Canada: Focus On Competition | Antitrust - July 2011

Last Updated: July 14 2011

Draft Revised Merger Enforcement Guidelines Issued

By Sandy Walker, Sharon Seung and Susan Paul

On June 27, 2011, the Competition Bureau (the "Bureau") released its draft revised Merger Enforcement Guidelines (the "Draft Guidelines").

In the Fall of 2010, the Bureau announced that it would revisit the Merger Enforcement Guidelines (the "MEGs"), issued in 2004, and have a critical look at whether they required updating. Following its consultations, the Bureau decided that it would undertake moderate revisions to the MEGs, which would more accurately reflect current Bureau practice when reviewing mergers, as well as current economic and legal thinking.

One of the key changes to the Draft Guidelines is a clarification of the role of market definition. While the MEGs currently state that defining the relevant markets is typically "the first stage" in the Bureau's review of a merger, the Draft Guidelines reflect recent changes to the U.S. Horizontal Merger Guidelines in downplaying market definition. The Draft Guidelines state that the Bureau's assessment of whether a merger is likely to create, maintain or enhance market power will involve two related considerations: defining the relevant markets and assessing the competitive effects of the merger in those markets. The Bureau does not see market definition as an end in itself and in certain circumstances, the Bureau may choose not to define a market in its review of a merger.

Another important feature of the Draft Guidelines is the expanded list of examples of how powerful buyers are able to constrain the ability of a seller to exercise market power ("countervailing power"). For example, buyers can refuse to purchase a seller's products in other geographic markets where the competitive conditions are different or they can impose costs on the seller. In addition, the Draft Guidelines explain how a merger of competing buyers can create or enhance the ability of the merged firm to exercise monopsony power.

Other notable changes in the Draft Guidelines include:

  • Clarification on "interlocking directorates" (where a director of one firm is an employee, executive, partner, owner or director of a second firm, or has another interest in the business of the second firm) in the context of the definition of a "merger" and when acquisition of a "significant interest" occurs. The Bureau explains how it will determine whether an acquisition of a minority interest or an interlocking directorate may confer the requisite level of influence to constitute a merger;
  • Further guidance on the economics underlying the Bureau's approach to unilateral effects cases, as well as the framework for assessing coordinated effects cases;
  • The elimination of the two‐year time frame for entry in the Bureau's analysis of whether timely entry by potential competitors would likely constrain a material price increase in a relevant market when assessing the competitive effects of a merger;
  • Clarification on the Bureau's approach to mergers where there is pre‐existing market power. For example, the Bureau states that smaller impacts on competition may more readily meet the test of a "substantial" lessening of competition where the merging firms have pre‐existing market power; and
  • Further elaboration of how the Bureau assesses non‐horizontal mergers.

The Draft Guidelines are available on the Bureau's website here. Comments on the revisions can be submitted to the Bureau before August 31, 2011.

Final revised MEGs are expected to be published this Fall.

Commissioner of Competition Challenges Air Canada and United Continental Joint Venture

By Sandy Walker and Sharon Seung

On June 27, 2011, the Competition Bureau announced that the Commissioner of Competition (the "Commissioner") is seeking to prohibit the proposed joint venture between Air Canada and United Continental Holdings Inc. ("United Continental") under the merger provisions of the Competition Act (the "Act"). The Commissioner is challenging the merger on the grounds that it would likely lead to a substantial prevention or lessening of competition in direct passenger air transportation services between specific city pairs involving an end point in each of Canada and the U.S.

In October 2010, soon after the merger between United Air Lines, Inc. and Continental Airlines Inc. (which resulted in the merged entity United Continental), Air Canada and United Continental announced their intention to enter into the joint venture. According to the Commissioner, the proposed joint venture would lead to a monopoly on ten transborder routes.

In addition to challenging the joint venture, the Commissioner takes issue with three existing "coordination agreements" between Air Canada and United Continental. The Commissioner alleges that these agreements allow the parties to coordinate price, inventory, marketing and scheduling across their networks, share net revenues, and provide reciprocal access to each of their respective frequent flyer programs. According to the Commissioner, these agreements will reinforce the potential anticompetitive effects of the joint venture.

The Commissioner's challenge of the "coordination agreements" is the first time the Commissioner has applied to the Competition Tribunal under the new civil provision relating to agreements between competitors that likely substantially lessen or prevent competition in a market.

The Commissioner's application to the Competition Tribunal can be found here.

Bell Canada Agrees to Pay $10 Million Penalty for Misleading Advertising

By Jenelle Matsalla

On June 28, 2011, the Competition Bureau announced that it had reached an agreement with Bell Canada under which Bell will modify its allegedly misleading advertisements and pay a $10 million administrative monetary penalty, the maximum amount allowed under the Competition Act. An investigation by the Bureau led it to conclude that in the past few years Bell has been charging higher prices for its services than it has been advertising to consumers.

The consent agreement has been filed with the Competition Tribunal, and can be found here.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit:

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