Competition Chronicle

Competition Chronicle

Competition & Antitrust | Foreign Investment

Joining Bid Rigging and Conspiracy – A Problem?

The joining of bid rigging and conspiracy charges has questionable utility.

Offences Defined

The definitions of the  offence of bid rigging in s. 47(1)(b) of the Competition Act is defined in part as the submission of a bid or tender which is arrived at by arrangement or agreement. A criminal conspiracy in s. 465(3) of the Criminal Code consists of an agreement to commit an indictable offence.

Coupling Charges

The Competition Bureau routinely joins a charge of bid rigging with a charge of conspiracy to commit the same  offence of bid rigging on the same indictment. The reason for this is not clear beyond the usual tendency of prosecutorial authorities to load up as many charges as the facts will bear. The res judicata principle prevents convictions on both charges. There is, however, one utilitarian explanation – where both corporations and individuals are charged. Once one of several co-accuseds  elects trial by judge and jury, the Criminal Code requires a jury trial for all.  That could necessitate two separate trials. The bid rigging charges against the corporations would have to be severed from the indictment since the Competition Act s. 67(4) prohibits jury trials for corporations. Leaving aside the issue of the constitutionality of that provision (which does not appear to have been challenged), charging both offences gives the Crown options. In the event of a jury election they can continue with one trial by dropping the bid rigging charge against the corporations and proceeding against them on the conspiracy charge based on the same facts.

Problem with Conspiracy

As noted, the essence of criminal conspiracy is the agreement to commit the alleged offence. Where the allegation of bid rigging is as defined in s. 47(1)(b), an essential element of the offence is the agreement to rig bids. Criminal conspiracy is an inchoate offence in that it does not require the actual commission of any particular act beyond the agreement itself. Another inchoate offence is criminal attempt. The Supreme Court has held in R v Dery that inchoate offences cannot be combined such that there cannot be a conspiracy to attempt to commit an offence. The charge of conspiracy to commit s. 47(1)(b) bid rigging alleges an agreement to submit a bid arrived at by agreement. It is at least open to argument that a charge of conspiracy to commit that form of bid rigging constitutes the combination of two inchoate offences (a conspiracy to commit a conspiracy) and is therefore illegal. If that is so, the joining of bid rigging and conspiracy to bid rig against individuals and corporations on the same indictment will not solve the problem of duplicate trials. However, a counter argument could be made that the offence of bid rigging is not an inchoate offence since the actus reus of the offence is the submission of the bid. Not the agreement. In this argument, the conspiracy would simply be an included offence in the bid rigging charge.

A significant increase in the prohibition of mergers in South Africa

The South African Competition Commission has since the beginning of 2017 prohibited eleven intermediate mergers and has recommended that four large mergers be prohibited.  This number is substantially higher than 2016, when the Commission prohibited three intermediate mergers and recommended that one large merger be prohibited.  For the period end of September to October 2017, the Commission prohibited five mergers.

This note will briefly look at two important and interesting trends that followed from the prohibitions of proposed mergers in South Africa since the beginning of 2017.

A move to take “coordinated effects” of the proposed merger into account

The first trend in the prohibition of mergers is a move to look at the “coordinated effects” of a proposed merger (a change in the market structure which better facilitates tacit collusion). In this regard the Commission adopted a policy favouring less concentration in markets and looking at a history of collusion in the market.

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Sixth Guilty Plea in Montreal Condo Development Bid Rigging Scheme

On October 27, 2017, Cardinal Ventilation Inc. was fined $375,000.00 after pleading guilty to one count of bid rigging related to three condominium development projects in Montreal. The contracts in question related to the supply and installation of ventilation and/or air conditioning systems in residential high-rise construction projects in the greater Montreal region.

Cardinal Ventilation Inc. admitted that it conspired with competing Montreal-area companies to obtain a ventilation contract by ensuring it offered the lowest bid on the Faubourg St-Laurent Phase II construction project in Montreal. The company also admitted to its participation in two other agreements to ensure that competing firms would get the contracts for two other projects: Le Roc Fleuri and Tour St-Antoine.

The courts have imposed fines totalling over $1 million in this matter.

