On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference. During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) fake online reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities identified above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the third blog, which deals with dishonest information about data privacy.

Data Privacy and the Role of the Bureau

Data privacy is concerned with the collection, use, disclosure and maintenance of personal data. Specifically, it is concerned with ensuring that (a) individuals have control over their own personal data and (b) informed consent is obtained before businesses collect and use that personal data.

The first step in obtaining and maintaining informed consent is often the use of a privacy policy. A privacy policy is also a way for  businesses to meet certain of their disclosure obligations under the Personal Information Protection and Electronic Documents Act (“PIPEDA”) or substantially similar provincial legislation.

Unfortunately, privacy policies are often lengthy and legalistic documents that may not promote  the goals of informed consent or proper disclosure. Additionally, if any part of a business’ privacy policy is materially false or misleading, issues could potentially arise under certain deceptive marketing provisions in the Act. For example, in the Bureau’s 2017 white paper, Big data and innovation: Implications for competition policy in Canada (the “2017 Big Data Paper”), the Bureau noted that deceptive practices can interact with personal data and privacy in many ways, including “false or misleading representations about the type of data collected, the purposes for which the data are collected, how the data will be used, maintained and erased … and failing to adequately disclose information necessary for consumers to make informed choices”.

As identified by the Bureau in its 2018 report, Big data and innovation: key themes for competition policy in Canada, there is a danger that false or misleading privacy policies may lead consumers to consent to the collection and use of their data in ways that they would not have otherwise consented to if properly informed. These types of concerns fall squarely within Bureau’s mandate to ensure truth in advertising and protect consumers.

Josephine Palumbo affirmed the Bureau’s commitment to data privacy in her recent remarks, stating (a) that “[t]he collection of data is an area where the principles of deceptive marketing are especially relevant”; (b) that “the era of Big Data means [the Bureau] will need to devote more attention to false claims that mislead consumers into giving away their personal data”; and (c) that “when firms make false or misleading statements about the type of data they collect, why they collect it, and how they will use, maintain and erase it, [the Bureau] will take action”. In fact, the Bureau is already taking action in the area. For example, earlier this year it was reported that the Bureau was investigating an allegation that the federal Liberal, Conservative and New Democrat parties had made deceptive statements to the public through their respective privacy policies.

The Law

Both privacy and competition laws have a role to play when it comes to data privacy and the use of privacy policies.

Federal and provincial privacy laws, including PIPEDA, set out the privacy obligations that businesses must adhere to when they collect, use or disclose personal information in the course of their commercial activities. Businesses that collect personal information must be aware of and comply with their obligations under this legislation. Failure to do so could result in significant fines.

Privacy policies may also raise concerns under the false or misleading representations provisions of the Act. In summary, these provisions prohibit a business from making a representation to the public, in any form whatever, that is false or misleading in a material respect. Representations regarding how a business will treat an individual’s personal data will almost certainly be considered material.

In considering whether a representation is false or misleading in a material respect, businesses must consider both the literal meaning of the representation and the general impression conveyed by the representation – including in the context of privacy policies. For example, even if a privacy policy fully and accurately describes a business’ data practices (and is therefore literally true), concerns could potentially still arise if the policy creates a false or misleading general impression. In this regard, the 2017 Big Data Paper states as follows:

Fundamentally, companies are putting themselves at risk when they collect information that consumers would not expect to be collected in the normal course of business and only disclose this material information in terms and conditions that are likely to be overlooked by consumers. Consumers form a general impression about the type of data being collected and how their data will be used; companies should ensure that such general impression corresponds with the data being collected and how the data are, in fact, used. The collection and use of data that go beyond what consumers would reasonably expect increases the likelihood of deception.

The 2017 Big Data Paper also includes the following examples of situations that could lead to privacy policies being considered  false or misleading:

  • Collecting data that is not linked to the functionality of the good or service being used

For example, as considered in a recent complaint investigated by the U.S. Federal Trade Commission (the “FTC”), a simple flashlight app may be collecting personal location data in order to sell it to third-party organizations. As the collection of location data has no connection to the operation of the mobile app, consumers may not be aware that they need to take steps to protect their personal information.

  • Misleading public representations that do not accord with the actual functionality of the product or service

For example, the FTC has recently taken action against Snapchat regarding numerous inconsistencies between the company’s representations regarding data privacy and the actual functionality of the Snapchat app. These inconsistencies include the app’s marketing, which highlights the idea that “snaps” would disappear forever after expiring, despite the fact that there were many ways in which third-parties could save or access these snaps after expiry.

Failing to ensure that your privacy policy complies with the false or misleading representations provisions of the Act can have serious consequences, including administrative monetary penalties, restitution and reputational harm – and in some cases criminal fines and jail time. For example, administrative monetary penalties for making false or misleading representations contrary to the civil provisions of the Act have ranged from $10,000 to $10 million.

Best Practices for Business

While by no means exhaustive, the following guidelines will help businesses avoid making false or misleading representations regarding their data practices:

  • Ensure privacy policies comply with all applicable requirements under PIPEDA and other privacy legislation.
  • Ensure privacy policies are accessible and use clear language (consider the Ontario Privacy Commissioner’s tips for better online privacy policies).
  • Ensure that the use and collection of data is undertaken in compliance with the company’s privacy policy, and make certain that any changes to the collection or use of data are immediately reflected in public representations.
  • Where the type of data collected or the use of that data may not fall within a customer’s reasonable expectation (for instance, where the data collection is incidental and not required for use of the product or service), be particularly clear regarding data practices and do not rely on a lengthy and legalistic privacy policy.
  • Ensure that any marketing or public representations regarding the use or functionality of a product or service do not misrepresent the actual functionality of the product or service, or the company’s data privacy practices.

