Canadian COMPETITION LAW

SWEEPING CANADIAN COMPETITION ACT
AMENDMENTS (BILL C-59) PASSED JUNE 20, 2024

On June 20, 2024, Bill C-59 was passed (the Fall Economic Statement Implementation Act, 2023), which introduced the third of three significant rounds of amendments to Canada’s federal Competition Act in two years (together with Bill C-19 and Bill C-56). This new round of amendments to the Competition Act completes a sweeping overhaul of the Competition Act across virtually all key provisions of Canada’s competition legislation. These amendments are also the most significant changes to Canadian competition law since the modern Competition Act came into effect in 1986 replacing the former Combines Investigation Act.

The Bill C-59 amendments, among other things, strengthen the Competition Bureau’s powers to enforce key deceptive marketing provisions of the Competition Act (e.g., relating to drip pricing, performance claims and ordinary selling price (OSP) claims), strengthen private party rights to seek Competition Tribunal remedies (e.g., for civil deceptive marketing and violations of the civil agreements provisions of the Act), introduce new penalties (e.g., administrative monetary penalties for violating the civil agreements provisions of the Act and for reprisal actions penalizing individuals for complying with the Act) and introduce a new clearance regime for environmental protection related agreements. Canada’s Competition Act merger review regime was also substantially overhauled, eliminating the efficiency defence, introducing market share presumptions and a more restrictive remedial test for restoring competition.

These amendments, together with those enacted in June 2022 and December 2023 (Bill C-19 and Bill C-56), increase the potential competition law risk for companies, trade and professional associations and other entities, particularly those without credible and effective competition law compliance programs and that have not reviewed their business practices to reflect Canada’s new competition laws. For the Competition Bureau’s summary of the June 20, 2024 Bill C-59 amendments to the Competition Act, see: Guide to the June 2024 amendments to the Competition Act (June 25, 2024).

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Competition Bureau Preliminary Guidance on the Mergers
and Restrictive Trade Practices Provisions of the Competition Act

On November 7, 2024, the Competition Bureau issued preliminary guidance relating to the recent changes to the provisions on mergers and restrictive trade practices under the Competition Act – see:  here.

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OVERVIEW OF CANADA’S CRIMINAL CONSPIRACY LAW
UNDER THE COMPETITION ACT

“Price fixing agreements, like other forms of hard core cartel agreements … represent nothing less than an assault on our open market economy. Buyers in free market societies are entitled to assume that the prices of goods and services they purchase have been determined by the forces of competition. When they purchase products that have been the subject of such an agreement, they are effectively defrauded.”

(Chief Justice Crampton, Federal Court of Canada)

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“[The conspiracy section] of the Act moreover is its oldest provision.  Even today, it remains at the core of the criminal part of the Act.  The prohibition of conspiracies in restraint of trade is the epitome of competition law, finding its place in every competition law, from Section 1 of the Sherman Act to Article 85 of the Treaty establishing the European Economic Community … [The conspiracy section] of the Act is not just another regulatory provision.  It definitely rests on a substratum of values, a finding which must be kept in mind in the course of the vagueness analysis [in this case].”

(Gonthier J., R. v. Nova Scotia Pharmaceutical Society)

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As a result of 2009 amendments to Canada’s federal Competition Act, Canada now has a dual-track criminal conspiracy (cartel) regime with a criminal track for hard core conspiracy agreements between competitors (under section 45) and a second civil track for other agreements between competitors that may prevent or lessen competition substantially (under section 90.1). Section 90.1 may also apply to vertical agreements as well as of December 15, 2024 once amendments to that section, which were enacted by Bill C-56, come into force.

This 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 for criminal conspiracy agreements has been removed) while allowing other non-hard core agreements, which may have pro-competitive rationales and should be more carefully examined, 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 Canada’s two-track conspiracy regime introduced in 2009 include: (i) substantially increasing the risk of hard core conspiracy agreements (i.e., bare price-fixing, market division/allocation, output/supply restriction and other agreements), as a result of the lower legal burden and higher penalties, (ii) altering the review of many common forms of commercial agreements (e.g., franchise, license, dual distribution and joint venture agreements), (iii) increasing the importance for trade/professional associations, companies and other entities dealing with competitors to review existing (or adopt new) competition law compliance programs and (iv) enhancing the importance of reviewing and controlling dealings with competitors (e.g., information exchanges, trade/professional association activities and joint ventures).

