Canadian COMPETITION LAW

June 10, 2014

I’ve been blogging on competition and advertising law topics for quite a few years now – about six or seven years or so by my count – and written on a great many topics over those years. I blog on competition and advertising law for several reasons, including because I continue to find competition law related topics very interesting and, as a citizen, I think it is important to help maintain and increase the awareness of competition law and policy topics in our economy.

I did have a “pre-blog” practice before my blogging days though it’s becoming a bit tough to remember my practice “pre-new media”, pre-online inquires, files and questions coming in from many parts of the world (thank you to my wonderful clients!).

Some of the topics I found interesting when I first began to write online, and still do, include cartels (price-fixing, market division, bid-rigging agreements, etc.), technological changes impacting competition and markets (and there have been many, many of those over the past 6-7 years) and local laws and regulations that attempt to restrict or limit competition for purported consumer-focused (though often not) purposes.

When I first began blogging, it wasn’t clear whether there would be enough to write about to sustain a blog on the topics of (mostly) competition and advertising law. In retrospect, that has clearly not proved to be the case.

Since I began blogging in the mid-2000s there has been a continued explosion of competition law systems worldwide, new commentators, new competition law blogs and websites, Internet aggregators and news services delivering an ever-growing stream of competition/regulatory law updates, cases, legislative and policy developments and books and texts on the topic.

The practical challenge now, for practitioners in the area, compliance officers and personnel and business people alike, is keeping up to date and following the important developments both in Canada and in other jurisdictions that either impact or influence Canada – for example, Canadian competition law developments or international developments that shape Canadian competition/advertising law or policy.

Given the continuing interconnectedness of Canadian and international regulatory systems, it is also becoming increasingly important to monitor developments in key international jurisdictions.  This is one reason I follow competition/advertising law developments in a few key countries, including Australia, New Zealand, the UK, European Union and United States.  Of course there are many other established and emerging competition/antitrust agencies doing very interesting work.

Since over the past six or seven years I’ve also received a great many questions, through online conversations with others in the field, social media platforms, clients and conference and seminar attendees, I thought it would be interesting to think about (and write a post or several on) the 25-30 or so more interesting, frequent and important competition and advertising law related questions that I’ve received.

While by no means comprehensive or in any particular order, the following is Part I. Please keep a lookout for several more posts on the topic.  And of course if you have competition or advertising law questions, don’t hesitate to drop me a line to chat at: steve@szentesilaw.com.

Based on the title of this post, perhaps the place to begin is “what is competition law”?

A Few Interesting, Frequent and Important
Competition and Advertising Law Questions – Part I

Q:  “What is competition law?”  A: The answer to this question could occupy many, many posts and a mountain of business, academic and policy literature, which it already has done over the century or so since a number of jurisdictions first adopted competition laws in the modern era in the late nineteenth and early twentieth centuries.  In a nutshell, however, “competition law” or “antitrust law” as it is known in the United States generally includes a variety of provincial (or in the U.S., state) and federal legislation, case law and enforcement policies setting out certain boundaries to free enterprise in an effort, or at least usually in an effort, to prevent abuses of market power and other “market failures” based on particular local policy choices. In short, to keep markets running, well, competitively.  In Canada, like other major jurisdictions, competition laws for the most part either regulate or prohibit certain particular activities centred around the following: (i) some types of commercial agreements or criminal “cartel” agreements that restrict or limit competition (i.e., illegal or civilly challengeable agreements involving competitors to fix prices, divide/allocate markets, restrict/limit supply or output, rig bids or otherwise limit competition in ways that may be subject to challenge); (ii) “abuses of dominance” or “monopolization” by large incumbents with market power; (iii) certain types of “unilateral” conduct that may raise competition law related concerns (such as tying, exclusive dealing or refusals to deal); and (iv) merger control rules (i.e., rules involving the notification, review and potential remedies for certain transactions of a prescribed size, typically based on turnover and/or market share thresholds).  In some jurisdictions, like Canada, competition laws also include a range of consumer protection and advertising laws (i.e., misleading advertising related) rules that either prohibit or regulate particular types of marketing and advertising activities.  Not surprisingly, competition law and policy tends to be political, with the degree of surveillance and review of markets (and marketplace participants) depending on policy choices that dictate the degree to which competition and markets should swing toward producers or consumers.  As I often tell clients and folks at seminars and events, etc., however, I look at Canada’s Competition Act not as picking winners or losers, or regulating any particular market per se, but rather as legislation aimed at ensuring that markets operate as competitively as possible (and to the extent possible, free of market distortions).  One other key point about competition laws, whether in Canada or internationally (and which I continue to find interesting), is that they both set out compliance obligations for most companies, associations and other organizations, but may also depending on the circumstances be used “offensively” to seek remedies in the case of a market failure, abuse of market power, supply terminations and other circumstances.

Q: “Those gas companies … isn’t that ‘price-fixing’” (or something to that effect). A: Yes it might be, if you can prove an agreement between competing companies. Or it might simply be a matter of competing companies monitoring one another and setting prices and/or the market operating naturally in an industry that tends to be fairly concentrated in many markets with frequent price adjustments. In Canada, to prove an illegal cartel/conspiracy for competition law purposes requires proof of an agreement or arrangement between competitors, which the Bureau and/or plaintiffs may be able to establish in a variety of ways including: wiretaps, informants, immunity/lenience applicants and a variety of circumstantial and direct types of evidence.