If you would like assistance reviewing your privacy policy or have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On February 11th, the Competition Bureau published its Strategic Vision for 2020-24. Titled “Competition in the Digital Age”, this document outlines how the Bureau plans to deliver the benefits of competition to Canadians over the next four years in today’s rapidly changing digital economy.

The Strategic Vision includes three key themes or pillars, namely (1) protecting Canadians through enforcement, (2) promoting competition in Canada, and (3) investing in the organization. Numerous action items and desired outcomes are set out for each of these themes.

Some Initial Observations

Our initial observations on the Strategic Vision are set out below:

  1. The Strategic Vision is generally consistent with both the Bureau’s 2019-20 Annual Plan and prior speeches by the Commissioner of Competition, such as his speech titled “No River too Wide, No Mountain too High: Enforcing and Promoting Competition in the Digital Age” (which was discussed in our prior blog post titled “Commissioner Points to More Active Enforcement, Greater Transparency and Refined Approach to Efficiencies Defence”).
  2. It’s interesting to compare the 2020-24 Strategic Vision with the 2015-18 Strategic Vision published by the Commissioner’s predecessor, John Pecman. In this regard, the 2020-24 Strategic Vision gives considerably greater emphasis to enforcement and enforcement capabilities, and comparatively less emphasis to compliance through education and advocacy.
  3. The 2020-24 Strategic Vision contains the very clear statement that over the next four years “enforcement will be our main focus”. Substance is added to this priority through the following:
    • the reference to timely and evidence-based enforcement action that focuses “on sectors of the economy that matter most to Canadians”, including “online marketing, telecommunications, financial services, health and infrastructure”;
    • the Commissioner’s intention to invest in enforcement capability, both technological (including new intelligence-gathering tools such as advanced analytical models, algorithms, automated processes and artificial intelligence capabilities) and personnel;
    • plans to establish a Digital Enforcement Office that will provide specialized technological assistance to support the Bureau’s work in the digital economy; and
    • plans to host an annual Digital Enforcement Summit Series (which extends a 2019 initiative).
  4. The 2020-24 Strategic Vision contains several references to the challenges posed by the digital economy. This, combined with the plans to enhance enforcement capabilities described above, is consistent with the priorities specified in the letter that the Minister of Innovation, Science and Economic Development sent to the Commissioner of Competition on May 21, 2019.
  5. Increased focus on enforcement may suggest comparatively less focus on both compliance work (including competition advocacy) and international engagement (which the Strategic Vison indicates will be “focussed”).

Implications for Business

Given the very clear statements that active enforcement will be a priority for the Bureau over the next four years, particularly in sectors such as online marketing, telecommunications, financial services, health and infrastructure, businesses should be aware of and ensure that their practices comply with the Competition Act. Failure to do so could result in lengthy Bureau investigations and costly proceedings before the Competition Tribunal or the courts, which, in turn, could lead to jail time, fines, reduced sales, damaged reputation and class actions.

To the extent not already done, businesses should consider putting in place new corporate compliance programs or updating their existing programs. These programs, which can be tailored to meet a business’ specific needs, offer numerous benefits, such as reducing the risk of non-compliance with the Competition Act; triggering early warnings of potentially illegal conduct; reducing the exposure of employees, management and the business to criminal or civil liability; and assisting businesses to qualify, in certain circumstances, for a reduced sentence or other lenient treatment where a contravention of the Competition Act has occurred.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference.

During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) false online consumer reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities noted above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the second blog, which deals with false online consumer reviews.

Overview of False Online Reviews

Online reviews have become an increasingly important source of information to consumers when making purchasing decisions. In fact, according to recent studies, 82% of consumers read online reviews for local businesses and 91% of consumers say that positive reviews make them more likely to engage with a particular business. Ms. Palumbo, in her recent remarks, acknowledged the growing importance of online reviews:

Authentic consumer reviews on digital platforms benefit both consumers and businesses, providing unbiased product information to help consumers make informed decisions, and rewarding businesses that provide a superior product or service. This helps to promote healthy competition in the workplace.

The Bureau also recognizes the issues that can arise when companies post reviews that are not truthful, authentic or genuine – a practice that has come to be known as “astroturfing”. The Bureau’s Deceptive Marketing Practices Digest – Volume 1 describes astroturfing as the practice of creating commercial representations that masquerade as the authentic experiences and opinions of impartial consumers, such as fake consumer reviews and testimonials. According to Ms. Palumbo’s recent remarks, the Bureau has observed an “increase in organized efforts by companies to fraudulently boost their own ratings or lower the ratings of their competitors”.

Astroturfing can occur in a number of different ways. For example, companies may encourage or compensate their employees to post positive reviews without disclosing their connection with the product or service being advertised or provide incentives to customers to leave positive reviews. With respect to this latter point, recent studies have found that 67% of consumers have now been asked to provide a review for a local business – with 24% of these consumers being offered a discount, gift or cash in return. Companies may also engage “search engine optimization” firms who pay third parties to post positive reviews about a company or negative reviews about the companies’ competitors. Regardless of the practice used, astroturfing gives inferior businesses an unfair advantage and ultimately erodes consumer confidence in the authenticity of online reviews, at a cost to both consumers and businesses.

