Competition Chronicle

Competition Chronicle

Competition & Antitrust | Foreign Investment

Investment Canada Act – National Security Review Update

In our June 1, 2016 post, I reported that I had recently obtained, as a result of an access to information request made in 2013, information from the Canadian government regarding the number of notices and orders issued under national security provisions of the Investment Canada Act (ICA) for the period April 1, 2009 to March 31, 2013.

Late last week, Canada released its Investment Canada Act Annual Report for fiscal year 2015–16 (Annual Report) which for the first time includes information on the administration of the national security provisions of the ICA.  This information while limited in scope provides a more complete picture of Canada’s use of its discretionary national security review powers under the ICA.

Under the ICA, investments in Canada by non-Canadians are screened for national security issues. This process is undertaken in cooperation with Canada’s national security agencies.  If the initial screening indicates that a more detailed review is required, the ICA provides for a national security review to be ordered by the Governor-in-Council (GIC) on the recommendation of the Minister of Innovation, Science and Economic Development, after consultation with the Minister of Public Safety and Emergency Preparedness.

Since the national security provisions in the ICA came into force in 2009, the Annual Report states that the GIC has ordered a total of 8 national security reviews, broken down by year as follows:

April 2012 – March 2013 April 2013 – March 2014 April 2014 – March 2015 April 2015 – March 2016
2 1 4 1

As a result of those 8 GIC mandated reviews, the non-Canadians in three of the transactions were ordered not to implement their transactions.  In two other transactions, the non-Canadians were ordered to divest of the Canadian businesses that they had acquired.  However, two of the reviewed transactions were permitted to proceed subject to conditions which “mitigated the identified national security risks”.  The one other transaction was abandoned prior to a GIC order being made.

Given that, during the same time period, 4,359 notifications and 112 applications were filed by non-Canadians under the ICA (as well as there being numerous additional transactions by non-Canadians which did not require either notifications or applications but would have been subject to potential national security reviews under the ICA), 8 transactions represents a very small percentage of foreign investments with a Canadian connection that have attracted formal action by the Canadian government under the national security provisions of the ICA.  This latest information confirms our earlier conclusion, based on the limited disclosure resulting from the access to information request, that since the coming into force of its national security review powers in 2009 the Canadian government has only made limited use of these powers to challenge proposed and completed transactions.

Competition Bureau Releases its 2016-2017 Annual Plan

On July 28, 2016, the Competition Bureau (the “Bureau”) released its 2016-2017 Annual Plan, entitled “Strengthening Competition To Drive Innovation”. While this year’s Annual Plan ostensibly repackages both the Bureau’s 3-year Strategic Vision and its 2015-16 Annual Plan, it does contain a few notable developments.

Indeed, the Bureau has introduced 10 new “areas of focus” to help it achieve the 5 key objectives it had previously outlined in its 3-year Strategic Vision. Perhaps somewhat expectedly, 4 of the Bureau’s 10 focus areas address enforcing anticompetitive conduct and specifically contemplate deceptive marketing (civil and criminal), as well as bid-rigging.

The Bureau’s objectives and areas of focus are outlined below.

OBJECTIVE AREA OF FOCUS
Increase Compliance 1. Support innovation in the digital economy by deterring anti‑competitive conduct that impedes new entrants, products and services and by stopping deceptive marketing practices in e‑commerce.

2. Raise awareness throughout the procurement community and among potential bidders about bid‑rigging related to infrastructure spending, given increasing public‑sector investment.

3. Increase small and medium‑sized businesses’ awareness of the importance of complying with the statutes administered by the Bureau.

Empower Canadians 4. Provide timely and accurate warnings to reduce the risk of Canadian consumers being victims of civil and criminal deceptive marketing.
Promote Competition 5. Foster innovation through a pro‑competitive approach to regulation.

6. Strengthen our analytical frameworks and address competitive implications through workshops with stakeholders.

Collaborate with Partners 7. Facilitate more transparent interaction with other domestic regulators and enhance our ability to effectively administer labelling statutes by concluding additional memoranda of understanding.

8. Enhance and strengthen our network of international partners to address anticompetitive activity and deceptive marketing practices that cross borders and promote convergence in competition law policy.

Champion Excellence 9. Deliver a talent management strategy focused on planning, attracting, growing, engaging and retaining talents at all levels.

10. Undertake concrete actions to build and sustain a healthy, respectful and supportive work environment and improve internal communications focused on continuous engagement.

