Canada: Canadian Competition Law: Your Top Ten Compliance Questions for 2010

2010 promises to be a busy year for competition law enforcement in Canada. Canada's newly-appointed Commissioner of Competition, Melanie Aitken, officially took the helm of Canada's Competition Bureau in August 2009, only a few months after Canada's Parliament passed the most significant amendments to Canada's Competition Act in decades. The amendments, which were described in detail in our March 12, 2009 Osler Update (http://www.osler.com/resources.aspx?id=17110), carry a "get tough" theme: they increase the penalties for Competition Act violations such as cartels, misleading advertising, deceptive marketing and abuse of dominance, and give the Commissioner better enforcement tools for reviewing mergers. Commissioner Aitken has also articulated an ambitious set of enforcement priorities for the Bureau, focussing on cartels; bid-rigging; mass marketing fraud and internet scams; mergers; and abuse of dominance. In addition, the new Commissioner has promised that the Competition Bureau will enforce the law, and will not be deterred by fear of losing a "responsible" case. Consistent with this promise, earlier this month the Commissioner filed abuse of dominance proceedings in the Competition Tribunal against the Canadian Real Estate Association (CREA) alleging that CREA has used its control of the Multiple Listing Service (MLS) system to lessen competition substantially in the market for residential real estate services.

One of the more controversial amendments passed in 2009 transforms Canada's conspiracy law from one that punishes agreements between competitors only where the agreement seriously impacts competition, to one that punishes agreements to fix prices, allocate markets or restrict supply regardless of any market impact. Penalties for these agreements have also been increased to a maximum fine of $25 million and 14 years imprisonment. Ominously, removal of the "competitive effects" test from the criminal provision simplifies the task for civil (including class) plaintiffs who have become increasingly active in bringing conspiracy-based damages claims.

The amendments also add a new "non-criminal" administrative track. A competitor agreement falling outside the scope of the criminal prohibition may nonetheless be prohibited, where the Competition Tribunal finds that the agreement substantially lessens or prevent competition.

Given the fundamental nature of the conspiracy law amendments, which affect businesses in virtually all of their dealings involving competitors, Parliament recognized that firms required time to make adjustments, and thus suspended the coming into force of the amendments to the conspiracy provision for one year. These amendments will come into effect very shortly, on March 12, 2010.

The amendments have important and far-reaching implications for businesses of all sizes. To prepare for and adjust to these significant changes and a more rigorous enforcement environment, companies should consider the following questions to minimize and manage risk through compliance training and controls and maximize readiness for Competition Bureau enforcement action.

1. Cartel conditions: Is your industry facing falling prices, shrinking demand and overcapacity?

  • Since the economic downturn in 2008, many industries have been experiencing falling prices and demand. These are prime conditions for cartel activity, as employees seek to limit the damage to their businesses (and performance–based compensation). Firms need to be extra vigilant about avoiding risk by ensuring employees are sufficiently trained and monitored to avoid this type of activity.

2. Risk profile: Is my company or industry on the Competition Bureau's "radar screen"?

  • Certain industry conditions/structures are more likely to attract scrutiny. Experienced competition counsel can help you identify and mitigate the risk.
  • Trade association activities involving competitors attract special scrutiny. The recent CREA case is a prime example. All companies should have in place controls to (1) monitor which employees participate in trade associations; and (2) ensure that the associations operate in compliance with competition law rules and that participating employees are trained on these rules.

3. Competitor dealings: Does my company have any dealings with a competitor or a potential competitor? Do these dealings involve the kinds of activities that are prohibited in the new conspiracy provision of the Competition Act?

  • The new conspiracy law does not require an impact on competition for an agreement or arrangement to be unlawful.
  • The list of prohibited activities is long: any agreement between competitors or potential competitors that (a) fixes, maintains, increases or controls price; (b) allocates sales, territories, customers or markets; or (c) fixes, maintains, controls, prevents, lessens or eliminates the production or supply of a product, may be caught by the new conspiracy provisions.
  • Many companies have co-operative arrangements with their competitors which may be lawful (e.g., supply arrangements in certain locations to achieve freight savings). While most arrangements will be compliant with the new law, some may now be suspect (e.g., an "understanding" with a small competitor not to compete in certain markets).

4. Due diligence in deal-making: Do employees and management know how to handle the transfer and sharing of sensitive information in the context of a proposed acquisition or joint venture?

  • How should a data room be set up to minimize the risks of inappropriate information transfer?
  • How should the parties deal with pre-merger planning to avoid inappropriate "gun jumping" risks?

5. Closing conditions: What do I need to have from the Competition Bureau now in order to close my deal? For most deals, the clearance process has not changed, but for some difficult deals, there are important timing issues.

6. Marketing and advertising: Does my company carefully screen all marketing and advertising materials to ensure they are not deceptive?

  • Criminal and civil penalties have been increased substantially.
  • Failure to manage this risk can result in substantial damage awards and costly litigation, not just disruption to marketing plans.

7. Protocols for dominant firms: Is my company a dominant supplier of any products? If so, does it have protocols in place to minimize risk under the abuse of dominance provision? This risk involves real financial consequences with the introduction of multi-million dollar penalties.

8. Repeal of old criminal pricing provisions: Has my company considered new opportunities resulting from the repeal of the price discrimination and promotional allowances provisions of the Competition Act, and the de-criminalization of the price maintenance provisions?

  • New flexibility enables suppliers to charge different prices to competing purchasers and gives them greater flexibility in controlling resale prices without potential criminal liability.

9. Search and seizure checklist: Does my company have a checklist of procedures to follow in case the Competition Bureau searches our premises or databases?

  • The Competition Bureau and police can show up at your premises without any advance warning.
  • Are your employees aware of the "dos and don'ts" of document creation?
  • Ensure key employees know what to do to make certain the search is properly conducted and rights are protected.

10. Compliance program: Does my company have a compliance program that covers competition law issues, and does it adequately address such issues in light of the amendments?

  • Companies with compliance programs are better placed to identify problems earlier and claim immunity from prosecution if necessary, reduce exposure for their senior management, minimize potential civil lawsuits, and assert the compliance program as a mitigating factor if they are investigated.
  • Be especially careful of trade association activities with competitors.
  • The Competition Bureau recently published a Bulletin on Corporate Compliance Programs (http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/02732.html) which includes a template for a program and a due diligence checklist.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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