2010 Canadian Competition Law - Year in Review

Some of the most sweeping changes to Canada's Competition Act since the 1980s came into effect in 2010. As well, the implications of earlier amendments that came into effect in 2009 began to be felt throughout the past year. The new Commissioner of Competition, who took office in August 2009, ensured that relevant Competition Bureau policies were updated to reflect the new law, and demonstrated her willingness to pursue more aggressively anti-competitive conduct, challenging Canada's major national association of real estate agents, as well as credit card giants Visa and MasterCard.

Formal, fully-contested proceedings are rare under the Competition Act, and 2010 was no exception. Although the Commissioner did initiate several high-profile cases by filing complaints with the Competition Tribunal, one case settled. Another was filed in December 2010 so it remains to be seen whether the parties will fight or negotiate a settlement. Absent the direction provided by jurisprudence from contested cases, the Bureau has routinely issued policies and bulletins expressing its view of the manner in which the Competition Act should be applied in particular situations. The Bureau continued this practice in 2010, issuing a number of such documents and announcing a consultation process to assess the need to revise its merger review framework.

This survey will highlight the major legislative and policy developments in 2010, as well as the significant enforcement actions brought by the Commissioner in the principal areas of Canadian competition law.

1. CRIMINAL MATTERS

   (a) Legislative and Policy Developments

   (i) New Legislative Provisions dealing with Agreements between Competitors

   Amendments to the Act's criminal cartel provisions were passed in March 2009, but did not come into effect until March 12, 2010.1 These amendments made significant changes to the way that commercial agreements are analyzed and challenged by the Commissioner of Competition. Now that they are in effect, it is be easier for the Commissioner to bring criminal proceedings with regard to commercial agreements between competitors that fix prices, allocate markets or restrict production. The amendments make such agreements 'per se' illegal. Therefore, it is no longer be necessary for the Commissioner to prove that such agreements cause an undue lessening of competition.

   In regard to other anti-competitive aspects of commercial agreements, the Commissioner has a new civil provision available to challenge agreements or arrangements that prevent or lessen competition substantially, or are likely to do so.

   Companies that have commercial agreements in Canada with competitors or potential competitors should review those agreements in light of the new regime, given that there is no grandfathering for pre-March 12, 2010 agreements. Any company now entering such an agreement with one or more competitor will need to ensure that the agreements do not violate the Act. Care is especially warranted if the parties to the agreement have a combined Canadian market share of more than 35%, which is the usual threshold used by the Commissioner to determine market power. This threshold is often met relatively easily in Canada, due to the smaller number of competitors in Canadian product markets in comparison to countries with larger markets, such as the United States.

   The new civil provision, Section 90.1, affects many common forms of commercial agreements and contracts. These include agreements to license intellectual property, research and development agreements, co-production agreements and agreements to settle litigation. Such agreements are also subject to section 45, but are rarely scrutinized under that criminal provision of the Act. However, the new civil provision in section 90.1 is likely to encourage the Commissioner to review these types of agreements.2

   Summary of new regime

   The amendments that came into effect in 2010 create a 'dual-track' approach to antitrust challenges to commercial agreements among competitors. Section 45 remains the 'criminal track', but its scope is now narrowed to focus only on so-called 'hardcore' cartel conduct. As noted above, the need for the prosecution to demonstrate an undue lessening of competition has been eliminated. This brings the section into line with the way that this conduct is treated in the United States. The 'civil track' is found in a new provision, Section 90.1, which empowers the Competition Tribunal to review agreements among competitors that deal with areas other than the three hardcore areas covered by Section 45.

   Criminal track

   Section 45 prohibits agreements between competitors that:

   fix, maintain, increase or control the price for the supply of a product in respect of which the agreeing parties are competitors; allocate sales, territories, customers or markets for the production or supply of the product; or fix, maintain, control, prevent, lessen or eliminate the production or supply of the product. The term 'competitor' is defined as including "a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement" described above. While it is no longer necessary to prove an undue lessening of competition, it is necessary to prove on a criminal standard that the parties involved are actual or likely competitors.

   The amendments establish two statutory defences. The first defence is an 'ancillary restraints' defence, which applies where it can be established, on a balance of probabilities, that the agreement is (i) ancillary to a broader or separate agreement or arrangement that includes the same parties, and (ii) directly related to, and reasonably necessary for giving effect to, the objective of that broader or separate agreement or arrangement. The second defence is a 'regulated conduct' defence, which applies where another statute (federal or provincial) provides a defence to prosecution under Section 45.

   The penalties for violating the new Section 45 are a maximum prison term of 14 years and a maximum fine of C$25 million. Parties may also be liable to private civil actions. Section 36 of the Act allows persons to bring an action for loss or damage caused by conduct that violates Section 45, regardless of whether criminal proceedings have been taken.

   Civil track

   Section 90.1 provides that agreements or proposed agreements between competitors (or those that would be competitors but for the agreement) can be reviewed by the Commissioner to determine whether they are likely to result in a substantial lessening or prevention of competition. If the Commissioner has concerns and the concerns are not satisfied by the parties voluntarily, the Commissioner can refer the matter to the Competition Tribunal for adjudication. If the Tribunal is satisfied that, on a balance of probabilities, the agreement is likely to result in a substantial lessening or prevention of competition, it may prohibit any person (whether a party to the agreement or not) from doing anything under the agreement, or may require any person (whether a party to the agreement or not), with the consent of that person and the Commissioner, to take any other action. These behavioural types of order are the only remedy that the Tribunal can impose; it cannot impose any monetary penalties. Private parties will be unable to bring private actions under the Act in respect of agreements that contravene Section 90.1.

   In assessing whether an agreement or proposed agreement is likely to result in a substantial lessening or prevention of competition, the Tribunal will consider a prescribed list of factors that is identical to that used to assess proposed mergers.3 Likewise, there is an efficiency defence similar to that used in the merger context.4

   IP licences

   IP licences among competitors can be viewed as being pro-competitive as they can increase the number of suppliers of competing products in a market. However, if the licence agreement provides that the licensee/competitor must stop selling its own product, which is the only other competing product in the market, or must charge the same price for the only two products on the market, then liability for elimination of supply or price fixing might arise under Section 45. Section 90.1 may be invoked by the Commissioner where an IP licence to a competitor substantially lessens competition in a market by, for example, requiring the licensee to use the licensor's distribution network for all products sold by the licensee, including non-licensed products.

   Therefore, parties to IP licences need to determine whether they have a significant market share in the relevant product market. If they do, they should ensure that (i) the licence agreement does not contain terms that would violate Section 45, and (ii) the agreement will not result in a substantial lessening or prevention of competition in the relevant product market contrary to Section 90.1.

   Research and development agreements

   The Competitor Collaboration Guidelines issued by the Commissioner note that research and development (R&D) can result in significant benefits. However, the guidelines identify various anti-competitive concerns. These include whether (i) an R&D agreement among competitors actually reduces the level of innovation that would have prevailed in the absence of the agreement, and (ii) anti-competitive restrictions are imposed in the agreement on the exploitation of the products that result from the R&D.

   Given these concerns, it is important for competitors that are considering a joint R&D project agreement in Canada to include an analysis of whether the agreement raises issues that could result in the Commissioner taking enforcement action under the Act.

   Co-production agreements

   Like R&D agreements, the guidelines acknowledge that joint production agreements among competitors can be pro-competitive. The anti-competitive concerns focus on issues such as...