Given the title of this year’s Annual Plan, it is also no surprise that the Bureau has referenced several innovation-centric initiatives, including a market study of technology-led innovation and emerging services in the Canadian financial services sector.

Moreover, this year’s Annual Plan provides some concrete, forward-looking undertakings in which the Bureau plans to engage. One such undertaking is the creation of a Consumer Deceptive Marketing Advisory System (“CDMAS”). It is expected that the CDMAS will alert consumers to common deceptive marketing conduct via “new platforms,” likely for smartphones and other handheld devices.

The Annual Plan is a welcomed communication tool, which aligns with the Bureau’s commitment to openness and transparency.

Competition Bureau Issues “No Action” Letter Despite Likely Anti-Competitive Effects of Proposed Merger

Despite the fact that Canada’s Competition Bureau had concluded that the proposed acquisition of Canexus Corporation by Superior Plus Corp. would likely result in a substantial lessening of competition for the supply of various industrial chemical products in Canada, the Bureau issued a “no action” letter clearing the transaction under the Competition Act because of the efficiency exception contained in that Act.  This action is especially significant since it marks the first instance where the Competition Bureau has publicly cleared an otherwise anti-competitive merger on the basis of the efficiency defence, without resorting to litigation before the Competition Tribunal.

The Competition Act sets out a statutory “efficiency defence” for potentially anti-competitive mergers, a defence which, according to the Bureau, may be unique to Canada.  Section 96 of the Act mandates that the Competition Tribunal, the federal adjudicative body that deals with mergers under the Act, cannot make an order prohibiting a merger where the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that are likely to result from the merger where those gains in efficiency would not likely be attained if such order were made.  The Bureau, following its review and analysis of the proposed merger, acknowledged that it was satisfied that the efficiency gains resulting from the proposed merger were “clearly greater than the likely significant anti-competitive effects” of the merger and, as such, the Bureau likely concluded that it would not be able to successfully challenge the merger before the Competition Tribunal.

In support of its efficiency defence, Superior had provided the Bureau with detailed analyses prepared by its expert to support Superior’s claims of efficiency gains resulting from the proposed transaction.  The Bureau had also retained its own external economic expert to model the likely effects of the proposed merger as well as an external efficiencies expert to evaluate Superior’s claimed efficiency gains.  In coming to its conclusion that the efficiency gains clearly outweighed the anti-competitive effect (e.g. likely higher prices for some products in some Canadian markets), the Bureau considered efficiency factors such as the elimination of overhead costs, freight optimization, and the elimination of duplicate corporate services.

Closing of the proposed merger is not however a certainty as the Federal Trade Commission (FTC) in the United States has filed an administrative complaint challenging the transaction under its U.S. anti-trust laws.  In announcing its decision, the Bureau noted that, during its own review, it had cooperated closely with the FTC.

Federal Advertising To Be Pre-Cleared By Advertising Standards Canada

The Government of Canada has announced that it is putting an end to the use of partisan Government advertising.  Effective May 12, 2016, Advertising Standards Canada (ACS), a national not-for-profit organization committed to ensuring the integrity of Canadian advertising, will conduct independent reviews of federal government ads against the definition of “non-partisan communications” outlined in the Government’s new communications policy [http://www.tbs-sct.gc.ca/pol/doc-eng.aspx?section=text&id=30683] which was issued on May 11, 2016.  

For the purposes of the new Policy, “non-partisan” means that the advertising must:

•  be objective, factual and explanatory;

•  be free from political party slogans, images, identifiers; bias; designation; or affiliation;

•  not use the primary colour associated with the governing party in a dominant way, (unless an item is commonly depicted in that colour); and

•  be devoid of any name, voice or image of a minister, member of Parliament or senator.

Granting ACS oversight over the Government’s advertising is expected to help ensure compliance with the new Policy.  ACS currently pre-clears children’s, food and non-alcoholic beverages, alcoholic beverages, consumer drugs, and cosmetics advertising in Canada.

 

Moose Knuckles Responds to Competition Bureau’s Misleading Advertising Complaint

Moose International Inc. has filed its response to the Competition Bureau’s recent allegations that Moose had, contrary to paragraph 74.01(1)(a) of the Competition Act, made materially false or misleading “made in Canada” representations with respect to its Moose Knuckles winter parkas.