The Bureau has been active in its efforts to educate Canadian consumers about astroturfing. In its Don’t Buy Into Fake Online Endorsements publication, the Bureau sets out the following signs of astroturfing:

  • A product or service has suddenly received great reviews;
  • The reviewer only recently created a user profile and has been actively providing feedback on a handful of products over a short period of time;
  • The reviewer’s tone is overly positive and makes it out to be “the best thing ever”; and
  • On the contrary, a fake review from a competitor may discredit the product while suggesting another.

False online reviews may raise concerns under the general false or misleading representations provisions of the Act. In summary, these provisions prohibit a business from making a representation to the public, by any means whatever (including online), that is false or misleading in a material respective. Whether a representation is material depends on whether or not it will influence a customer’s buying decision. Given the recent studies about the weight consumers place on online reviews when making buying decisions, it is likely that false online reviews could be found to influence a customer’s buying decision.

Failing to comply with these provisions can have serious consequences, including administrative monetary penalties (“AMPs”), restitution and reputational harm – and in criminal cases, fines and/or jail time. AMPs for making false or misleading representations contrary to the civil provisions of the Act have ranged from $10,000 to $10 million.

Astroturfing as an Enforcement Priority

Enforcement against astroturfing has been – and continues to be – a priority for the Bureau. In October 2015, the Bureau announced that it had entered into a Consent Agreement with Bell Canada to resolve concerns that certain Bell employees were encouraged to post positive reviews and ratings on certain mobile apps. The Bureau concluded that these reviews and ratings created the general impression that they were made by independent, impartial consumers, rather than by Bell employees. The results of these reviews allegedly affected, for a time, the overall ratings for the mobile apps. In resolving the Bureau’s concerns, Bell agreed to enhance its corporate compliance program with a specific focus on prohibiting ratings and rankings by its employees and contractors, and also agreed to pay an AMP of $1.25 million.

Since 2015, the Bureau has released numerous publications warning businesses about astroturfing and, in her recent remarks, Ms. Palumbo once again emphasized that “the Bureau is vigilant on this front, because Canadians need to know they can trust online user reviews.” Businesses should also be aware that the Bureau actively encourages Canadian consumers to report fake online reviews to the Canadian Anti-Fraud Centre.

Best Practices for Businesses

While by no means exhaustive, the following best practices will help businesses avoid the use of astroturfing:

  • Implement a corporate compliance program that includes a policy prohibiting the public posting of ratings, rankings or reviews of the company’s own products or services. Ensure employees are aware that non-compliance could result in disciplinary action up to and including termination of employment.
  • Never encourage, compensate or reward employees for posting reviews about the company’s own products or services or for posting negative reviews about a competitor’s own products or services.
  • Exercise caution when engaging third party “reputation enhancement firms”.
  • When in doubt, consider whether a review creates the general impression that it represents the authentic experiences and opinions of an impartial consumer.

Finally, businesses should remember that competition laws do not stop at the border, particularly when it comes to the digital economy. The Bureau coordinates and collaborates with global antitrust agencies, including the Organisation for Economic Co-operation and Development, and other antitrust and competition agencies, including the U.S. Federal Trade Commission.

If you have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference. During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include (a) influencer marketing; (b) fake online reviews; (c) dishonest information about data privacy; and (d) dishonest price claims.

To help businesses better understand how the Competition Act (the “Act”) applies to their online advertising and marketing practices, we are publishing a series of four blogs discussing the enforcement priorities noted above. In particular, each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their advertising and marketing practices comply with the Act. This is the first of the four blogs, which deals with influencer marketing.

Influencer Marketing

Influencer marketing is a form of social media marketing in which ‘influencers’ provide testimonials, endorsements and/or product placements for some form of compensation. These representations are typically made on Instagram, Twitter, YouTube, Facebook and other social media platforms.

Influencers come in many sizes, ranging from online personalities recognized by only a niche group of consumers to larger-than-life celebrities whose social media presence is a cultural phenomenon – with each of Kylie Jenner, Selena Gomez and Cristiano Ronaldo reportedly making at least $750,000 per sponsored post on Instagram! Ad Standards has defined an ‘influencer’ as someone who possesses the potential to influence others, regardless of the number of followers or viewers they may have.

Influencer marketing is a big and growing business, with many companies now dedicating significant resources to influencer marketing. Why? Because studies show that consumers listen to influencers. For example, an Ad Standards study revealed that 35% of Canadians aged 18-35 have made a purchasing decision based on the recommendation of an influencer.

Given the impact that influencers have on consumers’ purchasing decisions, influencer marketing has become a priority for the Bureau. As a result, it is essential that influencers, and the companies that engage them, be aware of and comply with applicable laws, including their obligations under the Act.

The Law

The Act includes a wide range of civil and criminal deceptive marketing practices provisions that apply to anyone who is promoting a product, service or business interest – including influencers. These include provisions relating to, among other things, false or misleading representations, performance claims, ordinary selling price and testimonials.

