Antitrust Law: At Home and Across The Border

Monday, October 4, 2010 - 01:00
Russell Wofford

Editor: In our last interview in October 2009, you both generally agreed that there would never be complete convergence between our U.S. antitrust and Canada's competition laws. Where do you think that we are one year later in minimizing conflicts between the two systems?

Brown: I think it always will remain the case that we will never see complete convergence between U.S. and Canadian competition laws. In terms of developments towards greater convergence over the last 12 months, we have not seen any significant new developments from a year ago, but rather a continuation of what had already begun.

In 2008, a competition policy review panel made a number of recommendations regarding changes to our Competition Act , including a recommendation to more closely align our merger review process with that in the United States. That recommendation was adopted in March 2009. Parties to notifiable transactions no longer have to make a choice between a "short form" and a "long form" notification. As in the United States, there is now one notification form, which looks a lot like the old "short form" notification with the addition of what in the U.S. are called "4C" documents. Also as in the United States, there is now one 30-day waiting period, which can be extended by the Competition Bureau by issuing a "supplementary information request," or "SIR," which is essentially what Americans call a "second request." So, procedurally, there has definitely been convergence with respect to Canadian and U.S. merger review over the past 18 months.

That said, one distinctive feature retained from our pre-existing regime is that parties still have the ability to forego filing a formal notification by requesting an "advanced ruling certificate," or "ARC." If an ARC is issued, a transaction cannot be challenged provided that all material facts were disclosed to the Bureau. Absent an ARC, a transaction can be challenged for up to 12 months after closing (prior to March 2009, up to three years after closing). Because they completely foreclose a challenge, ARCs are issued only in the clearest of cases. Where the Bureau does not see a basis for challenging a transaction but the case is not sufficiently clearcut to warrant issuance of an ARC, the Bureau will issue a no-action letter saying, in effect, that the Bureau has reviewed the transaction and has concluded that grounds do not exist at that time to challenge it.

Often, it is easier for parties to simply file an ARC request and dispense with a formal notification. Even for straightforward transactions, however, parties to notifiable transactions sometimes prefer the certainty of triggering a waiting period, knowing that once it is expired they will be free to close their transaction. For these transactions, Canada's notification regime now procedurally looks a lot like the U.S. HSR regime.

Editor: Russ, new guidelines have just been issued on horizontal mergers in the U.S. Does this portend a more stringent standard for merger approval?

Wofford: I think that the answer is probably no, based just on the issuance of new standards. In issuing these new standards, representatives of both agencies have said that the guidelines simply formalize the approach that the agencies have been taking for several years now. I think that we are seeing greater transparency in terms of what kinds of analyses the agencies will bring to bear on mergers, perhaps for the benefit of the courts as much as for the parties to the transaction. It may well be that the agencies could begin to look harder at mergers within the context of these standards, but these new standards don't necessarily compel that result.

Editor: Do you see a more aggressive stance on the part of the agencies in terms of antitrust enforcement?

Wofford: I think so. Upon being confirmed as Assistant Attorney General for Antitrust, Christine Varney gave several speeches suggesting that the Department of Justice would be more aggressive in several areas, most notably in bringing cases under Section 2 of the Sherman Act, which concerns unilateral action. That agency has also taken a more aggressive position than in the past on the so-called reverse-payment pharmaceutical cases. The Federal Trade Commission has been more aggressive in the past two to three years in bringing actions under its statutory authority, Section 5 of the FTC Act, which bars unfair methods of competition and is not necessarily limited by Supreme Court precedent addressing the Sherman Act. We have not yet seen, however, the Department of Justice fully follow through on its stated intentions, and the federal courts have not weighed in yet on the FTC's recent, more aggressive use of the FTC Act. So both agencies are definitely talking about more aggressive enforcement regimes, but the extent to which that actually will translate into new cases is still unclear.

Editor: Jeffrey, what changes have resulted from Melanie Aiken's succession as the new Commissioner of Competition?

Brown: As I noted earlier, one of the big benefits for the Competiton Bureau of our new HSR-like merger process is that the Bureau now has the ability to provide parties with a SIR / second request before the expiration of the 30-day waiting period. As you know, there has been substantial criticism by the U.S. bar about second requests and the burden they impose on parties. Our commissioner was extremely sensitive to this kind of criticism when these changes to our legislation were announced. She was very careful to tell the business community that the Bureau had no intention of using its SIR power as a tool to buy additional time to review transactions. Rather, she said the Bureau would only use the power for the purpose it was intended, i.e., to allow the Bureau to get additional information needed to complete merger reviews.

