Significant developments in Canadian competition and foreign investment law and policy over the past year include:
- the formation of a policy panel to recommend potential
amendments to Canada's Competition
- revisions to the Immunity Program and the introduction of
a draft leniency program;
- the Minister of Industry's first-ever refusal to
permit the acquisition of control of a Canadian business by a
foreign investor under the Investment Canada
- the Commissioner of Competition's two losses in
preliminary battles related to her inquiry into the
Labatt/Lakeport beer merger; and
- the decisions of the British Columbia Supreme Court and
Québec Superior Court denying certification in
proposed class actions related to an alleged price-fixing
conspiracy affecting Dynamic Random Access Memory
I. PROPOSED CHANGES TO LEGISLATION AND ENFORCEMENT POLICY
A. Legislative Developments
In July 2007, a Competition Policy Review Panel (the Panel) was appointed to review the Competition Act (the Act) and the Investment Canada Act (Canada's foreign investment legislation). In October 2007, the Panel released a consultation paper that sought feedback on changes to the Act that were made to promote Canadian competitiveness and productivity, including changes to the merger review process. The Panel's recommendations, scheduled for release at the end of June 2008, could form the basis for legislative reform.
In June 2007, a new merger review regime under the Canada Transportation Act took effect for all transportation undertakings. The regime requires: a) pre-approval by the Federal Cabinet and the Commissioner of Competition for proposed transactions in the transportation sector that raise public interest issues, and b) a Competition Act filing and/or the expiry of applicable statutory waiting periods under the Competition Act and/or the Investment Canada Act.
Bill C-454 is a Private Member's Bill that proposes significant changes to the Act. Many of the proposed changes were introduced as government-endorsed amendments in an earlier session of Parliament under Bill C-19. These include permitting the Commissioner to conduct industry sector inquiries; significant administrative monetary penalties for abuse of dominant position (beyond those in place for domestic airlines) and repealing the criminal predatory pricing and price discrimination provisions. One additional proposed change, not included in the prior government bill, would fundamentally change Canada's conspiracy law by removing the requirement to prove that any agreement or arrangement lessened competition "unduly," and increasing the potential maximum fine from $10 million to $25 million per count. The Bill passed second reading in the House of Commons in April 2008 and has been referred to the Standing Committee on Industry.
B. Competition Bureau Policies
In October 2007, the Bureau released a revised Immunity Bulletin and Frequently Asked Questions (the key policy documents that form Canada's Immunity Program). These were followed in April 2008 with the release of a draft Sentencing and Leniency Bulletin. Some of the key changes in the Bureau's revised Immunity Program documents include:
- The standard for exclusion from the Immunity Program has
been changed from an instigation or sole beneficiary test to
a coercion test (similar to the test applied by the European
- Immunity applicants will no longer have to provide
restitution to qualify. The Bureau will leave that function
to plaintiffs in civil suits.
- Revocation of immunity for non-disclosure of offences
will be limited to intentional non-disclosure or lack of due
- The Bureau will not pursue proactive immunity (i.e.,
contacting individuals who may have useful information with
an offer of immunity in exchange for co-operation).
The draft Sentencing and Leniency Bulletin sets out the Bureau's approach to various aggravating and mitigating factors to be considered in sentencing for criminal conduct and also sets out the declining scale of discounts for those who have lost the race for immunity but wish to co-operate fully with authorities. Under the draft Leniency Bulletin, the second-in would be eligible for a discount of up to 50 per cent and the third-in and subsequent candidates would be eligible for a discount of up to 30 per cent depending upon a number of factors, including full co-operation.
The Bureau also released revised policies on the treatment of confidential information under the Act, the Bureau's approach to issues related to seeking and executing search warrants, and draft bulletins on multi-level marketing and corporate compliance programs.
A. Beer Market
In January 2008, the Commissioner suffered two losses in court battles related to the acquisition of Lakeport by Labatt.
First, the Federal Court of Appeal (FCA) dismissed the Commissioner's appeal of a March 2007 Tribunal order that denied the Commissioner an interim order to delay closing of Labatt's acquisition of Lakeport Brewing for 30 days to permit the Commissioner to complete her review.1 Section 100 of the Act provides a mechanism for the Commissioner to seek an interim order where, "in the Commissioner's opinion, more time is required to complete the inquiry," and where, in the absence of an order, an action could be taken that would substantially impair the ability of the Tribunal to remedy the effect of the proposed merger.
