies of a prescribed class if the communication or disclosure is for the purposes of the administration or enforcement of national security provisions.
- New undertakings. If the Minister of Industry believes that a foreign investor has failed to comply with a written undertaking provided in connection with a previously approved investment, the minister can now accept a new undertaking from the investor after the investment has been implemented.
These changes provide significant new powers to the Commissioner of Competition under the Competition Act and to the Minister of Industry under the Investment Canada Act. The commissioner will have the ability to issue broad information requests and delay the completion of more complex mergers through the “second request” process. The commissioner already has the power to seek documents and other information under section 11 of the Competition Act, but those requests must first be approved by a judge. Significantly, there will be no judicial oversight of the second request process. In addition, there is concern that imposing substantial administrative monetary penalties for conduct found to be anti competitive under the abuse of dominance provisions may chill legitimate, pro-competitive behavior, as there is no bright-line between aggressive pro-competitive behavior and potentially anti-competitive behavior that is found to be abusive. Finally, the changes to the conspiracy provisions will, at least in the short-term, introduce a great deal of uncertainty and likely result in litigation to test the boundaries of the new provision. What appears very likely is that, with these various new powers granted to the Competition Bureau and the commissioner, businesses should expect to see more active enforcement of the conspiracy, bid-rigging and abuse of dominance provisions as well as lengthier and more burdensome reviews for mergers raising more difficult competition issues.
Although the increases to the review thresholds under the Investment Canada Act will result in fewer transactions being subject to inspection, the new national security review will add an element of uncertainty in the short-term. Notwithstanding the expectation that regulations or guidelines will be passed to offer guidance on the interpretation of “injurious to national security,” given the significant discretion afforded to the minister and to the Governor in Council, expect a party whose transaction is challenged to seek judicial review to test the boundaries of these provisions as well.