On November 17, 2022 the Minister of Industry, Science and Innovation, François-Philippe Champagne released a long-awaited discussion paper on the future of competition policy in Canada. The paper outlines five key areas of potential reform focused on the key provisions in the Competition Act: merger review, unilateral conduct, competitor collaborations, deceptive marketing, and the administration and enforcement of the Act. The paper does not contain firm recommendations on specific legislative amendments, but rather poses open-ended questions for discussion, albeit with certain policy leanings, and invites interested parties to make submissions to the Government by no later than February 27, 2023.
Stikeman Elliott has long been a thought leader in relation to Canadian competition law and policy and intends to play an active role in the submission process. Should you wish to discuss the process, the scope for amendments, or any other topics related to Canadian competition policy and how to shape it, we would be pleased to hear from you. The below is intended as a short, largely descriptive primer on the content of the discussion paper. More detailed analysis from Stikeman Elliott will follow in the weeks and months to come.
While the Government has set out a clear deadline for submissions – February 27, 2023 - what it has not done is preview what will happen after February. Clarity on the process that will follow will be important to obtain in the coming months, particularly given that the last significant amendments to the Competition Act in 2009 and 2022 were squeezed into budget bills in a manner that in some sense circumvented the normal legislative process that one would expect to see observed in respect of framework legislation as fundamental as the Competition Act.
Over the past few years, many jurisdictions (e.g., the United States, the European Union, the United Kingdom, Australia), have studied, and continue to study, whether their competition laws adequately address the challenges presented by the digital economy, and, consequently, have proposed significant and wide-ranging reforms. In some countries, these processes have been largely “technocratic” in scope whereas in other countries they have been explicitly political. In some cases, major changes have already been implemented whereas in other cases, the debate is ongoing.
It has been in this context that Canadian competition policy commentators have increasingly started to question why Canada had not undertaken a similar review, and whether the Act is fit for purpose. Notably, the Commissioner of Competition supported the call for a comprehensive review of the Act in a dramatic speech to the Canadian Bar Association in 2021 where he underscored the Competition Bureau's (the “Bureau”) view that “Canada needs more competition” - a noble sentiment with which at some level it is difficult to disagree - and that it was perceived deficiencies in the Competition Act that were getting in the way of this objective, a somewhat more debatable position. Please see our blog post for more details of the Commissioner's call to action.
Partly in response to this global zeitgeist, Senator Howard Wetston, a former head of the Bureau and a prominent member of Canada's senate, initiated a consultation on Canada's competition policy framework. He commissioned the former dean of the University of Toronto Faculty of Law, Professor Edward Iacobucci, to examine whether digital markets have distinctive features that would necessitate changes to Canada's competition laws. While Professor Iacobucci's report largely supported the status quo, it did recommend a few incremental reforms, such as criminalizing wage-fixing and no-poach agreements, clarifying that anti-competitive acts that may constitute an abuse of dominance include harm to competition and not just competitors, and adding digital market related examples of anti-competitive acts in the legislation. Subsequently, Senator Wetston invited interested stakeholders to comment on Professor Iacobucci's paper. More than 25 responses were received, including a detailed submission from the Bureau that had 35 wide-ranging recommendations, that if adopted, would dramatically reshape Canadian competition law enforcement. The Bureau's recommendations went far beyond the scope of Senator Wetston's consultation, which was limited to the digital economy.
On 7 February 2022, Minister Champagne announced that the Government would engage in a review of Canada's competition laws with a view to promoting dynamic and fair markets, and signaled that the review may take place in two stages, as has turned out to be the case. The first stage involved quickly addressing what were characterized as gaps in the law through incremental amendments to the Act (e.g., criminalizing wage-fixing agreements, clarifying that “drip pricing” is misleading advertising, moderately expanding the scope of anticompetitive conduct prohibited by the abuse of dominance provisions, increasing penalties, etc). These amendments were contained in the Budget Implementation Act, 2022, No. 1, in relation to which there was no opportunity for meaningful debate. This first stage of amendments was described in our prior blog posts and publications. The current consultation on the Future of Competition Policy in Canada represents the second stage, where the Government is inviting comments from the public on whether the Act remains fit for purpose.
The main areas where the Government has sought feedback from Canadians are:
Thresholds and Non-Notifiable Mergers
Transactions that exceed certain monetary thresholds must be notified to the Bureau in advance of completion and a waiting period must expire (during which time the Bureau conducts its review) before the parties can complete their transaction. In addition, the Act currently gives the Bureau the ability to review any merger, even it falls under these thresholds, prior to closing but then only for a period of one year following its completion.
The discussion papers asks whether the thresholds are adequately calibrated to capture mergers of interest and whether non-notifiable mergers should be subject to review and challenge for a longer period of time, as had previously been the case.