Failing to comply with these provisions can have serious consequences, including administrative monetary penalties, restitution and reputational harm – and in some cases criminal fines and jail time. For example, administrative monetary penalties for making false or misleading representations contrary to the civil provisions of the Act have ranged from $10,000 to $10 million.

How does this apply to influencer marketing?

In general, advertisements may raise concerns if they include information that is false or misleading or fail to disclose material information. This latter point is particularly relevant to influencer marketing and has been the subject of guidance issued by regulators around the world, including in Canada and the United States.

According to the Bureau, failing to disclose any ‘material connection’ between an influencer and the business, product or service being promoted is misleading. In the Bureau’s view, a connection may be ‘material’ if it has the potential to affect how consumers evaluate an influencer’s independence from a brand, including where the influencer: (i) received payment in money or commissions, (ii) received free products or services, (iii) received discounts, (iv) received free trips or tickets to events, or (v) has a personal family relationship.

The Bureau has outlined best practices for disclosing a ‘material connection’. First, influencers should ensure that their disclosure is as visible as possible. This requires that the disclosure be prominent and visible on all devices without having to click or tap a button to expand the post. Second, influencers should ensure that their disclosure is clear and contextually appropriate. It should include plain and clear language and avoid the use of ambiguous terms and abbreviations. Ad Standards has been more specific, suggesting particular hashtags that are widely accepted as clear: #ad, #sponsored, #XYZ_Ambassador, #XYZ_Partner (where ‘XYZ’ is the brand name).

How does this impact companies that rely on influencers to market their products and services?

The false or misleading representations provisions apply to both the person making or sending the representation and any person permitting the representation to be made or sent. As a result, brands and advertising agencies may be liable for representations made by or through influencers.

In fact, following a recent review of influencer marketing practices across various industries, including health and beauty, fashion, technology and travel, the Bureau sent letters to almost 100 brands and advertising agencies advising them to review their marketing practices to ensure compliance with the law. This sends a very strong signal that the Bureau may hold these brands and advertising agencies responsible for representations made by influencers. Accordingly, now would be a good time for companies who use influencers to review their marketing practices to ensure they comply with applicable laws and guidance.

If you would like assistance reviewing your marketing policies or have any questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The information and guidance provided in this blog post does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Antitrust/Competition Marketing group.

On January 22, 2020, Josephine Palumbo, the Deputy Commissioner of the Deceptive Marketing Practices Directorate at the Canadian Competition Bureau (the “Bureau”), spoke at the Canadian Institute’s 26th Annual Advertising and Marketing Law Conference.

During her remarks, titled Honest Advertising in the Digital Age, Ms. Palumbo identified the Bureau’s current enforcement priorities as they relate to advertising and marketing in the digital economy. Among other things, these priorities include:

  • influencer marketing;
  • fake online reviews;
  • dishonest information about data privacy; and
  • dishonest price claims.

Given the repeated statements that active enforcement in the digital economy will be an area of primary focus for the Bureau over the next several years, it’s imperative that businesses carefully consider the requirements of the Competition Act (the “Act”) when advertising and marketing their products online. Failure to do so could result in lengthy Bureau investigations and costly proceedings before the Competition Tribunal or the courts, which, in turn, could lead to fines, reduced sales, damaged reputation and class actions. In this regard, it’s worth highlighting the following two enforcement-related statements made by Ms. Palumbo during her remarks:

  • “From April to September 2019, the Bureau launched 16 cases, and we continue to work on 37 active cases, all related to the digital economy.”
  • “It’s true that we may not always win cases, but it’s important to take them on regardless – so potential targets know that we are watching, and to bring clarity to the law.”

To help businesses better understand the requirements in the Act, we will, over the course of the next month, be publishing a series of blogs discussing the enforcement priorities noted above. Each of the blogs will describe the conduct in question, identify the provisions of the Act applicable to the conduct in question and provide some general guidance on what businesses can do to help ensure that their marketing and advertising practices comply with the Act.

In the meantime, if you have questions about the advertising and marketing provisions in the Act – whether related to the digital economy or otherwise – you can reach out to any member of Fasken’s Antitrust/Competition Marketing group. Our group has significant experience advising clients on all aspects of Canadian competition law.

The 2018/19 Annual Report on the administration of the Investment Canada Act (Act) recently issued by the Act’s Director of Investments records a considerable increase in filings under the Act by non-Canadians establishing new businesses in Canada.

During the 4 prior years, the Investment Review Division received, on average, 175 new business filings a year. However, the 2018/19 Annual Report records 255 new business filings, a 45% increase over the prior 4 year average.

The increase in new business filings could be reflective of an increase in the attractiveness of Canada as a place for foreigners to start new businesses. While not discounting the fact that Canada welcomes new investment, another reason for the increase in filings could be foreign investor concerns that their new business activities could attract the attention of Canada’s security agencies under the national security review provisions of the Act.

The Act requires that every non-Canadian who is proposing to or has established a new business in Canada that is either (i) unrelated to any other existing business carried on in Canada by the non-Canadian; or (ii) involves an activity that is related to Canada’s “cultural heritage or national identity” must give notice of that investment to the Canadian government either before or within 30 days of the establishment of that new Canadian business.

A new “Canadian business” has three elements: (i) it must have a place of business in Canada; (ii) it must have an individual or individuals in Canada who are employed or self-employed in connection with the business; and (iii) it must have assets in Canada used in carrying on the business. A new Canadian business is considered to be established at the time that all three required elements are satisfied and a new business notification must be filed with the Director of Investments no later than 30 days from that date.

