Canadian COMPETITION LAW

December 16, 2023

On December 15, 2023, Bill C-56 (An Act to amend the Excise Tax Act and the Competition Act), which introduced the first of two significant new rounds of amendments to the federal Competition Act, largely came into force.

This first new round of amendments to the Competition Act, which is intended to strengthen the ability of the Competition Bureau (Bureau) and private parties to enforce Canadian competition law and also enhance competition in Canada overall, includes fundamental changes to Canadian competition law not seen since the last major round of amendments in 2009.

These sweeping new amendments to the Competition Act under Bill C-56 include the following:

ABUSE OF DOMINANCE

The December 2023 amendments include changes to the substantive test for abuse of dominance (under section 79 of the Competition Act), a new anti-competitive act (under section 78) and increased administrative monetary penalties (AMPs) for abuse of dominance.

These abuse of dominance related amendments are discussed in more detail below.

Amended Tests for Abuse of Dominance
Under Section 79 of the Competition Act

Prior to the December 2023 amendments under Bill C-56, an abuse of dominant position occurred under section 79 of the Competition Act when a dominant firm (or group of firms in the case of joint dominance), engaged in practice of anti-competitive acts with the effect of preventing or lessening competition substantially in a relevant market.

As such, before Bill C-56, to constitute an abuse of dominant position under section 79 of the Competition Act, all three of the following elements needed to be established: (i) dominance in a relevant market; (ii) a practice of anti-competitive acts (as set out in section 78 or case law under section 79); and (iii) the requisite anti-competitive effect in a relevant market.

Following the December 2023 amendments, the substantive test for abuse of dominance now depends on the type of remedy being sought by the Bureau or a private applicant to the Competition Tribunal.

The Competition Tribunal now may make a prohibition order against a dominant firm (or group of firms in the case of joint dominance) if the firm(s) are either: (i) engaging in a practice of anti-competitive acts (under section 79(1)(a)); or (ii) conduct that has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which the person has a plausible competitive interest and the effect is not the result of superior competitive performance (under section 79(1)(b)).

A broader range of remedies, including AMPs under section 79(3.1), are available where all three of the following elements are met: (i) dominance in a relevant market; (ii) a practice of anti-competitive acts; and (iii) a prevention or substantial lessening of competition in a relevant market in which the person has a plausible competitive interest.

According to the Bureau, these changes to the substantive test for abuse of dominance under section 79 “will provide a way of stopping dominant firm conduct that has either subverted competition in the marketplace or was intended to do so.”

New Anti-Competitive Act Under Section 78 of
the Competition Act

Section 78 of the Competition Act sets out a non-exhaustive list of acts that may be considered by the Competition Tribunal to be a practice of anti-competitive acts for section 79 (abuse of dominance).

Following the December 2023 amendments to the Competition Act under Bill C-56, the practice of “directly or indirectly imposing excessive and unfair selling prices” has been added to this list of anti-competitive acts. Similar tests have been included in provincial/territorial consumer protection legislation in Canada, but this type of non-economic effects based test has not until now been included in Canada’s modern Competition Act. As such, it remains unclear how courts will interpret this new test.

Importantly, such a practice must also under section 78(1), as is the case with the other enumerated examples of anti-competitive acts under section 78, be “intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition.”

Increased Penalties for Abuse of Dominance

Following the December 2023 amendments to section 79 of the Competition Act, the Competition Tribunal may now make a prohibition order prohibiting a person (or persons in the case of joint abuse) from engaging in the practice or conduct. This remedy remains unchanged.

The Competition Tribunal may now also, where it finds that a practice of anti-competitive acts amounts to conduct that prevents or lessens competition substantially in a market in which the person (or persons) have a plausible competitive interest and one of the above types of orders is not likely to restore competition in a market, order a person to take additional actions, including the divestiture of assets or shares, that are reasonable and necessary to overcome the abusive conduct in the relevant market.

In addition to the above, where the Competition Tribunal finds that a practice of anti-competitive acts amounts to conduct that prevents or lessens competition substantially in a market in which the person has a plausible competitive interest, the Tribunal may, in addition to the above two types of orders, also order the payment of an AMP of up to the greater of $25 million ($35 million for each subsequent order), three times the value of the benefit derived from the abusive conduct or, if the latter amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues.