CRIMINAL CONSPIRACY (CARTEL) OFFENCES
UNDER SECTION 45 OF THE COMPETITION ACT

Section 45 of the Competition Act makes three types of criminal conspiracy agreements between competitors per se illegal (i.e., with no adverse impacts on a market required to be proven):

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. Section 45, however, 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).

In addition, as a result of June 2022 amendments to the Competition Act, wage fixing and no poach agreements between employers (i.e., agreements to fix employee wages or no to solicit or hire each others’ employees) are also now criminal offences under section 45. These new conspiracy offences came into force on June 23, 2023 after a one-year transition period.

Other types of agreements between competitors are potentially subject to review under a second and separate non-criminal reviewable matters provision (section 90.1).

“Competitor” is defined broadly under section 45 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 PROVISION (SECTION 90.1)

Agreements between competitors that are not caught by the per se criminal offences under section 45 of the Competition Act may be reviewed by the Competition Tribunal under the civil agreements provision of the Act (section 90.1).

Such agreements 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.

Under section 90.1 of the Competition Act, the Competition Tribunal may, on application by the Commissioner of Competition, make remedial and other orders where it is established that an agreement prevents or lessens (or is likely to prevent or lessen) competition in a relevant market.

The Competition Tribunal may make orders: (i) prohibiting any person, whether or not a party to the agreement, from doing anything under the agreement, (ii) requiring any person, with their consent, to take any other action, (iii) make any other order, including the divestiture of assets or shares, that the Tribunal deems reasonable and necessary to overcome the effects of the agreement or arrangement in a market or (iv) order the payment of administrative monetary penalties up to the greater of $10 million ($15 million for subsequent orders) and three times the value of the benefit derived from the agreement or arrangement, or, if that amount cannot be reasonably determined, 3% of the person’s annual worldwide gross revenues.

In addition, as a result of December 2023 amendments to the Competition Act, vertical agreements will also be potentially reviewable by the Competition Tribunal under section 90.1 (i.e., where none of the parties is a competitor, such as in relation to supply/distribution agreements or vertical joint venture agreements) (discussed below).

Further, as a result of June 20, 2024 amendments to the Competition Act, which will come into force on June 20, 2025, private parties will be able to make private access applications to the Competition Tribunal for orders under section 90.1. Under these new private access provisions, the Competition Tribunal will also be able to order (as of June 20, 2025) monetary penalties to be paid to an applicant and any other person affected by conduct under section 90.1 in an amount, not exceeding the value of the benefit derived from the conduct that is subject to an order, in any manner that the Tribunal considers appropriate.

Vertical Agreements Under Section 90.1
of the Competition Act

December 2023 amendments to the Competition Act added a new exception under section 90.1 that provides that the Competition Tribunal may make orders even if none of the parties to an agreement are competitors (i.e., vertical agreements) 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.

Before this 2023 amendment, section 90.1 was restricted to horizontal agreements (i.e., agreements that included at least two or more competitors).

These amendments also repealed the efficiency defence under section 90.1 (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.

These amendments widen the scope for the Competition Tribunal to make orders under section 90.1 where none of the parties are competitors (i.e., 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.

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 Competition Tribunal in determining whether to make an order given that under section 90.1(2) of the Competition Act, the Tribunal may consider “any other factor that is relevant to competition” in a market in making an order.

DEFENCES AND EXCEPTIONS

Several defences and exceptions are available under section 45 of the Competition Act. These include an ancillary restraints defence (section 45(4)), an export defence (section 45(5)), an affiliates exception (section 45(6)) and the regulated conduct doctrine (under section 45(7) and as established by case law).

In addition, as a result of June 2024 amendments to the Competition Act, a new mechanism was introduced allowing the Commissioner of Competition to issue environmental agreement certificates that confirm that the Commissioner is satisfied that a proposed agreement is both: (i) for the purpose of protecting the environment and (ii) not likely to prevent or lessen competition substantially in a market.

Where an environmental agreement certificate is valid and registered with the Competition Tribunal, section 45 of the Competition Act will not apply (in addition to other provisions of the Competition Act including sections 47 (bid-rigging) and 90.1 (the civil agreements provision).