In its response, Moose has asked that the Competition Tribunal dismiss the Commissioner of Competition’s application arguing that, among other things, Moose had not made any materially false or misleading representations to the public and that, in fact, it has complied with the Bureau’s “Made in Canada” Guidelines which Moose states are “not the law” in Canada in any event.

The Bureau’s “Made in Canada” Guidelines list three conditions that, if satisfied, make it unlikely that the Bureau will take issue with a “made in Canada” claim:

  1. the last substantial transformation of the product must have occurred in Canada;
  2. at least 51% of the total direct costs of manufacturing the product must have been incurred in Canada; and
  3. the representation must be accompanied by a qualifying statement that there is foreign content in the product.

Moose provides details in its response as to how it feels that it complied with each of the conditions with respect to the representations that it made.

Further, Moose argues that it had exercised “due diligence” to prevent the complained of conduct from occurring which diligence included revising its production processes in order to comply with the Guidelines and seeking advice directly from the representatives of the Bureau as to whether it’s processes would be in accordance with the Guidelines. Under section 74.1 of the Competition Act, the court cannot, among other things, order Moose to pay the $4 million administrative monetary penalty sought by the Bureau if Moose can establish that it exercised due diligence to prevent the reviewable conduct – the alleged materially false or misleading representation – from occurring.

Competition Bureau Knuckles Down on “Made in Canada” Claim

The Competition Bureau recently announced that it had taken action under the Competition Act against Moose Knuckles, a Canadian-based manufacturer of premium winter jackets, for alleged deceptive marketing practices associated with its high-end parkas.  The Bureau’s application to the Competition Tribunal alleges that the jackets are marketed as “Made in Canada” when the winter apparel is mostly manufactured in Asia with only the finishing touches to the parkas, such as adding the trim, zippers and snaps, being done in Canada.  The Bureau is seeking an end to what it believes to be false or misleading “Made in Canada” representations, an administrative monetary penalty and restitution for consumers.

In December, 2009, the Bureau issued Guidelines for “Made in Canada” and “Product of Canada” claims which provided that a “Made in Canada” claim would be unlikely to raise concerns under the false or misleading representation provisions of the Competition Act if:

•  the last substantial transformation of the good occurred in Canada;

•  at least 51% of the total direct costs of producing or manufacturing the good were incurred in Canada; and

•  the ‘Made in Canada’ representation was accompanied by a qualifying statement, such as “Made in Canada with imported parts” or “Made in Canada with domestic and imported parts” (this could also include more specific information such as “Made in Canada with 60% Canadian content and 40% imported content”).

It should be noted that the Guidelines which are provided by the Bureau to the public for convenience and guidance in applying the provisions of the Competition Act are not a legal document and, as such, do not have the force of law.

Driving Out False and Misleading Advertising: Avis & Budget Agree to Pay $3 million Penalty for Unattainable Advertised Prices

On June 2, 2016, the Competition Bureau (the “Bureau”) announced that Avis and Budget have agreed to pay a $3 million penalty for what the Bureau has concluded were false or misleading advertisements made to the public in respect of prices and discounts on car rentals and associated products. Avis and Budget also agreed to pay $250,000 towards the Bureau’s investigative costs. In its application to the Competition Tribunal, the Bureau had sought a penalty of $10 million, as well as restitution, from each of Avis and Budget and their parent.

From as early as 2009, Avis and Budget were alleged to have charged consumers non-optional fees over and above the prices that were initially advertised. As a result, the Bureau concluded that such fees may have had the effect of increasing the cost of a car rental by 5 to 20 percent, depending on the location of the rental and the type of vehicle that was rented. The Bureau further concluded that the advertisements created the general impression that consumers could rent cars and related products that were not, in fact, attainable.

In addition to the content of Avis’ and Budget’s advertisements, the Bureau took exception to the manner in which the advertisements were made. In that regard, the Bureau concluded that the words chosen by Avis and Budget to describe some of the non-optional fees, their placement, as well as how they were combined with actual taxes, created the general impression that they were taxes that governments and authorized agencies required rental car companies to collect from their customers, when in fact they were not.

This case reinforces the notion that the Bureau is serious about investigating cases of false and misleading advertising across all forms of media, be they in traditional print or broadcast form, or by the internet, mobile apps, or e-mail.