In the past, some foreign investors and their advisors may not have been aware of this obligation and therefore, did not make the required filings. The fact that the Act has no penalty for the failure to make a filing may have also contributed, in part, to some compliance laxity.

However, the power of the government to launch national security investigations with respect to the business activities of non-Canadians coupled with the right to order non-Canadians to divest of investments posing national security risks to Canada, creates an additional level of risk for foreign investors. It may be that, in an effort to better manage that risk, non-Canadian investors are choosing to have their proposed new business investments cleared by the Investment Review Division well in advance of the establishment of such businesses in Canada.

Under the Act, Canada has, following its receipt of a notification, an initial 45 day period during which to decide whether to initiate a further and potentially more formal national security review of a proposed investment. During this initial period, the security agencies and the other relevant investigative bodies, including Innovation, Science and Economic Development Canada, assess information and intelligence related to the business being established, the terms of the investment and the foreign investor. The Canadian government may also consult with its allies. Lastly, the non-Canadian investor may be required to provide information considered necessary by the government for the purposes of its review. At the completion of the initial review, the Minister may make a decision not to take any further action or, alternatively, may choose to continue with the national security review process prescribed under the Act.

While only a relatively small number of investments are subjected to the more intensive national security review process, a formal national security review can have disastrous consequences for a non-Canadian’s new business planning and implementation. For this reason, we recommend filing new business notices as early as possible in the planning process and before any irreversible business commitments are made.

In the recent case of Computicket v the Competition Commission, the Competition Appeal Court was called upon to analyse and explain the standard that must be met to establish an exclusionary abuse of dominance under South Africa’s Competition Act. The case provides insight into important practical and policy questions – what do we mean by “anti-competitive effects” and how high is the hurdle that must be cleared to establish such effects?

The case involved exclusivity provisions in agreements between Computicket (a firm found to be dominant in the market for outsourced ticketing distributing services) and numerous inventory providers (such as theatres, sports or concert venues and events companies) that employ the services of Computicket to sell tickets to their events. The Competition Tribunal had found that Computicket’s exclusivity requirements contravened section 8(d)(i) of the Competition Act because they (1) constituted the exclusionary act of “requiring or inducing a supplier or customer not to deal with a competitor”, and (2) had anti-competitive effects which were not outweighed by technological, efficiency or other pro-competitive gains.

On appeal, Computicket disputed the Tribunal’s finding of anti-competitive effects, suggesting that the Tribunal had placed excessive emphasis… on the experience of a “single would-be competitor”…, that was (a) not an “efficient competitor”; (b) had focused its efforts on the sale of theatre tickets (which represented no more than 3% of the opportunities in the outsourced ticketing market in the relevant period); and (c) in fact had not been excluded from participation in the relevant market”. Computicket argued that there was no actual foreclosure of a rival, and because the conduct was not shown to have a market-wide effect, the criterion of substantiality was not met.

The dispute provided occasion for the Court to set out the position under pre-existing case law on this subject, and further interpret the key concept of anti-competitive foreclosure when used in the context of exclusionary abuse of dominance in South Africa. The Court’s synopsis, found in paragraphs 25 to 38 of the judgment, is difficult to follow in places, however, our interpretation may be summarised as follows:

  • There must be a causal relationship between the dominant firm’s exclusionary act and the anti-competitive effects.
  • Anti-competitive effects may take the form of (1) actual harm to consumer welfare or (2) substantial or significant foreclosure of the market to rivals.
  • The exclusionary conduct has the effect of foreclosure if it renders the dominant firm’s rivals less effective competitors. Put differently, the conduct must in a non-trivial way diminish the competitive constraints on the dominant firm to which it would otherwise have been subject, and thereby strengthen its dominant position.
  • Foreclosure need not involve the exit of a rival from the market, and may be actual or potential.
  • The inquiry of whether there has been foreclosure may require an “aggregative” examination of the market, exploring issues such as (1) the extent of the firm’s dominance, (2) the extent of sales affected by the exclusionary conduct, and (3) barriers to entry and expansion.
  • However, the aggregative inquiry is not necessarily determinative. Anti-competitive effects could result from an impact on a small firm that plays an important role in constraining the dominant firm in a part of the market.
  • In such circumstances, “substantiality” can be inferred. A market-wide impact need not be proved for the conduct to be “substantial or significant in terms of its effect in foreclosing the market to rivals”.
  • The more substantial the exclusionary effect, the more likely it is that its impact on the market will also be substantial, and the less likely it will be outweighed by pro-competitive gains. But substantiality is not a requirement for a finding of anti-competitive effects.
  • Size and efficiency of a competitor are not determinant factors in establishing likely competitive effects.

It is unclear from the judgment whether anything ultimately turned on the Court’s articulation of the subtleties within the foreclosure test. The Court found that the exclusive contracts were “substantial in terms of foreclosing the market to rivals” and “there is evidence pointing to actual harm on consumers (although the latter is not necessary to show).” This finding may well have been made even on Computicket’s formulation of the appropriate test.

