On January 6, 2012 the Competition Bureau announced its first cartel case under Canada’s amended Competition Act, partially brought under the new section 45 of the Competition Act.
In this case, two companies pleaded guilty of fixing the price of polyurethane foam and were fined a total of C $12.5 million (see: Cartels Update: Bureau Announces $12.5 Million Fine in First Price-fixing Case Under Amended Competition Act and Competition Bureau Sends Signal to Price-Fixers with $12.5 Million Fine).
In making the announcement, believed to be one of a number of new cartel cases currently being investigated, the Bureau highlighted its stepped-up enforcement of cartels:
“’Yesterday’s guilty plea is the first conviction under Canada’s amended conspiracy law,’ said Melanie Aitken, Commissioner of Competition. ‘This investigation highlights the Bureau’s reinvigorated mandate to stop consumer harm caused by price-fixing, and to secure significant fines for these serious criminal offences.’
In other recent public remarks, the Bureau has similarly indicated that it intends to enhance its investigation of cartels under Canada’s new conspiracy (cartel) rules:
“In our Criminal work, we continue to concentrate on the, admittedly, lengthy process of ‘changing the game’— reorienting our approach at the Bureau, our processes, and our mindset to a more appropriately aggressive stance to respond, as we must, to our new more powerful criminal provisions.
As we move forward with our new criminal regime, consistency, consistency, and consistency is our focus. There will be no arbitrary relaxing of standards under the Bureau’s watch — a practice that can only impair predictability and fairness in enforcement. Further, we will use our investigative tools such as searches, wiretaps and section 11 orders.
Cartels and bid–rigging continue to be our focus, given the seriousness of this conduct, and its unambiguously harmful nature. We are committed to advancing cases that matter to Canadians, doing so in a timely manner, and following them through to the end.”
(See: Commissioner of Competition, Keynote Speech at the Canadian Bar Association 2011 Fall Conference).
Based on these and other recent developments, we will be posting overviews of Canadian conspiracy and bid-rigging laws, each concluding with practical steps companies can take to reduce potential criminal liability (and overviews of the Bureau’s Immunity and Leniency Programs, which are increasingly proving to be key for both Bureau investigations and parties to reduce liability).
For Part 1 see: here.
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OVERVIEW OF CONSPIRACY (CARTELS) UNDER THE COMPETITION ACT
As a result of amendments to the Competition Act (the “Act”) in 2009 and 2010, Canada now has a dual-track conspiracy regime with a criminal track for three categories of “hard core” conspiracy agreements between competitors and a second civil track for other agreements between competitors that may prevent or lessen competition substantially.
This new two-track conspiracy regime is intended to make the enforcement of hard-core criminal cartel activity easier under section 45 (given that the former competitive effects test has been removed) while allowing other non-hard core agreements, such as joint venture, franchise and licensing agreements, to be subject to a more detailed review under a separate civil track (section 90.1).
Some of the key impacts of the new conspiracy provisions on Canadian and international firms include:
1. Substantially increasing the risk of “hard core” cartel agreements (i.e., bare price-fixing, market division/allocation or output/supply restriction agreements), as a result of the lower legal burden and higher penalties.
2. Altering the review of many common forms of commercial agreements (e.g., franchise, license, dual distribution and joint venture agreements).
3. Increasing the importance for trade associations and companies to review existing (or adopt new) compliance programs.
4. Enhancing the importance of reviewing and controlling dealings with competitors (e.g., information exchanges, trade association activities, etc.).
Criminal Offences – Section 45
Three categories of agreements between competitors are “per se” illegal under section 45 of the Act – i.e., with no adverse impacts on a market required:
1. Price-fixing agreements. Agreements to fix, maintain, increase or control the price for the supply of a product.
2. Market allocation/division agreements. Agreements to allocate sales, territories, customers or markets for the production or supply of a product.
3. Output/supply restriction agreements. Agreements to fix, maintain, control, prevent, lessen or eliminate the production or supply of a product.
Interestingly, section 45 omits any express reference to group boycotts (i.e., concerted refusals to supply), which may nevertheless fall within subparagraph 45(1)(c) (output/supply restriction agreements) in some cases (though this remains to be decided by Canadian courts).
Other types of agreements between competitors are now potentially subject to review under a second and separate non-criminal reviewable matters provision (section 90.1).
“Competitor” is defined broadly to include potential competitors (i.e., “a person who it is reasonable to believe would be likely to compete with respect to a product in the absence of a conspiracy, agreement or arrangement”). As such, agreements and arrangements between parties that are not actual (i.e., currently) competitors may also potentially be caught in some cases.
Civil Agreements Section – Section 90.1
Agreements between competitors that are not caught by the three new per se criminal offences are now potentially reviewable under the new civil reviewable matters provision (section 90.1). These may include, for example, non-compete agreements, research and development agreements, joint purchasing agreements, joint production agreements, joint selling and commercialization agreements and information sharing agreements.
Following the amendments, the Tribunal now has the power, on application by the Commissioner of Competition, to make remedial orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market. The Tribunal may make orders: (i) prohibiting any person (whether or not a party to the agreement) from doing anything under the agreement or (ii) requiring any person, with their consent, to take any other action.
Unlike under section 45, however, fines cannot be ordered under section 90.1 and private parties have no right to commence civil actions.
Defences
The amendments to the Act have also introduced a new ancillary restraints defense that applies where it can be shown that: (i) an agreement is ancillary to a broader or separate agreement that includes the same parties; (ii) the agreement is directly related to, and reasonably necessary for giving effect to, the objective of the broader or separate agreement; and (iii) the broader or separate agreement does not itself violate section 45.
Most of the other pre-existing exceptions, including for agreements between affiliates, remain under section 45 following the 2009 amendments.
The civil agreements section (90.1) also includes an efficiencies defense that applies where an agreement has resulted in (or is likely to result in) efficiency gains that are greater than, and will offset, the adverse effects of an agreement. In this regard, section 90.1 has been more closely aligned with the existing merger provisions of the Act that also include an efficiencies defense.
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