 

Access to Information Request Provides Insight on Number of Canadian National Security Reviews

In 2009, the Investment Canada Act (ICA) was amended to permit the Canadian government to undertake national security reviews in respect of Canadian-related investments proposed or made by non-Canadians. For such a review to occur, the Minister responsible for the ICA must have reasonable grounds to believe that the investment could be “injurious to national security” and the Governor in Council (i.e., the federal Cabinet), on the Minister’s recommendation, must make an order to conduct such a review.

Interestingly, “national security” concerns had already appeared to play a significant role in the review of a foreign investment proposal that pre-dated this amendment to the ICA.  In May 2008, then Industry Minister Jim Prentice rejected Alliant Techsystems Inc.’s application for approval under the ICA for its proposed takeover of MacDonald Dettwiler and Associates Ltd. (MDA).  Following that rejection, a number of informed observers expressed the view that national security concerns, in part, had likely contributed to the rejection possibly due to MDA’s ownership of Radarsat 2, a Canadian government financed remote sensing satellite permitting observation of the Canadian Arctic.  This rejection occurred despite the fact that, at that time, national security was not expressly stated in the ICA to be a factor that the Canadian government should take into consideration in making its ICA decisions.

The term “national security” is not a defined term in the ICA or its regulations. Further, the ICA does not indicate whether foreign investments involving certain industries are likely to raise concerns in relation to national security or specify the types or origin of investors that are more likely to be subject to the national security provisions.  Unfortunately for foreign investors, the entire national security review process seems to be shrouded in a cloak of secrecy.  In response to questions about the review process, the general response of Canadian government representatives has been that the confidentiality provisions of the ICA prohibit them from publicly discussing or disclosing information related to these matters and accordingly the government repeatedly refused requests to even provide a level of clarification comparable to that provided by the Committee on Foreign Investment in the United States (CFIUS) in respect of its review processes – these confidentiality restrictions even extended to providing simple statistical information about how many national security related notices had been issued under the ICA.

In response to this situation, in July, 2013 Fasken Martineau submitted an access to information request to Industry Canada requesting that it disclose information regarding the number of notices and orders issued under national security provisions of the ICA for the time period between April 1, 2009 to March 31, 2013 and provide redacted copies of such notices and/or orders. In August, 2013, Industry Canada refused that request on the basis that, after an examination of its records, it had concluded that all of the requested information was subject to the confidentiality provisions in section 36 of the ICA and, as such, the requested information was entirely exempt from disclosure pursuant to subsection 24(1) of the Access to Information Act (AIA).

In response to this refusal, a complaint under the AIA was filed in September, 2013 with the Office of the Information Commissioner of Canada. This complaint ultimately resulted in the issuance of the requested information in May, 2016.

Although extensively, and it appears appropriately, redacted to preserve confidentiality, the information released by Industry Canada confirms that, during the first 3 years following the introduction of the “national security” review regime, the Industry Minister issued only 3 section 25.2(1) notices stating that he had reasonable grounds to believe that an investment could be “injurious to national security”. A foreign investor who receives such a notice may not implement its investment until such time as it is expressly permitted to do so under the ICA.

Additionally, the Industry Canada disclosure revealed that only 2 orders for review had been made by the Governor in Council in respect of proposed investments and that only 1 of those 2 orders appeared to have resulted in a section 25.4(1)(a) order of the Governor in Council directing that the non-Canadian not implement its proposed investment.

This information appears consistent with what many outside observers had already noted as having occurred.

In 2009, the Canadian government took steps to prohibit George Forrest International Afrique (GFI) from completing its acquisition of Forsys Metals Corp. (Forsys), a Canadian publicly traded company with uranium interests in Africa, until the government had an opportunity to review that proposed investment. Forsys which was at the last stage of a proposed plan of arrangement that would result in it being acquired by non-Canadian controlled GFI unexpectedly announced that GFI had received an unsolicited letter from Industry Canada advising GFI that it was prohibited from implementing the transaction pending further notice from Industry Canada.  In comments to the press, GFI indicated that it would be meeting with the Canadian government in response to the prohibition letter. However, Forsys subsequently announced that it had terminated the C$579 million takeover after GFI failed to transfer funds to complete the deal and, as such, no national security review was likely undertaken with respect to that transaction.

As the GFI/Forsys transaction appeared to fall below the monetary threshold that required mandatory pre-merger approval under the ICA, the power upon which the Canadian government relied to delay the closing remained unclear. In response to press enquiries, Industry Canada declined to comment on why it had taken this action.  At the time, it was theorized that the letter was the first public exercise of the Minister’s right under section 25.2 of the ICA to prohibit a transaction from closing until the Canadian government had had an opportunity to consider the potential impact of the transaction under the national security provisions of the ICA.