Nevertheless, the case develops the test for abuse in an important way. By jettisoning Computicket’s version of substantiality, the Court seems to have lowered the bar for establishing abuse of dominance. Taken to its logical limit, the judgment could be applied to find an abuse of dominance in circumstances where conduct is likely to have a potential impact on one small, inefficient firm in one small portion of the market, provided that (1) the firm plays an important role in constraining the behaviour of the dominant firm in a part of the market, (2) the conduct renders the small firm a less effective competitor, and (3) there are no countervailing pro-competitive effects arising from the conduct.

On the one hand, the judgment does not change the law fundamentally. The exclusionary abuse provisions that apply an “effects test” for exclusionary abuse continue to do so, as is international best practice. One may argue, however, that this outcome applies a theme that is in line with the prevailing policy sentiment in South Africa, which is to strengthen the ability of competition law to address concentration in markets and to promote the ability of small firms to effectively participate.

In the context of recent changes to the Competition Act that explicitly protect small and medium sized businesses, this case gives dominant firms further cause to be increasingly vigilant in evaluating the potential effects of potential market strategies on smaller challengers.

Overview of the administration of the Investment Canada Act

While there are a number of federal and provincial statutes that are sector-specific and that limit foreign investment in Canada, the Investment Canada Act (“ICA”) is the only statute of general application in Canada that provides for the review and approval of foreign investments. For investments other than investments in cultural businesses, the ICA is administered by the Investment Review Division (“IRD”) of the federal Department of Innovation, Science and Economic Development (“ISED”). Investments in cultural businesses are administered by the Cultural Sector Investment Review (“CSIR”) unit of the federal Department of Canadian Heritage (“Heritage Canada”). Where a transaction involves both non-cultural and cultural businesses, both IRD and CSIR may be involved. IRD is solely responsible for the administration of the national security provisions of the ICA. Decisions to approve or disallow investments are made by the Minister of ISED for transactions not involving cultural businesses and by the Minister of Canadian Heritage in the case of transactions involving cultural businesses. Both ministers may be involved in the review process where a transaction involves both cultural and non-cultural businesses. The federal Governor-in-Council (“GIC”) (essentially, the federal cabinet) is the ultimate decision-maker with respect to investments considered potentially injurious to national security.

2018-2019 Annual Report

On December 27, 2019, the Annual Report on the administration of the ICA for the fiscal year commencing April 1, 2018 and ending March 31, 2019 (the “Annual Report”), was published.

The following are some of the more noteworthy observations contained in the Annual Report:

Increased FDI; filings at an all-time high; very few transactions subject to net benefit review

  1. Foreign direct investment (“FDI”) inflows and cross-border M&A activity in Canada increased in the fiscal year relative to prior years and this translated into an all-time high number of filings under the ICA.
  2. In total, 962 investment filings were certified as complete under the ICA, with only nine being applications for net benefit review and 953 being notifications. As illustrated below, the number of notifications increased significantly from the previous fiscal year although net benefit reviews are at about one-half the number they were in fiscals 2015, 2016 and 2017. The increase in notifications is likely primarily a consequence of increased FDI but also possibly (as implied in the Annual Report) a consequence of increased compliance with the notification provisions of the ICA to manage the possibility of a national security review (“NSR”). The reduction in net benefit reviews is no doubt attributable to the substantial increase in applicable review thresholds for most transactions.
  3. Importantly, the above figures do not take into account net benefit reviews administered by Canadian Heritage in relation to purely cultural transactions. Canadian Heritage’s “Results Report” for the 2018-2019 fiscal year has not, as of the date of this comment, been published.

National security reviews

  1. There were nine notices issued to investors advising them that a GIC order requiring a NSR may be issued. Of these nine, seven were subsequently subject to an order for such a NSR, ultimately resulting in two GIC final orders requiring divestiture and two withdrawals of the investment; three resulted in no further action under the ICA.
  2. The average length of review for the seven investments subject to a NSR order was 161 days from certification to final resolution.
  3. The Annual Report states that in assessing investments under the NSR provisions of the ICA, the terms of the investment under review, the nature of the assets or business activities involved and the parties (including the potential for third party influence) are considered. The Annual Report also notes that, increasingly, parties are voluntarily engaging with the IRD in advance of less than control investments when the proposed investment may present factors set out in the Guidelines on the National Security Review of Investments.
  4. Of the seven investments for which NSR orders were issued in fiscal 2019, four originated in China, two in Switzerland and one in Singapore. Of the 14 investments for which NSR orders were issued in fiscals 2017, 2018 and 2019 combined, 10 originated in China, two in Switzerland, one in Singapore and one in Cyprus.
  5. The 14 investments involved transportation including transportation infrastructure (three), information technology (four), pharmaceutical (one), machinery and equipment manufacturing (three), credit intermediation (one), electronic shopping (one) and heavy and civil engineering construction (one).

Destination and source of investments

  1. Based on the Annual Report and annual reports relating to prior fiscal years, we have developed the following tables:

Observations:

  • Resources: Significant decrease in number of investments as compared to two previous years.
  • Business and Services Industries: Large increase in number of investments.
  • Other Services: Large increase in number of investments.

*Because there was one application calculated in asset value, to preserve commercial confidentiality and to prevent the risk of identifying the individual investment, the specific amount of the assets was not included in the total for this amount throughout the Annual Report.

Observations – Number of Investments

  • Increase in investments from India.
  • Steady increase in investments from US and EU.
  • Decrease in investments from China two years ago – but steady in 2018-19.

