Competition Chronicle

Competition Chronicle

Competition & Antitrust | Foreign Investment

Investment Canada: National Security Guidelines To Be Published

vancouver-754242On November 1, 2016, the Honourable William Morneau, Canada’s Minister of Finance, tabled his government’s Fall Economic StatementIncluded in the Statement was a commitment by the Liberal Government to ensure that Canada makes the most of every opportunity to attract global investment.

Since his election in 2015, Prime Minister Justin Trudeau has indicated both in his public statements and in his actions that his government is more open to foreign investment than the government of former Prime Minister Stephen Harper.  In furtherance of that openness, a new federal body, the Invest in Canada Hub, is to be created to coordinate Canada’s investment promotion activities and the number of trade commissioners will be increased in markets that are considered strategic to Canada.

The Investment Canada Act is federal legislation that requires any non-Canadian proposing to directly acquire control of a Canadian business that exceeds a prescribed monetary threshold to obtain government approval before proceeding with its investment.  In 2009, the Harper Government amended that legislation to create an additional review power in respect of foreign investments that appear to raise national security concerns.  Unfortunately, the government provided no insight or explanation as to how the new national security review power would be used in practice.  Subsequent exercises of that power to block a number of transactions have not resulted in a much better understanding as to the circumstances in which this power will be invoked.  This situation has resulted in considerable uncertainty in the minds of foreign investors contemplating potential investments in Canada.

As part of the Statement, the Minister of Finance announced that, before the end of the current calendar year, his government will publish informational guidelines explaining the circumstances under which foreign investments will be examined under the national security review provisions.  It is hoped that this increase in transparency as to how the review process works in the context of national security reviews will attract desirable foreign investments in Canada by providing foreign investors with a better understanding as to exactly what types of investments will be subjected to nation security review attention.   The new guidelines hopefully will also assist foreigners to better navigate the Investment Canada Act review process thereby encouraging foreign investment in Canada while at the same time ensuring the ongoing integrity of Canada’s national security processes

Competition Bureau Conducts Internet Sweep Focusing on Online Reviews and Endorsements

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Online reviews and endorsements are a growing tool used by businesses to sell their products and services.  Last month, the Canadian Competition Bureau (with international partners) conducted a “sweep” of the internet targeting online reviews and endorsements. The sweep is identifying websites that use online reviews or endorsements as part of their business model.  The Bureau has noted that it will follow-up with websites of concern, ranging from a warning or information letter to opening an investigation.

The Bureau’s sweep follows the June 2016 publication of the International Consumer Protection and Enforcement Network’s (ICPEN) Online Reviews and Endorsement Guidelines for digital influencers (e.g., bloggers, tweeters), review administrators (i.e., processors of consumer reviews online) and marketing professionals (i.e., promoters of goods and services on review platforms, social media).

The Bureau’s sweep in an important reminder for companies and individuals to be informed and vigilant when using online reviews and endorsements to sells goods and services.  In this regard, salient portions of ICPEN’s guidelines for digital influencers, review administrators and marketing professionals are summarized below.  The application of the guidelines will vary depending on the circumstances the business and products and services at issue.

Digital influencers

A “digital influencer” is broadly understood as anyone who posts online content on their own website, online platform or social media account that includes an opinion, experience or other information about a market, business, good or service.  Key principles for digital influencers include the following:

  • Disclose all paid-for content clearly and prominently:   digital influencers are expected to ensure that any content they post (or which payment has been received) is clearly identifiable to viewers as paid-for content.  “Paid-for” includes monetary and non-monetary payments. Paid-for content may include advertisements, advertorials, product placements, sponsored posts, sponsored links, articles written in collaboration, promotional features and consumer interest stories.
  • Disclose other commercial relationships:  digital influencers are expected to ensure that viewers are advised of any relevant commercial relationships that may be featured in their online content.
  • Views are expected to be genuine:   digital influencers are expected to make clear whose opinion or experience is being conveyed regarding markets, businesses, goods or services, such as whether the opinion is the person’s own opinion or that of an employee’s, a guest contributor’s or an advertiser’s.
  • Decline non-complaint businesses:  Digital influencers are expected to decline requests from businesses to post paid-for content without proper disclosure.