When you look at the Bureau's record over the last year and a half, what I find very interesting is that there have been an unusually large number of deals where remedies have been required by the Bureau. In the majority of these mergers, it is safe to say that the Bureau issued SIRs. So one might ask, has the Bureau really been tempered in its use of these powers, or have we seen more aggressive enforcement by the Bureau in respect of mergers? Given that, generally, there has not been enormous criticism of the Bureau respecting its use of SIRs, I think the large number of SIRs and remedies since implementation of the new regime is probably due more to an unusually large number of mergers raising substantive competition concerns than to over-enforcement by the Bureau.

More generally, I would say that Ms. Aitken is not as policy oriented as her predecessor and is more focused on enforcement action. In that regard, the Bureau has brought the first contested abuse of dominance case in many years. That is an application filed with the Competition Tribunal in respect of the multiple listing service of the Canadian Real Estate Association. It will be interesting to see how that case plays out.

Editor: Jeffrey, my understanding is that the Competition Bureau is holding a series of roundtables exploring the merits of revising the merger enforcement guidelines. Please tell us what you think the outcome will be?

Brown: It is difficult to predict at this point what the outcome of these roundtables will be, but the timing of the announcement is certainly interesting. The Bureau's Merger Enforcement Guidelines were last revised in 2004. They are not particularly old, nor has there been a lot of criticism about them being outdated. So this effort seems to be driven by the fact that the FTC and the DOJ have revised their Merger Enforcement Guidelines - a fact which the Bureau's announcement of the roundtables makes specific reference to. It will be interesting to see how the Bureau deals with some of the new approaches to merger enforcement that are being discussed in the United States, like the "upward pricing pressure" (or "UPP") test, and whether, as in the United States, we'll see a more detailed explanation of the specific techniques used to analyze specific types of mergers.

Editor: Some in the U.S. have expressed some issues with the Leegin decision. Where is U.S. judicial opinion today regarding resale price maintenance in both the federal and state courts?

Wofford: Leegin altered the analysis that federal courts are to apply to vertical agreements on resale pricing. For almost 100 years before Leegin , courts judged those agreements on a per se illegal basis, which meant that plaintiff did not have to prove an overall anticompetitive effect from those agreements; the effect was conclusively presumed. After Leegin , courts must judge such agreements by the rule of reason, thus giving the defendant a chance to prove the procompetitive effect of these vertical agreements. The lower federal courts have followed that rule, most recently in dismissing the Leegin plaintiff's claim under the rule of reason, primarily for failure to allege a credible market in which some anticompetitive effect could be felt. My anecdotal sense, however, is that businesses are still a bit reluctant to enter into these kinds of agreements, not knowing exactly how federal courts will use the rule of reason to analyze them, and so we haven't seen many cases in the federal courts on this issue yet.

Businesses are a little hesitant as well, I think, because there's even greater uncertainty is in how the state courts will handle this issue. Nearly all of the U.S. states and territories have with their own antitrust laws, which vary in terms of how closely they follow federal laws. Maryland has passed a Leegin repeal that retains the per se illegal rule for claims brought under that state's antitrust laws. Enforcement officials in a number of other states have either brought actions or made public statements about their view that these vertical agreements should be considered per se illegal under their state laws. I would include in the group some of the larger states: California, New York, New Jersey and North Carolina. Based on these developments, businesses have good reason to be cautious about entering resale price maintenance agreements that affect sales in these states.

Editor: Was it a case of diversity of parties that threw the Leegin case into the federal courts?

Wofford: No, the federal courts have exclusive jurisdiction over antitrust claims under a separate statute. The parties were diverse in terms of their places of business, but they didn't have to be for the case to be brought in federal court.

Editor: Jeffrey, please explain for our readers where Canadian courts have come out on this issue from an earlier treatment of RPMs as a per se criminal offense. Do you see this as a near convergence of the two enforcement procedures?

Brown: When it comes to resale price maintenance, the last few years have seen convergence of U.S. and Canadian laws. Until March 2009, we had a per se criminal provision prohibiting price maintenance in Canada. The Leegin decision pushed U.S. treatment of RPM in the other direction, toward a rule of reason analysis, and our law followed in March 2009 with the replacement of the criminal price maintenance provision with a civil RPM provision. Since its enactment, however, the Bureau has not brought any cases to the Competition Tribunal under the new civil RPM provision, nor have we seen any private parties seek leave to bring their own applications. So it is still very much up in the air how this provision will be enforced by the Bureau and applied by the Tribunal. For the Bureau, these are difficult issues. For example, how will the Bureau respond to a situation involving resale price maintenance by a supplier that clearly has market power? Economists (or many economists) will say that the combination of upstream market power and RPM does not necessarily lead to injury to competition, a conclusion which may be true, I think, and goes against the Bureau's instincts.

