Antitrust Law: At Home And In Canada

Tuesday, October 4, 2011 - 01:00

The Editor interviews Jeffrey Brown , Partner, Stikeman Elliott LLP and Russ Wofford , Partner, King & Spalding LLP.

Editor: I last interviewed you in October 2010. What are some of the recent trends in the economies of Canada and the U.S. that have affected antitrust?

Brown: The economic recovery in Canada has been somewhat tentative, but it has weathered the storm better than many other economies. I don't think that we've seen a strong relationship between Canadian antitrust enforcement and the economy, in the sense that the economic situation has not changed the Competition Bureau's enforcement approach. While deal flow has not been as strong as it once was, we have continued to see some high-profile transactions in Canada, including in the media, pharmaceutical/medical, energy, transport and retail sectors.

I would say the most interesting thing about Canadian antitrust enforcement in the past year has been the Bureau's active pursuit of litigation cases, with a particular focus on unilateral conduct and deceptive marketing practices. The commissioner of competition (Canada's lead antitrust enforcement official, who heads the Bureau) has pursued cases alleging violations by real estate associations, credit card networks, wireless carriers and airlines.

Wofford: I wish I could say that our economy has weathered the downturn as well as that of Canada. Initially, the recession prompted a discussion about whether "too big to fail" and other considerations can justify a loosening of traditional antitrust law. Our government authorities - the Federal Trade Commission and Antitrust Division of the Department of Justice - have rejected that approach. If anything they have been more vigorous than before the recession in their pursuit of cases, particularly unilateral-conduct cases, and no less aggressive in their scrutiny of mergers - with the possible exception of being willing to consider, but not necessarily to accept, failing-firm arguments in merger investigations.

I can note, though, a few areas in which the economy has affected the opportunities for the government authorities and private plaintiffs to employ existing antitrust doctrine. One is in the increase in mergers reported to the FTC and DOJ. Merger filings are up significantly from 2009 to 2010 - although still not at 2007 levels. A second trend involves the continuing consolidation and concentration in the healthcare industry, both among the providers and among the insurers. Another area of particular focus is the high-tech industry, where Intel, Google, Apple and others have faced government investigations and private actions.

Editor: What do you see in terms of the increased convergence between the antitrust laws of the U.S. and Canada?

Brown: As a general principle, there is no doubt in my mind that Canadian and U.S. enforcement authorities would agree that minimizing conflict in their decisions is highly desirable.

One area where we have continued to see greater convergence is in the domain of the courts, where recent decisions by Canadian courts have "lowered the bar" for class certification, which is good for plaintiffs but troubling for defendants. On the other hand, a recent British Columbia Court of Appeal decision barred so-called indirect purchaser class claims, which is good for plaintiffs and aligns Canadian law with the U.S. approach, where such claims are barred under the Illinois Brick rule.

While convergence is desirable in principle, it's interesting to note that the commissioner, Melanie Aitken, has sent a clear message that she will not let this principle stand in the way of what she believes is appropriate enforcement action in Canada. The commissioner recently filed an application challenging a longstanding agreement and a proposed joint venture between Air Canada and United Continental involving Canada/U.S. transborder routes even though those agreements had been cleared by U.S. authorities and benefitted from antitrust immunity in the United States.

Wofford: I have to say that the real emphasis on the part of U.S. antitrust community has been convergence with the EU rather than Canada, although I do note that one of our most prolific FTC commissioners, Tom Rosch, gave an interesting speech on the differences between U.S. and Canadian competition law in early 2010. The other international-convergence focus here in the U.S. has been on countries that are just developing competition law regimes, where some have concerns about these countries' principled enforcement of their new laws. We don't have to worry about Canada at all in that regard.

Editor: Are there any traps or assumptions that a U.S. company might make about Canada's competition law that might expose them to enforcement in Canada?

Brown: I don't think that I would say there are any specific "traps." I would prefer to say more generally that one should simply avoid assuming that the law in Canada is the same as in the United States. There is a high degree of similarity between the antitrust laws of the two countries, but there are also differences, including our law's relatively unique distinction between criminal and civilly reviewable practices.

