Antitrust Year In Review: Canada

Wednesday, August 21, 2013 - 14:03

Canada’s Competition Bureau underwent a changing of the guard in 2012-13, as lifelong competition law enforcer John Pecman took the helm of the Bureau following the resignation of Melanie Aitken in September 2013. Mr. Pecman assumed the role of Interim Commissioner of Competition upon Ms. Aitken’s departure and was confirmed for a five-year term as Commissioner in June 2013.

Ms. Aitken, who was responsible for overseeing the Bureau’s implementation of substantial amendments to the Competition Act, enacted in 2009, served about three years of her five-year term. In that time, however, she succeeded in making the Bureau a more rigorous antitrust authority and raised the profile of competition law enforcement in Canada. In the case of merger review, the added rigor and her aggressive approach to enforcement may have been in part a response to the 2009 amendments, which tightened the time frame (from three years to one year after closing) during which the Bureau may challenge transactions. Ms. Aitken also pushed to (in her words) “initiate responsible cases more often” in areas that matter to Canadian consumers, such as retail gas, real estate, airlines, telecommunication services and credit cards.

Two of Ms. Aitken’s most noteworthy cases came to fruition this year, albeit unsuccessfully for the Bureau. The Competition Tribunal rejected two challenges brought by the Bureau, one against VISA and MasterCard (VISA/Mastercard) under the Competition Act’s civil resale price maintenance provision (enacted in 2009), and another against the Toronto Real Estate Board (TREB) under the Competition Act’s civil abuse of dominance provision, each of which the Tribunal found were premised on flawed interpretations of the Competition Act. In VISA/Mastercard, the Tribunal found that the Commissioner’s application, which targeted allegedly restrictive rules imposed on merchants by VISA and Mastercard in respect of their credit card networks, had not established that VISA and MasterCard’s customers resell their products, as required under section 76 of the Competition Act. In TREB, which challenged rules established by an association that allegedly denied its real estate agent members the ability to introduce Internet-based real estate brokerage services, the Tribunal did not accept the Bureau’s proposition that the Competition Act’s abuse of dominance provisions, found in sections 78 and 79, could cover abusive conduct not directed at competitors. The decisions, which dismissed the Bureau’s theories of competitive harm on technical grounds, could portend a non-interventionist approach by the Competition Tribunal, and may embolden parties who are the subject of future investigations by the Bureau.

By contrast, the Federal Court of Appeal affirmed the Tribunal’s divestiture order against CCS Corporation (now Tervita Corporation) in the British Columbia hazardous waste industry (CCS/Tervita). The CCS/Tervita case is significant as it not only provides guidance regarding the analysis of “prevent” cases under Canadian law, but also demonstrates the Bureau’s willingness to challenge small, non-notifiable transactions. Such challenges of non-notifiable mergers have been more common in the United States in recent years, and CCS/Tervita shows that such challenges can occur in Canada, as well.  As noted, a renewed focus on non-notifiable mergers in Canada can be traced in part to the fact that, since 2009, the Bureau has only 12 months to challenge a merger after closing.  The Supreme Court of Canada has granted leave to appeal the CCS/Tervita case, with the hearing date set for April 17, 2014. 

Mr. Pecman has now taken the reins as Commissioner of Competition, and, as a longstanding member of the Bureau, it is perhaps not surprising that the new Commissioner is seeking to bring a different approach to his appointment. From early on in his tenure, Mr. Pecman has focused strongly on the principles of transparency, certainty and predictability.  While such principles will guide how the Bureau enforces the Competition Act, Mr. Pecman has made it clear that they will not compromise the vigor with which he enforces the Competition Act. In this regard, Mr. Pecman has stated an intention to expand the use of formal production orders (which can be obtained by the Commissioner on an ex parte basis under the Competition Act) in the course of the Bureau’s civil investigations. This approach differs from the Bureau’s past practice of beginning with voluntary information requests and resorting to formal court orders if the target of its investigation was uncooperative.

