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Canada: Change is in the Air - "Generational" Changes to the Competition Act

Susan M Hutton

Canada: Change is in the Air - "Generational" Changes to the Competition Act
Roberto Machado Noa via Getty Images

With the passage of significant amendments to Canada’s Competition Act with the enactment of Bill C-56 on December 15, 2023, and further changes proposed in the form of Bill C-59 (before Parliament as of January 2024), the government has proposed “generational” changes designed to significantly enhance competition law enforcement in the country. The December amendments make significant reforms to mergers, abuse of dominance and the civil provisions concerning anticompetitive agreements and provide the Commissioner of Competition with formal market study investigatory powers for the first time since the modern Act was proclaimed in force in 1986. The proposed new amendments still to come will strengthen the Commissioner’s hand in merger enforcement, expand the scope of private litigation before the Competition Tribunal and provide private applicants with the ability for the first time to seek damages (in the form of disgorgement of profits), and will also expand whistle-blower protections, and create a new “certificate” which when issued by the Commissioner will protect parties to agreements meant to protect the environment from allegations of wrong-doing under the Competition Act.

1. 2023 Amendments (Bill C-56):

The highlights of the December, 2023 amendments are:

  • Market studies. Businesses and individuals can now be compelled to provide data, documents and/or sworn testimony for market studies, and a formal process has been specified.
  • Abuse of dominance. A re-written test makes it easier for the Competition Bureau or private parties to prove abuse of dominance, and fine amounts have increased. Further expected amendments will allow private parties to receive damages (see 2024 amendments, below).
  • Efficiencies defence to mergers. The efficiency defence for mergers has been eliminated, and efficiencies were not added as an explicit factor for the Tribunal to consider when evaluating the competitive effects of a merger (although this does not prevent the Tribunal from considering any pro-competitive effects that efficiencies may have as part of its overall assessment of whether the merger will cause a substantial lessening of competition).
  • Restrictions on anticompetitive agreements. The civil (non-criminal) section that applied to agreements between competitors that were not per se illegal (the equivalent to the rule of reason analysis under US cartel law), section 90.1, has been broadened to apply to agreements between parties that are not competitors (i.e., vertical agreements) if a ‘significant purpose’ is to lessen competition in any market.

We unpack the significance of these changes in greater detail below, and then provide a brief summary of the even more extensive changes proposed in Bill C-59, currently before the Canadian parliament.

a. Market studies

Bill C-56 has amended the Act to give either the Commissioner of Competition or the Minister of Innovation, Science and Industry (to whom he reports, but in a semi-independent fashion) the ability to initiate “an inquiry into the state of competition in a market or industry.” Once a market study is commenced, the Commissioner will have the ability to obtain a court order for the compulsory production of records (including, potentially, full e-discovery of email and other records), data, written returns and testimony from market participants. Only the power of search and seizure (which he otherwise enjoys on enforcement inquiries) will be off-limits. Applications for such court orders are typically heard without notice to the respondents.

Even without formal powers, the Commissioner has conducted eight market studies since 2007, covering generic drugs, financial services, broadband Internet, grocery stores, and others. Until now, however, the Commissioner did not have the power to compel cooperation and relied on voluntarily supplied information. Various Commissioners have complained that this limitation hindered their ability to conduct effective market studies.

The new provisions require that inquiries must be completed within 18 months, but this period may be extended by the Minister for successive additional three-month periods (indefinitely).

Given the history of the predecessor to the Competition Bureau – the Restrictive Trade Practices Commission or RTPC – and its decade-long+ inquiry into the petroleum sector, Canadian businesses have feared the potential overuse of these powers. Proponents, on the other hand, point to the fast pace of change in competition in many sectors of the Canadian economy, and the potential for market studies to assist with policy development in these areas.

b. Abuse of dominance

The Canadian government has re-written (and complicated) the test for an abuse of dominance under section 79 of the Act, introducing two separate standards for orders, and different potential remedies for each.

The Tribunal may now make a prohibition order if each of two conditions are met:

  • one or more persons substantially or completely control a class or species of business throughout Canada or any area of Canada; and
  • those persons are engaged in conduct that either:
    • is a practice of anticompetitive acts, or
    • had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, and the effect is not a result of superior competitive performance.