ENFORCEMENT

The Competition Bureau has broad powers of investigation under the Competition Act in relation to criminal conspiracies, including obtaining court orders for search warrants and wiretaps.

In Canada, prosecution of criminal conspiracies is the responsibility of the Public Prosecution Service of Canada (“PPSC”), which is headed by the Director of Public Prosecutions (“DPP”).

Criminal matters are referred to the PPSC by the Competition Bureau, which has the authority to determine whether to commence criminal proceedings.  Criminal prosecutions are brought in provincial criminal courts and, while the DPP has official responsibility for criminal competition matters, the Competition Bureau typically works closely with the PPSC during a criminal investigation.

PENALTIES

The potential penalties for violating the criminal conspiracy provisions of the Competition Act under section 45 include fines in the discretion of the court (i.e., with no prescribed statutory limit), imprisonment for up to 14 years, or both.

The record Canadian conspiracy (cartel) penalty to date is CDN $50 million, in a bread price-fixing investigation in which Canada Bread agreed to pay a $50 million fine after pleading guilty to fixing wholesale bread prices (see: here).

Canadian courts may also issue prohibition orders ordering that conduct stop and that a party (or parties) take steps to avoid future offences and comply with the law.

In addition, as a result June 20, 2024 amendments to the Competition Act, new provisions to prohibit reprisal actions were enacted (sections 107.1-107.6 of the Competition Act).

Under these new provisions, actions taken by companies and other types of organizations to penalize, punish, discipline, harass or disadvantage any person because of their communications or cooperation with the Competition Bureau are subject to potential court orders and monetary penalties.

Under these new reprisal action provisions, an application can be brought by either the Commissioner of Competition (who heads Canada’ federal Competition Bureau) or a person directly and substantially affected by an alleged reprisal action.

The potential penalties for violating these reprisal action provisions include prohibition orders to stop a person from continuing the conduct and administrative monetary penalties of, for an individual, up to $750,000 ($1 million for subsequent orders) and, for corporations, up to $10 million ($15 million for subsequent orders).

FOREIGN DIRECTED CONSPIRACIES

In addition to general conspiracy (cartel) offences, the Competition Act also contains several specific provisions for conspiracies relating to professional sport (section 48), agreements or arrangements between federal financial institutions (section 49) and foreign directed conspiracies (section 46).

Section 46 of the Competition Act makes it a criminal offence for any corporation carrying on business in Canada to implement the directives from any person in another country that is in a position to direct or influence the Canadian corporation’s policies to give effect to a conspiracy entered into outside Canada that would, if formed in Canada, violate section 45 (the general criminal conspiracy provision of the Competition Act).

Under section 46, corporations may be liable to an indictable offence, subject to fines in the discretion of a court, regardless of whether Canadian directors or officers of the Canadian corporation have knowledge of the conspiracy.

This offence is also, on its face, limited to corporations. As such, while directors and officers are not expressly exposed to liability under section 46, they may liability under other theories of liability, such as through aiding and abetting an offence. Section 46 expressly extends the jurisdiction of the conspiracy provisions of the Competition Act to include cartel agreements that are formed outside Canada.

CIVIL ACTIONS AND CLASS ACTIONS

Under section 36 of the Competition Act any person that has suffered actual loss or damage as a result of a contravention of the criminal provisions of the Act, including the criminal conspiracy provisions, may commence a damages action. Class actions are also possible for violations of the criminal provisions of the Competition Act.

COMPETITION BUREAU
IMMUNITY AND LENIENCY PROGRAMS

The Competition Bureau has established formal Immunity and Leniency Programs under which applicants may receive full immunity from criminal prosecution or, where full immunity is unavailable, potentially leniency in sentencing for cooperating with a criminal competition law investigation. The Immunity and Leniency Programs are available under a number of criminal provisions of the Competition Act, including sections 45(1) (conspiracy).

The Competition Bureau’s Programs were updated in June 2024 to include wage-fixing and no-poaching agreements between employers, which are now criminal offences under section 45 of the Competition Act.

For more information about the Competition Bureau’s Immunity and Leniency Programs, see: Competition Bureau, Immunity and Leniency Programs.

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SERVICES AND CONTACT

We are a Toronto based competition and advertising law firm offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law. We also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

Our experience includes advising clients in Toronto, 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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For more information about our firm, visit our website: Competitionlawyer.ca