Observations – Value of  Investments

  • Steady increase by the US and EU; steady decrease by Japan and India.
  • China: significant decrease in enterprise value. Although, when comparing the asset value, there is a large increase from $28 million in 2017-2018 to $1.457 billion in 2018-2019.
  • Australia: large increase in enterprise value of investments.

Observations:

  • Different sectors in the US and EU consistently ranking in the same order in terms of number of investments.
  • Some movement in ranking of sectors in China. In 2018/2019 the sectors rank in the same order as the US and EU, after a decline in resources, other services and manufacturing sector investments over the past two years.

Earlier this month, John Pecman published a highly topical article in Competition Policy International on the dominance and durable market power that Big Tech companies are said to have in today’s economy and on the responses from international competition agencies titled “Dethroning the Digital Platform Champions”.

“One has to applaud the success of the so-called “Tech Superstars”, often referred to as “GAFA” (Google, Amazon, Facebook, Apple). The great innovations they have developed for consumers and businesses alike contribute significantly to Canada’s gross national well-being. Their collective success should be admired both by those of you who believe in the power of capitalism to grow the economy and by those of you that believe the most innovative and efficient companies, those that invest and take risks, should reap the rewards, along with their shareholders, for having tipped the “winner takes all” race….

… Increasing concentration in many sectors is a result of growing economies of scale which results in larger, more efficient firms as opposed to smaller ones. Quite rightly, competition authorities worry about, and are empowered to take action against, companies with market power who engage in anti-competitive behavior to maintain or enhance their market power….”

To read more, visit: https://www.competitionpolicyinternational.com/dethroning-the-digital-platform-champions/

Since the Supreme Court of Canada’s trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, plaintiffs have had considerable success certifying private antitrust/competition class actions in Canada. The province of Ontario’s proposed changes to its class action legislation may change that trend.

On December 9, 2019, the Ontario government introduced Bill 161, the Smarter and Stronger Justice Act, 2019. Bill 161 is omnibus legislation that includes proposed amendments to Ontario’s Class Proceedings Act, 1993 (the “CPA”). Many of the proposed changes arise from recommendations made by the Law Commission of Ontario (“LCO”) in its July 2019 Final Report on Class Actions.

The proposed changes to the CPA are both numerous and significant. If implemented, the changes will impact all types of class actions, including private class action enforcement under Canada’s Competition Act (the “Act”). At a glance, the proposed changes would:

  • amend the preferable procedure portion of the certification test (more on this below);
  • streamline appeal routes arising from the certification decision;
  • reform and expedite the carriage motion process;
  • require the registration of class actions and create a database of all ongoing cases;
  • provide a process for automatic dismissals for delay unless the plaintiffs file a certification motion within a year after the originating process is issued;
  • create procedures for the multijurisdictional coordination of class actions with other provinces;
  • encourage pre-certification preliminary motions that can dispense with the proceeding or narrow issues;
  • require “plain language” in court-approved notices;
  • explicitly provide for cy-près orders where it is impractical or impossible to directly compensate class members;
  • strengthen the settlement approval process, including heightening evidentiary and reporting obligations; and
  • require earlier notice to the Public Guardian and Trustee and the Office of the Children’s Lawyer of cases affecting individuals that they represent.

Of these changes, the most significant would be to the preferable procedure portion of the certification test that currently requires plaintiffs to prove that a class action would be the “preferable procedure for the resolution of the common issues”. Implications for antitrust/competition private enforcement are discussed more fully below.

I.  Preferable Procedure: New Superiority and Predominance Requirements

Currently, the preferability analysis under the CPA has two core components: even if there is an identifiable class whose claims raise common issues, those issues will not be determined through a class proceeding unless: (1) such a proceeding would be inherently fair, efficient and manageable; and (2) a class proceeding is better than other reasonably available procedures for obtaining redress for class members. The representative plaintiff bears the onus of demonstrating some basis in fact that a class action would be preferable to any other reasonably available means of resolving the class members’ claims. However, if the defendant relies on a specific alternative to the class action, the defendant has the evidentiary burden of proving the viability of the alternative.

Plaintiffs would bear the burden to satisfy additional preferability requirements if the proposed changes are enacted. A class action would be a preferable procedure for the resolution of common issues only if, at a minimum:

  • it is superior to all reasonably available means of determining the entitlement of the class members to relief or addressing the impugned conduct of the defendant, including, as applicable, a quasi-judicial or administrative proceeding, the case management of individual claims in a civil proceeding, or any remedial scheme or program outside of a proceeding; and
  • the questions of fact or law common to the class members predominate over any questions affecting only individual class members.

Professor Jasminka Kalajdzic and Paul-Erik Veel helpfully discuss the implications of these changes to the preferability test in their respective blog posts. As they discuss, the proposed changes would introduce a superiority test and a predominance requirement similar to the US Federal Rule 23(b)(3).

With respect to the superiority test, the phrases “determining the entitlement of the class members to relief” and “addressing the impugned conduct of the defendant” seem to compel plaintiffs to demonstrate that a class action is preferable to resolve the class members’ claims entirely, including ultimate relief for each class member.

The preferability requirement is generally met when the common issues form a substantial ingredient of the class members’ claims even if individual issues trials or claims assessment processes are necessary to finally dispose of each class member’s claim.  However, and as Professor Kalajdzic notes, the proposed enumerated list of “other reasonably available means”, namely “a quasi-judicial or administrative proceeding, the case management of individual claims in a civil proceeding, or any remedial scheme or program outside of a proceeding” suggests that the onus is shifting entirely back to plaintiffs to prove that none of the other procedures are superior.