Background

The Competition Bureau began investigating this matter following a tip from a former employee of one of the accused companies. Over the course of the investigation, Bureau officers searched many sites, seized thousands of documents and interviewed numerous witnesses. The Bureau eventually uncovered evidence indicating that several companies had coordinated their bids in order to pre-determine the winners of the residential construction contracts, while blocking out competitors. The Bureau’s investigation found evidence of bid rigging in five competitive bidding processes between 2003 and 2005, for contracts worth a total of approximately $8 million. In December 2010, the Bureau laid charges against eight companies and five individuals.

There have been several plea agreements in the matter. To date, four companies and two individuals have pleaded guilty for their participation in the bid-rigging scheme. As part of one individual’s plea agreement, he agreed to complete 50 hours of community service and to collaborate with the Bureau’s ongoing involvement in the matter.

In one case, charges against one of the accused individuals were withdrawn in exchange for the individual’s full cooperation with the Bureau’s investigation.

There is one remaining accused in the matter.

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South Africa: When a competitive bid is not enough

One might think that competition law would applaud a firm that submits an independent and competitive bid, in response to a tender aimed at lowering prices.  Recent experience in South Africa suggests that this is not always the case, and that such a firm may face investigation by the competition authorities precisely because it won the competitive tender.

In October 2017, the South African Competition Commission announced that it has initiated, and is investigating, a complaint of abuse of dominance by Vodacom, the country’s largest cellular network services provider.

The subject of the complaint is a four year exclusive contract, in terms of which Vodacom will supply mobile telecommunications services to 20 government departments.

Although Vodacom bid for the contract in a competitive tender process, the Commission “is of the view” that the contract will (1) further entrench Vodacom’s dominant position in the relevant market; (2) raise barriers to entry and expansion in the relevant market; (3) distort competition in the market; and (4) result in a loss of market share for other network operators.

Leaving aside the merits of the complaint, the announcement is interesting and controversial for a number of reasons.  In particular, it raises important questions about the Commission’s advocacy strategy, and about the obligations on business when participating in significant tenders.

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South Africa: More Merger Lessons

Merger clearance in South Africa is not easy, nor quick. That may be a take-away from observing the recent clearance by the South African authorities of the DowDuPont global merger of equals covering markets for agricultural products, material sciences and chemicals as well as specialized health and electrical products. The merger was cleared some 15 months from the date of filing and then subject to detailed conditions.

We know that each merger will present its own features and issues. But, as in other multinational mergers considered by the competition authorities, certain points arise from the present merger to be considered by those who may be involved in similar transactions.

First, it is important to understand the counterfactual and theory of harm you are dealing with. The counterfactual, a term used to describe the likely position the relevant markets would be in absent the merger, is a necessary and legislatively mandated tool for merger evaluation. For the authority to determine whether the proposed merger will substantially lessen or prevent competition, it must understand fully what the market would look like without the merger. The Commission can then evaluate the merger based upon a theory of harm appropriate to the circumstances. This means they will assess what possible harm to competition will arise from the merger.

If the counterfactual is not clear, or is based upon speculation only, the theory of harm cannot be substantiated. Moreover, in that case, any remedies which are proposed – whether by the parties or the Commission – to address the theory of harm cannot be properly evaluated. This is far from an exact science, especially as one is seeking to predict future behaviour of the parties and others, in markets which are dynamic and environments which change.

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South Africa: The Competition Commission’s Market Inquiry into Data Services

(The full version of this bulletin was originally published on Fasken.com – “The Competition Commission’s Market Inquiry into Data Services” – September 12th, 2017.)

On 18 September 2017, the Competition Commission is expected to commence a market inquiry into data services in South Africa. This is the sixth market inquiry to be initiated by the Commission.

The inquiry comes after public submissions to Parliament that South Africa’s data costs are high relative to other developed and developing countries, with the burden falling disproportionately on the poor. In his 2017 State of the Nation Address, President Jacob Zuma assured the public that “the lowering of the cost of data is uppermost in our policies and plans,” indicating that addressing these concerns is a priority of government.

What is the scope of the Commission’s market inquiry?

The Commission’s Terms of Reference (published on 18 August 2017) identify the following main objectives of the inquiry:

  • to understand the data services value chain;
  • to identify areas of market power and structural, behavioural and regulatory factors that may influence competition or pricing. Factors such as the impact of the current regulatory regime, strategic behavior by large incumbent firms, investment in and sharing of network infrastructure, and access to allocation of spectrum, are mentioned specifically;
  • to benchmark South African data services pricing against those of other countries; and
  • to establish whether data supply quality and coverage is adequate by international standards and the country’s developmental needs.