Apart from the risk of potentially infringing Canadian law where it differs from U.S. law, assuming that Canadian law is identical to U.S. law may cause a company to compete less aggressively in Canada than it is legally permitted to do. Two areas where Canadian law is more permissive than U.S. law are resale price maintenance (which is a civilly reviewable practice, and can be prohibited where it adversely effects competition) and price discrimination (which was once a per se criminal offence but may now only be challenged as an abuse of dominance).

Editor: Tell us about personnel changes in the enforcement agencies in your countries.

Wofford: The assistant attorney general for antitrust in the Department of Justice has recently left office, and the acting head is Sharis Pozen. I can think of no reason to expect that this personnel change will result in a change of policy at DOJ because the outgoing and incoming heads have worked very closely together for a number of years. If there is a divergence in their views, it's a secret to me.

Over on the FTC side we've had one commissioner announce his intention to leave, and a nomination of his replacement. Commissioner Bill Kovacic will be stepping down shortly. Because no fewer than two of the commissioners must be members of the party that is not in control of the White House, the Obama administration has nominated another Republican, Maureen Ohlhausen, to fill that position. Ms. Ohlhausen was on the staff at the FTC for over a decade, focusing particularly on privacy and consumer protection issues. What her individual views are, now that she's in a position to pursue them as a commissioner, is not yet clear.

Brown: Melanie Aitken has been the commissioner since 2009. Her time as commissioner has coincided with the coming into force in 2009 and 2010 of the most significant amendments to the Competition Act in more than 20 years. This has given her a unique opportunity to put her stamp on Canadian competition law, and it's an opportunity that she has tried to seize. Ms. Aitken made it clear early on that she felt Canada needed more jurisprudence and that she would be on the lookout for test cases. Since then, she has been particularly active - some would say aggressively so - in challenging unilateral conduct and deceptive marketing practices. She has challenged what she views to be the restrictive practices of Canada's national real estate board as well as the real estate board in Canada's largest city, Toronto. She also filed an application under our new civil resale price maintenance provision alleging that certain rules of Canada's Visa and MasterCard networks have the anticompetitive effect of raising prices. She has taken action against two of Canada's largest wireless carriers for alleged misleading advertising, seeking payment of a $10 million civil fine from one and obtaining a similar payment from the other by way of a settlement. As I noted earlier, the commissioner also recently filed a challenge to certain transborder arrangements between Air Canada and United Continental. One pattern that has not been overlooked by observers in Canada is that each of these cases involves enforcement action that is likely to have a certain appeal with Canadian consumers.

Editor: Jeffrey, last year the Competition Bureau held a series of roundtables exploring the merits of revising the merger enforcement guidelines. Please tell us about the outcome of these roundtables.

Brown: The Bureau released a revised draft of its Merger Enforcement Guidelines, or MEGs, in late June, and following further discussions the next step will be to release a final version of the revised MEGs. The revised draft doesn't contain dramatic shifts in the Bureau's approach, but there are changes. Some of these changes include a more nuanced approach to market definition, with the Bureau indicating, for example, that it will consider going through the process of defining markets concurrently with its assessment of competitive effects or even, in some cases, bypass the need for defining markets altogether. The draft also provides more detail on how the Bureau will deal with such issues as monopsony power, minority interests and internal directorships, differentiated products and non-horizontal mergers.

Editor: Class certification was overturned by the court in a Canadian antitrust case against Microsoft. What is the significance of that case?

Brown: That's right. As I said earlier, we've recently seen greater convergence between Canadian and U.S. rules with respect to how our courts have been dealing with class certification. Previously, the evidentiary burden placed on plaintiffs for certification was more onerous in Canada than it is now. The Microsoft case, and its sister case Sun-Rype , also brings Canadian law closer to what I understand the situation is in the United States, but it does so in a way that is more favourable to defendants. In these cases, the British Columbia Court of Appeal set aside certification orders and in so doing made it clear that indirect purchasers of a product cannot sue to recover losses passed on to them by direct purchasers. While this marked a departure from past Canadian practice, it would bring Canadian law into line with U.S. law under the Illinois Brick rule.