In effect, the amendment collapses what since 1986 was a more rigorous three-part test to a two-part test, but only a prohibition order can result from the new, lower, standard. All three parts of the old test must be proven in order for the enhanced remedies to issue. Given the possibility of a prohibition order issuing upon a finding only that a firm (or firms) is dominant and has engaged in a practice of anticompetitive acts (which is defined based on an intent to exclude competitors or otherwise to diminish competition), the amended provision could potentially amount to a per se prohibition against certain conduct by dominant firms.

For administrative monetary penalties (which already exist) as well as divestitures and damages orders (soon to be introduced if Bill C-59 passes as-is, see below), the Tribunal will still need to demonstrate all three parts of the old test; namely, that (i) one or more persons substantially or completely control a class or species of business throughout Canada or any area of Canada, (ii) the person or persons had engaged in or were engaging in a practice of anticompetitive acts, and (iii) the practice had, or was likely to have had, the effect of preventing or lessening competition substantially in a market.

Prior to December 15, 2023, the Tribunal was unlikely to make an order provided there was a “legitimate” business justification for the impugned conduct – now, the Tribunal may make an order under section 79 even if there is a legitimate business justification for the impugned conduct, as that section has been repealed.

The 2023 amendments also increase the maximum administrative monetary penalties (i.e., fines) for abuse of dominance, from C$10 million to C$25 million for a first order, and from C$15 million to C$35 million for each subsequent order against the same party.

In a nod to European law on abuse of dominance, the December 15 amendments have also made “unfair and excessive pricing” an anticompetitive act for purposes of abuse of dominance. It is now open to either the Commissioner or a private litigant to attempt to assert that the Tribunal should prohibit a firm with a large market share from charging an unfair and excessive price. European and other courts where this is the law have struggled to define what constitutes an “excessive” or “unfair” price – particularly for consumer goods where “value” is to some extent in the eye of the beholder. Whether the Tribunal will be able to define a workable definition for these terms, such that Canadian businesses can know in advance whether they are at risk under this provision, remains to be seen.

c. Mergers: s. 96 efficiencies defence repealed; limitation period extended; automatic interim injunctions

Since 1986, Canada’s Competition Act has included a “defence” for mergers that generate economic efficiencies (real resource savings; that is, cost savings from using fewer inputs, and not just being able to negotiate better prices with suppliers) that outweigh and offset their anticompetitive effects. Even though a very small number of litigated merger cases have turned on the efficiencies defence under section 96, the Bureau and the Commissioner have long called for its repeal. That goal has now been accomplished with the complete repeal of section 96 of the Act.

Of note, since 2009 the Commissioner had up to one year to challenge a completed acquisition transaction, after closing. As of December 15, 2023, he has up to three years to challenge completed transactions that are not notified to the Competition Bureau (or made the subject of a request for an advance ruling certificate).

The December amendments also included an automatic prohibition against closing of a transaction once the Commissioner files an application for an injunction, until the injunction application has been decided (which could be weeks, or even months).

d. Civil review of anticompetitive agreements between non-competitors

Section 90.1, the civil provision restricting anticompetitive agreements – previously applicable only to agreements between competitors – has been amended to allow the Competition Tribunal to make an order prohibiting any person from taking action under an agreement or arrangement between non-competitors if “a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in any market.” Unlike the amendments discussed above which are now in force, these changes are set to come into force in a year’s time, on December 15, 2024.

2. Amendments coming in 2024 (Bill C-59):

On November 28, 2023, in Bill C-59, the Canadian government unveiled another round of amendments to the Competition Act that had been previewed in its Fall Economic Statement the previous week. Given that they are contained in omnibus budget implementation legislation, debate will be significantly curtailed, and significant changes are unlikely. In short, the proposed amendments will provide the Commissioner with additional teeth for merger enforcement (and leave open the possibility of the Tribunal imposing US-style structural presumptions based on market shares), significantly expand the scope and incentives for private litigation before the Competition Tribunal in Canada and expand whistle-blower protections. While the general trend is toward more active and easier enforcement of the Act, a new certificate will be available from the Commissioner in respect of competitor agreements to protect the environment.

a) Mergers: potential for structural presumptions, elimination of cost awards against the Commissioner

Currently the Tribunal is barred from making an order against a merger based on market share alone. Bill C-59 will repeal this, leaving the door open for the Tribunal to adopt US-style structural presumptions if it chooses to do so (something it has already in some sense done for merger injunctions). Two new factors have also been proposed for the Tribunal’s consideration of whether a merger is anticompetitive: the effect of changes in concentration or market share; and the likelihood that the merger will result in express or tacit coordination between competitors in a market. Neither of those factors is new, but the amendments will codify them in the Competition Act.