Editor: One hypothesis posited by one of our law firm articles is the U.S. enforcement is aimed more at anticompetitive practices that harm consumers while Canadian enforcement is aimed at a practice that is per se anticompetitive, regardless of its effect on the consumer. Would you agree?

Brown: I think that from a Canadian perspective certainly there are some provisions in our Competition Act that are directed squarely at protecting the consumer, such as provisions dealing with bait-and-switch advertising, double ticketing, multi-level marketing schemes and promotional contests (or what Americans call sweepstakes) - generally so-called deceptive marketing practices. In terms of the provisions of the Competition Act that are more generally considered to fall within the realm of "antitrust," virtually all of them do have a competitive effects requirement to them. Bid-rigging and our new per se conspiracy provision are exceptions to this, because conduct contravening these provisions is considered to be anti-competitive in and of itself. But all other provisions, such as abuse dominance, refusal to deal, tied selling, RPM and our merger provision contain a requirement that competition be injured in some way. Where the purpose of these provisions gets a bit muddied is with our merger provision and, as of March 2010, our new civil competitor collaboration provision, section 90.1. Both of these provisions contain an efficiencies defense. We don't yet have any jurisprudence dealing with s. 90.1, but we do have case law dealing with the efficiencies defense in the context of a merger. The Superior Propane case considered what types of efficiencies count for the purposes of that provision, and in so doing it was observed by the court that the Competition Act has a purpose clause which sets out a variety of objectives, of which efficiency is but one.

Wofford: On the U.S. side, the kinds of consumer-protection practices that Jeff identified would tend to get prosecuted by the FTC's Bureau of Consumer Protection rather than its Bureau of Competition. Even those agencies devoted explicitly to competition issues - the FTC's Bureau of Competition or DOJ's Antitrust Division - would, I'm sure, maintain that anticompetitive practices necessarily adversely affect the consumer, and so the two goals of promoting competition and protecting consumer welfare very rarely, if ever, conflict. The antitrust laws may not protect all competitors, but they're certainly designed to protect the public.

Editor: Do you see both governments' enforcement agencies strengthening the penalties for certain antitrust violations such as conspiracies dealing with hard-core cartel conduct and bid-rigging? What is their stance on unilateral conduct?

Wofford: In the United States the penalties for the hardest core violations have not changed recently. Even when campaigning, then-candidate Obama stopped short of criticizing the Bush administration's record of criminal enforcement, which was vigorous by any historical measure. I have no doubt that that level of enforcement will continue under President Obama.

As for unilateral conduct, which would almost certainly be prosecuted civilly, President Obama and his appointees have criticized the previous administration for failing to bring a single Section 2 action in the eight years it was in power. We saw this point of divergence almost immediately upon Ms. Varney's confirmation as assistant attorney general, when she withdrew the Section 2 report that had been issued by the Department of Justice only a few months before. As I mentioned earlier, while we have not yet seen the unilateral-conduct cases that Ms. Varney's speeches might have suggested were in the offing, it's clear that the new administration is focused on this area.

Brown: In Canada, there has been an upward trend in penalties, but this has been due not to actions of the Competition Bureau, but to legislation. As I noted earlier, the 2009 amendments included a per se criminal offense for hard-core cartel conduct (which, while enacted in March 2009, came into force in March 2010). Prior to that, we did have a criminal conspiracy provision, but in order to prove a violation the prosecution had to demonstrate an undue prevention or lessening of competition. In conjunction with the move toward per se treatment of conspiracies, the maximum fine for conspiracy went from $10 million to up to $25 million, and the maximum imprisonment term was raised from five to 14 years. Penalties for criminal and civil misleading advertising were also increased. In the case of civil misleading advertising cases, for example, the maximum potential administrative monetary penalty applicable to corporations increased to $10 million for a first violation and to $15 million for subsequent violations. Similar administrative monetary penalties are now available for abuses of dominance, as well. Before March 2009, there were no monetary consequences for engaging in an abuse of dominance in Canada, except in the airline sector.

Editor: How have the enforcement agencies and courts in both countries treated reverse settlement payments?

Wofford: Between the two U.S. enforcement agencies, the FTC has taken the lead in bringing cases based on reverse settlement payments. That agency's record in the federal courts, however, is mixed at best, and it is clear that a number of the regional circuit courts, and most recently the Court of Appeals for the Federal Circuit, are skeptical of the kinds of theories that the FTC has asserted in this area. The most recent cases treat such claims under the rule of reason, find them within the scope of the patent or patents involved, and conclude that the overall effect is procompetitive. Chairman Leibowitz in particular, however, has been very forceful in his denunciation of these types of settlements, as have some in Congress, so I am sure that he and others are looking at other legal strategies.

