The Litigator

THE LITIGATOR

Commentary on Law Affecting Business

The Litigator
AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR

Affleck Greene McMurtry LLP
365 Bay Street, Suite 200  ·  Toronto, Canada
416 360 2800  ·  info@agmlawyers.com  ·  www.thelitigator.ca

Canada’s Competition Law

Introduction

Canada’s Competition Act applies to all businesses and business activities in Canada. All companies doing business in Canada need to be aware of the Act, as penalties for breach of its provisions can be quite severe. For example, the maximum penalty for price fixing is a fine of up to $25 million and 14 years in jail.

The Competition Act applies to three main areas of business conduct that can harm competition: coordinated conduct among competitors, abuse of dominance, and mergers. The Act also includes misleading advertising provisions.

THE RULES

CONDUCT

RULE

REMEDIES

Price fixing, market allocation,
output restriction
Unlawful – per se criminal 14 years prison / $25m fine / private action
Bid rigging 14 years prison / fine / private action
Other agreements between competitors Not unlawful, but can be prohibited if competition lessenned Injunction
Price maintenance
Abuse of dominance Injunction / $10m AMP
Exclusive dealing Injunction
Tied selling
Refusal to deal Mandatory Injunction
Mergers Injunction / divestitures / dissolution

Conspiracies and other coordinated conduct among competitors

Hard-core cartels involving price fixing, market allocation, and output restriction agreements between competitors are per se criminal offences in Canada, as is bid rigging. Other agreements between competitors that lessen or prevent competition substantially can be annulled by a special court, the Competition Tribunal.

The conspiracy provision (s. 45) makes it an offence for competitors, or potential competitors, to agree to fix, maintain or control prices for the supply of a product; to allocate customers, territories or markets; or to fix maintain, control, prevent, lessen the production or supply of a product. There is an important exception for restraints that are ancillary to a broader and otherwise legitimate agreement.

Penalties are severe: the offence is an indictable offence punishable by up to 14 years in jail, or a maximum fine of $25 million, or both. Private parties that are harmed by a conspiracy can sue for damages. Canada’s competition authorities offer immunity to the first cartel participant to self-report, and leniency to participants who cooperate subsequently.

Many conspiracies are international in scope. Despite the absence of an express long-arm jurisdiction provision, Canadian authorities routinely investigate and penalize foreign conspiracies that have effects in Canada. As well, the Act makes it an offence for a corporation to implement a foreign conspiracy in Canada (s. 46), even if it did not know it was implementing the conspiracy.

Bid rigging is dealt with in a separate provision (s. 47), and carries equally stiff penalties: up to 14 years in jail, or a fine in the discretion of the court. Private parties that are harmed by bid-rigging can sue for damages.

Other agreements between competitors can be prohibited by the Tribunal if they lessen or prevent competition substantially (s. 90.1). The Act mandates a competitive effects analysis, including factors such as foreign competition, barriers to entry, removal of a renegade competitor, and change and innovation. Efficiency gains that outweigh any competitive harm provide a complete defence. No penalties or damages can be imposed on parties to such anti-competitive agreements; the only remedy is an injunction.

Abuse of dominance

Canada’s Competition Act deals with anti-competitive conduct by large firms through a number of discrete provisions. These include a general abuse of dominance provision, and several specific provisions, the most important of which deal with exclusive dealing, tied selling, market restriction, and refusal to deal.

Abuse of dominance (s. 78-79) occurs where a firm that has market power (dominance) engages in a practice of anti-competitive acts, causing a substantial lessening or prevention of competition. Conduct is considered anti-competitive if it is intentionally exclusionary, disciplinary, or predatory. Examples of anti-competitive conduct include: margin squeezing, pre-emption, exclusionary contracting practices, and predatory pricing.

The principal remedy for abuse of dominance is an injunction. Where an injunction is not enough, the Tribunal can order the parties to take steps to restore competition, including divestitures. The Tribunal can also impose an administrative monetary penalty (AMP) of up to $10 million ($15 million for repeat offenders).

Exclusive dealing, tied selling, and market restriction are not illegal in Canada unless they harm competition, in which case the Tribunal can issue an injunction prohibiting the practice under a specific provision (s. 77). Since these practices can also constitute abuse of dominance, AMPs may be available under the general abuse of dominance provision. No damages are available.

The refusal to deal provision (s. 75) allows businesses that are substantially affected by a refusal to deal to obtain an order from the Tribunal forcing a supplier to resume supply in certain very limited circumstances. No damages are available, however.

