Criminal Competition Law Developments - Quarterly Update

In this quarterly update on criminal competition law and related developments, we provide highlights on significant issues in Canada and the U.S.

Disclosure rights and remedies

In the Supreme Court's decision in R. v. Ahmad, 2011 SCC 6 (released February 10), a case dealing with a constitutional challenge to the scheme of Section 38 of the Canada Evidence Act, and the Federal Court's paramountcy to adjudicate upon materials that may constitute sensitive or national security information under that section, the Court made some interesting observations on disclosure principles in criminal trials. We note the following (at paragraph [2]of the reasons):

This citation may be of assistance in litigating cases involving the prosecution's failure to make relevant or timely disclosure.

A link to the Court's decision may be found here.

Trans-border witness examination in class action antitrust cases

In Treat America Limited v. Nestlé Canada Inc. 2011 ONSC 617 (released January 26), the applicant (plaintiffs in a civil action pending in the United States District Court for the Middle District of Pennsylvania), sought an order to give effect to a Letter of Request for international judicial assistance in relation to compelling production of documents from Nestlé Canada and that a representative of Nestlé be produced for examination, for use in a U.S. proceeding. This involves a large-scale group of claims (subject to the U.S.Multidistrict Litigation process) against Canadian and U.S. candy manufacturers alleging inter alia an antitrust conspiracy and fraudulent concealment of a conspiracy relating to chocolate pricing in the United States. The U.S. plaintiffs allege that it was likely that decisions relating to pricing in Canada were part of an overall North America budgeting and strategic planning exercise and that they necessarily affected pricing in the United States (the allegations remain unproven).

In countering the application before Campbell, J., Nestlé Canada asserted that:

1. since it had been removed from the U.S. proceedings (on jurisdictional grounds) Nestlé did not have a chance to object to the relief now sought;
2. the scope of the request was too broad; and
3. the test for exercise of discretion by the Court had not been met as the request did not relate to the merits of the U.S. proceedings, the materials were unnecessary for trial and would not be subject to production under Ontario rules.

While accepting the general principle that principles of international comity should dictate a liberal approach to such requests, Campbell J., ruled that sufficient concerns had been raised by Nestlé Canada and further clarification was needed in the following areas:

• Can Nestlé Canada still challenge the scope of discovery before the U.S. District Court given its discharge from the U.S. proceedings?
• What assumption will the requesting Court make as to the applicability of immunity rules and admissibility of the evidence that is obtained given the differences in the immunity provisions of the U.S. federal rule when compared to Ontario?
• Could the Letter of Request motion be adjourned until after the certification ruling in the U.S. without interfering with the process of the U.S. litigation given the differences in the availability of discovery in class action proceedings in the U.S. and Ontario?

The court then adjourned the motion to allow receipt of this information.

This case will be of interest to counsel dealing with trans-border civil claims.

The entrapment defence in regulatory crimes

An interesting decision came from the Ontario Court of Appeal on January 13. In R. v. Clothier 2011 ONCA 27, Laskin J.A., dismissed an appeal by a defendant who had been charged with a regulatory offence under the Smoke Free Ontario Act, S.O. 1994 c. 10. An under-age "test shopper" purchased cigarettes from the defendant, a store clerk in a 7-Eleven store, without his asking for identification. The clerk was thereby charged with violating Section 3(1) of the Act.

The defendant raised a potential defence of entrapment, claiming that the charges should be stayed because the County of Lambton had engaged in test-shopping without meeting the criteria for permission of such undercover techniques as set out in the landmark decisions of the Supreme Court in the cases of R. v. Mack, [1988] 2 S.C.R. 903 and R.v. Barnes, [1991] 1 S.C.R. 449.

Laskin, J.A., ruled that entrapment was not available in such circumstances because of the nature of regulatory statutes which, as noted by Cory J., in Wholesale Travel Group Inc. "... [involve] a shift of emphasis from the protection of individual interests and the deterrence and punishment of acts involving moral fault to the protection of the public and societal interest." In his decision, Laskin, J.A., noted that convenience stores operate in a regulated commercial environment, which comes with certain consequences as set out in the Wholesale Travel case. Secondly, Laskin, J.A., ruled that, given this context, participants in the market have a deemed acceptance of an undertaking to exercise reasonable care to ensure that the harm identified in the statute does not occur. Thus, there is a diminished expectation of privacy in relation to these activities. Further, Laskin, J.A., ruled that by using test shoppers in such cases, the government is not engaged in "virtue testing" but rather "compliance testing." Thus, the test-shopping in this case was considered to be proper by the court and the defendant was convicted of the offence.

Subject to any further clarification by the Supreme Court, this case is notable in that it appears to eliminate a defence of entrapment for most regulatory offences (at least in Ontario), and the Competition Bureau will likely take the view that this should also be the case with Competition Act offences.

A link to the decision is found here.

Corporate computers and personal privacy rights

The Court of Appeal for Ontario recently released its reasons in a decision addressing charges of possession of child pornography and unauthorized use of a computer under the Criminal Code (the identity of the party is currently subject to a publication ban).This decision provided important observations on the extent to which an individual's personal privacy rights to information contained in an institution-owned computer must be taken into account in a search for evidence. The case involved the downloading of several nude and sexually explicit pictures of a high school student by a teacher at the school, and the subsequent discovery of the images by a technician who was provided lawful access to the school's network. The technician alerted school authorities who directed that the images be copied to a CD-ROM disk, followed by a search of the laptop computer by School Board officials who made copies of the temporary internet "browsing" files from the surfing history of the accused. The two CD-ROM disks and laptop were turned over to the police who searched them without the assistance of a warrant, believing that consent by the school authorities was sufficient to authorize their actions.

