Canadian COMPETITION LAW

November 15, 2013

Canada’s new Commissioner of Competition, John Pecman, delivered remarks yesterday in Toronto centered around what he has been referring to recently as the “4Cs” (the Competition Bureau’s four current areas of focus: compliance; communication; collaboration; and Canadians).  As part of his remarks, as he has been doing since last fall, he once again discussed trade associations, and in particular association compliance and the importance of adopting credible and effective competition law compliance programs.

In this regard, the Commissioner said:

“The first thing I want to say is that the Bureau does not operate under the assumption that trade associations are inherently bad.  We do, however, acknowledge that from time to time they engage in practices, which can significantly increase the risk of issues arising under the Act.  Trade associations provide a forum that may encourage competitors to collaborate and because of this, they are exposed to greater risks of anti-competitive behaviour.

And so the second thing I want to say here is that for this reason, compliance programs are of the utmost importance to trade associations.  Now, I know that on the whole, trade associations are aware of this and take action to mitigate risks arising under the Act.  They are extra vigilant in managing and alleviating the risks associated with their work.  However, it’s worth repeating that developing a credible and effective compliance program is the first and most important step. That culture of compliance I was just speaking about isn’t restricted to businesses.”

The Commissioner also reiterated trade association related compliance themes from other recent remarks including: the importance of developing a compliance program generally (including updates and periodic training and enforcement); “information exchanges” between competitors that may raise competition concerns (the exchange of competitively sensitive information between competing members); avoiding exclusionary or disciplinary standard setting; and to reach out for legal advice in the event a competition law issue arises.  Trade associations do appear to be receiving some renewed attention from the Bureau, given that the Commissioner has addressed associations some five times in public remarks since late 2012.

In addition to revisiting competition compliance and associations, the Commissioner also discussed the Bureau’s plan to update its key competition compliance related guidelines (its Conformity Continuum and Corporate Compliance Programs Bulletins) and seek public consultations on an updated approach to competition law compliance; its recent “Action Plan” on increased transparency; the record $5 million and $30 million bid-rigging fines in the ongoing global auto parts cartel investigation; and recent public consultation for suggested areas of competition advocacy (without yet disclosing potential sectors for Bureau intervention).

The Commissioner also included a few high-level recent enforcement statistics, including the fact that the Bureau currently had twenty-two cases either before the courts or the Competition Tribunal and over eighty major active investigations.

Competition Law & Trade Associations

Trade and professional associations can serve many legitimate purposes.  These include promoting common interests to the public, lobbying and advocacy, product and market research, member education and updates on industry developments, publishing trade journals and the promotion and improvement of products.  However, because association activities by definition commonly involve the interaction of direct competitors, they can also raise serious Competition Act concerns.

In general, some of the types of association activities that can raise competition law issues include those relating to pricing, advertising, customers, territories, market shares, terms of sale and other key aspects of members’ competition with one another.  Some specific association activities that can raise issues include: (i) efforts to coordinate pricing, markets or other key aspects of competition; (ii) association meetings; (iii) exchanges of competitively sensitive information; (iv) self-regulation and codes of conduct; (v) membership and business restrictions; (vi) fee schedules and joint negotiation; and (vii) advertising and marketing restrictions.

In recent remarks by the Commissioner, like the kind delivered yesterday in Toronto, he has indicated that the Bureau is likely to show an interest in associations where they engage in three types of conduct in particular: restricting the types of professional service practice offerings (e.g., setting limits on things like office location, size, etc.); limiting the number or range of members or the ability of members to compete (e.g., through mandatory or suggested fee schedules or standards for product quality that advantage some members over others); and conduct that reduces incentives to compete vigorously (e.g., exchanges of competitively sensitive information).

Competition Law Best Practices
for Association Activities

The following are some best practices for associations to avoid competition law risk:

Adopt and maintain an effective compliance program.  An effective compliance program is a common-sense starting point for association competition compliance.  Some of the benefits of a compliance program include reducing the risk of violating the Competition Act, reducing the costs of investigations and proceedings and potentially mitigating penalties.  Options range from formal compliance programs encompassing all association activities to compliance guidelines for key activities (e.g., meetings, information exchanges and specific initiatives such as benchmarking, research and development initiatives and joint negotiations).

Adopt agendas and minutes for association meetings.  Associations should prepare written agendas and keep minutes for all meetings.  Discussions at meetings should also stay within the boundaries of legitimate agenda items and discussions (or exchanges) of “competitively sensitive information” should be avoided, such as discussions of current/future pricing, costs, individual customers, markets, market shares and business or strategic plans.

Use conduct of meeting guidelines.  One of the most practical steps an association can take to reduce competition law risk is to use and follow conduct of meeting guidelines.  Such guidelines (which are typically 1-2 pages) commonly include restrictions on the exchange of competitively sensitive information of the types discussed above and on discussions of topics that may lead to conspiracy risk under section 45 of the Competition Act (e.g., discussions relating to pricing, markets, concerted refusals to deal or limiting the production or supply of goods or services).  Conduct of meeting guidelines also commonly include guidance on steps to take if inappropriate discussions or activities arise during association meetings or other events.

Perform periodic compliance audits.  Having a compliance program or policy in place that is not followed can, in some cases, be more harmful than not having a program at all (particularly if association personnel understand the terms of the program and choose not to follow it).  As such, a practical way for associations to monitor compliance is to conduct periodic audits of association activities, which can be performed on an association-wide, activity-specific or spot basis.

Conduct competition compliance orientations for new association personnel.  Another practical step associations can take to ensure competition law compliance is to conduct compliance orientations for new board and executive members.  In this regard, the Bureau’s view in its Corporate Compliance Programs Bulletin is that “senior management’s clear and unequivocal support is the foundation of a credible and effective corporate compliance program.”

Get legal advice for association initiatives that may raise competition issues.  Many associations do not have the budget for extensive legal advice.  Recognizing this, it is nevertheless prudent for associations to obtain advice for key activities and initiatives that may raise competition law issues.

Avoid informal or “off the record” meetings.  Associations should discourage informal or “off the record” meetings between members, particularly on the “fringes” of association meetings or using association facilities.  This is not to say that members cannot meet informally for social purposes, but in a number of past association cases members either met informally (and in several cases actually established “sham” associations) to form and maintain illegal cartel arrangements.  Association members should also be aware that merely because a meeting is held “off the record” or “in camera” (i.e., discussion details are not recorded in meeting minutes) does not mean discussions, or the fact of the meeting itself, cannot be used as evidence in competition law proceedings.

Generally review association activities through a “competition lens”.  Finally, it is useful for association executives and personnel to review association initiatives and activities generally through a “competition lens”.  For example, if particular association activities may lead to higher prices, less quality or choice, make it more difficult for some members or competitors to compete or generally reduce competition, this may raise competition law concerns (or at minimum flags so that advice should be sought).

For more about Canadian competition law and associations see: Canadian Competition Law and Associations.

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