The Commission has identified two outcomes of the market inquiry, namely to make recommendations to:

  • government regarding how to increase competitiveness and inclusivity in the market; and
  • the sector regulator (ICASA) on the competitive impact of the regulatory framework and any need for amendments.

Continue reading for a simple summary of what the Competition Commission’s market inquiry into the data services sector entails – Full Article.

Investment Canada Act threshold: exemption increases to $1.5B for EU companies acquiring Canadian businesses

Investment Canada Act threshold exemption for European Union companies directly acquiring Canadian businesses increases to $1.5 billion effective September 21, 2017

Effective September 21, 2017, most of the provisions contained in the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act (Act), including those provisions amending the Investment Canada Act, will come into force.

Currently, most direct acquisitions of Canadian businesses by foreign investors are exempt from the pre-merger review and approval process under the Investment Canada Act if the enterprise value of the target Canadian business is under $1 billion.  However, with the Act’s implementation of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU), the $1 billion threshold will on September 21 increase to $1.5 billion (adjusted annually to reflect increases in Canada’s GDP) for direct investments made by citizens and permanent residents of any of the current 28 EU member countries and for the business entities controlled by them.  Nationals of the U.S.A., Mexico, Chile, Peru, Colombia, Panama, Honduras and South Korea will also benefit from the higher $1.5 billion threshold due to the terms of their current trade agreements with Canada.

As was the case previously, Canada has reserved the right under CETA to apply different thresholds for direct acquisitions of Canadian cultural businesses ($5 million of asset book value) and for direct acquisitions of Canadian businesses by foreign state-owned enterprises (currently $379 million of asset book value).  Foreign investors who will not benefit directly or indirectly from the CETA-based threshold increase will remain subject to the current $1 billion threshold.

The Canadian Competition Tribunal’s Jurisdiction: Broader Than You May Think

The Canadian Competition Tribunal recently dismissed a jurisdictional challenge by HarperCollins to the Commissioner of Competition’s application for an order prohibiting the implementation of an alleged agreement between HarperCollins and other e-book publishers.  The Commissioner’s application is under section 90.1 of the Competition Act (“non-criminal agreements between competitors”).  It alleges, broadly speaking, that in 2010, HarperCollins US formed the anti-competitive arrangement in the US with other US publishers and retailer Apple. The decision is significant because it suggests that the existence of anti-competitive effects in Canada attributable to the impugned conduct (even if the conduct takes place outside of Canada) can be sufficient to establish the necessary “real and substantial connection” granting the Competition Tribunal, a creature of statute, territorial jurisdiction.

Background

HarperCollins sought to dismiss the Commissioner’s application at a preliminary stage based on, among other reasons, the Competition Tribunal’s lack territorial jurisdiction over the conduct at issue – namely, that the alleged arrangement forming the basis of the Commissioner’s application was entered into in the United States; not in Canada.

At its core, the Tribunal considered, for the first time, whether a reviewable practice under the Competition Act can apply to conduct or an actor outside Canada and if so, which factors should be considered in assessing the Tribunal’s jurisdiction.  As a creature of statute, the Tribunal only has the powers conferred on it by Parliament.  The Tribunal is vested with the jurisdiction to hear and dispose of applications under Parts VII.1 and VIII of the Act.  The substantive provisions contained in Parts VII.1 and VIII of the Act define the explicit powers granted to the Tribunal in relation to the various reviewable practices described therein. In other words, the Competition Act does not confer open-ended jurisdiction on the Tribunal to deal with any and all competition issues.   This is unlike the superior courts of the provinces that have “inherent jurisdiction”.

The Tribunal concluded that in the absence of language in the reviewable practice itself expressly limiting its application only to conduct in Canada (an express territorial limitation), the Tribunal will apply the “real and substantial connection” test to define the boundaries of the Tribunal’s jurisdiction.

