The federal minister of innovation, science and technology announced last month he will be reviewing the Competition Act (the Act) to evaluate and potentially improve its operation, including by:
- fixing loopholes that allow for harmful conduct;
- more clearly addressing misleading pricing;
- tackling wage-fixing agreements;
- increasing access to justice for those injured by harmful conduct;
- adapting the law to better tackle emerging forms of harmful behaviour in the digital economy; and
- modernizing penalties available under the Act to ensure they provide a “genuine deterrent.”
This announcement overlaps with the ongoing consultation process initiated by Senator Howard Wetston to consider whether the Act and Canada’s competition policy framework “remain appropriate in the digital age.”
As part of that consultation, the Competition Bureau (the Bureau) made a submission proposing several significant reforms to the Act. While the Bureau’s submission purports to focus on modernizing Canada’s competition policy framework to better respond to the challenges of the digital economy, its recommendations are significantly broader.
The focus on reforming the Act (which has not been significantly amended for 13 years) mirrors similar calls by several of Canada’s major trading partners, such as the US, EU, UK and Australia. In all these jurisdictions, the impetus for reform is to address the conduct of technology, digital and social media giants to ensure the competitiveness of the digital economy. This process has led to a deeper discussion regarding the future of competition law policy and enforcement more broadly, including recommendations for potentially fundamental changes such as those proposed by the Bureau.
While the government’s appetite for reforming the Act, or the nature of those reforms, is unclear, what is clear is that stakeholders should watch this area closely – especially if calls for legislative change gain momentum.
Some of the Bureau’s key proposed reforms include: (i) enhanced merger review provisions, (ii) broader civil provisions, (iii) increased financial penalties, (iv) criminalization of certain “buy-side” agreements, and (v) ways to more efficiently administer the Act. The following is an overview of the Bureau’s key proposals.
Enhanced merger review provisions and eliminating the efficiencies defence
If accepted, the Bureau’s recommendations in this area would fundamentally impact the substance and process of Canadian merger review. Key merger-related recommendations include:
- Reversal of Burden of Proof in Concentrative Mergers – Parties to a “concentrative merger” would be required to prove that the transaction does not substantially lessen or prevent competition. Currently, the commissioner bears the burden of proving competitive harm and market share or increased concentration alone cannot be the basis, even presumptively, for concluding a merger substantially lessens or prevent competition.
- Eliminating the Efficiencies Defence – The Bureau recommends that consideration of efficiencies be restricted to a factor in assessing a merger. Currently, Section 96 of the Act provides a statutory defence preventing the Competition Tribunal from imposing a remedy where this would “eliminate efficiency gains that are likely to be greater than, and offset, the competitive harm from the merger.” On this issue, the Bureau notes that Canada’s efficiency defence is an “international outlier” and states the approach recommended is consistent with the treatment of efficiencies in other jurisdictions.
- Lower Injunction Standards – The Bureau recommends that merger injunctions standards should be more “workable” (i.e., lower) and cites its recent experience as an example of the difficulty it faces in these situations.
- Other Significant Recommendations:
- Extending the limitation period in which the Bureau can challenge mergers to three years from the current one year.
- Requiring that remedies preserve the pre-merger state of competition (as opposed to the current standard that the remedy to eliminate the “substantial” lessening or prevention of competition).
- Closing technical “loopholes” in the current merger notification regime, for example by requiring that sales made by the target into Canada be included in calculating the size of target threshold and expanding the scope of mergers subject to the notification regime
Expanded abuse of dominance provisions and increased financial penalties
The Bureau’s recommendations in this area include broadening the scope of the abuse of dominance provision, adjusting the standard for assessing impact on competition, increasing the financial penalties and introducing private access for alleged abuse of dominance.
- Expanding Application to All Forms of Anti-Competitive Conduct – The current definition of abusive conduct requires that predatory, exclusionary or disciplinary conduct be directed towards a competitor. The Bureau recommends that the abuse of dominance provisions be expanded to capture all forms of conduct intended to harm competition.
- A More “Workable” Standard for the Digital Economy – The Bureau advocates for a more workable standard to provide “additional flexibility” to protect the competitive process in cases involving alleged anti-competitive conduct directed at emerging competitors in the digital economy. The basis for this position is that the standards used in more traditional industries are “not suitable.”
