Editor: Jeffrey, is Canada recovering from the recession?
Brown: Relatively speaking, Canada has been doing well, but there is a lot of nervousness out there because the medium and longer terms are uncertain given, for example, the financial situation in Europe. Similarly, the Canadian economy is so closely linked to the U.S. economy that any economic developments in the United States necessarily have a major impact on the Canadian economy.
Editor: Jeffrey, what are some recent antitrust trends in Canada since I last interviewed you in September 2011?
Brown: Cartel enforcement continues to be a top priority of the Canadian Competition Bureau, which continues to regularly announce cartel and bid-rigging convictions. Many of these convictions have related to bid rigging in respect to government construction and supply contracts, and cartel activity relating to the local retail sale of gasoline. We also saw in 2012 the first-ever conviction for a per se criminal cartel offense under Canada’s amended cartel law, which became effective in 2010.
On the merger front, one would normally focus on high-profile mergers, of which there have been several in Canada during the last 12 months. However, what may be even more noteworthy as a longer-term development is the Bureau’s more proactive approach to monitoring non-notifiable transactions – that is, transactions that are not large enough to trigger a pre-merger notification obligation. This more proactive approach may be due in large part to the fact that the period during which the Bureau may challenge a transaction was reduced in 2009 from three years to only one year after closing. This leaves the Bureau with only a very short window of time to identify, investigate and, if necessary, challenge such mergers.
The Bureau also brought its first contested merger case in several years, in which it sought to dissolve a completed non-notifiable merger. Ultimately, it did not get a dissolution order -- by which I mean an order literally unwinding the transaction and requiring the vendor to take back the business that had been sold. The Bureau did, however, succeed in getting a divestiture order.
Another major case, which is not new but is ongoing, is the Bureau’s resale price maintenance case against Visa and MasterCard. It is the first case that we have seen under the civil resale price maintenance provision enacted in 2009, which replaced a per se criminal prohibition against resale price maintenance.
Lastly, I would note two high-profile misleading advertising cases involving wireless telephone providers. One of these cases led to a very substantial settlement including payment of a C$10 million administrative monetary penalty, or “AMP,” which in essence is a civil or non-criminal fine. The other case did not settle and is currently being litigated. Interestingly, the provider in that case is challenging the constitutionality of such AMPs, arguing that they are in essence criminal penalties imposable without the necessary constitutional due-process protections.
More recently, a C$8 million AMP was levied against a company that was found to have been engaging in deceptive marketing practices in respect of directory services. Penalties have also been levied against the principals of two companies found to be in violation in the amount of C$500,000 each. As you can see, misleading advertising is another enforcement priority for the Bureau.
Editor: Russ, how do things look from a U.S. standpoint?
Wofford: Well, obviously I can’t speak with any expertise to the general state of the economy. We keep hoping that the current weak recovery will strengthen. As to antitrust enforcement, we have not seen any lessening of the agencies’ scrutiny of potential mergers or pursuit of collusive behavior.
Earlier this year the FTC successfully challenged the consummated merger of two hospitals in the Toledo, Ohio area and required the acquired company to be divested. That’s the first time that has happened in quite some time. In a number of other hospital mergers, the FTC has sought and obtained an injunction that led the parties to abandon the transaction.
I did note as I was looking back over the year’s developments that there have been a number of bid-rigging cases that reflect the perilous economic times we live in. The Department of Justice has reached plea agreements with several individuals accused of rigging bids to purchase foreclosed real estate – one in southern Alabama and two in northern California. The Department of Justice has also reached plan agreements with two individuals accused of rigging bids at auctions for the sale of municipal tax liens. As you can surmise, the nature of the alleged misconduct can sometimes reflect the state of the economy in that sense, but I would agree with Jeff that generally speaking it has not changed enforcement priorities, at least as far as I can see.
Editor: Do you see the trend toward increased convergence between the antitrust laws of the U.S. and Canada continuing?
Wofford: Everybody appreciates the benefits of having some degree of uniformity in the major jurisdictions. That’s especially true for the U.S. and Canada, which have such extensive trading ties. Convergence is not, however, the type of short-run development that will manifest itself every year. One trend related to convergence that does show up frequently is the increasing number of foreign jurisdictions that are adopting competition laws. The latest is Hong Kong.
Brown: Canada and the U.S. have been moving in a similar direction for some time, with amendments to our cartel and merger laws in 2009-2010 taking Canadian law closer in terms of substance and procedure to the U.S. law. At a more practical level, in transborder (and multijurisdictional) transactions, it’s extremely commonplace to see antitrust authorities seek waivers allowing them to speak and exchange information with one another. Such interaction does not affect their independence, but it helps ensure that they have complete information about transactions and reduces the risk of inconsistent outcomes as between the authorities.
