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).

*****************

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.

********************

OVERVIEW OF CANADIAN ABUSE OF
DOMINANCE LAW (MONOPOLY LAW) UNDER SECTION 79
OF THE COMPETITION ACT

In Canada, like other major jurisdictions including the European Union and the United States, three of the core areas of competition/antitrust law are: (i) conspiracy (i.e., cartels); (ii) mergers (i.e., merger control laws); and (iii) abuse of dominance (i.e., monopoly laws).

In general, under section 79 of the Competition Act (as amended in 2023), which is one of a number of reviewable matters under Part VIII, abuse of dominance can be established by the Competition Bureau or a private applicant to obtain a prohibition order where a dominant firm (or multiple firms in the case of joint dominance) engages in either: (i) a practice of anti-competitive acts; 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 a person has a plausible competitive interest and the effect is not the result of superior competitive performance.

A broader range of penalties are available where all three of the following elements are met: (i) dominance; (ii) a practice of anti-competitive acts; and (iii) a prevention or substantial lessening of competition in a market in which the person has a plausible competitive interest (see discussion below for the substantive elements of abuse of dominance under section 79 and penalties).

In Canada, like other major jurisdictions, it is not mere dominance per se in a market that is prohibited, unless one of the types of anti-competitive conduct set out in section 79 of the Competition Act is also met and, to obtain certain types of remedies, also a prevention or substantial lessening of competition.

Canada’s modern abuse of dominance provisions were first introduced by the current Competition Act, which came into force in 1986 and replaced the former Combines Investigation Act.

2023 AMENDMENTS TO ABUSE OF DOMINANCE PROVISIONS

On December 15, 2023, Bill C-56 (An Act to amend the Excise Tax Act and the Competition Act) introduced a number of significant amendments to the Competition Act. These included 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 amendments are discussed in more detail below.

RESTRUCTURED TESTS FOR ABUSE OF DOMINANT POSITION
UNDER SECTION 79 OF THE COMPETITION ACT

Prior to the 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 on a civil standard of proof: (i) dominance; (ii) a practice of anti-competitive acts (as set out in section 78 or case law); and (iii) the requisite anti-competitive effect in a relevant market (i.e., either a prevention or substantial lessening of competition).

Following the 2023 amendments, the substantive test for abuse of dominance depends on the type of remedy being sought.

In this regard, the Competition Tribunal may make a prohibition order against a dominant firm (or group of firms in the case of joint dominance) if the firm or firms 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; (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 an anti-competitive act for abuse of dominance under section 79.

Following the amendments under Bill C-56, the practice of “directly or indirectly imposing excessive and unfair selling prices” has been added to this list. 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, be “intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition.”

ABUSE OF DOMINANCE EXCEPTIONS
AND FACTORS

Under section 79(4) of the Competition Act, the Competition Tribunal may consider the following factors in determining whether conduct has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market: (i) the effect of the conduct on barriers to entry in the market, including network effects; (ii) the effect of the conduct on price or non-price competition, including quality, choice or consumer privacy; (iii) the nature and extent of change and innovation in a relevant market; and (iv) any other factor that is relevant to competition in the market that is or would be affected by the conduct.

Section 79(5) also provides that any act engaged in pursuant only to the exercise of a right under certain intellectual property (IP) legislation, including the Copyright Act, Patent Act or Trademarks Act, is not an anti-competitive act for the purposes of section 79. The intersection of IP law rights and competition law, and the application of the Competition Act generally to the exercise of IP rights, is a complex and largely untested area of law in Canada.

In addition, as a result of the Canada Pipe case, a legitimate business purpose can be relevant in determining whether conduct has been engaged in for an anti-competitive purpose. In this regard, the Federal Court of Canada has held that a “business justification must be a credible efficiency or pro-competitive rationale for the conduct in question, which relates to and counterbalances the anti-competitive effects and/or subjective intent of the acts.”  It largely remains to be seen, however, what the Competition Tribunal will consider a legitimate business justification for the purposes of section 79.

ENFORCEMENT AND PENALTIES

Both the Commissioner of Competition, as well as private parties with leave from the Competition Tribunal under section 103.1, may commence abuse of dominance applications seeking remedies under section 79 of the Competition Act.

Private access rights were extended for abuse of dominance cases pursuant to 2022 amendments to the Competition Act. Private parties can now apply directly to obtain leave from the Tribunal under section 103.1 if they are directly and substantially affected by the conduct. Prior to amendments to section 79 that came into force on June 23, 2022, the Commissioner had exclusive jurisdiction to make abuse of dominance applications to the Competition Tribunal.

Where abuse of dominance is established under section 79(1) of the Competition Act (see discussion above for the substantive test), the Competition Tribunal may make a prohibition order prohibiting a person (or persons in the case of joint abuse) from engaging in the practice or conduct.

The Competition Tribunal may 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, it 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 (i.e., structural remedies and the imposition of monetary penalties), while also incorporating jurisprudence from case law (i.e., the TREB abuse of dominance case) that established that a dominant firm need not necessarily engage in anti-competitive conduct with one of its own competitors as long as it has a “plausible competitive interest” in the affected market.

********************

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.

To contact us about a potential legal matter, see: contact

For more information about our firm, visit our website: Competitionlawyer.ca