On February 6, 2009, the Canadian Government introduced Bill C-10, An Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures. Bill C-10 is not typical budget implementation legislation. It proposes the most significant changes to the Competition Act in its 25-year history, moving Canada’s competition laws much closer to those of the US with respect to cartel law and merger review. Bill C-10 also proposes important changes to the Investment Canada Act, most notably by adding a retroactive national security review mechanism.
It is surprising that such significant changes would be included in omnibus legislation to implement the Conservative Government’s economic stimulus package, announced in the Budget in January 2009. Although some of the proposed changes were included in the Conservative Party election platform last fall1 and others stem from the recommendations of the Government-appointed Competition Policy Review Panel2 released last summer, there has been limited pre-legislative consultation on some of the most fundamental proposed changes. Given the support of the Liberal opposition for the most recent budget, and the expressed need to implement the stimulus package as soon as possible in light of current economic conditions, the proposed changes to the Competition Act (Act) and the Investment Canada Act (ICA) are unlikely to receive in-depth treatment in House of Commons and Senate committee hearings with respect to Bill C-10. Bill C-10 could become law within weeks.
Competition Act Changes
A. Reform of criminal provisions
Bill C-10 will make it easier for the Crown (and civil plaintiffs) to prove price-fixing conspiracies and will more than double the potential penalties on conviction. On the other hand, it will also de-criminalize predatory pricing, price maintenance and price discrimination, and may help to alleviate concerns that some strategic alliances could be criminally prosecuted.
- Per se Conspiracy Offence — Under the current Section 45, the Crown (prosecution) has to demonstrate beyond a reasonable doubt that agreements among competitors "unduly" lessen competition in order to secure convictions. Bill C-10 will remove that burden for so-called "hard-core" cartels, i.e. agreements among competitors to fix prices, allocate markets or restrict supply. This is similar to the approach in the US, where parties to an agreement may defend a charge under the amended provision if they can prove the agreement or arrangement is ancillary and necessary to a broader agreement that is not within an impugned "hard-core" category. However, the defence may not alleviate all risk that arrangements such as co-marketing agreements or other joint ventures between competitors could be captured by the per se provisions.
Agreements or arrangements between competitors other than price-fixing, market allocation and supply restrictions that may substantially prevent or lessen competition will be civilly reviewable but not subject to criminal sanction. The Commissioner of Competition (Commissioner) could still bring an application to the Competition Tribunal (Tribunal) for an order prohibiting any person from doing anything under the agreement, but the conduct would not be subject to monetary penalties or criminal sanction.
- Higher Penalties — Bill C-10 will more than double the maximum fine for conspiracy from $10 million to $25 million, and will increase the potential prison term for conspiracy and bid-rigging from the current maximum of five years to 14 years. Penalties for obstructing an investigation will also be increased.
- No Criminal Sanction for Price Maintenance, Predatory Pricing or Price Discrimination — The current criminal price discrimination, predatory pricing and price maintenance provisions will be repealed, and a new price maintenance provision will be added to the civil enforcement track.3 Moving price maintenance to the civil enforcement regime marks a significant change. It removes the prospect of criminal sanction and civil actions for damages, but will allow private parties to seek leave from the Tribunal to bring applications to regain supply on usual trade terms or other remedial orders. The new civil provision, unlike the current criminal provision, will not apply to "attempts" by a supplier to influence downstream prices upward or discourage their reduction.
- Effect on Civil Actions — Section 36 of the Act permits parties to sue for loss or damages suffered as a result of conduct that is contrary to the criminal provisions of the Act. Bill C-10 will make it easier for private plaintiffs to prove violation of the new conspiracy provision, as the "unduly" element would be removed from the criminal conspiracy offence, but price discrimination, predatory pricing and price maintenance will no longer be subject to civil damage claims under the Act.4
B. Changes to Reviewable Conduct Provisions
In addition to de-criminalizing price maintenance and competitor agreements that do not come within the "hard-core" cartel conduct categories (as discussed above), Bill C-10 will provide for significant penalties in abuse of dominance and deceptive marketing practice cases.
- $10 — $15 Million Fines for Abuse of Dominant Position and Deceptive Marketing Practices — Currently, those found by the Tribunal to have abused their dominant position (other than airlines) are not subject to monetary penalties. The Tribunal may order a party to cease an offending practice and/or, where that would not be adequate to address the anti-competitive effects, impose other potentially broad remedial orders (including the divestiture of assets). Corporations found to have engaged in civil deceptive marketing practices are subject to orders to cease the offending conduct, publish a notice and pay a fine (a.k.a administrative monetary penalty or AMP) of up to $100,000 for the first order and thereafter up to $200,000.5
Bill C-10 will introduce AMPs of up to $10 million for a first finding of abuse of dominant position and will increase the potential AMPs for deceptive marketing practices to $10 million for a first finding. Thereafter, a maximum AMP of up to $15 million is potentially available for each subsequent finding of abuse or deceptive marketing. The constitutional validity of AMPs of this magnitude is questionable, in that they are akin to the imposition of criminal sanction without the protection of a stronger burden of proof and important procedural rights.6
- Other Changes to Civil Provisions — Other changes to the civil provisions of the Act include: interim injunctions for misleading representations, repeal of the consignment selling provisions, private applications for price maintenance (with leave of the Tribunal), and repeal of the airline-specific provisions.
C. Changes to Merger Provisions
The changes proposed in Bill C-10 will move Canada’s merger review process much closer to the one in the US. For complex transactions, the review process will be longer and more expensive. Changes to the merger provisions include:
- Increased Thresholds for Pre-Notification — Bill C-10 will maintain the current $400-million "size of the parties" threshold, but will increase the "size of the transaction" threshold from $50 million to $70 million (with further increases annually).