Brown: To my knowledge, there have been no reverse settlement cases in Canada. Under former Commissioner Scott, the Competition Bureau conducted two studies into competition in the pharmaceutical industry, in particular with regard to the role of generics. However, the Bureau's specific views on reverse settlement payments are, to my knowledge, unknown. It will be interesting to see how the Bureau deals with reverse settlement payments, and whether recent amendments to our conspiracy provision prompt greater enforcement on the Bureau's part. In this regard, the Competition Bureau has gone to great lengths to assure the business community that it will use the new per se criminal conspiracy provision only for so-called hard-core cartel conduct, or naked restraints, and that all other agreements between competitors will be dealt with under the civil competitor collaborations provision. Will the Bureau take the view that a reverse payment settlement constitutes a "naked restraint," and seek to look at it criminally, or will it subject such settlements to civil enforcement, requiring the Bureau to show a substantial prevention or lessening of competition?

Editor: To what extent recently have the efforts of Justice and the FTC in the U.S. and the Competition Bureau in Canada been limited by the courts?

Wofford: That is a complicated question. The initiatives that have been articulated by the new administration have to be taken in the context of 30 years of Supreme Court decisions that have generally favored antitrust defendants. That case law is not going away anytime soon, even given the recent appointments to the Supreme Court. When and if push comes to shove, federal case law limits how quickly things can swing from one administration to another. When she came into office, for example, Ms. Varney advocated a return to what she called the "tried and true principles" of several older antitrust cases, including the Aspen Skiing case. That case, however, was described by the Supreme Court several years ago as at the outer edge of Section 2 enforceability. So even where the DOJ is citing older case law, newer case law suggests limited support for what the agencies might have in mind.

That said, the threat of a government investigation or agency action alone is often enough to pressure the target of that investigation into reaching a settlement, even if the target believes that it might prevail in litigation under federal law. So the agencies do have some ability to accomplish their goals, even if the case law doesn't get anymore favorable to them.

I'd be wrong not to mention again that the FTC is in a somewhat unusual position in this regard because it operates under a separate statute, the FTC Act, which generally bars unfair methods of competition. In the past few years the FTC has reintroduced the theory that the bounds of that Act exceed the bounds of the Sherman Act, and they have brought a number of actions that pretty clearly would have fallen short under the Sherman Act - some of its claims against Intel, for example, and its claims against N-Data, U-Haul and Valassis. The commission has managed to enter into settlements with these defendants based on its more aggressive interpretation of the FTC Act, so it appears that federal case law on the Sherman Act notwithstanding, that agency has an additional way at its disposal to increase the aggressiveness of its enforcement efforts.

Editor: Have there been any head on collisions between the agencies' actions that have been appealed to the Supreme Court where the court has "rapped the knuckles" of the agencies?

Wofford: No, for a couple of reasons. First, there are few head-on collisions between the agencies. The only one of recent memory involved the FTC's attempt to appeal an adverse decision in its case against Schering-Plough by the Eleventh Circuit, which the Bush administration Justice Department opposed. I strongly suspect that we would not see that same conflict today. Second, although in the past few years we have seen a relatively large number of antitrust decisions from the Supreme Court, those have almost all involved private litigants, not the government. As I mentioned earlier, there has been some knuckle-rapping, if you can call it that, by some of the regional circuit courts in the reverse-payment cases brought by the FTC.

Editor: Jeff, how has the Competition Bureau been limited by the courts in Canada?

Brown: The Competition Bureau is certainly more empowered today in a few areas than it was a few years ago, but again this has less to do with the courts and more to do with legislative change. The adoption of the per se criminal provision for conspiracies, for example, facilitates enforcement against cartels. Prior to this amendment, the Bureau long expressed the view that having to show an undue prevention or lessening of competition made it too difficult for it to succeed in enforcement actions against conspiracies. Being able to issue a SIRs in respect of notifiable mergers similarly strengthens the Bureau's position vis-à-vis the parties, in that it is more difficult for parties to simply threaten to close a transaction knowing that the Bureau has the ability to delay closing by issuing a SIR.

One area where the courts have made a difference in terms of facilitating enforcement action is not with respect to enforcement action by the Competition Bureau, but rather private parties. We have seen a number of court decisions in the last year dealing with certification of class proceedings that have resulted in the bar being lowered quite substantially for plaintiffs. These decisions would suggest that it is no longer necessary that harm be demonstrated at the class certification stage. Rather, some courts have held that a plaintiff must show only that a credible or plausible methodology exists for the showing of harm, which represents a significant lowering of the bar to class certification.

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