- Increased Administrative Monetary Penalties – The Bureau recommends that the financial penalties under the abuse provisions be increased to ensure they have the necessary deterrent effect. This references the significant revenue-based fines in other jurisdictions. In considering this recommendation, it is interesting to note that the Bureau has only sought financial penalties in a very limited number of cases in the 13 years since it has had the ability to do so.
- Private Access – The Bureau recommends allowing private parties to bring applications under the abuse of dominance provisions (currently, only the commissioner can do this). This is intended to encourage private parties to bring cases where the Bureau may not due to resourcing constraints or priorities. However, it is unclear whether private parties would actually bring cases given the limited relief available (no damages) under the Act as currently drafted.
Expanded competitor collaborations provisions and private access
The Bureau makes several recommendations to expand the enforcement of the non-criminal competitor collaboration provisions of the Act.
- Increased Remedies – The recommendation is that prescriptive remedies (in addition to the prohibition orders currently provided for) and administrative monetary penalties be available in cases where a non-criminal competitor collaboration is found to result in a substantial lessening or prevention of competition.
- Review of Past Agreements – That past agreements and past harm be reviewable (currently only “existing or proposed” agreements can be reviewed).
- Eliminating the Efficiencies Defence – As with the merger-related recommendations, the Bureau advocates that efficiencies be limited to a factor in considering the competitive effects of a competitor collaboration.
- A More “Workable” Standard for the Digital Economy – Similar to the abuse of dominance discussion, the Bureau suggests a different/more flexible standard for assessing competitor collaborations that harm competitors in the digital economy.
- Notification of Pharma Patent Settlements – The Bureau recommends establishing a regime for the notification of pharmaceutical patent litigation settlement agreements. This is to allow the Bureau to be proactively made aware of “pay-for-delay” settlements, as is the case in the US.
- Private Access – Consistent with its position on the abuse of dominance provisions, the Bureau recommends allowing private parties to bring applications to challenge allegedly anti-competitive competitor collaborations. Again, for the reasons discussed above, it is unclear whether there are sufficient incentives for private parties to bring these types of cases.
Cartels: criminalizing buy-side agreements, expanded bid-rigging and higher fines
The Bureau’s recommendations include expanding the scope and penalties for the criminal conspiracy provisions of the Act, as follows:
- Criminalize Harmful Buy-Side Agreements – The current criminal provisions do not apply to buy-side agreements (i.e., agreements between buyers of a product or services). In addition to generating some recent controversy, this is an area where Canadian law is seen as out of step with the US and other jurisdictions, in particular regarding employer wage-fixing and no-poach agreements. The Bureau has recommended that “harmful” buy-side agreements be made criminal, while permitting legitimate agreements between buyers (for example, joint purchasing by smaller firms to enable them to reduce their costs and better compete with larger firms).
- Limiting the Application of the “Made-Known” Approach to Joint Bids – Currently, the Act provides that the offence of bid-rigging is not committed if the agreement between bidders is “made known” to the person requesting the bids prior to bid submission. The Bureau’s proposal is to narrow the scope of this defence to apply only where competitors are participating in a joint bid (thereby criminalizing situations where bidders submit multiple agreed-upon bids). The Bureau would also shift the burden of proving that the agreement was “made known” to the procuring entity to the accused bidders, rather than requiring the prosecution to prove that the joint bid was not disclosed.
- Increased Fines – The Bureau recommends that penalties for conspiracy and bid-rigging offences be increased in line with jurisdictions such as the US and EU where fines are substantially higher. From the Bureau’s perspective, current fines (for example maximum fines of $25 million for price fixing) may be seen as “the cost of doing business” and not have an appropriate deterrent effect.
Deceptive marketing – focus on misleading price advertising
Over the past few years, the Bureau has brought several cases in connection with “drip pricing” (pricing where mandatory fees are not disclosed until later in the purchase process) and ordinary selling price (OSP) cases (cases where the advertiser uses an overstated “ordinary” comparison price that misrepresents the discount being offered). Accordingly, the Bureau’s substantive recommendations focus on these areas.
- Expressly Prohibiting Drip Pricing – While the Act’s existing misleading advertising provisions have been successfully applied in drip pricing cases, the Bureau is recommending that drip pricing be explicitly prohibited. According to the Bureau, this will allow for more efficient enforcement in cases involving drip pricing, as the Bureau would not be required to prove that the conduct at issue is deceptive, which is required under the current provisions.
