Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Competition, Antitrust & Foreign Investment, March 2009
BUDGET IMPLEMENTATIONACT (2009) PROCLAIMED IN FORCE
A. Significant Amendments Become Law
- On March 12, Bill C-10 received royal assent and came into force of law. The Budget Implementation Act (2009) enacts several significant amendments to the Competition Act and the Investment Canada Act.
B. Highlights of New Provisions
- Introduction of U.S.-style "second request" mechanism for mergers.
- Introduction of national security test on investments by non-Canadians in new or existing Canadian businesses.
- Government now has criminal and civil enforcement options for agreements between competitors.
- Expansion of civil liability for damages to per se illegal agreements between competitors.
- Decriminalization of resale price maintenance, price discrimination and predatory pricing.
- Penalties and remedies:
- Higher fines and longer jail terms for criminal conduct
- Monetary penalty for abuse of dominance
- Increased monetary penalties for misleading advertising
- Private right of access for resale price maintenance.
C. Merger Review Process – Competition Act
- Recap of prior law:
- Under the prior merger review process, the maximum waiting period prior to closing was 42 days from the date of filing. To prevent closing after the waiting period, the Commissioner of Competition could seek injunctive relief from the Competition Tribunal in order to obtain more time to review the transaction.
- Unless volunteered by the parties, the Commissioner had to apply for a court order (i.e., subpoena) to obtain information over and above the pre-merger filing. The Commissioner had three years to challenge a completed merger.
- What has changed?
- New amendments replace the existing merger review process with one that closely resembles the U.S. procedure for merger review.
- Initial 30-day waiting period followed by possible demand for more detailed information ("second request") in cases that raise substantive competition issues.
- Requested information must be "relevant" to a competitive assessment of proposed merger, but no judicial oversight or similar procedural protection against overreaching demands.
- Third-party requests for information still require court authorization.
- Parties not permitted to close the transaction until 30 days after compliance with the second request.
- Commissioner retains right to apply for subpoenas and temporary injunctions to extend review prior to closing.
- Commissioner's right to challenge a merger is now limited to a period of only one year after closing.
D. Foreign Investor Review – Investment Canada Act
- Recap of prior framework rules:
- Applies to acquisition of control of a Canadian business or creation of a new Canadian business by a non-Canadian investor.
- Review threshold was based on "book value" of business assets.
- Substantive test for reviewable transactions: whether a transaction is "likely to be of net benefit to Canada"? Minister's decision is based on an application for review, which may include undertakings and representations from third parties and government entities.
- What has changed?
- New ground for review of foreign investment: whether investment could be injurious to national security?
- Term "national security" left undefined.
- Federal Cabinet obtains broad powers over investments that raise national security concerns, including the power to block transactions or impose terms and conditions prior to authorizing the investment.
- New financial thresholds triggering review:
- C$600-million for two years following implementation.
- C$800-million for two additional years.
- C$1-billion thereafter (adjusted annually for inflation).
- Financial thresholds based on "enterprise value" of assets.
- Thresholds apply to all sensitive sectors other than culture – including uranium, transport and financial services.
E. Agreements Between Competitors
- Recap of prior law:"
- Prior law required Crown to prove that an agreement/arrangement between competitors had lessened competition "unduly" or had unreasonably enhanced a product's price.
- Evaluation of conduct incorporated complex legal/economic concepts such as market power, relevant market, etc.
- Criminal standard of proof (i.e., beyond a reasonable doubt) made prosecuting these cases an uphill battle for the Crown.
- Competitive effects test governing hard-core cartel agreements was out of step with other major antitrust jurisdictions (i.e., U.S. and EU).
- Civil actions for damages were based on the criminal law "undueness" test, which has discouraged private suits.
- What has changed?
- Criminal standard changes from focus on economic effects to per se rules.
- Government now has two enforcement options for agreements between competitors:
- hard core cartel agreements (e.g., price-fixing activity) are subject to serious criminal sanctions and private actions for damages; and
- other agreements between competitors that could lessen or prevent competition substantially are subject to investigation by the Bureau and civil review by the Tribunal, although no fines or private damages can be imposed.
- New criminal standard makes it illegal for competitors (or persons who would be likely to compete) to enter into an agreement or arrangement:
- fixing prices;
- allocating sales, territories, customers and markets; and
- fixing production or supply.
- Breach of these per se rules could lead to a prison term not exceeding 14 years or a fine not exceeding C$25-million and also exposes parties to civil liability for damages.
- New defence places the burden on the defendants to prove, on the balance of probabilities, that:
- the agreement/arrangement is ancillary to a broader or separate principal agreement that includes same parties; and
- the agreement/arrangement is "reasonably necessary" for implementing the principal agreement.
- Retains other existing defences (agreements between affiliates, export cartels, regulated conduct, etc.)
- Compliance considerations:
- Review of existing commercial agreements with competitors to ensure compliance, including joint venture agreements, strategic alliances, non-compete agreements, distribution contracts, IP licences, franchise agreements, etc.
- Consider seeking Bureau's compliance advice during one-year transitional period. Criminal prohibitions (and derivative civil liability) do not come into force until one year from the date of royal assent, i.e., March 12, 2009.
- Specific provision for voluntary application to Bureau for "binding" advisory opinions for agreements and arrangements entered into before Act came into force.
- Update compliance programs and training modules.
- Civilly Reviewable Agreements Between Competitors
- Existing and proposed agreements between competitors that are not subject to the criminal per se prohibitions are covered by a new civil review provision of the Act (new Section 90.1).
- Commissioner is the only person who can bring enforcement proceedings to Tribunal.
- Agreements that are likely to substantially lessen competition can only be remedied by a Tribunal prohibition order.
- Tribunal's assessment of non-criminal agreements between competitors will be based on the same assessment criteria that currently apply to mergers.
- Efficiencies defence that parallels the defence under the merger provisions of the Act is available.
F. Abuse of Dominance
- Significant Administrative Monetary Penalties for Abuse of Dominance
- Competition Tribunal now has authority to impose AMPS of up to C$10-million (C$15-million for repeat contraveners).
- Possible chilling effect on vigorous and aggressive competition in the marketplace.
- Constitutionality concerns have been raised regarding similar provisions because of penal consequences for contravention of a civil provision.
G. Agreements with Customers/Suppliers/Licensees
- Provisions dealing with price discrimination, resale price maintenance and predatory pricing, all of which are currently criminal offences, are repealed.
- New civil provision for resale price maintenance designed to address situations where resale price maintenance has an adverse effect on competition.
- Price discrimination and predatory pricing are now dealt with exclusively under the civil provisions of the statute governing abuse of dominance (monopolization), which requires that there be a showing of substantial anticompetitive effects.
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