Change abounds in 2020, particularly in the legal world. Amendments to laws and government policies are redefining how companies conduct business. Competition law and foreign investment review are among the areas most impacted by the current circumstances.
Below we discuss five recent trends in those areas that businesses should be aware of:
1 Merger clearance filings are on the increase. During the pandemic, merger filings at the Competition Bureau declined by 43.5 per cent in Q2 and Q3 2020 as compared to the same period in 2019. Nevertheless, M&A activity has increased since the summer, and it is expected that filings in Q4 2020 will increase materially from the lows seen in Q2. The Bureau may face challenges processing those filings, particularly if the mergers present significant competition law issues requiring additional Bureau resources. The "failing firm defence," a difficult test to meet even during COVID-19, may play an increased role in the Bureau's reviews as will Canada's unique efficiencies defence.
2 Cartel enforcement is dwindling, but class actions are on the rise. As noted by many competition lawyers, cartel enforcement has been in decline globally, possibly reflecting the fact that years of enforcement have created a "culture of compliance" and that parties who have engaged in immunity and leniency (cooperation) programs have not seen the benefits, especially as cooperation does not affect class actions. Conversely, judicial decisions such as the recent Supreme Court decision in Pioneer Corp. v. Godfrey give class-action plaintiffs a wider scope to pursue remedies and a lower threshold for obtaining class certification, encouraging class-action proceedings in the competition law area.
3 Competition Bureau is focused on technology and "big data" companies. Much like the global competition law and consumer protection agencies in the U.S. and EU, the Bureau is focused on the digital economy, in both the merger and abuse of dominance context, and has prioritized its enforcement and resources in this area. The Bureau can be expected to adapt its standard theories of anti-competitive harm to pursue these priorities, utilizing a "risk of inaction" rather than a "risk of action" enforcement approach. The Bureau initiated a Digital Enforcement Summit, designed to tackle competition enforcement in the digital era, which is currently underway.
4 Competition Bureau is cracking down on deceptive marketing practices. The Bureau remains focused on deceptive marketing, actively monitoring the marketplace and considering complaints from the public, especially with respect to representations regarding pandemic-related goods and services. The Bureau works with Health Canada to address these issues, sending warning letters to multiple companies directing the removal of false representations.
5 Focus on national security in foreign investments review results in extended timelines. The Canadian government has the authority to review and reject foreign investments that could be "injurious to national security" or, for certain larger transactions, that do not provide a "net benefit" to Canada. During COVID-19, the government has signalled heightened scrutiny, on "national security" grounds, of foreign direct investments related to public health or the supply of critical goods and services, as well as investments by state-owned enterprises or investors closely tied to foreign governments. Timelines for national security reviews have been extended. Before entering into a transaction agreement, companies should conduct a foreign investment review risk assessment, as the government's response may have important implications for the transaction agreement and any notification filing strategy.
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