Federal Government Takes an Incremental Approach with Bill C-19 Amendments to Canada´s Competition Act

Given First Reading in the House of Commons on November 2, 2004, Bill C-19 proposes to increase substantially the maximum penalties for deceptive marketing practices. These proposals will have serious potential repercussions for retailers of all kinds, particularly given the fact that the Bureau has recently increased its enforcement in this area (e.g., recent six-figure penalties were levied against Forzani Group ($1.7 million) and Suzy Shier ($1 million)). Sears Canada is currently awaiting judgment from the Competition Tribunal in an "ordinary price claim" case, and a decision is expected to provide guidance on the scope and application of these deceptive marketing provisions. These developments, and the proposals to increase penalties, highlight the importance of having a vigorous competition law compliance program in place.

Bill C-19 would also repeal various pricing offences in the Competition Act and substitute the existing criminal penalties with a new, multi-million dollar administrative penalty for abuse of dominant position. The principal outcome of these changes would be to eliminate the chilling effect that the current approach is having on a range of pricing practices. But the changes would also increase the risks faced by companies with strong market positions when enhancing or defending those positions. However, it is not expected that the changes will materially increase the very small number of abuse of dominance cases currently brought by the Commissioner of Competition before the Competition Tribunal.

There are five key elements to the proposed reforms:

1. The maximum available administrative monetary penalty (AMP) for a corporation found to have engaged in deceptive marketing practices will increase significantly, up to $10 million for a first-time infraction and up to $15 million for each subsequent infraction. For individuals, maximums would be increased to $750,000 for a first-time infraction and $1 million for a subsequent infraction. (Current maximum penalties for first time and subsequent infractions, respectively, for corporations are $100,000 and $200,000 and $50,000 and $100,000 for individuals)
2. The Commissioner of Competition will be allowed to seek restitution orders against those found to have engaged in deceptive marketing practices, as well as orders to freeze the assets of those suspected of such conduct, to ensure that any restitution order obtained can be realized.
3. The Competition Tribunal will be empowered to impose AMPs against persons found to have engaged in a practice of anti-competitive acts under the abuse of dominance provisions of the Act. The penalties will range from up to $10 million for a first order, to up to $15 million for each subsequent order. All behaviour that infringes the abuse of dominance provision will be subject to the new penalties.
4. The airline-specific provisions added to the Competition Act following the acquisition of Canadian Airlines by Air Canada will be removed. This would move the Act back in the direction of being a law of general application rather than a law that contains sector-specific regulation.
5. The following pricing practices will be decriminalized: price discrimination, geographic price discrimination, predatory pricing and promotional allowances. Such conduct would be examined under the abuse of dominance provisions and be made subject to the imposition of AMPs as discussed above. As a result of the amendments, these practices would only attract scrutiny where the firm engaging in them is found to be dominant in its market and the practices are found to prevent or lessen competition substantially.

The reform proposals are the result of a process begun in 2002 when the House of Commons Standing Committee on Industry, Science and Technology released a report calling for an array of changes to the Competition Act, including some of the changes contained in Bill C-19. Several contentious proposals that were part of recent consultations – such as stricter cartel provisions and a broader private right of access to the Tribunal – are not included in the proposed amendments. The fate of those potential reforms is unclear.

The proposal to decriminalize the pricing provisions will be welcomed by the broader business community. Conduct that infringes the current provisions tends to have a minimal impact on competition. In addition, the current provisions impose a significant compliance burden despite the low likelihood of enforcement action. Decriminalizing these practices will reduce the compliance burden and remove the possibility of private enforcement, as only the Commissioner of Competition can bring an action before the Tribunal for abuse of dominance.

However, the prospect of multi-million dollar AMPs being imposed should cause concern, as there will be increased risk associated with engaging in certain competitive initiatives that may later be found to be anti-competitive.

The presence of pro-consumer/pro-small business elements in Bill C-19 and the absence of more controversial reforms concerning cartels and private access increase the bill’s chances of becoming law in the current Parliament. Of course, this depends on the longevity of the minority Liberal government.

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