In mid-December, Bill C-56, the Affordable Housing and Groceries Act, became law. Among other changes, which we will discuss in subsequent bulletins, the law introduces significant amendments to the abuse of dominance regime under the Competition Act (the "Act"). With these amendments, the elements needed to establish abuse of dominance have been reduced and the scope of potentially abusive behaviour has been expanded, both through revisions to the substantive test for establishing abuse of dominance and the explicit inclusion of excessive pricing - a form of exploitative conduct - as an anti-competitive act. The amendments also both adjust the quantum of possible financial penalties for certain infringements, and distinguish the remedies available based on the type of infringement established.

Notably, these amendments were not originally included in Bill C-56; rather, they were incorporated by the Liberal government during the legislative approval process in order to gain the NDP's support for this bill. Having been rushed through the legislative process without meaningful consultation with stakeholders, the amendments create a state of considerable uncertainty, which will remain until the Competition Bureau (the "Bureau") issues updated guidelines and, ultimately, the amendments are adjudicated before the Competition Tribunal (the "Tribunal").

These amendments also sharpen the teeth on the abuse of dominance regime, increasing the cost of non-compliance for dominant firms. Where it finds that a dominant firm has engaged in conduct that is likely to substantially harm competition, the Tribunal can make additional orders beyond a prohibition order (e.g., the divestiture of assets or shares) and order administrative monetary penalties ("AMP"). Additional amendments currently before Parliament would, if enacted, allow the Tribunal to also grant monetary awards to private litigants in an amount up the benefit of the value derived by the dominant firm from the anti-competitive practice or conduct (i.e., disgorgement).

New Substantive Test for Abuse of Dominance

Bill C-56 has revised the substantive test for establishing abuse of dominance under the Act. Previously, the Tribunal could find that abuse of dominance had taken place only where a dominant firm (i.e., one that substantially or completely controls a class or species of business throughout Canada or anywhere in Canada) had engaged in a practice of anti-competitive acts (i.e., an act that was or was intended to be predatory, exclusionary or disciplinary, or which was intended to harm competition) and that the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.

The need to prove both anticompetitive intent and anticompetitive effects has now been done away with, with the Tribunal being able to make a prohibition order where the applicant shows that a dominant firm (which is defined in the same way as under the prior legislation) has engaged in either:

  1. a practice of anti-competitive acts (which requires proving anticompetitive intent); or
  2. conduct that has or is likely to substantially lessen or prevent competition in any market where the dominant firm has a plausible competitive interest, provided that such anti-competitive effect is not the result of "superior competitive performance".

As a result, prohibition orders will be available where the applicant can demonstrate that the dominant firm intended to harm competition, even if harm ultimately did not come to pass, or that there was substantial harm to competition even where there was no intention to do so.

Where an applicant can prove all three elements – dominant firm, with an intent to engage in anticompetitive acts, and with the resulting harm to competition – the menu of remedies expands to include AMPs, which themselves have been increased to the greater of (a) C$25 million for an initial order ($35 million for subsequent orders), which is up from C$10 million (and $15 million for subsequent orders) and (b) three times the value of the benefit derived from the anti-competitive practice or, where that amount cannot be reasonably determined, 3% of annual worldwide gross revenues.

More specifically, these amendments alter core elements of the abuse of dominance framework for which there is a good deal of jurisprudence, thereby introducing ambiguity into a well-established regime:

  • No Requirement of Anti-competitive Effects:As a result of the amendments, the applicant only has to prove that a firm is (independently or jointly with another firm) dominant in a market and has engaged in acts that were intended to have a predatory, exclusionary or disciplinary negative effect on a competitor or an adverse effect on competition generally, irrespective of whether the acts actually result in an anti-competitive effect. However, as discussed further below, the remedies available to applicants who do not prove competitive effects are limited to a prohibition order, requiring the respondent to cease the impugned conduct.

    This amendment presents a significant shift from past practice, as the mere exercise of market power by a dominant firm without a corresponding competitive effect has not previously been actionable. This change will be welcomed by the Bureau which, in its submission to the Government of Canada's consultation on the future of competition policy in Canada, advocated for a reduced emphasis on effects, on the basis that complex economic evidence and modelling was often required to establish that clearly anti-competitive conduct was likely to harm competition.

    This change also brings the Canadian regime in line with those jurisdictions where the burden for establishing harm is lower. For example, in Australia, a dominant firm is considered to have abused its position if it engages in any conduct that has the purpose, effect or likely effect of substantially lessening competition in any market in which it directly or indirectly participates.

    Without an effects-based threshold for abuse of dominance, businesses in Canada with a leading market position may now find themselves subject to further scrutiny even if their actions have not had - and never will have - any negative effect on competition in any market.
  • A Wider Range of Impugned "Conduct": Prior to these amendments, only anti-competitive acts (as defined in s. 78 of the Act) that resulted in an anti-competitive effect would lead the Tribunal to conclude that a dominant firm had abused its dominance. Under the new substantive test, any conduct of a dominant firm that has an anti-competitive effect in any plausible competitive market (i.e., even in a market in which a firm is not an active competitor) can now also result in enforcement action and a prohibition order. The Act does not define "conduct" nor does it limit the scope of what can constitute impugned conduct.

