Canada: Competition Bureau Update on MEGs Consultation, Leniency Bulletin and CREA Settlement

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, October 2010

DISCUSSION PAPER FOR MERGER ENFORCEMENT GUIDELINES CONSULTATIONS RELEASED

Following the announcement on September 7, 2010, that the Competition Bureau (the Bureau) will hold consultations regarding the possible revision of the Merger Enforcement Guidelines (MEGs), the Bureau released a discussion paper on September 30, 2010, that provides additional details regarding these consultations. The Bureau's discussion paper invites stakeholders to make submissions to the Bureau concerning whether the MEGs could:

  1. more accurately reflect current Bureau merger review practices; and
  2. incorporate legal and economic developments since 2004, the date of the most recent revision of the MEGs.

While commentators are free to make submissions concerning any aspect of the MEGs, the Bureau has identified a number of areas where an examination of the current MEGs may be most relevant. These areas include: the relative importance of market definition and competitive effects analysis to the Bureau's review process; the discussion of evidence in the MEGs, including the weight that the Bureau assigns to diversion ratios, partial interests and price/cost margins in evaluating unilateral effects; and the current two-year standard as a time-frame for potential entry. In addition, the Bureau has solicited comments on specific potential revisions to the MEGs, such as: possible expansion of the sections on co-ordinated effects and prevention of competition; possible revision of concentration thresholds; and possible expansion of the discussion of "maverick" firm behaviour. Many of these proposed changes would likely involve clarification of, rather than fundamental changes to, existing Bureau standards and practices.

A number of the areas that the Bureau's discussion paper highlights relate to changes in U.S. merger review as a result of the recent update to the Horizontal Merger Guidelines that was released by the U.S. antitrust agencies. Consequently, one issue that may arise in the roundtable consultations is the benefit of further harmonization between the Canadian and U.S. merger review processes.

The Bureau has requested that interested parties submit comments on the MEGs no later than Friday, December 31, 2010.

Final Leniency Program (Criminal Cartels ) Bulletin Released

On September 29, 2010, the Bureau published its Leniency Program Bulletin, which replaces the Revised Draft Information Bulletin on Sentencing and Leniency in Cartel Cases that was released on March 25, 2009. In addition, the Bureau published a set of Frequently Asked Questions (FAQs) regarding its Leniency Program, as a supplement to the final bulletin. Although the final bulletin excludes large sections that had been included in the draft (including sections on sentencing principles and descriptions of the relevant aggravating and mitigating factors that could influence the Bureau's sentencing recommendations), many of these topics are now covered in the Bureau's FAQs. The substantive provisions of the Leniency Program have not changed significantly as compared to the draft bulletin.

The final bulletin outlines the terms and conditions of the Leniency Program, which applies in respect of individuals or businesses who are the subject of criminal cartel investigations under the Competition Act (the Act) and who, while they do not qualify for full immunity, nonetheless co-operate with the Bureau's investigation and are therefore entitled to reduced fines and/or sentences. (The Bureau's Immunity Program is only available to the first individual or business that applies and qualifies in respect of a cartel offence.)

Criteria for Participation in Leniency Program

The Public Prosecution Service of Canada (the PPSC) is responsible for prosecution under the criminal cartel provisions of the Act, and only the PPSC has the authority to recommend sentencing leniency to the courts. However, the Bureau will recommend that the PPSC grant leniency at the sentencing stage if a party meets the following criteria, which are necessary for admission into the Leniency Program:

  • the party must have terminated its participation in the cartel;
  • the party must agree to co-operate fully and in a timely manner, at its own expense, with the Bureau's investigation and any subsequent prosecution of the other cartel participants by the PPSC; and
  • the party must agree to plead guilty.

Under the Leniency Program, a party's co-operation must be "full, frank, timely and truthful". The Bureau likely will recommend a more substantial mitigation of a sentence for parties that approach the Bureau at early stages of an investigation.

Reduction in Fines and Sentences

The Bureau recommends the base level for an appropriate fine in a cartel case. In establishing this figure, the Bureau will generally use as a proxy 20% of the cartel participant's affected volume of commerce in Canada, which is based on its volume of sales in Canada over the period during which the cartel was in place. The first applicant that successfully meets the requirements of the Leniency Program is eligible for a reduction of 50% of the fine that the Bureau would otherwise recommend to the PPSC, while the second such applicant is eligible for a 30% reduction. Subsequent applicants may also be eligible for reductions in the amount of fines payable, although these reductions will not be greater than the discount given to earlier applicants.

The Bureau generally will recommend that no separate charges be laid against the current officers, directors and employees of the first organization to apply under the Leniency Program, provided that these parties cooperate with the Bureau's investigation. Agents and former officers, directors, and employees typically qualify for leniency provided that they also co-operate with the investigation. If an individual is the first applicant, the Bureau will recommend that the individual not be criminally charged, provided that he or she meets the requirements of the program. For the second and any subsequent leniency applicant, current and former officers, directors, employees and agents may be charged, depending on their role in the offence. If charged, such persons may be eligible to be evaluated for a lenient treatment recommendation from the Bureau under certain circumstances.

The Bureau's Immunity Plus program may apply if a leniency applicant discloses information to the Bureau regarding an additional offence under the Act of which the Bureau was not already aware, or information regarding an expanded scope of the offence. Pursuant to this program, an applicant may receive additional protections based upon their disclosure of information to the Bureau and their willingness to co-operate in the current, and any expanded or additional, investigation.

Settlement Agreement in Principle with CREA

On September 30, 2010, the Bureau announced that it had reached an agreement in principle with the Canadian Real Estate Association (CREA), which would resolve the Bureau's concerns about the rules that CREA imposes on agents who list properties on its Multiple Listing Service (MLS) system. Currently, before listing a property on MLS, agents must agree to comply with CREA's restrictions on the service options those agents can provide to consumers.

In the Notice of Application filed with the Competition Tribunal (the Tribunal) in February 2010, the Commissioner of Competition (the Commissioner) alleged that CREA, through its members, had abused its dominant position in the market for residential real estate brokerage services throughout Canada. In particular, the Commissioner alleged that:

  1. CREA has substantial or complete control over the supply of residential real estate brokerage services throughout Canada;
  2. CREA has, with its members, used CREA's control of the MLS to impose exclusionary restrictions on its use;
  3. CREA enacted these restrictions with the intent of negatively influencing real estate brokers that offer only partial brokerage services; and
  4. these restrictions lessen or prevent competition substantially in the market for residential real estate services in Canada.

The Commissioner's application to the Tribunal sought to strike down these rules, with a view to providing real estate agents with greater flexibility to offer a wider range of service and pricing options to customers.

Under the agreement in principle, which must still be ratified by CREA's members, CREA will eliminate its ability to adopt rules that discriminate against real estate agents whose services consist only of listing or "posting" a residential property on MLS. Although the precise terms of the agreement have not been made public, the Bureau has stated that the agreement, if ratified, will remain in force for 10 years.

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.

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