While the Commissioner lost the appeal, the FCA expressly confirmed that the Commissioner need not demonstrate that the proposed transaction will lead to a substantial lessening of competition in order to be granted an interim order to delay closing under Section 100 of the Act. Rather, the Commissioner need only demonstrate that, without an interim order, the Tribunal's remedial powers would be substantially impaired. The FCA's decision does not preclude a substantive merger challenge of the Labatt/Lakeport transaction by the Commissioner at any time within three years of the completion of the transaction. Merging parties that proceed to close despite the Bureau's expression of substantive concerns assume a significant risk that the Bureau will challenge the transaction.
The Commissioner's second loss came when the Federal Court struck down orders for the production of documents and information issued under Section 11 of the Act against Moosehead and Labatt/Lakeport, finding that representations made by the Commissioner in her ex parte application had been "misleading, inaccurate and incomplete in several material respects."2 While the Federal Court's decision is limited to the particular facts of the Labatt/Lakeport case, its strongly worded message encouraged the Commissioner to take a closer look at the Section 11 orders. The Commissioner and deputy Minister of Justice have appointed a special advisor to review the standard of disclosure required in ex parte applications and the Bureau's Section 11 process. The special advisor's report is due to be submitted to the Commissioner and Deputy Minister of Justice by the beginning of June 2008.
In other merger matters, Registered Consent Agreements were filed to resolve issues with respect to mergers and joint ventures in the paint, grain and communications industries, among others.
B. Foreign Investment
In May 2008, Industry Minister Jim Prentice blocked the proposed $1.3-billion acquisition of the Information Systems Business of MacDonald, Dettwiler and Associates Ltd. (MDA) by Alliant Techsystems Inc. (ATK) because he was not satisfied that it was likely to be of "net benefit to Canada." Alliant had applied for the Minister's approval pursuant to the Investment Canada Act, which provides that where a non-Canadian (such as ATK) proposes to acquire control of a substantial Canadian business (such as MDA) the non-Canadian must file an Application for Review with the Minister of Industry. The transaction can only be consummated if the Minister is satisfied that the proposed transaction is "likely to be of net benefit to Canada." It is generally accepted that the Minister has broad discretion in determining net benefit pursuant to the Act.
This is the first rejection by a minister of a transaction that does not raise Canadian cultural or heritage concerns since the inception of the Investment Canada Act in 1985. One can only speculate as to why Minister Prentice rejected the transaction, because the review of the application is conducted pursuant to very strict confidentiality provisions. According to news reports, ATK's desire to buy the satellite imaging and space business from MDA had sparked fierce opposition related to fears of loss of Canadian control over what is perceived as a key piece of Canadian space technology. It appears the principal motivation for Minister Prentice's rejection, then, is related to Canadian national security concerns.
There is no reason to believe the rejection of the MDA deal will have a significant chilling effect on foreign investment in Canada, although the rejection does raise questions about transactions that involve the transfer of important intellectual property to non-Canadians.
III. CRIMINAL CASES
The Commissioner has declared domestic conspiracies and bid-rigging a top enforcement priority. While there was news of several searches and other investigative activity, no significant contested domestic cartel cases took place in Canada over the past year. Similarly, no contested proceedings related to international cartels in Canada took place in the past year. Fines as a result of negotiated pleas were imposed against participants in international price-fixing cartels related to rubber and rubber chemical products, isostatic graphite and graphite electrodes.
As well, numerous pleas, convictions and charges were laid with respect to deceptive marketing and telemarketing, an area of continued focus by the Bureau and Director of Public Prosecutions.
IV. PRIVATE ACTIONS
Class proceedings for competition claims continued to increase in number in Canada and to closely follow actions launched in the US. Proposed class proceedings have commenced, or are currently ongoing, with respect to chocolate products, air cargo surcharges, flash memory, static random access memory (SRAM), liquid crystal display (LCD), hydrogen peroxide, various rubber and rubber chemical products, and electrical carbon products.
A. Class Certification Denied In B.C. And Québec DRAM Price-Fixing Cases
In May and June 2008 respectively, defendants in price-fixing class actions in British Columbia and Québec were successful in resisting certification of class actions involving DRAM products, which are memory chips used in personal computers and a variety of other "tech" products. The defendants had been found guilty of price-fixing in the US and had paid significant amounts to settle US class actions brought on behalf of direct purchasers of DRAM products. Although the result in these two cases was the same, the approach of the two courts with respect to what constitutes a common issue indicates a potentially significant divergence in these two provinces in proposed class actions involving allegations of price-fixing.
The B.C. Decision
In Pro-Sys Consultants Ltd v. Infineon Technologies et al,3 the plaintiffs sought to certify a class predominantly made up of indirect purchasers of products containing DRAM. They did not buy DRAM chips from any of the defendants. Rather, they bought computers and other products that contained DRAM chips sold to others higher up the distribution chain, the price of which might have been increased by the admitted conspiracy among the defendants.