- Changes to Statutory Waiting Periods and Production Powers — Currently, the statutory waiting period for mergers that are subject to notification under the Act is 14 days, with complex transactions subject to a maximum 42-day waiting period. Bill C-10 will change the waiting period applicable to most uncomplicated transactions from 14 days to 30 days. In complicated transactions, the Bureau will be able to extend the waiting period by an additional 30 days beyond the time required for the parties to respond to a request for information and documents from the Competition Bureau (Bureau). Effectively, this may increase the period during which the parties may not close the transaction by several months.
Currently, if the Commissioner wants information beyond that required by the parties in their pre-notification filings, she must seek court orders for the production of information and documents (in the absence of voluntary production). In practice, these orders can require parties to provide extensive information and documents within a short time period. The statutory waiting period is not affected by the issuance of the court order. If the waiting period has expired, the parties may close the transaction (at their own substantial risk) unless the Commissioner has sought an interim order from the Tribunal to extend the review period and prevent closing. If the waiting period has not expired, the issuance of the order does not suspend the waiting period. Throughout, the current process is subject to Court and Tribunal oversight.
Bill C-10 will remove judicial oversight of the process. The Bureau will be authorized to issue a request for information "relevant to the Commissioner’s assessment of the proposed transaction" within 30 days after submission of pre-notification filings. Once the parties’ response is complete, and only then, a second 30-day period will begin to run. A similar "second request" procedure is currently used in the US, where the experience has been that responding to second requests can take months and cost millions of dollars. The cost and impact of second requests in Canada will depend on how our Bureau applies these broad powers.
- One-Year Post-Closing Challenge Window — The Commissioner currently has a three-year window post-closing to launch an application challenging a transaction. Bill C-10 will decrease this period to one year. In practice, the Bureau has continued merger inquiries long after closing in certain cases. This provision will ensure that the parties to a transaction do not face a long period of uncertainty while the Commissioner decides whether to launch an application to challenge the transaction.
Investment Canada Act Changes
A. New National Security Review
The ICA permits the Government to review acquisitions of control of Canadian businesses by non-Canadians that are above certain prescribed thresholds in order to ensure they are "of net benefit to Canada" so as to encourage economic growth and employment in Canada. Bill C-10 would increase the scope of the Government review to encompass concerns of national security in respect of acquisitions of control and minority investments in Canadian businesses by non-Canadians.
- Vague Criteria and Potentially Broad Review — Bill C-10 will permit the Government to review proposed investments (including minority investments) where the responsible Minister has "reasonable grounds to believe that an investment by a non-Canadian could be injurious to national security." No financial threshold will apply to a national security review and no definition of "national security" is set out in the Bill. The Minister may deny the investment, ask for undertakings, provide terms or conditions for the investment or, where the investment has already been made, require divestment. Review can occur before or after closing and may apply to corporate re-organizations where there is no change in ultimate control.
- Retroactive Application — For investments that may raise national security issues, the concerns may be a live issue before Bill C-10 even becomes law. Bill C-10 contains a retroactive transitional provision that provides that the Minister may apply the national security review provisions of the ICA to investments implemented on or after February 6, 2009 — the date on which Bill C-10 received first reading in the House of Commons.
- Information Produced can be Shared with other Investigating Agencies — The Minister will now be able to compel a party to provide information within the context of a review application that the Minister "considers necessary." In addition, for information produced with respect to a national security review, the Minister may communicate this information to prescribed investigative bodies, which may also disclose the information to others for the purposes of that agency’s investigation. Generally, information provided to the Minister in the context of investment review is protected from disclosure to other Government agencies unless necessary for the purposes of the administration and enforcement of the ICA.
B. Changes to Review Thresholds
The current prescribed threshold for pre-closing review of direct investments by WTO investors in all sectors except cultural businesses, transportation businesses, financial services businesses and uranium businesses is $312 million.8 For controlled sectors and investments by non-WTO investors, the threshold is $5 million.
- Increase of WTO thresholds — Bill C-10 will dramatically increase the thresholds for review for WTO investments in a Canadian business — to $600 million, $800 million and $1 billion respectively over the next six years. After that, the applicable threshold will be determined on an annual basis using a prescribed formula. This may decrease the number of investments that are subject to pre-closing review. Investments by non-Canadians will still be subject to an obligation to submit a post-closing notification.
- Removal of Most Sector-Specific Thresholds — The $5-million threshold for investments in transportation businesses, financial services businesses and uranium businesses will be removed, but will be maintained for investments in cultural businesses and certain direct investments by non-WTO investors. Pre-closing review for transportation and uranium investments may still be subject to pre-closing Government scrutiny. The Minister of Transport conducts pre-closing reviews of proposed transactions involving a transportation undertaking that raise public interest issues and that exceed the pre-notification thresholds under the Competition Act. Further, although the lower threshold for uranium businesses will be repealed in the ICA, the new national security review criteria described above could provide a mechanism for the Minister to review investments in a uranium business at his or her option, regardless of the applicable threshold.
- Thresholds based on "Enterprise" Value — Currently, the threshold for review is based on the aggregate value of all assets being acquired as shown in the financial statements for the Canadian business for the prior year. Bill C-10 will change the calculation from one based on the value of assets to one based on "enterprise value," which term will be defined in regulations yet to be published.
Consequences of Bill C-10 for Business
Bill C-10 will present significant risks for business, but it may also create some opportunities. Companies will need to closely review their competition law compliance programs to ensure that current business practices do not run afoul of the new regime, but also to ensure that they identify new opportunities to improve their businesses. The McCarthy Tétrault LLP National Competition/Antitrust Group helps businesses to understand the implications of these new laws and to update or establish compliance programs consistent with the fundamental changes to Canadian competition law.