Editor: Are there developments in Canada’s competition law and its litigation environment that U.S. companies should be particularly aware of?
Brown: Generally, there is a high degree of commonality between the regimes, but there are differences. Private enforcement of antitrust law, for example, is more common in the United States than in Canada, although private enforcement is increasing with class action lawsuits.
Our cartel law is now structured more similarly to the U.S. law. We now have a per se prohibition for cartels; until 2010, they were only prohibited if they unduly lessened competition. However, unlike Section 1 of the Sherman Act, which has been infused with meaning through 100-plus years of jurisprudence due to its sparse language, our statutory prohibition attempts to be more exhaustive. Until the courts begin to interpret the provision, it will be difficult to see just how closely our laws in that area are aligned.
Resale price maintenance, or “RPM,” is another area where there are differences between the U.S. and Canada. Since 2009, our RPM provision has been exclusively civil in nature, with the only remedy available being an order requiring the person engaged in RPM to stop the practice. In comparison to the former criminal treatment, RPM would seem to be a much lower risk in Canada today, and yet I think the widely held view is that there’s not been as much of a shift in that direction as many had expected. In any event, RPM is certainly an area where there is more latitude in Canada relative to the United States. The law in the United States with respect to RPM, as Russ will tell you, has been complicated by the fact that there isn’t uniformity in the laws at the state level.
Wofford: There are enough states imposing, or seeking to impose, absolute prohibitions against resale price maintenance agreements to create a problem for retailers and distributors. Also, the natural consequence of moving from a per se illegal test to a rule of reason analysis at the federal level has been less guidance for sellers, as the federal courts work out how they will analyze the competitive affect of RPM agreements.
Editor: Tell us about personnel changes in the enforcement agencies in your respective countries.
Wofford: We’ve had a number of personnel changes, starting at the Federal Trade Commission. Around this time last year, we had two new commissioners among the five. We’ve got a new one since then because a former commissioner’s term expired, and he chose not to serve a second term. There can be no more than three on the Federal Trade Commission from any one party, so the retiring Republican, Bill Kovacic, was replaced by a new Republican, Maureen Ohlhausen, in April of this year.
We have another Republican appointee to the Commission, Tom Rosch, whose term expires next month, so there may be a new nomination to that Republican seat in the next few months.
Jon Leibovitz, the chair of the Commission and a Democrat appointee, agreed to serve a second term beginning in the earlier part of this year. There is thus continuity both at the chairman and the party level.
Sharis Pozen, who headed the Antitrust Division at the Department of Justice on an acting basis for about eight months, has left. She’s been replaced on an interim basis by Joseph Wayland, one of her lieutenants. A very prominent member of the private bar, Bill Baer has been nominated to assume leadership of the division. He is still awaiting confirmation by the Senate, but no one I’ve talked to seems to think that’s going to be an issue. Based on his Senate testimony, it doesn’t look like he plans any dramatic departure from the policies that have been pursued by his predecessors. A lot may change depending on how the election goes in November, but I think at least until then, there’s no reason to think that we’ll see any significant changes in the federal agencies’ enforcement priorities.
Brown: Unlike the United States, we have only one antitrust agency, the Competition Bureau, which is a federal agency and therefore has jurisdiction across the country. There have been two very significant personnel changes at the Bureau in the past year.
In June, the Commissioner of Competition, Melanie Aitken, announced that she would step down from the position on September 21. As Canada’s lead competition enforcement official, she has been extremely influential. She was in the position at the time of the 2009 amendments to the Competition Act, and she has presided over very vigorous enforcement of the Act following the amendments. Her successor has yet to be named.
Another major change is that Paul Collins left his position as Senior Deputy Commissioner in charge of the Bureau’s Mergers Branch and returned to his private competition law practice at Stikeman Elliott. While he was at the Bureau, Mr. Collins oversaw several initiatives, including revisions to the Merger Enforcement Guidelines and updates on guidance relating to the merger processes under the recently amended pre-merger notification provisions. His time at the Bureau also coincided with a very active period for the Mergers Branch, which reviewed numerous complex strategic mergers.
Mr. Collins is being replaced by Kelly McKinnon, another private practitioner. Although she does not come to the Bureau with a competition law background, Ms. McKinnon served as chief litigation counsel at the Ontario Securities Commission. We don’t know yet how her appointment will affect the Bureau’s approach with respect to merger enforcement, but it’s not gone unobserved that her most relevant experience is as a chief litigation counsel at another public enforcement body.