Mergers and pre-merger notification

The Competition Act provides substantive remedies for mergers that harm competition, and procedural requirements to notify the Competition Bureau of mergers that exceed certain thresholds before the merger closes.

The Bureau must be notified of a proposed merger, before it closes, where three conditions are met:

• The transaction involves an operating business in Canada

• The parties and their affiliates collectively have over $400 million in assets in Canada, or over $400 million in sales involving Canada

• The target firm has assets or sales involving Canada of over $80 million.

Once parties have notified the Bureau, they must wait 30 days to close the transaction. The Bureau can ask for more information through a supplementary information request, which extends the waiting period for 30 days after the parties supply the information.

When it finds that a merger is likely to lessen or prevent competition substantially, the Tribunal can prohibit the parties from closing the deal, or order them to dissolve the merger or (more commonly) divest assets or shares. Factors considered by the Tribunal include foreign competition, barriers to entry, removal of a renegade competitor, and change and innovation. Efficiency gains that outweigh any competitive harm provide a complete defence.

Misleading advertising and other marketing practices

The Competition Act contains a range of criminal and regulatory (civil) provisions prohibiting misleading advertising and deceptive marketing practices.

Criminal sanctions apply to deliberately false and fraudulent conduct. False advertising is a crime if done knowingly. Deceptive telemarketing, prize scams, and pyramid selling are also criminal offences. Sanctions include imprisonment for up to 14 years and fines.

Most misleading advertising cases are dealt with under regulatory provisions and attract civil penalties, including a requirement to publish a corrective notice and pay AMPs of up to $10 million ($15 million for repeat offenders).

Competition authorities

Led by the Commissioner of Competition, the Competition Bureau is responsible for enforcing the Act. The Bureau investigates possible breaches of the Act, and can bring applications before the Competition Tribunal and the courts in civil, but not criminal, matters. The Bureau can apply to a court to use a broad range of formal investigative tools, including dawn raids (search warrants), production orders, orders for oral examinations, and even wiretaps.

The Director of Public Prosecutions is responsible for prosecuting criminal offences under the Act.

Criminal prosecutions can be brought before the superior courts in each province, as well as the Federal Court. A special administrative tribunal, the Competition Tribunal, has exclusive jurisdiction over most civil matters, including anti-competitive agreements, abuse of dominance, and mergers. The Tribunal and the courts share jurisdiction over civil misleading advertising cases.

THE AUTHORITIES

INVESTIGATION

PROSECUTION

ADJUDICATION

CRIMINAL Commissioner
of Competition
& Competition
Bureau
DPP Courts
CIVIL Commissioner of Competition Competition Tribunal
MERGERS

© 2013 Affleck Greene McMurtry LLP

Affleck Greene McMurtry’s Competition and Regulatory Law Team

AGM’s competition law team is one of Canada’s leading competition law practices. We defend businesses and individuals facing Competition Bureau inquiries and criminal and administrative prosecutions in the court and the Competition Tribunal. We act for businesses involved in price fixing class actions and other private litigation. We prepare merger notifications. We also help businesses comply with the Competition Act by providing practical advice.

W. Michael G. Osborne, Affleck Greene McMurtry LLP

MICHAEL OSBORNE
mosborne@agmlawyers.com
416.360.5919

Michael leads AGM’s competition team. He advises and defends clients in competition matters, including enforcement by the Competition Bureau and class actions. Michael also practises commercial litigation and arbitration.

Michael Binetti, Affleck Greene McMurtry LLP

MICHAEL BINETTI
mbinetti@agmlawyers.com
416.360.0777

Michael represents clients in
a wide range of competition law and commercial litigation matters. He also leads AGM’s marketing practices team.

David Vaillancourt

DAVID VAILLANCOURT
dvaillancourt@agmlawyers.com
416.360.8100

David acts for clients in a wide range
of disputes, including shareholder and partnership disputes, securities litigation, class action defence, proceedings under the Competition Act, and professional negligence claims.

Fiona Campbell

FIONA CAMPBELL
fcampbell@agmlawyers.com
416.360.7406

Annie Tayyab

ANNIE (Qurrat-ul-ain) TAYYAB
atayyab@agmlawyers.com
416.360.5707

Wendy Sun

WENDY SUN
wsun@agmlawyers.com
416.360.1485

Daphne H. Hooper

DAPHNE HOOPER
dhooper@agmlawyers.com
416.360.5951

Kyle Taylor

KYLE TAYLOR
ktaylor@agmlawyers.com
416.360.1175