In June 2013, Orascom Telecom Holding S.A.E. (Orascom), a subsidiary of Vimpelcom Ltd., announced that it was withdrawing its application under the ICA to acquire control of Globalive Wireless Management Corp. and its subsidiary, Wind Mobile. Although Orascom gave no specific reason for its withdrawal and the Minister did not issue a final decision under the ICA, media reports suggested that the proposed transaction had been abandoned because it had become subject to a national security review.

In October 2013, then Industry Minister James Moore formally rejected Accelero Capital Holdings’ proposed acquisition of the Allstream division of Manitoba Telecom Services Inc. Minister Moore provided the following statement as the reason for the rejection:

“MTS Allstream operates a national fibre optic network that provided critical telecommunications services to businesses and governments, including the Government of Canada”.

This represented the first transaction to be expressly disallowed on national security grounds since the creation of the national security regime in 2009.

Since 2013, there have been a small number of other transactions that have raised national security concerns. Additionally, presumably all filings made under the ICA, both applications for review and notifications, are subjected to some form of basic national security audit to confirm that no national security concern exists that would be sufficient to permit the Minister to issue a 25.2(1) notice.  Based on the information provided by Industry Canada to Fasken Martineau, it appears likely that the only substantive national security actions that Industry Canada undertook during the April 1, 2009 to March 31, 2013 time period were those which the public was already generally aware of suggesting that the Canadian government during the referenced time period had not made repeated use of its new “national security” review powers.

A Long Road to Victory: The Competition Bureau Wins TREB Case

On April 27, 2016, the Competition Tribunal (the “Tribunal”) ended the years-long dispute between the Competition Bureau (the “Bureau”) and the Toronto Real Estate Board (“TREB”) by ruling that certain of TREB’s practices are anticompetitive.

TREB — an association of real estate brokers — had adopted rules that barred brokers from disseminating detailed listing information online through the Multiple Listing Service but which allowed for the same information to be shared in person and by other means. The Tribunal held that this practice has had, is having, or is likely to have the effect of preventing competition substantially in a market, as contemplated by the Competition Act’s (the “Act”) abuse of dominance provisions.

The Bureau’s case was initially brought to the Tribunal in 2011 under the abuse of dominance section of the Act (section 79). However, the Tribunal dismissed the Bureau’s application because the Bureau could not establish that TREB had engaged in a practice of anticompetitive acts, whose purpose was an intended negative effect on a competitor. In that regard, the Tribunal held that because TREB was an association of brokers, it could not compete with any of the brokers belonging to the association and, by extension, its practices could not have a negative effect on a competitor.

The Bureau successfully appealed the Tribunal’s dismissal to the Federal Court of Appeal in 2014, and the case was sent back to the Tribunal for reconsideration in 2015. At this time, a public version of the Tribunal’s reasons are not yet available, although they are expected in the coming weeks. In addition, although the Tribunal has concluded that TREB’s conduct came within the ambit of section 79, remedies remain to be determined.

The Competition Bureau Clarifies its Enforcement Approach in IP Matters with Updated Intellectual Property Enforcement Guidelines

On March 31, 2016, the Competition Bureau (“Bureau”) published the long-awaited update to its Intellectual Property Enforcement Guidelines (“IPEGs”). According to the Bureau, the aim of the updated IPEGs is threefold. They:

  • Clarify the Bureau’s position on patent litigation settlements and product switching—notably that settlements of proceedings under the Patented Medicines Notice of Compliance Regulations will be analysed under the Competition Act’s criminal conspiracy provisions only where the settlement is a sham or where it extends beyond the exclusionary period of the patent;
  • Address the conduct of patent assertion entities and conduct involving standard essential patent holders; and
  • Explain the Bureau’s approach to conducting investigations of alleged anti-competitive conduct that relates to intellectual property.

Consistent with the Commissioner of Competition’s commitment to openness and transparency, the updated IPEGs were published following an extensive public consultation process. The Bureau received numerous submissions from academia, businesses, and government.

The Bureau noted that it is committed to reviewing the IPEGs annually and will revise them as needed in light of experience, changing circumstances and decisions of the Competition Tribunal and the courts.

Stay tuned for Fasken Martineau’s in-depth analysis on the updated IPEGs.