April 20, 2014
Recently I was asked why an association should have a competition compliance program. Sometimes I am asked why a company, association or other organization should have a compliance program. And others, I am asked what a “compliance program is”. These are both very valid questions. Here I thought I would write a short note on the first question (i.e, the “why”).
The conventional answers to the first question are typically something along the following lines: violation of competition/antitrust laws can lead to severe penalties (in Canada criminal fines of up to $25 million and/or imprisonment for up to 14 years); directors and officers have duties of good faith and care to their organizations, including obligations to comply with applicable laws; an investigation or civil challenge can be very prejudicial to a company’s or association’s brand; and a compliance program can (though of course is no guarantee) mitigate penalties in the event of an investigation/challenge.
In addition to these benefits, the Competition Bureau in Canada continues to rely heavily on its Immunity and Leniency Programs to detect and investigate cartels in Canada, including price-fixing, bid-rigging and other illegal coordination among competitors. An effective competition compliance program can not only assist a company or association comply with its legal obligations, protect its brand and avoid potentially costly and time-consuming investigations but also identify possible violations early that may allow the avoidance of competition/antitrust liability altogether.
While all of the above remain true, several other key reasons in Canada for associations to have and periodically train/update their competition compliance programs include the following:
1. Association compliance programs are “top of the list” for the Competition Bureau. Both the Bureau’s Corporate Compliance Programs Bulletin (its leading corporate compliance document) and newly issued Trade Associations Pamphlet place competition law compliance programs “top of the list” so to speak for associations – i.e., state that they are “crucial … for trade associations” given their unique structure as organizations of direct competitors and potential risk. In updating its corporate compliance resources over the past year or so, associations have also become a focus once again for the Bureau.
2. Recent record penalties achieved for criminal Competition Act offences. Several recent examples include bid-rigging fines achieved by the Bureau in the ongoing international auto parts cartel probe of $5 million and $30 million.
3. Increased focus on enforcing the Competition Act against individuals. Over the past several years, Canada’s former and new Commissioners of Competition have been signaling an increased appetite to pursue individual penalties for violations of the Competition Act. While not yet approaching the director and officer risk in the U.S., where jail sentences are routinely achieved by the DoJ, recent sentences against individuals include in the Quebec gas price-fixing probe and the Bureau’s ocean freight price-fixing investigation where two executives were sentenced recently to conditional sentences of three and four months (see: Competition Bureau Investigation in Ocean Freight Industry Results in $1M Fine for Price Fixing). The Bureau has also recently laid criminal charges against several individuals in its investigation of potential bid-rigging for Federal Government IT contracts (archive services).
4. Elimination of conditional sentences. Recent amendments came into force in Canada eliminating “conditional sentences” (i.e., time served in the community) for several of the more severe Competition Act offences: price-fixing and other conspiracy agreements and bid-rigging. While it may yet be too early to tell the impact of this change, given that it is not unusual for criminal competition law matters in Canada to take several years to work their way from initial investigation to plea/trial/dismissal, this change is expected to mean that violation of some of the Competition Act‘s criminal offences will be more likely to lead to actual prison time.
5. A continued focus by the Bureau on criminal cartel and bid-rigging activities. While the Bureau periodically announces that its enforcement focus includes cartels (which is not unusual for either the Bureau or other antitrust enforcement agencies), it is fair to say that the past several years have shown an increased focus by the Bureau on bid-rigging in Canada in particular, with a number of bid-rigging challenges or convictions in multiple sectors.
6. Increased inter-agency cooperation by the Bureau. The Bureau continues to work on enhancing its cooperation with other law enforcement authorities in Canada to enforce the Competition Act. Perhaps most noteworthy recently, the Bureau has been working closely with Quebec’s anti-corruption unit in relation to the ongoing Charbonneau Commission hearings in Quebec and searches of construction firms and engineering companies. Will the recent searches lead to convictions? Likely a bit early to tell (for example, given that several other of the Bureau’s recent criminal investigations – e.g., in chocolate and gasoline – took some 3-5 years, and in the case of gasoline in Quebec still continues).
7. Increased Bureau use of compulsory production (i.e., searches, wire-taps and section 11 document production orders). Over the past several years, the Bureau has been showing an increased desire to use compulsory production – e.g., search warrants, wire-taps and “section 11” production orders – as a matter of course. Recent examples of these include the Bureau’s use of wiretaps in its gasoline price-fixing investigation in Quebec, searches of construction and engineering firms in Ontario and Quebec and recent pronouncements by the Commissioner of Competition that the Bureau would use section 11 production orders as a matter of course in non-merger related inquiries.
8. Supreme Court of Canada clearing “indirect purchaser competition law class actions”. Canada’s Supreme Court recently gave the green light for “indirect purchaser” class actions to proceed in Canada. As a practical matter, this may translate into increased risk for associations involved in the coordination of prices, markets, output or other competitive aspects of members’ products where effects are felt by downstream indirect consumers.
9. The recent TREB abuse of dominance case broadens potential abuse-based challenges of associations. One final practical rationale for associations to consider compliance more seriously is the Federal Court of Canada’s recently broadening of the application of the abuse of dominance provisions of the Competition Act with respect to associations. While a number of provisions of the Competition Act applied to associations before this decision and still do, the Federal Court made several key holdings with respect to associations including: that a person not a competitor in a particular market may control that market by controlling a significant input for competitors; and that a person that does not compete in a particular market does not mean that they cannot commit an anticompetitive act against competitors in that market. While this case is returning to the Competition Tribunal this fall for re-determination, the Federal Court of Appeal’s decision is thought to generally mean a broader basis for abuse of dominance based challenges of trade and other associations in Canada.
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