Review Administrators

A “review administrator” is generally regarded as an organization or individual that processes consumer reviews.  Review administrators come in many forms and include: (a) entities that manufacture, distribute or supply products and services, and also obtain reviews about them, (b) third parties that obtain reviews on behalf of an entity that manufactures, distributes or supplies products and services; and (c) third parties that are involved in the collection, moderation and display of reviews.  Key principles for review administrators include the following:

  • Publish terms and conditions prior to collection: review administrators should have terms and conditions under which it will collect, moderate and publish consumer reviews, and publish those terms and conditions.
  • Verifying consumer reviews as authentic:  review administrators should exercise adequate due diligence, such as only accepting reviews from consumers who have purchased the product or service at issue or allowing site users to assess the reliability of reviewers.
  • Publishing reviews in a neutral manner:  review administrators should publish reviews in an objective and neutral manner (i.e., without delay, select editing)

Marketing Professionals

Marketing professionals include those who promote their goods or services on review platforms, blog posts, video blogs, tweets or online publications (sometime known as traders) as well as search engine optimisers.  Key principles for marketing professionals include:

  • Disclose clearly and prominently where content is paid-for or where other commercial relationships may be relevant to the content.
  • Never write fake reviews.

 

Competition Bureau Releases Updated Consent Agreement Template for Merger Remedy Negotiations

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On September 29, 2016, the Competition Bureau (the “Bureau”) released a revised consent agreement template for merger remedy negotiations. The release of the Bureau’s updated template is timely, as the number of consent agreements registered with the Competition Tribunal (the “Tribunal”) have risen significantly since the last template was published in 2007.

This year alone, 6 consent agreements have been registered with the Tribunal, compared to the 2 agreements that were registered in 2007. Since 2007, more than 30 consent agreements have been registered with Tribunal, following remedy negotiations between the Bureau and the merging parties.

The intent of the consent agreement template is to provide formal guidance to the legal and business communities in respect of the Bureau’s expectations when negotiating measures to address competitive issues likely to arise from a proposed merger.

Despite the publication of this guidance document designed to facilitate a conciliatory resolution, the Bureau noted in its accompanying press release that it “will not compromise its responsibility to preserve competition in the marketplace by contested proceedings.” In that regard, the Bureau is keeping true to the commitments it outlined in its 2016-2017 annual plan, namely its focus on “high-impact enforcement cases, merger reviews and outreach, including the advancement of a number of ongoing cases and projects.”

New Trial Ordered: Application of Co-Conspirators’ Exception to the Hearsay Rule at Issue in Price-Fixing Conspiracy Case

On September 9, 2016, the Quebec Court of Appeal (“QCCA”) issued its judgment in two gasoline price-fixing conspiracy cases. The cases were the product of the Competition Bureau’s (the “Bureau”) year-long investigation into the fixing of retail gasoline prices in the province of Quebec from April 2005 to May 2006.

The three accused individuals in the cases (Yves Gosselin, Linda Proulx, and Michel Lagrandeur) were charged under the Competition Act’s (the “Act”) former price-fixing provisions for conspiring to fix retail gasoline prices in the cities of Magog and Sherbrooke. All three accused were subsequently convicted at trial. The trial judge arrived at his decision based on the preponderance of evidence adduced during the trial, which included, among other things, hundreds of intercepted telephone conversations, which included statements by co-conspirators.

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The Competition Bureau, Criminal Conspiracies and Making History

The Competition Bureau Continues to Make History in its Enforcement of the Criminal Conspiracy Provisions of the Competition Act

For the second time in as many months, the Competition Bureau (the “Bureau”) has made an historic announcement about its efforts to enforce the criminal conspiracy provisions of the Competition Act (the “Act”).

On July 20, 2016, the Bureau announced that it would avail itself of the bilateral Memorandum of Understanding between Canada and the United States to defer criminal charges under the Act. In this piece of the Bureau’s larger automotive parts investigation, the Bureau ultimately refrained from charging or prosecuting Nishikawa Rubber Co., Inc. (a co-conspirator in a bid-rigging scheme), instead deferring to the US Department of Justice, which had obtained an agreement from Nishikawa to plead guilty and pay a fine of US$130 million in the US. This appears to be the first time the Bureau has publicly deferred prosecution in an international cartel investigation to a foreign antitrust agency in circumstances where there were direct effects in Canada.

More recently, the Bureau announced that, as part of plea agreement for rigging bids, the accused would assist the Bureau in its corporate compliance efforts by participating in two public presentations made by Bureau staff—another first in the history of enforcing the criminal conspiracy provisions of the Act.

In addition to Linda Graham’s 18-month conditional sentence for rigging bids relating to government IT contracts, she will speak out about bid rigging and about her personal experience defrauding the government. While novel, this part of Ms. Graham’s sentence fits comfortably with the Bureau’s 2016-17 Annual Plan and the Commissioner’s commitment to competition compliance.

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.