One of the most relevant recent topics in Canadian competition law relates to the ability of the Bureau to obtain an injunction pending a merger challenge. Remarkably, it was only in 2021 that the first decision directly on this important question was issued by the Competition Tribunal. The Bureau lost, although a later appeal to the Federal Court of Appeal is such that the Bureau could easily win the next such injunction application and in fact in 2022 Rogers and Shaw agreed to an injunction “on consent” pending their merger challenge. This question will be a key topic in the consultation.
The Commissioner has noted that there is often insufficient time to properly prepare a case that meets the standards established by the case law, which now clearly includes a balancing of efficiencies even at the stage of a preliminary injunction. As such, options that may provide the Bureau with more time to review a transaction and the standards for interim relief are topics for discussion.
The bête noire of Commissioner Boswell is the efficiencies defence. The efficiencies defense prevents the Competition Tribunal from enjoining an otherwise anti-competitive transaction where the gains from efficiency realized by the transaction outweigh and offset those anti-competitive effects. Countless speeches have been given by Bureau officials calling for reform of this provision, noting that its existence makes Canada an outlier in the competition policy world, and in recent years academics and even the national media have developed strong opinions on the merits (or demerits) of the efficiencies defence, too. The Government stressed in the paper its resolve to review this provision.
The Government also wants to review when remedies should be available in respect of an anti-competitive mergers, including whether a fix must resolve all competition concerns or merely eliminate the “substantial” lessening of competition. In addition, the paper calls for comments on whether, and if so how, harm to labour markets should be a factor for consideration in merger reviews.
The discussion paper notes that the abuse of dominance provisions are often misunderstood by the public, and are a quite technical area of the law. It is of course important to strike the right balance between allowing companies to plan their own affairs and engage in intense competitive rivalry, but within the overall bounds of a fair marketplace. The government is seeking input from the public on where these lines should be drawn, and what kind of burden the Bureau should face in enforcing the Act.
The paper invites responses on the best way to define dominance, whether by a sole actor or persons acting jointly in an anti-competitive fashion. The 2022 amendments included some changes to clarify the scope of anti-competitive conduct, and the government would like further input on the extent to which anti-competitive intent is a necessary element of anti-competitive conduct (noting that for decades anti-competitive intent was an absolutely core element of dominance law). Should it be required that a party intend to harm a competitor or competition writ large? Is it necessary that the anti-competitive harm be proven or should certain conduct on its own merely be presumed to be anti-competitive and subject to per se condemnation, more in line with the European model. Needless to say, eliminating or lessening the need to prove intent or competitive harm would ease the burden on the Bureau (or private parties) when bringing abuse cases.
The discussion paper does not focus solely on the abuse of dominance provisions within the realm of unilateral conduct. There are several other specifically described practices in the Act, such as refusal to deal, price maintenance, exclusive dealing, tied selling and market restriction, as well as delivered pricing, that feature slightly different standards and contemplate slightly different remedies. The paper asks whether these provisions, along with abuse of dominance, should be rolled into one simplified provision dealing with anti-competitive unilateral conduct.
Currently, agreements between competitors to fix prices, allocate markets or restrict output are subject to per se criminal condemnation. The penalty for breaching these provisions is a maximum of 14 years in jail for an individual or a fine of up to $25 million, or both; as a result of the amendments passed earlier this year, the cap on the potential fine will be removed in June 2023. This per se criminal provision was introduced in 2009 and was at the same time seen as a major policy win for the Bureau.
Agreements between competitors falling short of criminal conduct, or related to anything other than the above three topics, are subject to review under a civil standard, and where the conduct is ongoing and found to result in a substantial lessening of competition, or is prospective and the conduct is likely to result in a substantial lessening or competition, the Tribunal can issue a prohibition order requiring a party to the agreement to take certain actions (or not). No monetary penalty can be imposed.
In addition, a key amendment passed earlier this year (taking effect June 2023) will make it a criminal offence for employers to agree to fix, maintain, decrease or control wages or other terms of employment (“wage-fixing agreements”) and to refrain from hiring or trying to hire one another's employees (“no-poach agreements”).
The discussion paper raises the question of broadening and/or strengthening the Act's civil competitor collaboration provisions with a view to discouraging more intentional forms of anti-competitive conduct. This could include examining past conduct and introducing monetary penalties. Broadening the civil provision could also be done by eliminating the requirement that the parties to the anti-competitive agreement must be direct competitors.
In keeping with the focus on the digital economy, a key, and perhaps slightly eccentric, concern discussed in the paper is how to treat pricing algorithms. For example, how should the law deal with the potential for "algorithmic collusion,” which the government explains as “the idea that automation could make it easier for firms to arrive at or sustain collusive outcomes with no or minimal human interaction.” To succeed in prosecuting this criminally would require proof beyond a reasonable doubt that the parties intended to collude. What if they programmers merely sought to have prices set in a profit maximizing way? While this particular algorithmic pricing topic has garnered academic attention in recent years, the issue has always been that it does not readily lend itself to pragmatic responses.