Implications

The  “real and substantial connection” test generally governs the attribution of jurisdiction to Canadian courts and tribunals. It is a flexible test adapted to the circumstances the case. One element of the impugned conduct with a real and substantial connection to Canada can be sufficient to trigger jurisdiction. In this regard, the Tribunal found that reviewable practices that occur in part outside Canada but involve activities in Canada and have harmful effects in Canada can be subject to the Tribunal’s jurisdiction pursuant to the real and substantial connection test. This is significant as for many reviewable practices under the Act (whether unilateral conduct, mergers or non-criminal agreements between competitors), anticompetitive effects (whether in the form of a substantial lessening or prevention of competition or an adverse effect on competition) forms part of the elements of the reviewable practice itself.  Accordingly, the existence of anti-competitive effects in Canada attributable to the impugned conduct (even if the conduct takes place outside of Canada) can be sufficient to establish the necessary “real and substantial connection” granting territorial jurisdiction to the Tribunal.

As a preliminary motion subject to an appeal, this is unlikely the last word on this issue. This is an important development to monitor.

Investment Canada Act Pre-Merger Review Threshold Increases to $ 1 Billion

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Canada’s planned increase to the generally applicable threshold for “net benefit” reviews under the Investment Canada Act (ICA) from $800 million to $1 billion became effective June 22, 2017. The new $ 1 billion threshold, which is calculated using the enterprise value of the Canadian business being acquired, should have the effect of exempting most investments or dispositions by WTO investors (that are not state-owned enterprises) from the “net benefit to Canada” review process under the ICA.  The reduction in the number of direct acquisitions of Canadian businesses by non-Canadian buyers requiring pre-closing clearance by the Minister of Innovation, Science and Economic Development of Canada is further evidence of the Liberal Government’s desire to encourage foreign investment in Canada.

CASL Private Right of Action Delayed Indefinitely

spyware-2319403Citing the desire for a balanced approach to the needs of individuals and organizations under Canada’s anti-spam law, the Minister of Innovation, Science and Economic Development announced today that he is delaying indefinitely the coming into force of the private right of action provisions (section 51) in Canada’s anti-spam law (CASL).

This important decision is welcome news to domestic and international businesses and other organizations subject to CASL. The private right of action had been slated to come in force on July 1, 2017 and presented a significant risk of class actions and staggering statutory damages.

Parliament is expected to further study the private right of action as part of its scheduled review of CASL to commence in 2017. It is anticipated that further amendments to CASL may be proposed to ensure that Canadian businesses are not put at a competitive disadvantage.

Information about the Private Right of Action

Under the private right of action provisions, a person who alleges that they are affected by another person’s contravention of sections 6 to 9 of CASL or section 5 of the Personal Information Protection and Electronic Documents Act in relation to the electronic harvesting of personal information, or that constitutes reviewable conduct under section 74.011 of the Competition Act(the electronic advertising provisions), may apply to a court of competent jurisdiction for an order and damages.

If a court is satisfied that a person has breached certain provisions of CASL or engaged in conduct that is reviewable under section 74.011 of the Competition Act or a breach of PIPEDA in relation to the electronic harvesting of personal information, the court may order that person to pay the applicant statutory damages (without the need to prove harm) in addition to the actual damages suffered. The statutory damages include the following:

  • in the case of a contravention of the unsolicited commercial electronic message provisions (section 6 of CASL), a maximum of $200 for each contravention, not exceeding $1,000,000 for each day on which a contravention occurred (e.g., up to $200 for each email or other electronic message sent in violation of CASL);
  • in the case of contravention of the software or transmission data provisions (sections 7 or 8 of CASL), a maximum of $1,000,000 for each day on which a contravention occurred;
  • in the case of contravention of the electronic advertising provisions (section 74.011 of the Competition Act), a maximum of $200 per contravention, not exceeding $1,000,000 for each day on which the conduct occurred; and
  • in the case of a contravention Personal Information Protection and Electronic Documents Act in relation to the electronic harvesting of personal information, a maximum of $1,000,000 for each day on which a contravention occurred..

Organizations Should Remain Diligent

Although organizations may have gained a reprieve from the private right of action, organizations will continue to be exposed to enforcement by the CRTC, the Competition Bureau and the Privacy Commissioner of Canada, including administrative monetary penalties up to $10,000,000 and potential personal liability for directors and officers. Organizations should continue to take appropriate steps to ensure that they are fully compliant with CASL. As revealed by our firm’s recent survey, many organizations are falling short when it comes to their understanding of and compliance with certain requirements of CASL – despite the fact that CASL has been in force for nearly three years. In addition, our survey indicates that organizations are not taking simple steps to reduce or even avoid liability in the event of a breach. Among other things, engaging expert legal counsel can help an organization to avoid non-compliance and establish a due diligence defence under CASL.