Most Significant Changes to Competition Act in 20 Years Barely Noticed  

publication 

Summer 2009 - (Lang Michener LLP InBrief )

Lang Michener LLP InBrief
Usually, the process of Canadian competition law reform is somewhat like the stereotypical Canadian: prudent, incremental and cautious. Usually, but not always. In February, the Government tabled Bill C-10, which contained the stimulus-package budget and a host of other matters, including some very significant changes to the Competition Act

However, while the Competition Act changes were groundbreaking, they were not the primary focus of debate. And so, the most significant amendments to Canada's competition law since the enactment of the Competition Act itself in 1986 became law, after only very limited study in committee, on March 12, 2009. 

Not only was the process leading to these Competition Act amendments unusual, the amendments themselves are far reaching, touching on virtually all the major pillars of the Act. They fundamentally alter antitrust enforcement in Canada in ways that may be to some degree predictable, but in other ways are unknown or unknowable at this time. It is going to be an exciting ride. 

In February of this year, we published an Alert that contained an outline of the highlights of the expected changes and offered some preliminary commentary.

This article reviews only some aspects of that Alert. 

Changes to the Conspiracy/Cartel Provision

It has been the fundamental tenet of Canadian competition law, since its original enactment in 1889, that agreements that unduly restrain or injure competition are illegal. The changes alter that fundamental principle by defining criminal cartels without reference to the need for "undue" effect, where agreements entered into between competitors or likely competitors deal with pricing, market allocation or output restrictions. 

There are limited exceptions for arrangements that are ancillary to broader agreements. In addition, there will be a new civil reviewable regime under which other sorts of agreements will be analyzed to determine whether or not they are likely to lead to a substantial lessening or prevention of competition, in which case, it will be possible to enjoin them. The minimum penalties for price fixing will also be increased, from $10 million and five years imprisonment, to $25 million and 14 years. 

This is an earth-shaking change. How easy it will be to define when firms are "competitors" or likely competitors is not clear. How will the new civil reviewable provision operate – and what types of conduct will it catch that were not subject to challenge under the prior law? Situations in which firms both supply other companies and also compete with them at another level of the marketplace (dual distribution arrangements) will give rise to complex questions, as will the question of how the exemption related to ancillary agreements will work. These provisions will not come into force for a year, and there is a process by which firms may seek advisory opinions from the Competition Bureau – so we may see many requests for such opinions.

Repeal of the Price Discrimination, Price Maintenance and Predatory Pricing Provisions

For many years commentators, economists and business people have criticized the criminal price discrimination and, to a lesser degree, the criminal predatory pricing provisions of the Competition Act, found in Sections 50 and 51. They are at odds with sound economic thinking, are costly to administer, and give rise to inefficient distribution arrangements. The Government apparently agrees, and the price discrimination and predatory pricing provisions have been repealed. Conduct involving price discrimination or predatory pricing can, in some cases, be challenged under the abuse of dominant market position provisions of the Act, and the Government's thinking is apparently that this is what should happen. 

The criminal price maintenance provisions have also been repealed and replaced with a largely parallel civil review provision which applies if the conduct has an "adverse effect" on competition. 

Merger Review

The merger review provisions of the Competition Act have been subject to occasional criticism for not affording the Competition Bureau sufficient time to review transactions in the most complex of cases. This issue came to a head over the last couple of years with respect to the Labatt/Lakeport transaction. The changes introduce an entirely new procedure to Canada, akin to the U.S. second request procedure. Under the new procedure, if the Competition Bureau has concerns with respect to a proposed merger, it can make a demand for documents of the merging parties, and the time clock, during which period the Bureau can review the merger and the parties cannot close a transaction, is halted until the parties fulfill the production requirement. This process, which is now unique to the United States, can be extremely time-consuming and expensive in some cases, but is thought to provide the reviewing agency with the materials it believes it requires. 

Merger reviews will also be changed in other respects, the most significant of which is to increase the "size of transaction" threshold for notifying the Competition Bureau of transactions, from $50 million to $70 million, and to impose a penalty of up to $10,000/day for failure to properly notify the Bureau of a transaction. The Commissioner will have up to one year (she now has three years) after a transaction closes to challenge it. 

The introduction of this process in Canada will represent a wholesale change to merger review timing, which will affect both domestic Canadian transactions and also international transactions in which filings are required in Canada.

Advertising and Marketing Changes

There will also be a series of changes with respect to the advertising and marketing provisions of the Competition Act, including:

  • Raising civil penalties for individuals to $750,000 for a first "offence" and up to $1 million for repeat "offences." Currently, penalties for individuals are capped at $50,000 for the first incident, and $100,000 for repeat conduct;
  • Raising civil penalties for corporations to $10 million for a first "offence," and up to $15 million for a repetition. Currently, penalties for corporations are capped at $100,000 or $200,000 for repeat conduct;
  • Increasing maximum imprisonment terms for criminal deceptive marketing from five years to 14 years;
  • Empowering the Competition Tribunal to require companies to pay restitution to victims of deceptive marketing practices; and
  • Empowering the Competition Tribunal to freeze assets and prevent the disposal of property before a finding against the advertiser in cases where there is concern that money may not be available for redress to harmed consumers.

Summary Remarks

These amendments are the most significant change to Canadian competition law in over 20 years. They make meaningful changes to all of the key aspects of the law – Mergers, Conspiracy/Cartels, Abuse of Dominant Market Position/Monopolization, and Advertising and Marketing Law – as well as to many other aspects of the Act. To fully understand the implications of even one of these changes, let alone all of them, will be a complex process for firms and their advisors. Businesses will have to carefully review all their material agreements and areas of activity and consider how the new rules will apply. So, for everyone involved in or subject to Canadian competition law, it is going to be an interesting time. 


Ed.: A version of this article appeared previously in Competition & Marketing Brief.