Editor: Jeff, last year you mentioned that the Competition Bureau had issued a revised draft of its Merger Enforcement Guidelines. Has it now been finalized, and what is its effect?
Brown: The revised Merger Enforcement Guidelines, or “MEGs,” have been finalized and, as with the prior draft, the revised MEGs are not intended to reflect any dramatic shifts in the Bureau’s merger enforcement policy or practice, nor did the final version introduce any major changes from the draft version. The final version does, however, clarify a number of issues, and fully incorporates and replaces the Bureau’s 2009 Efficiencies Bulletin.
I don’t think there’s an expectation that applying the revised MEGs will result in fundamental changes in the Bureau’s approach. That said, they do suggest more nuanced thinking in a number of areas on the part of the Bureau, and indicate that the Bureau recognizes that it has a greater range of economic and analytical tools available to it than it did when its earlier MEGs were prepared. In this regard, we have seen the Bureau, like authorities in other jurisdictions, making use of new economic tools, focusing for example more directly on competitive effects with a lesser emphasis on market definition in some cases. That said, market definition has not been written out of the MEGs. It’s still recognized as a useful step, but it’s just no longer regarded as necessary in each and every case.
Editor: Russ, does the U.S. have something comparable?
Wofford: We have Horizontal Merger Guidelines as well. When the most recent version of those came out two years ago, some noted an acknowledgement in the Guidelines that the agencies do not always begin with market definition when evaluating the potential effects of a merger. I don’t think anyone would pretend that markets are irrelevant in terms of analyzing the consequences of a potential acquisition, but the agencies are freer to consider, and the parties are freer to cite, competitive effects without necessarily defining the correct geographic and product markets within which those effects are likely to be felt. Here too, is another point of convergence for the U.S. and Canada.
Editor: What has been the effect of the increases in the penalties in Canada for certain antitrust violations?
Brown: We have seen increased penalties for criminal cartels and bid rigging, although I can’t say that the vigorous enforcement in that area has been linked to increases of penalties. Those have always been enforcement priorities for the Bureau.
Recent amendments to the Act also introduced potentially very significant administrative monetary penalties, or “AMPs,” for abuse of dominance. The maximum penalty for a first offense is C$10 million, increasing to C$15 million for subsequent offenses, but we have yet to see the Bureau bring such a case. Interestingly, a recently revised draft of the Bureau’s guidelines respecting the abuse of dominance provisions is silent on the issue of remedies.
The one area where we have seen both higher penalties and more vigorous enforcement of the Act is with respect to deceptive marketing practices, including so-called misleading advertising. As I noted earlier, the Bureau has been using the very substantial AMPs available to it to secure orders against companies it believes have violated these provisions, either by way of settlement or through contested proceedings.
Editor: Russ, have you seen any increases in penalties in the United States?
Wofford: The penalties are set by statute, so there’s been no increase in the statutory maximums of penalties for criminal behavior. What we see every year when the Department of Justice issues its year-end update are significant increases in the number of cases brought, the amount of jail time to which individuals are sentenced and the total criminal antitrust fines that are assessed against companies and individuals.
In 2011, for example, the Department of Justice filed 90 cases -- the most in 25 years -- continued to set records for total prison days sentenced and had almost $525 million in fees assessed.
Editor: Has there been any change in how your respective countries treat companies that have become dominant in their markets?
Brown: In Canada, there’s been no change in the Act with regard to abuse of dominance, and there haven’t been any significant cases affecting the law regarding abuse of dominance. In March of this year, the Bureau released a revised draft of its Abuse of Dominance Guidelines, which outlines the Bureau’s approach to enforcement of the Act’s abuse of dominance provisions.
Substantively, the new draft guidelines are not a major departure from the old guidelines, except that the guidance is now more general in nature, which one could view as an attempt on the Bureau’s part to ensure that the guidelines are drafted in such a manner as to preserve maximum flexibility in enforcement of its provisions.
Wofford: In the U.S. we haven’t seen a change in the theory or the ideology behind looking at dominant companies. The DOJ is pursuing the eBooks case against Apple and a number of publishers. Also, the DOJ has alleged in the Blue Cross Blue Shield of Michigan case that the company has dominated the insurance market in that state through a series of most-favored-nations provisions. With the FTC and the Department of Justice being more aggressive perhaps in this administration than they have been in the past, one natural consequence is that companies with allegedly high market shares come under pretty intense scrutiny.