Following the Competition Tribunal’s determination that the Commissioner behaved “intransigently” in his unsuccessful challenge to the acquisition by incumbent cable and mobile giant Rogers of Shaw’s TV and telecom business (including the divestiture of maverick Freedom mobile to Quebecor, a purchaser that the Commissioner had been reported previously to prefer), the Tribunal awarded C$13 million in costs against the Commissioner. The government has now prohibited the Tribunal from awarding costs against the Commissioner in any proceeding unless the failure to do so would “imperil confidence in the administration of justice or have a substantial adverse effect on the other party’s ability to carry on business.”

b) Private actions and increased penalties for non-hardcore “anti-competitive agreements”

The Competition Act includes a civil provision for agreements that are likely to lessen or prevent competition substantially. This provision is different from the criminal prohibition against cartels (i.e., price-fixing, customer or market allocation, supply limitation, and wage fixing and no-poach agreements), and is intended to apply to a broader range of agreements that may have anticompetitive effects, but which are not as inherently problematic. When this provision was first introduced in 2009, it applied to agreements between or among competitors, including potential competitors. The amendments already passed in December have changed the provision such that it applies to agreements between parties who are not competitors (i.e., vertical agreements), if a significant purpose of the agreement is to prevent or lessen competition (see above). The new amendments, in addition to introducing a private right of action in respect of such agreements, will also introduce significant administrative monetary penalties (fines), disgorgement of profits to successful applicants and others similarly affected, and an ability to order parties to take certain actions (without their consent) to eliminate the anticompetitive effects of their agreement. These changes – together with the already-enacted extension of the provision to cover vertical agreements if their “significant” intent is anticompetitive - will greatly broaden the reach of this provision and increase the costs of non-compliance.

c) Private damages for “reviewable conduct” such as RPM, exclusivity and tied-selling

While private actions before the Tribunal in respect of a reviewable trade practice - such as resale price maintenance, a refusal to supply, exclusive dealing, market restriction or tied selling – have been possible since 2009, very few private cases have been brought. One reason has been that the Tribunal could only issue a prohibition order requiring the respondent to stop engaging in the conduct or to take some other action designed to remedy the effect of the conduct. As is the case for abuse of dominance (see below) proposed amendments will empower the Tribunal to order the respondents to pay damages up to the value of the benefit derived from the conduct that is the subject of the order (i.e., disgorgement of profits) to the applicant and any other person affected by the conduct.

d) Private damages for “abuse of dominance”

Amendments passed in 2022 introduced the ability to commence private actions before the Tribunal in respect of an abuse of dominance (previously, this was the exclusive right of the Commissioner of Competition). However, a successful litigant was not entitled to receive any payment from the respondent; any fine was payable to the government. When the new bill is passed, it will permit the Competition Tribunal to order disgorgement of profits, as described above, to a successful applicant and any other person similarly affected by the conduct. This is in addition to any fine imposed.

e) Private actions (and damages) for misleading advertising

Bill C-59 will expand the ability for private parties to commence their own actions before the Competition Tribunal to include claims related to deceptive marketing (previously the exclusive domain of the Commissioner of Competition, unless criminal in nature). Successfully challenging misleading advertising may result in a payment (disgorgement of profits) to the applicant and any other person similarly affected (in addition to any fines imposed).

f) “Whistle-blower” protection expanded

A new provision will punish “reprisals” against those who communicate or cooperate with the Competition Bureau in respect of enforcement of the civil (non-criminal) provisions of the Competition Act. Where the Competition Tribunal is satisfied this provision has been breached, the Tribunal may make an order prohibiting the conduct and also imposing an administrative monetary penalty (fine) of up to C$10 million against a corporation (and up to C$15 million for subsequent breaches). Currently, whistle-blower protection only applies in respect of allegations of criminal wrong-doing.

g) Agreements to protect the environment not necessarily illegal; green washing explicitly misleading

The 2023 and 2024 amendments do contain one new protection for Canadian businesses - in respect of agreements between competitors to collaborate “to protect the environment.” Where parties to a proposed agreement request and the Commissioner is satisfied that the agreement will not substantially lessen or prevent competition, the proposed agreement will be shielded from allegations under the criminal hardcore conspiracy, bid rigging and agreements between financial institutions sections of the Act, as well as under the civil anti-competitive agreement provisions. The certificate can last for up to 10 years and may be renewed for up to a further ten years. Also, on the environmental front, an explicit prohibition on “green washing” has been added to the deceptive marketing provisions.