Canada has given its competition and foreign investment laws its first major makeover in more than twenty years. On March 12, 2009, Canada’s Parliament gave Royal Assent to Bill C-10, the Budget Implementation Act, 2009, and thereby adopted fundamental, significant amendments to the Competition Act and Investment Canada Act. Hard core cartels, for example, will be subject to a per se standard of illegality. Those who violate the per se laws will be liable for penalties of up to $25 million and prison sentences of up to 14 years. Further, Canada’s premerger notification and review process has been refashioned to resemble the United States’ premerger review system. Additionally, resale price maintenance has been decriminalized and can only be scrutinized on a showing of anticompetitive effects. These and other transformations of Canadian competition law are described in greater detail below.

1. Agreements Between Competitors

a) Hard core cartel agreements
The new laws make agreements between competitors that, among other things, fix prices, production or supply, or allocate sales territories, customers or markets, illegal per se, subject to certain defenses. The new laws have made such "hard core cartel" agreements and conspiracies subject to criminal prosecution and private civil enforcement. The amendments shed the prior law’s competitive effects test and brings Canada’s regulation of cartels in line with major jurisdictions like the United States and the EU. The new laws include an important defense to hard core cartel agreements, available where the offending conduct is ancillary to an otherwise valid commercial agreement and the conduct is reasonably necessary for implementing the principal agreement. The defendant has the burden of proving this defense on the balance of probabilities.

The new laws also increase the potential fines and terms of imprisonment for conspiracies, bid rigging , obstruction and failure to comply with a prohibition order. A person may be sentenced to a maximum prison term of fourteen years or fined up to $25 million and is also exposed to civil liability for damages.

b) Other agreements between competitors
All non-cartel agreements between competitors that could lessen or prevent competition substantially will be covered by the civil provisions of the Competition Act. Under these provisions, remedial action may only be taken if the agreement would or would likely lessen or prevent competition substantially. The Commissioner of Competition will be the only person who can bring enforcement proceedings to the Competition Tribunal in respect of such agreements. The Tribunal may issue prohibition and remedial orders, but not fines. Private civil enforcement will not be available.

2. Abuse of Dominance

"Abuse of dominance" is the Canadian analog to the regulation of monopolies and attempted monopolization in United States antitrust law. Key factors in applying the abuse of dominance provisions are whether the person engaging in an alleged practice has market power and whether the practice is or is likely to have the effect of substantially lessening or preventing competition. Price discrimination, predatory pricing and discriminatory promotional allowances are now also subject to review under the civil abuse of dominance provisions, whereas before they were criminal offenses. Another major change is that the Tribunal now has the power to order administrative monetary penalties ("AMPs") of up to $10 million for the first abuse of dominance violation and up to $15 million for repeat violations.

3. Resale price maintenance

For decades, a supplier that required or merely attempted to influence its dealers to sell the supplier’s goods or services to consumers in Canada at a minimum price would have engaged in conduct that was illegal per se and would have been be subject to criminal prosecution and private civil action. The new laws replace the Competition Act’s criminal RPM provision with a new civil RPM provision. On the application of the Commissioner or a private party with leave, the Tribunal can issue orders where RPM is having an adverse effect on competition. The Tribunal cannot award damages.

4. Mergers and Acquisitions

The new laws make Canada’s premerger review process much more similar to the premerger notification system applied in the United States pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. For starters, Canada’s "short-form" and "long-form" filing system has been replaced with a single notification form. Likewise, the 14 and 42 day waiting periods have been replaced with a 30 day initial waiting period which, in cases raising substantive competition issues, may be followed by a demand for more detailed information, similar to the "second request" process in the United States. If a second request is issued, the parties may not close until 30 days after compliance with the second request. The Commissioner of Competition can apply for subpoenas and temporary injunctions to extend the time period for its review prior to the closing. However, the Commission has no more than one year to challenge a merger after its closing. Further, the size of transaction threshold is now C$70 million, up from C$50 million. The threshold will be revised annually. Parties who fail to comply with Canada’s premerger notification process can be fined up to C$10,000 per day.

5. Conclusion

Many of the amendments are effective as of March 12, 2009. Other amendments, most notably those concerning agreements between competitors, will come into force on March 12, 2010.

The new laws invite companies to re-evaluate their agreements and arrangements with competitors, dealers, customers, suppliers, joint venture partners and licensees, especially to ensure they comply with the new per se rules. Some companies that are not in a dominant position may consider the possibility of offering certain advantages they could not have offered before without incurring substantial legal risk. The combination of large fines, the Competition Bureau’s broad enforcement approach and questions about how the new provisions and defenses will be construed may raise compliance concerns for a broader range of businesses than before. Time will tell whether other countries will see Canada’s recent competition makeover as a model for altering their own antitrust rules.

Authored By:

Heather M. Cooper

(213) 617-5457