Continuing on from his prior position as head of criminal enforcement, Mr. Pecman has also continued his aggressive approach to criminal prosecution under the Competition Act. In June 2013, the Bureau laid criminal charges against three corporations (Nestlé Canada Inc., Mars Canada Inc. and ITWAL Limited) and three individuals for their roles in allegedly fixing the price of chocolate confectionery products in Canada. The charges were laid after Hershey Canada Inc. disclosed the chocolate cartel using the Bureau’s Immunity Program. The Bureau, like some of its foreign counterparts, has also been actively investigating the Canadian impact of an alleged international cartel involving auto parts.  To date, two Japanese auto parts suppliers have been fined by the Ontario Court of Justice after pleading guilty to bid-rigging as part of an international cartel with other Japanese auto parts suppliers. The fines issued by the court in these cases were the largest ever in relation to a big-rigging offence.

More generally, the past 12 months have seen a continuation of the trend toward more substantial consequences for violation of the Competition Act’s criminal provisions. The trend began with the enactment in 2009 (and coming into force in 2010) of a new per se offence for hardcore cartel conduct, bringing Canada’s law more in line with the approach taken in the United States for the purposes of Section 1 of the Sherman Act. Those amendments also increased the penalties associated with such conduct to a fine not exceeding C$25 million (up from C$10 million) and/or imprisonment up to 14 years (up from five years).  In March 2012, Canada’s Criminal Code was amended to restrict the availability of conditional sentences (time served outside prison) for certain offences, including the Competition Act’s conspiracy and bid-rigging offences. In addition, in November 2012, the federal government took administrative steps to require that all parties bidding on federal government contracts certify that they have not been convicted of certain criminal offences, including the conspiracy and bid-rigging offences under the Competition Act. While this new policy would not apply to companies who obtained immunity under the Bureau’s Immunity Program, it would affect parties who do not qualify for full immunity but might fall within the scope of the Bureau’s Leniency Program. It remains to be seen what impact the new policy will have on participation in the Bureau’s Leniency Program, at least for companies who do significant business with the federal government. 

In addition to statutory amendments, a recent sentencing decision of the Federal Court, in R. v. Maxzone Auto Parts (Canada) Corp., provided a judicial signal that penalties for these types of criminal violations may be applied more vigorously in the future than has been the case in the past, including resorting to prison sentences. In the decision, Chief Justice Crampton states that cartels “ought to be treated at least as severely as fraud and theft, if not even more severely than those offences.” According to Crampton C.J., absent special circumstances, this requires the imposition of a fine and possibly prison sentences. Meanwhile, notwithstanding the ramping up of penalties and enforcement under the Competition Act in recent years, it remains the case that offenders are more likely to serve jail time in the United States. Crampton C.J.’s comments in Maxzone may foreshadow jail time for such offences becoming a more common occurrence in Canada.

Finally, the past year has also been a relatively busy time for the Bureau in the area of unilateral conduct — an area that some would say had been less actively enforced than other provisions of the Competition Act. As mentioned above, the VISA/MasterCard and TREB cases are examples of more vigorous enforcement, even though the applications in these cases were rejected by the Tribunal. More recently, the Commissioner made applications under the Competition Act’s abuse of dominance provisions against two rental water heater providers. The Bureau alleges that each had engaged in practices that intentionally suppressed competition and restricted consumer choice, specifically, that each company implemented water heater return policies and procedures aimed at preventing consumers from switching to competitors.  The Bureau is seeking an administrative monetary penalty (an “AMP,” or civil fine) of $15 million against Direct Energy Marketing Limited, and an AMP of $10 million against Reliance Comfort Limited Partnership (Reliance). A motion by Reliance to strike the Commissioner’s application was denied, as was a further appeal by Reliance on the basis that motions to strike are discretionary and can only be overturned if certain errors are identified, none of which was apparent in the judge’s decision in this motion.

As for the coming year, it also promises to be eventful for Canadian competition law, as Mr. Pecman continues to advance his priorities for the Bureau. In addition, the Supreme Court of Canada will hear an appeal of the CCS/Tervita decision, and will release much-anticipated decisions in three appeals that will shape Canadian law regarding the certification of class actions, including in respect of so-called indirect purchasers. 

Jeffrey Brown is an Ottawa-based Partner in the Competition & Foreign Investment Group of Stikeman Elliott LLP.  To stay current on Canadian competition law developments, see Stikeman Elliott LLP’s competition law blog, at www.TheCompetitor.ca.

Please email the author at jbrown@stikeman.com with questions about this article.