Canada: Nine Key Developments In Enforcement Of Non-Criminal Provisions Of The Competition Act

Introduction

At the recent annual conference of the Canadian Bar Association's Competition Law Section, representatives of the Competition Bureau presented their priorities for the coming year and discussed recent developments. Distilled below are the nine key developments in the enforcement of the non-criminal aspects of Canada's Competition Act (Act) and their implications for businesses in Canada and abroad.

General matters

  1. The age of "appropriately aggressive enforcement" is here. The commissioner of competition (Commissioner) announced that the Bureau has moved from a period of digesting the significant amendments to the Act made in 2009, to a phase of bringing cases based on the new law, which she called "appropriately aggressive enforcement." Throughout the last year, the Bureau has, among other things, challenged two mergers, pursued several abuse of dominance cases, challenged Visa and MasterCard's pricing practices, and brought several actions for misleading advertising, one of which resulted in a significant settlement with Bell Canada for the maximum $10 million penalty.
  2. If you sign a consent agreement, follow it. The Commissioner demonstrated by her actions against Beiersdorf Canada Inc., maker of Nivea products, that parties who sign consent agreements to resolve cases must ensure they follow the terms of these agreements. The Commissioner announced a settlement with Beiersdorf on September 7, 2011, regarding misleading claims made with respect to certain Nivea products; on September 22, 2011, the Commissioner announced that she had required Beiersdorf to cease making inaccurate claims about the terms of the settlement. At the conference, the Commissioner announced that the Bureau is pursuing contempt charges against another party for allegedly breaching the terms of a consent order. Breaching an order is a criminal offence under the Act; upon summary conviction there is a maximum $25,000 fine and/or up to one year's imprisonment, and upon conviction on indictment, the fine is in the discretion of the court and/or up to five years' imprisonment.
  3. Consumer protection is a high priority. The Commissioner has stated that a renewed focus on enforcement will ensure Canadians understand that "we will fulfill our responsibility fearlessly to promote and protect competition," and "build confidence in the marketplace and demonstrate the relevance of the Bureau's work to Canadians in their everyday lives."1 A common theme among the many cases brought to date by Commissioner Aitken is that most will have a direct impact on the wallets of Canadian consumers: abuse of dominance cases against The Canadian Real Estate Association and Toronto Real Estate Board designed to lift restrictions that prevented lower-cost methods of selling homes; misleading representation cases against Rogers Chatr, Bell Canada, and Beiersdorf; challenges to the fees imposed by Visa and MasterCard; and a merger challenge against Air Canada and United Continental alleging that it will lead to higher fares for numerous transborder routes.

Mergers

  1. Changes to the Merger Enforcement Guidelines will provide greater flexibility but less certainty. The Bureau concluded a year-long review process by releasing the final version of its revised Merger Enforcement Guidelines on the first day of the conference. The MEGs set out the Bureau's analytical framework for reviewing mergers. Having issued two consultation drafts, the final version of the MEGs contained few surprises.2 The primary change relative to the 2004 version of the MEGs is the Bureau's decision that defining relevant product and geographic markets is merely one analytical tool of many, and it need not be undertaken in every case. This will afford both the Bureau and merging parties greater flexibility in crafting arguments about the merits of potential transactions. The other major changes are that the Bureau has consolidated the merger-related guidance it previously provided in other documents into the MEGs (such as efficiencies), providing a "one-stop shop" document for merger guidance. The final version of the revised MEGs also clarifies that its treatment of efficiencies takes precedence over the Bureau's 2009 Bulletin on Efficiencies in Merger Review. The revised MEGs further provide greater detail on the Bureau's approach to transactions involving minority interests and interlocking directorates, to vertical mergers and to monopsony power.
  2. Smaller transactions will not escape scrutiny. The Bureau reiterated its previous guidance that it has increased its monitoring of smaller, non-notifiable transactions that may raise competition law issues, and confirmed that one staff member has been tasked with monitoring media and transaction databases for such deals. Traditionally, the Bureau only reviewed a handful of transactions every year that fell below the threshold for pre-merger notification. (I.e., the target has assets in Canada or revenues from sales in or from Canada of more than $73 million and the parties to the transaction, together with their affiliates, have assets in Canada, or generate revenues from sales in, from or into Canada from those assets of more than $400 million.) In January 2011, the Bureau challenged a non-notifiable transaction and sought a possible remedy of dissolution, meaning that, if successful, the buyers may need to return the funds and the entire deal could be undone. Parties to transactions below the notification threshold should ensure that they consider competition issues early in their transaction planning process in order to provide time to deal with the Bureau if the transaction is likely to give rise to competition issues.
  3. Transparency will be enhanced. Since the 2009 amendments, the Bureau has introduced a number of guidance documents providing its view on how the new provisions of the Act will be applied and what procedures will be followed in enforcing them. Bureau officials indicated they will continue to refine their guidance documents as they gain more experience with the new provisions. This includes expected updates to the Merger Review Process Guidelines and the Remedies Bulletin, and the development of consent agreement templates. The Bureau also intends to increase the frequency of its "position statements," which are explanations of the approach used in particular transactions. Bureau officials indicated they will endeavour to release a position statement for each merger that has been classified as "complex." Finally, officials announced their intention to begin publishing a monthly "mergers register" that will include, for each transaction the Mergers Branch reviews, the names of the parties, the industry involved, and the outcome of the review. In the overwhelming majority of cases, the Bureau will already have had to contact market participants (i.e., customers and suppliers of the parties) as part of its merger review, but in cases where no market contacts have been made, the mergers register could represent the initial public disclosure of a merger review. Parties in these situations may want to develop appropriate communications plans to manage the disclosure process.