Editor: Russ, I understand that Canadian companies contemplating business operations in the U.S. are deterred because of the litigation climate here.

Wofford: The litigation climate in the U.S. is definitely a consideration. Although the costs of big-ticket litigation are well publicized, the courts and Congress have taken a number of measures to take the edge off.

First, Congress passed the Class Action Fairness Act, or CAFA, in 2005. That Act was designed to address concerns about how class actions were being handled in certain state courts. By expanding the federal courts' jurisdiction over class actions, the legislation discourages forum shopping by plaintiffs' counsel, ensures a more rigorous examination of the issue of class certification, and creates more uniform standards for how federal courts will evaluate certain types of class-action settlements. Although it is not specifically directed to antitrust cases, CAFA obviously affects many antitrust class-action cases.

In addition, the Courts have issued a number of defense-friendly decisions that seem motivated by concerns that the U.S. litigation environment has grown too expensive for businesses. In Twombly , the U.S. Supreme Court tightened pleading standards out of a concern that defendant companies would be subject to expensive and protracted discovery only to have the claim dismissed later at summary judgment when it became clear that there were no facts, no evidence supporting the claims. Twombly follows up on Matsushita, a case decided back in 1986 that had tightened the standard at summary judgment for some of the same reasons. A more recent case, Credit Suisse , similarly limited the substantive scope of the Sherman Act, and for many of the same reasons.

So while it's true that the U.S. litigation environment allows for private antitrust actions in ways many other national regimes do not (at least not yet), the recent trend has been away from plaintiff-friendly legislation and opinions.

Editor: Jeffrey, I understand that penalties have been increased for certain antitrust violations.

Brown: Yes, the 2009 and 2010 amendments to the Competition Act included increased statutory penalties for cartels, abuse of dominance and misleading advertising. The commissioner has already taken advantage of the higher penalties available for misleading advertising in the two cases I mentioned involving wireless carriers in Canada. However, her more aggressive stance in bringing abuse of dominance cases has not as yet been translated into the commissioner's asking for payment of a very substantial civil fine, which is now available to her under the Act.

Editor: How do your respective countries treat companies that have become dominant in their markets?

Brown: Being dominant in and of itself isn't a violation of the Competition Act, provided that you've become dominant by fair rather than anticompetitive means. In fact, achieving dominance by developing better, superior and more innovative products than one's competitors is something that ought to be encouraged, not discouraged. That said, once a company achieves a position of dominance it needs to be more careful in terms of what it does in the marketplace, because certain conduct may be acceptable when engaged in by a non-dominant player and yet raise concerns if engaged in by a dominant firm.

Wofford: An older and much-cited U.S. Supreme Court case makes the point that monopoly by itself is not a violation of the antitrust laws if that monopoly has been achieved by building a superior product or marketing that product better or just being lucky. So simply to allege that a company is a monopolist or threatens to become a monopolist is not enough to state an antitrust claim. A claim requires monopoly or market power be achieved or sustained through anticompetitive behavior.

That being said, in the United States, as I believe is also true in Canada, behavior by a monopolist or a near-monopolist is going to be scrutinized more closely than the same behavior by someone who poses no threat of achieving market or monopoly power. The clearest examples of that would include tying situations, resale price maintenance agreements, monopoly buying situations called monopsonies, and certain discounting arrangements and refusals to deal. Being big requires a little more care, but in and of itself is not necessarily an antitrust issue.

Editor: We understand the Competition Bureau published a Merger Remedies Study Summary. What are the key takeaways for business from this study?

Brown: That study sets out the results of a survey that the Bureau undertook of merger remedies over a ten-year period from 1995-2005. The Bureau found that the remedies were very effective in restoring competition in certain cases but less so in others. Not in and of itself a stunning finding. However, the Bureau then tried to identify what distinguishes those cases where the remedies were more effective than others. One of the things the study highlighted was that divestitures were generally successful where the purchasers were already active in the same market. The Bureau also took from the study the importance of the Bureau "market testing" proposed remedies before entering into consent agreements.

Please email the interviewees at rwofford@kslaw.com or jbrown@stikeman.com with questions about this interview.