- Reversal of Burden of Proof in OSP Cases – Currently, the Bureau is required to prove that the advertiser’s marketing is deceptive. The Bureau proposes reversing the burden of proof in these cases so the advertiser bears the onus of proving the claimed discounts are accurate.
Market studies and information gathering powers
Under the Act, the commissioner has the power “to make recommendations and call evidence” before government and regulatory entities. Currently, while the Bureau can engage in market studies, it can’t compel information from industry participants. Additionally, there is no requirement that decision-makers consider or respond to the Bureau’s submissions. Accordingly, the Bureau’s recommendations in this are as follows:
- Provide the Bureau With Information Gathering Powers – The Bureau is seeking the power to compel the production of information from industry participants to further its market studies. Given the Canadian experience in the areas where the Bureau can compel information and in other jurisdictions, a major concern is that being required to participate in market studies is a costly and time-consuming process for businesses. The Bureau’s recommendation does not speak to reasonable limits on its power, mechanisms to ensure that compulsory information gathering is proportional, confidentiality and restrictions on using compelled information – all of which are significant to the business community.
- Requirement for Regulator Response – The Bureau is concerned that its submissions and recommendations can be ignored by decision-makers and has suggested that the Act be amended to require regulators to respond to its recommendations within a specified period. While this recommendation is understandable, it is unclear whether compelling a response from regulators will make it more or less likely that the Bureau’s recommendations are or are not ignored.
Process issues
The Bureau’s submission includes several “cross-cutting” recommendations that it believes should be addressed under the Act to ensure Canada’s competition policy framework remains fit for purpose.
Some of these cross-cutting recommendations, such as simplifying competition litigation in Canada, are well intentioned, if somewhat vague. The commissioner acknowledges that competition law cases are complex but provides no concrete suggestions or steps for streamlining cases without compromising procedural fairness and due process for all parties.
Several recommendations in this area are more controversial, and include:
- Immunity from Costs Awards – The Bureau recommends that the commissioner be immunized against cost awards. Currently, the commissioner faces the same costs risks as private litigants and may be ordered to pay a portion of the successful party’s legal costs. The costs regimes in Canadian courts are well established and there is a significant body of case law addressing when such costs should be awarded and in what amount. This is obviously a controversial recommendation, given that the potential for costs awards against the commissioner imposes a level of discipline and the fact that respondents incur significant costs in competition litigation.
- Streamlined Civil Information Gathering Powers – Currently, the Bureau is required to obtain a court order to compel information from private parties. The Bureau believes the current process is unwieldy and recommends it have the ability to compel information in civil matters without requiring judicial authorization (as in other jurisdictions).
- Broader Power to Compel Information From Foreign Persons – In an age of increasingly global commerce, the Bureau believes it should have greater ability to compel the production of information held by foreign persons.
- Lower Test For Private Litigation – Where currently permitted, private litigants must obtain leave to have their cases heard on the merits. Some commentators have suggested that the “substantially affected” threshold may be too high and the Bureau has recommended that the leave threshold be lowered.
Key takeaways
While the Bureau’s submission is entitled Examining the Canadian Competition Act in the Digital Era, most of its recommendations are not directly related to ensuring the Act’s effectiveness in addressing anti-competitive behaviour in the digital economy. Rather, the Bureau’s recommendations reflect a desire to make a sea change to virtually all aspects of Canadian competition law from both a substantive and procedural perspective. As stated above, the Bureau’s recommendations are similar in many ways to proposals for reform in the US, UK, EU, among other jurisdictions.
While the Bureau’s comments are made in the context of a Senate consultation process, they provide a clear picture as to the type of competition enforcement regime that the Bureau will advocate for if the federal government opens the Act up for amendment. Looked at holistically, the Bureau is seeking to create a competition regime in which it has more power, a bigger stick and potentially less accountability – while simultaneously increasing risk and uncertainty for businesses in many areas.
The federal government has not yet initiated a formal process for amending the Act. Assuming the government does proceed, it is unclear whether the desire is for evolutionary versus revolutionary change. What is clear is that if the government decides to amend the Act, the Bureau will be promoting changes that, if adopted, would fundamentally alter virtually all aspects of Canadian competition law enforcement and policy. NRFC will continue to update clients regarding developments in this area.