Misleading advertising/deceptive marketing practices

  1. Misleading advertising will not be tolerated. The Bureau has increased its enforcement of the misleading advertising and deceptive marketing practices provisions of the Act, and intends to continue to do so. Misleading representation cases were brought against Rogers Chatr, Bell Canada, and Beiersdorf, with the Commissioner seeking significant remedies in each case, including maximum administrative monetary penalties. The Bureau now considers that enforcement in this area is as much a priority as are actions against cartels, abuse of dominance or anti-competitive mergers.

Reviewable practices

  1. Pending cases will clarify important new provisions. The price maintenance provisions of the Act were changed in 2009, removing the criminal sanctions and requiring that the conduct has had, is having or is likely to have an "adverse effect on competition" in a market. The Commissioner has challenged the practices of Visa and MasterCard, arguing they influence upward or discourage the reduction of card acceptance fees paid by merchants. As well, the Commissioner has challenged the proposed joint venture between Air Canada and United Continental on transborder routes under the merger provisions of the Act, as well as certain historical alliance agreements between Air Canada and each of United and Continental. These alliance agreements are being challenged under the new s. 90.1 of the Act, which allows the Commissioner to seek to block or alter the terms of an alleged anti-competitive agreement between competitors. This is the first challenge under this provision, which was added in 2009 and took effect on March 12, 2010, when the changes to Canada's capital provisions took effect. These cases should provide very important judicial guidance on these new provisions.
  2. The wait continues for guidance on abuse of dominance. Despite issuing draft revised enforcement guidelines for the abuse of dominance provisions in January 2009, there is no clear timeline for when either a subsequent consultation draft or a final version of the revised guidelines will be released. Initially delayed as the Commissioner pursued her case against The Canadian Real Estate Association, it had been hoped the guidelines would be finalized after the parties reached a settlement. It is possible the revised guidelines will need to await the conclusion of the Commissioner's case against the Toronto Real Estate Board; preliminary hearings have been set for mid-October but the main merits hearing has not yet been scheduled.

Conclusion

It is clear that the Bureau is now in "enforcement mode." This reinforces the need for companies to revisit their own compliance programs or consider implementing a program if they do not currently have one. With the recent amendments to the Act having added hefty monetary penalties for certain civil matters, compliance is more important than ever. And, more than ever, it is clear that compliance programs can never be regarded as static documents. They must be regularly reviewed and audited, and corporate conduct and actions must be continually reviewed and assessed against these programs.

Footnotes

1 Remarks by Melanie L. Aitken, Commissioner of Competition, CBA Spring Conference: Focus on Civil (Toronto, Ontario, May 3, 2011) available at http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03383.html.

2 See our bulletin on the penultimate consultation draft at http://www.nortonrose.com/files/canada-issues-consultation-draft-on-new-merger-review-framework-pdf-92kb-54884.pdf.

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