The Canadian Competition Bureau published the promised Competitor Collaboration Guidelines on December 23, 2009, less than three months before the coming into force of the new, stricter, criminal cartel provisions and their companion civil provisions applicable to non-criminal, but anti-competitive, competitor agreements. The Guidelines, which were preceded by an earlier consultation draft, published in May 2009, answer several questions raised by the new sections 45 and 90.1 of the Competition Act, but (unavoidably) leave many more to be clarified by the courts. Anyone doing business in Canada will wish to take stock of their dealings with competitors prior to the implementation of the new law on March 12, 2010. Seemingly innocuous agreements that did not appear to have a significant adverse effect on competition may now attract criminal (and civil) liability.
As described in previous issues of this newsletter1, starting March 12, 2010, agreements between competitors (which the new provisions define to include potential competitors) to fix prices, to allocate sales customers or markets, or to fix or control production or supply of a product will be illegal - full stop. No longer will the Crown be required to prove the anti-competitive effect of such agreements in order to obtain a conviction in so-called "hardcore" cartel cases.
The new provisions will nevertheless recognize that not every agreement or arrangement containing such restraints constitutes a hardcore cartel. An "ancillary restraints" defence will be available if the parties to the impugned agreement can show that the restraint in question is ancillary to a broader or different agreement, that such main agreement is not itself illegal under section 45, and that the restraint on prices, sales, markets, customers, output or supply is directly related to, and reasonably necessary for, giving effect to the broader objective of the main agreement.2
Along with the per se criminal prohibition against hardcore cartel activity also come increased penalties: fines of up to $25 million for all accused (up from a previous maximum of $10 million), and prison sentences of up to fourteen years for individuals (previously, a maximum of five years).
The more stringent approach to competitor agreements reflected in the new section 45 is accompanied by an alternative, civil track for non-hardcore cartels: agreements between competitors that are not appropriate for criminal prosecution but may nonetheless have anti-competitive effects. The new section 90.1 of the Competition Act, which will also come into effect on March 12, 2010, creates a civilly reviewable matter in respect of existing or proposed agreements between persons, two or more of whom are "competitors," that prevent or lessen competition substantially (or are likely to do so). The factors to be considered by the Competition Tribunal in undertaking this assessment are effectively the same as those applicable to the existing merger review provisions (i.e., effective remaining competition, barriers to entry, change and innovation, etc). In terms identical to the existing merger review provisions, an efficiencies defence will apply if the agreement brings about "gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition" and if the efficiency gains would not be attained if a prohibition order were issued. In contrast to section 45, available remedies under section 90.1 are purely injunctive in nature, and no private actions for damages are available for alleged "breaches" of section 90.1.
One concern expressed in relation to the dual-track approach to cartels was that it could permit the Bureau to delay choosing between the criminal and civil tracks, and use the threat of criminal prosecution to encourage civil settlements. To address this concern, the Guidelines state that "at no time will the Bureau use the threat of criminal prosecution to induce settlement in cases proceeding by way of the civil track."3 The Guidelines also state that "the Bureau will make every effort to arrive at a timely decision on the appropriate section to be applied in evaluating an agreement." This leaves the door open to alternative settlements for potentially criminal cases, but only prior to the laying of charges - the Guidelines make it clear that after the laying of charges only the Director of Public Prosecutions (who is responsible for the conduct of federal public prosecutions, including under the Competition Act) is permitted to engage in plea and sentencing discussions.
As to the oft-discussed question of "what is an agreement?"-the Guidelines take the position that both explicit and tacit agreements can violate the criminal prohibition against price-fixing and other hardcore cartel behaviour. Accordingly, while so-called conscious parallelism (each of a few competitors independently deciding, for example, not to compete on the basis of price since to do so would only incite a price war) is recognized not to be illegal, the Guidelines state that conscious parallelism plus facilitating practices, such as sharing sensitive pricing information, could be enough to prove the existence of an agreement between the parties.