With respect to the predominance requirement, the phrase “questions of fact or law common to the class predominate over any questions affecting only individual class members” suggests that the number of common issues must predominate over any individual issues for the preferability requirement to be met.

If interpreted like US Federal Rule 23(b)(3), certification judges will engage in a rigorous assessment of whether common questions of law or fact predominate over individual questions. While jurisprudence arising from the predominance requirement under US Federal Rule 23(b)(3) is somewhat varied, certification judges consider whether there would be too many individual issues to be resolved notwithstanding that common issues may form a substantial ingredient of the class members’ claims, rendering the class action impractical and unlikely to promote judicial economy.

As a practical matter, the proposed preferability test could cause future intended class actions with one or a few common issues (focused on liability) to not satisfy the certification test because individual issues focused on harm and damages outweigh the commonality. As discussed below, this is particularly relevant for competition class actions where the issues in dispute tend to focus on loss or damage allegedly suffered by class members and increasingly the ultimate relief of each class member – whether a direct, indirect and umbrella purchaser – rather than whether a violation of the Act has, in fact, taken place.

II.  Implications the New Preferability Requirements would have on Antitrust/Competition Class Action Enforcement

Section 36(1) of the Act provides a statutory right of action for damages to any person who has suffered loss or damage as a result of conduct contrary to Part VI of the Act (i.e. criminal offences under the Act). Class actions alleging conduct contrary to Part VI of the Act typically involve collusion (e.g., price-fixing, bid-rigging) and, to a lesser extent, criminal deceptive marketing practices.

A court may order a remedy under section 36(1) of the Act if a person proves, on a balance of probabilities, loss or damage suffered as a result of conduct contrary to any provision of Part VI of the Act. Compensable loss or damage under the Act is limited to single damages—namely, an amount equal to the loss or damage proved to have been suffered by that person, and any additional amount that the court may allow not exceeding the full cost to that person of any investigation in connection with the matter and of proceedings under section 36(1).

Accordingly, a prerequisite to recovery under section 36(1) is actual damage or loss suffered by the plaintiff, as well as a causal connection between the damage or loss suffered and the impugned conduct, regardless of the impugned conduct at issue. For example, the elements of a collusion offence are that competitors agreed to engage in certain impugned conduct, whether fixing prices, restricting output or allocating markets. However, for a private plaintiff to obtain damages for conduct underpinning these offences, the private plaintiff must prove that it suffered actual loss or damages, as well as a causal connection between the conduct underpinning the offence and the loss or damage claimed.

By way of further example, for the offence of false or misleading representations under the Act, it is not necessary to prove that a person was, in fact, misled or deceived in order to obtain a conviction. However, for a private plaintiff to obtain damages, the plaintiff must prove that it suffered actual loss or damage, as well as a causal connection between the false or misleading representation and the loss or damage claimed.

Recognizing the interconnection between public and private enforcement of competition laws in Canada, the Act permits a private plaintiff to use the “record of proceedings” in the criminal court in which the defendant was convicted of the offence as rebuttable proof that the defendant engaged in the impugned conduct. As many price-fixing class actions in Canada follow guilty pleas, plaintiffs are relieved from proving that the defendants committed an offence contrary to the Act, absent evidence to the contrary.

Having regard to the foregoing, liability is typically not an issue of focus in competition class actions. Liability typically preoccupies a limited number of common issues, such as (i) whether the defendants, or any of them, engaged in specified conduct contrary to a section under Part VI of the Act; and (ii) what is the period in which the conduct at issue took place. As noted, the “record of proceeding” typically addresses these common issues entirely or in part.

In contrast, and as demonstrated in many US antitrust class actions, commonality in respect of loss damage suffered and the predominance requirement presents unique and complex challenges for plaintiffs. It is not uncommon for economic models to fall far short of establishing that damages are capable of measurement on a class wide basis, including where proposed economic models do not provide a clearly defined list of variables and lack proof that data related to the proposed variables exist.

Class definitions in Canadian price-fixing class actions, particularly following the Supreme Court of Canada’s recent decision in Godfrey, are vast and diverse, encompassing direct, indirect and now umbrella purchasers. There is no shortage of skepticism regarding the viability of economic methodologies seeking to establish that the alleged overcharges have been passed on to various levels in the distribution chain. There is also skepticism regarding methodologies offering a realistic prospect of establishing loss on a class-wide basis.

If it is established that there is a need for individual inquiries to determine loss or damage under section 36(1) of the Act and what ultimate relief each class member is entitled to, then loss or damage issues may be found to overwhelm questions common to the class. Further, if certification judges see fit to inquire into the merits of the case as part of the predominance analysis – which is not unprecedented in US antitrust class actions – proposed methodologies purporting to offer a realistic prospect of establishing loss on a class-wide basis may be subject to significant probative challenges. Having particular regard to these issues, plaintiffs may not be able to satisfy the proposed preferability requirements.

Of course, even if the proposed preferability requirements are implemented, they will be interpreted by Ontario’s certification judges. There is no way to predict how these new changes would be interpreted and the outcome of those decisions. However, the proposed preferability requirements could be game changers in a province where plaintiffs have otherwise had considerable success certifying private antitrust/competition class actions.