    While existing jurisprudence provides a framework for determining what constitutes an "anti-competitive act", the separation of impugned "conduct" into a separate branch of the substantive test suggests that its definition will be broader. In particular, "conduct" may not require that the applicant demonstrate an anti-competitive intent, or the predatory, exclusionary or disciplinary character that has been the subject of abuse cases to date. Even conduct without anti-competitive intent could potentially be implicated. In addition, where the prior provision required a practice of anti-competitive acts (which has been interpreted to suggest an ongoing series of acts), "conduct" likely applies to a single action. Accordingly, dominant firms engaging in conduct that would typically be considered actionable only under other provisions of the Act, such as a single merger that results in a substantial lessening or prevention of competition or entering into an anti-competitive competitor collaboration, may now also find themselves subject to scrutiny under the abuse of dominance regime (and therefore potentially subject to a different, and possibly incremental, penalty structure).
  • Inclusion of Excessive Pricing as an Anti-Competitive Act: Bill C-56 has also expanded the list of anti-competitive acts in s. 78 to explicitly include "directly or indirectly imposing excessive and unfair selling prices", which derives from the government's attempt to clamp down on rising prices in the grocery sector and elsewhere in the Canadian economy. The explicit inclusion of excessive pricing now brings Canada more in line with the European Union (including its Member States) and the UK, where exploitative abuses such as excessive pricing have long been treated as abuse of a dominant position. In the European Union (and its Member States), courts and competition agencies have undertaken complex analyses seeking to benchmark prices charged by a dominant firm against a number of measures to determine whether the dominant firm's prices can be considered unfair or excessive. This includes an estimation of the dominant firm's costs, the price charged by the dominant firm in a market, segment, or period in which it was subject to stronger competitive pressures or more price sensitive customers, or the prices charged by other comparable firms that are subject to more intense competition or have less market power. While this analysis is complex, in the absence of domestic guidance or jurisprudence, businesses can benefit from using these or similar measures to benchmark their own prices as a protective measure to enforcement.

  • How Much Do Pro-Competitive Benefits Matter?: The level of deference that the Tribunal can give to pro-competitive benefits when assessing conduct that is potentially anti-competitive is now unclear. On the face of the legislation, anti-competitive effects can be justified where they result from the dominant firm's superior competitive performance, though the amendments fail to provide any insight into what constitutes "superior competitive performance".

    Under previous jurisprudence in Canada, firms could similarly benefit from the existence of a legitimate business justification for potentially anti-competitive behaviour. The Tribunal's assessment of whether an impugned practice constitutes an "anti-competitive act" prior to the amendments involved weighing any pro-competitive rationale against any intended or anticipated predatory, exclusionary or disciplinary effects of the practice in determining whether a dominant firm had engaged in abusive behaviour.

    As the amendments preserve the "anti-competitive acts" language for the first branch of the test, such that intent remains an integral component of section 79(1)(a), the Tribunal's legitimate business justification jurisprudence remains applicable to that branch. While, as described above, the second branch of the test does not necessarily require intent, such that the application of legitimate business justification jurisprudence to section 79(1)(b) is unclear, the second branch does explicitly provide for pro-competitive considerations to be accounted for through the exemption for "superior competitive performance".

    In light of the reduced burden to establish abuse of dominance, the ability for private litigants to bring cases and the increased penalties for abusive conduct in certain circumstances, the continued role of pro-competitive considerations (whether in the form of a legitimate business justification or superior competitive performance) will be critical to avoid a chilling effect on legitimate competitive behaviour.
  • Proof of Anti-Competitive Effects Remains Necessary for Most Remedies: As described above, litigants who establish that a dominant firm has engaged in a practice of anti-competitive acts (without establishing competitive effects) or has engaged in conduct that is likely to substantially harm competition (potentially irrespective of the dominant firm's intentions) can now obtain a prohibition order under section 79(1)(a). However, remedies like AMPs or the divestiture of assets or shares are only available where the Tribunal concludes that the practice or conduct also has had or is having the effect of preventing or lessening competition substantially in a market in which the dominant firm has a plausible competitive interest.

    In addition, Bill C-56 has increased the threshold of AMPs that can be awarded, setting the upper bound at the greater of (a) C$25 million for an initial order ($35 million for subsequent orders), which is up from C$10 million (and $15 million for subsequent orders) and (b) three times the value of the benefit derived from the anti-competitive practice or, where that amount cannot be reasonably determined, 3% of annual worldwide gross revenues.

    Bill C-59, which is currently before Parliament, also proposes to allow the Tribunal to grant monetary awards to private litigants in an amount up the benefit of the value derived by the dominant firm from the anti-competitive practice or conduct – effectively, a disgorgement order. In its current form, this amendment would allow the Tribunal to order disgorgement where it issues either a prohibition order or other additional order, which suggests that private litigants need only two of the three possible elements – dominance plus intent or effect – to obtain a prohibition order and, subsequently, a monetary award. It remains unclear at this time whether Bill C-59 will be revised to require private litigants to establish all three elements, as is the case with the ordering of AMPs.

The Road Ahead

With more questions than answers coming out of these amendments, prompt and clear guidance from the Bureau will be critical for businesses to navigate this new regime in the absence of case law interpreting this new substantive test. The Bureau's updated draft abuse of dominance guidelines to reflect a previous set of amendments to the Act passed in June 2022, which are currently undergoing public consultation, are now out of date and it is likely that the Bureau will revisit these guidelines over the course of 2024 to reflect this new regime. As most of the amendments discussed above are now in effect, businesses should take this opportunity to reflect upon their practices in light of the increased ease with which abuse of dominance orders can now be obtained.

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