Q: “Why doesn’t the Competition Bureau go after ‘those gas companies’” (or something to that effect). A: Well, actually, they do. Gasoline is one of the most high profile industries in Canada (and many other countries) from a competition law enforcement perspective. For current background on the Canadian Competition Bureau’s work in the gasoline sector and recent enforcement see: Competition Bureau – Gas Prices.

Q: “If conspiracies/cartels involving competitors are illegal, how do those [insert regulated industry / marketing board / supply management system of choice] get away with it?” A: There is a legal doctrine in Canada (the “regulated conduct defence”), which, though subject to increasing scrutiny, essentially says that activities that are mandated or authorized by validly enacted provincial or federal legislation can fall outside the competition laws. There is a similar doctrine in the U.S., which is also subject to increasing debate, that can similarly protect legislatively authorized or regulated conduct from the application of the antitrust laws. When I explain these doctrines to clients/audiences/people that ask, I usually receive one of the following responses (or a combination): puzzlement, anger at governments that enact such rules and/or reactions along the lines of: “well, that’s not surprising” (i.e., in recognition of the natural inclination of governments or regulators in some instances to protect and insulate particular incumbents).

Note to “regulated markets” or “regulated participants”: One common misconception about this potential safe harbour (i.e., the so-called “regulated conduct defence”) is that it is not, like a number of other competition/antitrust immunities, a blanket defence or exception or apply to all regulated markets or activities.  Rather, it is a specific (and in some respects uncertain) common law and legislative doctrine that may apply to exempt certain activities specifically covered by legislation or regulation.

Q: “Don’t all contests in Canada have to include a ‘no purchase required’ entry option?” A: No. Contests in Canada are governed, among other things, by the federal Criminal Code, which includes illegal lottery offences. To avoid these offences contest promoters in Canada commonly include a skill-testing question as a condition of winning a prize and a no-purchase required entry option. This approach is intended to first, convert games of pure chance, which several of the illegal lottery offences prohibit, into games of mixed chance and skill (via a skill testing question requirement); and second, remove the “consideration” (typically a purchase) element of a contest, which can also be problematic under the Code’s illegal lottery offences.  Having said that, there are some promotional contest approaches where a purchase (or other consideration) may be included as a condition to enter while reducing the risk of violating the relevant Criminal Code offences.

Note to marketers and agencies: While there are a few Canadian laws that apply to contests, the basics really aren’t that complex and a wide variety of promotions can be run in Canada (and yes, typically with a little extra effort, also in Quebec). And, more specifically to the FAQ above, if your contest or promotion is contemplating a purchase requirement, this may be possible but it is strongly recommended you get some legal advice to run through the options and Canadian contest laws generally.

Q: “Are we [as a professional association] likely to be looked at more leniently by competition law enforcers based on the fact that we are a kind of ‘regulator’ for the [insert industry]?” A: No. One of the key considerations for the application of competition laws in regulated sectors is not whether individuals, groups or associations refer to themselves (or consider themselves) to be “professionals” or “regulators”.  Instead, the key question to determine whether competition laws may apply is whether there is legislative or regulatory authority to do something that might otherwise be offside the competition laws. Interestingly, I recently received yet another variation of this question from another lawyer (practising outside the competition law area) who essentially queried whether “professional associations” were subject to competition laws.  My answer was generally yes, subject to the facts of a particular matter and any specific legislation or regulation that might remove a professional association’s activities from competition law review.

Note to trade and professional associations: Many trade and professional association activities are unlikely to raise any significant competition law concerns. Some association activities, however, can raise serious criminal or civil competition law risks and, therefore, basic and practical (or if more ambitious and compliance focused, comprehensive) compliance precautions are a must for associations.

Q: “Don’t refusals to deal [e.g., distributor, reseller or retailer terminations by manufacturers/suppliers] violate Canadian competition laws? These seem to be very anti-competitive”. This is a common question I receive, an important one and also often on a lot of small and medium sized distributors’ and retailers’ minds who have either been refused supply or are facing a potential supply termination. The answer, or at least part of the answer in Canada, is that it depends. When I discuss supply terminations with clients or potential clients, I often begin by explaining that in general suppliers are free to determine who to supply to and on what terms. This general proposition, however, is by no means unqualified and can be subject to a number of caveats if, among other things, the decision to terminate supply is by agreement among competing suppliers (which can raise criminal or civil concerted refusal to deal concerns under the Competition Act); if the termination of supply is based on a customer’s or reseller’s low pricing policy (which can raise civil price maintenance concerns); if a refusal to supply involves a potentially dominant supplier (which can in some cases raise abuse/monopoly concerns); or if the elements of a stand-alone refusal to deal section under the Competition Act are met (or there are good arguments they are met). With several of these Competition Act provisions, however, market effects are a key aspect of the analysis (i.e., the requirement to establish or argue that competition has been substantially lessened or adversely affected in one or more relevant markets as a result of the termination), which means that a simple decision by a supplier/manufacturer to cease supply may not be sufficient to conclude that a supply termination has breached Canadian competition laws. In addition to competition law theories of harm, refusals to supply or deal in Canada can also raise contract or tort law based theories of harm and potential liability for suppliers/manufacturers under these other non-competition areas of law.

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Our experience includes advising clients in Toronto, across Canada and the United States on the application of Canadian competition and regulatory laws and we have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal and pricing and distribution matters. For more information about our competition and advertising law services see: competition law services.

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