Both of the above two potential penalties incorporate elements from the former penalty provisions (e.g., structural remedies and imposition of monetary penalties), while also incorporating jurisprudence from case law (i.e., the TREB abuse of dominance case) that has now established that a dominant firm need not necessarily engage in anti-competitive conduct with a competitor as long as it has a “plausible competitive interest” in the affected market.

Through several successive rounds of Competition Act amendments in 2022 and 2023 the federal government has been ratcheted up both the potential criminal and civil penalties for violating the Competition Act, signalling a focus of enforcement in particular against illegal conspiracy (cartel) agreements and abuse of dominance.

For more information, see: Abuse of Dominance.

CIVIL AGREEMENTS PROVISION (SECTION 90.1)

Following the December 2023 amendments, a new exception under section 90.1 (the civil agreements provision) was added to the Competition Act that provides that the Competition Tribunal may make orders even if none of the parties to an agreement are competitors (i.e., in relation to vertical agreements, such as supply/distribution or vertical joint venture agreements, etc.). Before the December 2023 amendments, section 90.1 was restricted to horizontal agreements (i.e., agreements between two or more actual or potential competitors).

Following the December 2023 amendments, section 90.1 of the Competition Act can also apply to vertical agreements (e.g., between suppliers and distributors) if: (i) a significant purpose of the agreement or arrangement, or any part of it, is to prevent or lessen competition in a market; and (ii) the agreement or arrangement prevents or lessens (or is likely to prevent or lessen) competition substantially in a market.

Bill C-56 also repealed the efficiency defence provisions under section 90.1 (the former sections 90.1(4) to (6)), which had provided that the Competition Tribunal could not make an order under section 90.1 where an agreement resulted in efficiency gains that were greater than and would offset the effects of a prevention or lessening of competition.

The 2023 amendments widen the scope for the Competition Tribunal to make orders under section 90.1 where none of the parties are competitors (e.g., in relation to vertical agreements, such as supply/distribution agreements or vertical joint venture agreements) and reduce the role of efficiencies in arguing that the Competition Tribunal should not make an order.

However, while the efficiencies defence under section 90.1 was repealed in 2023, as with the review of mergers under section 92 where the merger related efficiencies defence was also repealed, it is still possible to argue that efficiencies should be considered by the Tribunal in determining whether to make an order given that under section 90.1(2) it may consider “any other factor that is relevant to competition” in a market in making an order.

For more information, see: Conspiracy (Cartels).

NEW COMPETITION BUREAU MARKET STUDIES POWERS

As part of the December 2023 amendments, formal market inquiry powers were given to the Bureau under the new section 10.1 of the Competition Act.

In general, section 10.1 gives the Bureau the power to conduct inquiries into the state of competition in a market or industry if the Commissioner of Competition is of the opinion that it is in the public interest to do so.

The Bureau’s market inquiry powers require it to prepare terms of reference for the inquiry, publish the terms of reference, allow the public to provide comments for a minimum of 15 days and publish a final report.

The newly enacted section 10.1 also allows participants that were compelled under section 11(1) of the Competition Act to participate in the market inquiry to comment on the draft report and make confidentiality related requests prior to final publication.

These new formal market inquiry powers were given to the Bureau in 2023 as a result, among other things, of perceived limitations on the Bureau to conduct such studies under the existing provisions of the Competition Act in key consumer sectors (e.g., under sections 125 and 126, under which the Bureau has historically based its competition advocacy efforts where it may not have had formal enforcement powers).

For more information, see: Enforcement.

EFFICIENCIES DEFENCE (MERGERS)

The former efficiencies defence for mergers under section 96 was repealed.

IMPLICATIONS

The Competition Act amendments passed under Bill C-56 are expected to be followed by a second and more major round of amendments contained in Bill C-59, which is currently working its way through Parliament. If passed, the Bill C-59 Competition Act amendments would be the most significant since the modern Competition Act replaced the former Combines Investigation Act in the late 1980s.

At the time of writing, Bill C-59 is currently at second reading in the House of Commons.

For more information, see: Competition Bureau, Guide to the December 2023 amendments to the Competition Act. For more information about Bill C-59, see here.

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