The front half of 2019 has seen a number of important competition law developments in Canada. In addition to a new Commissioner, a different procedural approach to the efficiencies defence in merger review and an increased focus on the digital economy, there have also been a number of consent agreements in the deceptive marketing space and we eagerly anticipate the Competition Tribunal’s expected guidance on abuse of dominance matters. In a landscape of increased enforcement, it is more important than ever for businesses, particularly those operating in the digital domain, to remain current on competition law developments and to maintain internal best practices to ensure ongoing compliance with the Competition Act.
Now that the summer has arrived, we thought it would be helpful to provide a closer look at some of the most important developments in antitrust/competition and marketing law in Canada to date in 2019.
New leadership at the Competition Bureau
In March 2019, Matthew Boswell was appointed the new Commissioner of Competition for a five-year term. Mr. Boswell first joined the Bureau in 2011, where he served as Associate Deputy Commissioner, Criminal Matters. He then became Senior Deputy Commissioner, Cartels and Deceptive Marketing Practices the following year and, in 2017, began a one-year assignment as Senior Deputy Commissioner, Mergers and Monopolistic Practices. Finally, he was appointed Interim Commissioner of Competition in 2018. Prior to joining the Bureau, Mr. Boswell was Senior Litigation Counsel in the Enforcement Branch at the Ontario Securities Commission and an Assistant Crown Attorney in Toronto, where he prosecuted numerous criminal offences.
In addition, after a long and illustrious career at the Bureau, Ann Wallwork has stepped down as Deputy Commissioner of the Mergers Directorate. Ms. Wallwork has been replaced by Melissa Fisher, previously an Associate Deputy Commissioner in the Mergers Directorate.
Non-notifiable transactions under scrutiny
In a recent speech, the Commissioner announced that the Bureau is going to increase its focus on identifying non-notifiable mergers which could potentially raise competition law concerns.
In order to more effectively identify such mergers, the role of the Bureau’s Merger Intelligence and Notification Unit has been expanded to include a broader focus on intelligence gathering with respect to non-notifiable merger transactions. This increased focus reinforces the importance of performing a pre-merger assessment of the potential anti-competitive impact of any proposed non-notifiable merger transaction to avoid an unexpected review by the Bureau. Should the Commissioner conclude that a merger is problematic from a competition law perspective, the Commissioner can apply to the Tribunal for an order requiring, in the case of a proposed merger, that the merger not proceed (either in whole or in part) or, in the case of a completed merger, that the merger be dissolved or that the parties dispose of assets or shares.
The Bureau’s increased focus on non-notifiable mergers is already bearing fruit. For example, according to the Commissioner, as of early May 2019, the Bureau had already detected and was reviewing two potentially problematic non-notifiable transactions. Subsequently, on June 14, 2019, the Commissioner filed a notice of application with the Tribunal challenging Thoma Bravo’s acquisition of Aucerna, a company that offers valuation and reporting software to Canadian oil and gas producers. This is the first contested merger challenge filed with the Tribunal since the Commissioner sought to block Staples Inc.’s proposed acquisition of Office Depot Inc. in December 2015.
The digital economy and innovation remains a Bureau enforcement priority
On May 30, 2019, the Competition Bureau hosted the Data Forum Discussing Competition Policy in the Digital Era. During the Forum, the new Commissioner made a number of comments relevant to big tech companies and the digital economy. Namely, the Commissioner noted that in pursuit of the Bureau’s new increased focus on identifying non-notifiable mergers which could potentially raise competition law concerns, they are going to be more vigilant about monitoring the acquisition of small firms by big tech companies. He also noted that the Federal Government should increase penalties to more effectively deter anti-competitive behaviour and promote compliance by tech giants and other firms in the digital economy.
In addition to this, the Federal Government announced the creation of a ten-point Digital Charter, which will outline what Canadians can expect from both the government and the private sector as it relates to the digital landscape. Minister Bains outlined the Competition Bureau’s role in implementing this initiative in a letter to the Commissioner, suggesting that the Bureau work with the policy leads in the Strategy and Innovation Policy Sector to explore issues such as “the impact of digital transformation on competition, the emerging issues in data communication, transparency and control, the effectiveness of current competition policy tools and market frameworks, and the effectiveness of current investigative and judicial processes”.
The Bureau’s approach to the ‘efficiencies’ defence and timing considerations for merging parties
While the Commissioner has acknowledged that “the efficiencies defence is a reality in Canadian competition law”, the Bureau has changed its procedural approach to this defence. Specifically, the “refined procedural approach” calls for the provision of detailed evidence supporting each of the efficiencies claimed; the ability to test the evidence underlying those claims; and adequate time, set out in a timing agreement, to conduct a meaningful assessment of the efficiencies claimed. Significantly, the Commissioner has indicated that he will not exercise his discretion to consider efficiencies claims in the absence of a timing agreement – something that could impact the timing of both the merger reviews and when parties decide to submit an efficiencies report. The Bureau has indicated that it will release a model form of timing agreement for public consultation shortly.
Is the price right? – further enforcement of sale price claims and ‘drip’ pricing
With respect to sale price claims, the Commissioner’s application in respect of the pricing practices of Hudson’s Bay Company (HBC) culminated in a consent agreement in May 2019 providing for the payment by HBC of an administrative monetary penalty (AMP) of $4,000,000 and costs of $500,000 plus a commitment to establish and maintain a corporate compliance program with the goal of promoting HBC’s compliance with the Act. In his application, the Commissioner alleged that HBC had engaged in deceptive marketing practices by offering sleep sets at inflated regular prices and then advertised discounts off these deceptive regular prices contrary to the Act. While not contesting the Commissioner’s conclusions, HBC made no admissions in connection with the consent agreement.