A positive aspect of the Guidelines is the explicit recognition that the Bureau will not view market restriction elements of dual-distribution agreements4 or franchise agreements as potentially subject to criminal prosecution under section 45 (provided, of course, that such agreements are truly limited to the supplier/distributor or franchisor/franchisee in question, and do not mask a broader conspiracy among suppliers, distributors, franchisors or franchisees). Gone from the draft Guidelines, however, is similar recognition (included in the consultation draft) that a trademark license confining use of the mark to a limited territory should likewise be exempt from criminal prosecution.
The Guidelines also contain a useful discussion of potential pitfalls involving certain common types of agreements, such as joint ventures, and circumstances under which they may raise issues under the new civil agreement provisions of section 90.1: commercialization and joint selling agreements, information-sharing agreements (benchmarking), research-and-development agreements, joint production agreements, and joint purchasing agreements and buying groups are all discussed in some detail.
A consistent theme throughout the Guidelines is that the Bureau regards section 45 as applying only to so-called "naked restraints" on competition, which it describes as "restraints that are not implemented in furtherance of a legitimate collaboration, strategic alliance or joint venture." Such an enforcement approach is welcome, and is reflected in the hypothetical examples included in the Guidelines. Unfortunately, however, these hypothetical examples avoid some of the more difficult questions involving the application of the new provisions to such agreements. For example, the Guidelines address a situation where parties establish a joint venture to develop a product and then set a common price for a product unrelated to the joint venture. The Bureau's view that such a restraint, absent evidence that it is reasonably necessary to give effect to the joint venture agreement, would not fall within the scope of the ancillary restraints defence is not surprising. More interesting, we would have thought, might have been a discussion of the Bureau's approach to the parties setting a common price for the product developed by the joint venture.
The Competition Bureau has said that, although it intends to use its new powers to act against hardcore cartel activity, it is nonetheless looking for test cases to clarify the extent of the new law. In addition, it is important to note that the Guidelines reflect the enforcement approach of the Bureau, and are not binding on private litigants or, indeed, the courts, which will have the ultimate say on the meaning of the new competitor agreement provisions.
Footnotes
1. See Hutton and Rushton, "Primer on amendments to Canada's Competition Act and Investment Canada Act", March, 2009
2. Traditional defenses to allegations of anti-competitive agreements between competitors also remain. Specifically, the new section 45 remains subject to exemptions for agreements between affiliates, for agreements between federal financial institutions to which subsection 49(1) of the Competition Act applies, and for agreements that relate only to the export of products from Canada (so long as they do not reduce the real value of exports, restrict anyone from entering into or expanding the business of exporting products from Canada, or relate only to the supply of services that facilitate exports from Canada). The amended section 45 also explicitly recognizes the existence of the regulated conduct doctrine, and its potential application to shield competitor agreements from criminal prosecution if such conduct is regulated by another federal, provincial or municipal law or legislative regime, despite the deletion of the word "unduly" from the provision (the word had been held to be determinative to the application of the doctrine in Garland v. Consumers Gas Co., [2004] 1 S.C.R. 629).
3. This statement did not appear in the first draft of the Guidelines, issued in May, 2009.
4. The term "dual-distribution agreement" refers to an agreement between a supplier and a distributor, where the supplier also sells directly to certain customers. The distribution agreement therefore commonly restricts the distributor from selling to certain customers or markets, which are reserved for the supplier or for other distributors. The Guidelines state that this would not be viewed as an agreement between competitors (the logic being that the supplier and the distributor would not be competitors but for the distribution agreement in question - alternatively, even if viewed as an agreement between competitors, the ancillary restraints defence would apply).
5. Up until March 12, 2010, when the new provisions come into force, businesses can seek free advisory opinions from the Competition Bureau on the legality of existing agreements entered into prior to March 12, 2009 (the day the bill enacting the amendments received Royal Assent). Parties are also free, for a fee, to request an advisory opinion in respect of proposed agreements (after March 12, 2010, advisory opinions will only be available in respect of proposed agreements).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