The court declined to certify the case as a class action because the plaintiff failed to establish that liability to the class members was a common issue. Specifically, the plaintiff did not demonstrate a "class-wide basis of establishing that any overcharge (in the price of DRAM) filtered down and was borne by direct and indirect purchasers of DRAM products in B.C."4 Since liability to class members would have had to have been determined on an individual basis, the court concluded that a class action would not be the "preferable procedure" as required by the B.C. Class Proceedings Act. The court also found that Pro-Sys would not be a suitable representative plaintiff, not only because it could not show a class-wide basis for establishing liability, but also because it was in a conflict of interest with other class members at different levels of the distribution chain.
The Pro-Sys decision highlights the difficulties faced by plaintiffs seeking to certify class price-fixing class actions on behalf of indirect purchasers. Because the class members did not purchase directly from the defendants, establishing liability requires common proof that prices were increased to direct purchasers and that those increases were passed on throughout the distribution chain. In the US, the Supreme Court addressed those difficulties by ruling that as a policy matter, indirect purchasers are precluded from bringing price-fixing cases in US Federal Courts.5 In Canada, courts have not yet ruled out the possibility of certifying a class of indirect purchasers in a price-fixing case, but have not done so thus far.6
The Québec Decision
On June 17, 2008, the Québec Superior Court also denied certification in Option Consommateurs v. Infineon Technologies et al,7 but on different grounds.
The Defendants filed motions to dismiss the certification motion on the grounds that Québec courts do not have jurisdiction to hear the case; these motions were heard at the same time as the certification motion. The Court granted the jurisdictional motion, essentially because the Plaintiff did not allege sufficient facts to establish the jurisdiction of Québec courts over the class action. Pursuant to Québec law, plaintiffs have the onus to demonstrate that a "prejudice was suffered in Québec" (among other things) for Québec courts to assume jurisdiction over foreign defendants. In his reasons, Mr. Justice Mongeau held that all the relevant facts occurred outside Québec, including that the Plaintiff had purchased her computer in Ontario. Relying on a series of precedents from the Québec Court of Appeal, Mr. Justice Mongeau held that the Plaintiff did not allege any facts that would lead him to conclude that a prejudice was "suffered in Québec." As a result, Mr. Justice Mongeau held that Québec courts did not have jurisdiction over this case and that the motion should be dismissed.
Although the Court dismissed the action for lack of jurisdiction, it also assessed the criteria for certification, which it viewed differently than the B.C. Court had in Pro-Sys. In particular, the Québec Superior Court held that there were sufficient common issues, even though the class comprises direct and indirect purchasers, and even though suppliers used various distribution chains for the different products they manufactured. In other words, Mr. Justice Mongeau did not follow the same approach as the B.C. court in the DRAM case, which declined to certify class actions on behalf of indirect purchasers on the grounds that liability could not be established on a collective basis.
The Québec Court went on to indicate that it would have denied certification because the plaintiff had failed to establish a prima facie cause of action under Canadian law and because the plaintiff could not adequately represent the interests of the members of the proposed class. The Court held that guilty pleas in the US were not sufficient to establish a violation of the Canadian Competition Act because there is no requirement under US law to demonstrate that a price-fixing agreement led to an "undue" lessening of competition (as there is in Canada). The Québec Court also found, as did the B.C. Court, that the proposed representative plaintiff was in a conflict of interest in representing the interests of direct and indirect purchasers.
1. Canada (Commissioner of Competition ) v. Labatt Brewing Co.  C.C.T.D. No. 5 (Comp. Trib.), appeal dismissed (2008), 289 D.L.R. (4th) 500 (Fed. C.A.)
2. Canada (Commissioner of Competition) v. Labatt Brewing Co.  F.C.J. No. 127 (F.C.T.D.) at paragraph 36.
3.  B.C.J No. 831 (B.C.S.C.)
4.  B.C.J No. 831 (B.C.S.C.) at paragraph 149.
5. Illinois Brick v. Illinois, 431 US 720 (1977)
6. See Chadha v. Bayer (2003), 63 O.R. (3d) 22 (Ont. C.A.) and Price v. Panasonic Canada Inc. (2002), 22 C.P.C.(5th) 382 (Ont. Sup. Ct.)
7. Option Consommateurs v. Infineon Technologies et al., Superior Court of Québec, District of Montréal Court file number 500-06—000251-047, Reasons dated June 17, 2008.
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