With respect to ‘drip’ pricing claims, the Commissioner’s application against Ticketmaster’s advertised price practices was also resolved by way of a consent agreement whereby Ticketmaster agreed to pay an AMP of $4,000,000 and costs of $500,000 and to establish and maintain a corporate compliance program with the goal of promoting Ticketmaster’s compliance with the Act. The Commissioner alleged that Ticketmaster engaged in deceptive marketing practices by promoting the sale of tickets to the public at prices that were not in fact attainable and then supplied such tickets at prices above the advertised price. The Commissioner described Ticketmaster’s pricing practice as “dripping prices” where the true cost of tickets is disclosed only after the consumer has selected its seats and decided to buy the tickets to the event. In its response, Ticketmaster stated, among other things, that its pricing practices were at all times transparent, pro-consumer and proper and that what the Commissioner refers to as “drip pricing” is not a reviewable practice under the Act.
The above case follows on the heels of other recent actions taken by the Commissioner regarding the advertised price practices of companies such as Discount Car & Truck Rentals Ltd. and Enterprise Rent-A-Car Canada Company, both of which resulted in consent agreements being filed with the Tribunal.
Clarifications in indirect purchaser class actions expected
The Supreme Court of Canada heard Godfrey in December 2018, an appeal arising from the optical disc drive price-fixing class action. The decision is expected to clarify certain aspects of the Supreme Court of Canada’s 2013 price-fixing trilogy of decisions in Pro-Sys, Sun-Rype and Infineon, including whether “umbrella purchasers” (i.e. those who purchased the product at issue in the alleged price-fixing conspiracy from parties other than the alleged conspirators) have a cause of action; whether section 36 of the Competition Act is a “complete code” (and if so, precluding causes of action in tort and restitution at common law from being brought); as well as the standard to be met, and the economic methodology to be pursued in fixing that standard, by plaintiffs and their experts in seeking to certify harm as a common issue. Many ongoing price-fixing class actions in Canada, particularly in auto parts, are on hold pending the Supreme Court’s decision.
Guidance in abuse of dominance
In March 2019, the Bureau released its Abuse of Dominance Enforcement Guidelines. The Guidelines detail the Bureau’s general approach to enforcing the abuse of dominance provisions (section 78 and 79 of the Act) and provide illustrative examples to demonstrate the Bureau’s analytical framework for enforcement of the abuse of dominance provisions. The Guidelines also provide expanded guidance on business justifications, making it clear that, in certain circumstances, “a legitimate business justification can outweigh evidence of anti-competitive purpose when the two are balanced against each other”. In addition to the new Guidelines, an important abuse of dominance case is expected to be decided this year. The Tribunal will rule on the Commissioner’s application against the Vancouver Airport Authority (VAA), which has been alleged to abuse its dominant position arising from in-flight catering services at Vancouver International Airport.
Participants of the immunity and leniency programs are cooperating witnesses – not confidential informers
The Bureau’s Immunity and Leniency Programs set out incentives for parties involved in certain criminal conduct in violation of the Competition Act to come forward to seek immunity or leniency in return for their cooperation with the Bureau’s investigation of others involved in criminal conduct. In March 2019, the Bureau issued updated Immunity and Leniency Programs to provide increased clarity on the status of cooperating witnesses, including clarification that participants in the Programs are cooperating witnesses and not confidential informers. Although this clarification does not change how the Programs function, the distinction is important. A confidential informer receives the protection of informer privilege, whereas the identity of a cooperating witness and any information that might identify them are not subject to any such privilege. Although the Bureau treats the identity of immunity and leniency applicants and any information provided by such applicants as confidential, there are important exceptions where disclosure is permitted, such as where disclosure is necessary for the exercise of investigative powers, for the purpose of securing the assistance of a Canadian law enforcement agency in the exercise of investigative powers, or in the case of information other than the applicant’s identity, where disclosure is for the purpose of the administration or enforcement of the Competition Act. While many practitioners have not read the Immunity and Leniency Programs to equate cooperating witnesses as confidential informants, the Bureau obviously felt that the clarification was needed as a result of litigation on this very issue.
Increased resolution of criminal matters with leniency applicants – without any guilty plea
In February and March of 2019, two Quebec-based engineering firms, Dessau and Genivar (now WSP Canada), paid $1.9 million and $4 million settlements respectively, in relation to bid-rigging for municipal infrastructure contracts in Quebec. The Bureau also required that Genivar implement and maintain a corporate compliance program. Significantly, in both cases, the parties reached settlements without pleading guilty or receiving a conviction. Rather, the matters were resolved by way of prohibition orders under subsection 34(2) of the Competition Act. This is particularly noteworthy because convictions for certain Competition Act offences, such as bid-rigging, result in ineligibility to bid on public contracts in Canada for up to 10 years.
Although Canada has a deferred prosecution agreement (DPA) regime whereby the Crown may suspend outstanding prosecution while establishing specific undertakings that the organization must fulfill to avoid facing potential criminal charges, DPAs are not available for companies facing Competition Act offences – the rationale being that extending DPAs to competition law offences may undermine the Bureau’s Leniency Program. However, the Leniency Program requires the leniency applicant to plead guilty, which would result in their being barred from bidding for government projects. The Bureau’s recent willingness to resolve criminal matters such as bid-ridding without a guilty plea, thereby preserving a party’s ability to bid for public projects, is a notable shift in approach.