There are two final issues raised in this section of the paper: (i) potentially anti-competitive joint ventures or competitor collaborations may be hard to detect, which could be solved by establishing either a mandatory notification process or a voluntary clearance process for such agreements, including drug patent settlements; and (ii) the potential reintroduction of buy-side collusion into the criminal conspiracy provision, or dealing with it using a per se civil approach. This would mean revisiting the inclusion of buy-side labour agreements such as no-poach and wage fixing agreements that were only added earlier this year.
The discussion paper gives relatively little consideration to deceptive marketing. The amendments earlier this year clarified that drip pricing is considered deceptive. The Government is open to suggestions on similar amendments to better define false or misleading conduct.
Administration and Enforcement:
The final section of the paper examines important topics about how the Act is administered and enforced. In some sense, it is in this area that changes could be the most profound as they could go to basic questions of institutional design. Some of the reforms floated in the paper would have a profound impact on the role and powers of the Competition Bureau and it is critical that any such reforms be subject to vigorous debate, such that they do not substitute one set of problems for another. There is general consensus that the enforcement of the Act before the Bureau, the Tribunal and the courts could be, and should be, made more efficient. There is little consensus on how best to do that.
Currently, the Bureau operates as an independent law enforcement agency. It does not make final determinations in most areas of their remit (other than by declining to pursue a case or by issuing an advance ruling certificate in a merger). Should it uncover conduct it believes contravenes the Act, it must commence proceedings before the Tribunal, or refer a criminal matter to the Public Prosecution Service of Canada. When the Bureau believes a person has records relevant to an inquiry, it must satisfy a judge that a production order or warrant is appropriate in the circumstances. Unlike antitrust agencies in certain other jurisdictions, the Bureau cannot unilaterally compel production (except by issuing a supplementary information request to a merging party during a merger review). It is fundamentally an enforcer who brings cases before the courts, and not a regulator or a rule-making body. That has always been the model in Canada. Indeed, it is easily forgotten that an attempt in 2000 to give the Commissioner the direct power to unilaterally issue orders was found by the Quebec Court of Appeal to violate the Bill of Rights in 2003 (i.e., in essence to be unconstitutional).
The discussion paper notes that some have suggested the Bureau be given greater powers in order to act as a decision-maker, for example by authorizing simplified information-collection, or a first-instance ability to authorize or prevent forms of conduct; on a related note the discussion paper flags that empowering the Bureau to collect information in connection with market studies would be in keeping with powers held by similar agencies in peer countries. Notably, in conjunction with the potential expansion of their powers there is reference to changing the accountability model of the Bureau. Currently the Bureau is housed within ISED and the Commissioner must take direction in limited circumstances from the ISED Minister. A topic for discussion is whether the Bureau should become truly independent and, like the Privacy Commissioner, report directly to Parliament. This would be a significant change for the Bureau and deserves serious scrutiny.
Finally, this section discusses allowing private parties to seek compensation for damages suffered from civilly-reviewable conduct (other than mergers). This is seen as providing a greater incentive for private parties to commence their own action.
There is no question that competition law is in the spotlight in Canada and worldwide, as legislatures in key trading partners have introduced amendments to their competition laws. Similarly, high profile cases in Canada have captured headlines and moved from the rarified corners of the business press into mainstream conversation. Commissioner Boswell has also been an outspoken advocate regarding the amendments to the Act.
The possible changes to the Act raised by the discussion paper range from relatively minor tweaks to the Act to fundamental changes in the organization and institutional structure of competition policy. As such, it is important that adequate time be allocated to the consultations and subsequent debate of any recommendations for change. Both the 2022 amendments, and the last set of fundamental changes to the Act (in 2009-2010), were passed as part of omnibus budget legislation, resulting in very little true substantive debate on the merits of the changes. This should not be permitted to occur again.
In both the Bureau's response to the Wetston consultation, and in the discussion paper, the case for change is presented as necessary because the Bureau has not had a very good track record of winning the cases that it brings. Where the law imposes a high burden of proof, proponents for change argue that instead of having to marshal evidence of harm, for example, that amending the Act to include presumptions of harm in certain circumstances could make the Bureau's job easier. When examining the administration and enforcement of the Act during the consultation period, it would also be helpful to evaluate the cases that have been brought (or not brought) and the outcome in those cases. In some areas of law, the cases brought have been so few and far between that perhaps the current law, refined with moderate, surgical amendments, is more fit for purpose that is otherwise realized.
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.