The Competition Bureau ("Bureau") has published
guidelines regarding its enforcement of the new criminal conspiracy
and civil agreements provisions (the "Guidelines"),
clarifying that it will generally not seek to apply the new
criminal law to dual distribution and franchise agreements. As
reported in earlier updates, the criminal conspiracy provision of
the Competition Act has been substantially changed to
bring the law into closer conformity with U.S. cartel law.
Effective March 12, 2010, all conspiracies, agreements or
arrangements between competitors on price, output or sharing of
markets (with limited exceptions) will potentially be subject to
criminal prosecution, regardless of the actual or potential effect
on competition. In addition, all other types of agreements or
arrangements between competitors will be subject to a new civil law
provision that provides for remedial action where such an agreement
or arrangement prevents or lessens, or is likely to prevent or
lessen, competition substantially in a market.
The new criminal conspiracy provision has created considerable
uncertainty as to its potential scope as a literal reading of the
provision could lead to its application to situations that are
competitively benign or even procompetitive. Although not binding,
the Guidelines provide important guidance regarding the
Bureau's enforcement stance in relation to some of the more
problematic areas raised by the breadth of the provisions. For
example, with respect to dual distribution agreements, where a
manufacturer both supplies distributors and competes with
distributors for end customers, the Bureau has indicated that it
will not review such agreements under the criminal law except in
limited circumstances. Similarly, with respect to franchise
agreements, it generally will not apply the criminal law to
legitimate franchisor-franchisee relationships. In terms of buying
groups, the Bureau has indicated that it will not attack such
agreements or arrangements under the criminal law, but could review
them under the civil provisions.
However, much uncertainty remains as to how the new law will be
applied in practice. The criminal law contains a defence for
restraints that are ancillary to a main agreement and that are
directly related to, and reasonably necessary for giving effect to,
the objective of that main agreement. These words create broad
latitude for interpretation. For example, a standard non-compete
clause in a purchase and sale agreement makes sense to protect the
value of what is being bought. However, if the non-compete
provision is for a very long period of time or concerns products
not subject to the purchase and sale agreement, the defence will
likely not be available. The Guidelines also indicate that if other
practical, significantly less restrictive alternatives were
reasonably available when the agreement was entered into, the
Bureau's view is that the defence would not apply.
It also must be borne in mind that private litigants are in no
way bound by the Guidelines or by the Bureau's approach to
enforcement generally. Such parties may use the strategic
opportunities created by the new criminal law to find creative ways
to attack agreements between competitors and seek damages, even
where the Bureau has declined to proceed.
The Government has purposefully postponed implementation of the
new conspiracy law until March 12, 2010 in order to provide
companies with a grace period in which to review existing
agreements and bring them into conformity with the new law.
Companies should now be reviewing all of their agreements and
arrangements with competitors, even where there appears to be
little competitive effect, to ensure compliance with the new law.
After March 12, 2010, the grace period will be over and continuing
conduct pursuant to existing agreements and arrangements could be
subject to criminal or civil law scrutiny under the new
We would be pleased to provide further information and guidance
about the new law on an individual client basis.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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