The Court noted that although the laptop computer was owned by school authorities, ownership of the device was not conclusive as to whether a personal privacy right existed and did not extinguish the individual's right. The Court also stated that, to the extent to which a reasonable expectation of privacy was modified by the technician's implied right of access, that extension would not permit a police search without a warrant. The Court specifically noted that the police technique in copying the entire contents of the hard drive was very intrusive and that the contents of the hard drive would, by school policy, potentially contain extremely personal information such as medical and financial reports, personal journals, emails and appointments. The Court stressed the application of the factors listed in the Supreme Court decisions in R. v. Tessling and R. v. Patrick which provided a framework for analysis of the scope of personal privacy rights.

The reasons in this case, together with the Supreme Court's decision in R. v. Morelli [2010] 1 S.C.R. 253 would suggest that authorities (such as Competition Bureau investigators) should be much more cautious in outlining the scope of warranted searches, so as to eliminate the potential for improper seizure of intimate personal information that could be (and is often) stored in a workplace or home-use permitted electronic device, resulting in an "over-seizure" that could violate Charter principles. In the Court of Appeal's reasons, the words of Justice Fish in Morelli were repeated to emphasize that the search and seizure of a personal computer is an intrusive and invasive search.

The implication of these decisions could affect Competition Bureau search practices, which often involve retrieving a complete image of a workplace or personal computer (or other electronic communications device), thereby providing access to potentially sensitive intimate personal information as a by-product of the search process. While it is the Bureau's practice to segregate the electronic search team during the initial round of "imaging" from the case team involved in the investigation of the matter, the electronic search team, by taking and reviewing a complete image of the device in question, could thereby be breaching the doctrine set forth in this case and in Morelli by gaining access to prohibited sensitive material.

While the search process in this case did not involve the use of a warrant, the reasoning suggests a much more 'surgical' approach is needed when investigators appear at a company premises with a warrant and thereafter seek to image personal computers or other electronic devices (such as Blackberries) in a search for evidence.

Subpoenas for foreign-sourced documents

On the U.S. front, many will be familiar with the decision of the United States Court of Appeals (9^th Ct.) released December 7, 2010 which re-instituted a U.S. Department of Justice Antitrust Division grand jury subpoena to counsel for certain parties who are targets of a Division investigation, and which demanded production of documents that had been delivered from foreign sources to the U.S. in order to comply with a production and discovery demand made on those parties in U.S. civil proceedings. On a first round, the subpoena had been quashed by the U.S. District Court but on appeal by the government, the subpoena was reinstated. In its reasons, the Court of Appeals determined that since there had been no collusion established between the Plaintiffs and the government, that the government had not engaged in bad faith tactics, and that the documents involved were not privileged, the court determined that there was no reason why the subpoena should not be reinstated. In its words "no authority forbids the government from closing its grip on what lies with the jurisdiction of the Grand Jury."

The U.S. Firm of White & Case, acting for Toshiba, filed a petition for Certiorari of the 9^th Circuit decision with the U.S. Supreme Court on February 25th. A number of parties have indicated an intention to file amicus briefs with the Court.

Although we are unaware of attempts by the Competition Bureau to seize documents produced in Canadian civil litigation, this decision is of concern because of its broad scope in relation to investigatory powers of agencies such as the U.S. DOJ. Government-to-government requests for assistance in international criminal investigations are principally subject to international agreements. In Canada, such requests are subject to treaty arrangements made under the Mutual Legal Assistance in Criminal Matters Act, which provides due process guarantees for participants and parties having legal interests in the subject matter of the application for assistance. It might well be observed that, by means of a subpoena in this case, the regulator was accomplishing indirectly what could not be done directly through means of international judicial assistance since the EU (from which jurisdiction the documents presumably came) would be unable to comply with the treaty request made under a mutual legal assistance regime since the EU's jurisdiction in antitrust cases is administrative (or at best, quasi-criminal in nature).

Public Works and Government Services Canada procurement training to detect bid-rigging

Finally, at a presentation convened by the International Competition Network, representatives of the Competition Bureau indicated that they have been intensively involved in a process of training and awareness in relation to public procurement, particularly with government departments such as Public Works and Government Services Canada. The Bureau noted that there are some $16.4 billion in purchases made annually by federal departments, with $12.4 billion subject to competitive bid processes. The Bureau noted there has been an increased awareness of the potential for bid-rigging activity to occur in such circumstances, and as a result, government departments had been making modifications to their procurement regimes. The representatives also noted that charges had been laid regarding allegations of improper collusion in relation to IT contracts and that this case was currently proceeding before the Ontario courts.

Other facts would appear to confirm this view. In his public remarks to the National Competition Law Section's Annual Conference last September, Mr. John Pecman (Senior Deputy Commissioner for Criminal Matters) noted that the majority of immunity applications received by the Criminal Branches of the Bureau over the year involved bid-rigging cases.

We hope you find this Update of interest and potential use in your business and legal activities. You may also be interested in our annual and comprehensive Criminal Competition Law Developments in 2010.

With an extensive background as both a senior federal and provincial prosecutor, Graham Reynolds brings unique and effective skills to his antitrust advisory and litigation practice at Osler.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.