Canada’s antitrust/competition, marketing and foreign investment laws continue to apply despite the global health and economic crisis arising from COVID-19. However, the enforcement of these laws are being significantly impacted by the COVID-19 response. These developments are fast moving and change almost daily.

Fasken’s Antitrust/Competition & Marketing Group continues to monitor these developments very closely. Below we outline developments in: (i) transaction planning and merger review, (ii) communication and coordination with competitors, (iii) changes in priority for competition enforcement, (iv) national security and Investment Canada Act reviews and (v) investigative and adjudicative delays. We also offer practical strategies for businesses moving forward.

I. Transaction Planning and Merger Review

Globally, many agencies, including the European Commission, have encouraged merging parties to delay originally planned filings where possible. Other agencies have amended their procedures, including the U.S. Federal Trade Commission (the “FTC”), which will no longer grant early terminations for Hart-Scott-Rodino filings. To date, the Competition Bureau (the “Bureau”) has done neither. However, the Bureau, whose staff are working remotely, has warned of delays in its merger review process due to difficulties reaching third-party market contacts, such as customers, suppliers and competitors.

The Bureau has non-binding service standards within which it endeavours to complete its review of a proposed transaction. Proposed transactions are designated as either “non-complex” or “complex” and are assigned a corresponding service standard, which is 14 days for “non-complex” transactions and 45 days for “complex” transactions (except where a supplementary information request (a “SIR”) is issued, in which case it is 30 days from the date the SIR is responded to). Merging parties should expect that the Bureau may not be able to meet its service standards in the current environment and should plan accordingly. Planning should include earlier engagement with the Bureau. Transaction agreements should also account for longer delays with appropriate protections.

Substantively, forward-looking analyses in merger review will be more challenging given the unpredictable and fast moving changes to the economy. We expect the “failing firm” and “flailing firm” defenses to gain more prevalence, particularly in sectors heavily impacted by COVID-19. In light of excess capacity and declining demand in many sectors, companies are expected to maximize available efficiencies, including through mergers and acquisitions. In instances where there is excess capacity and/or declining demand at the time of the merger, there may be increased scope for merging parties to use the efficiencies defence in Canada.

II. Communication and Coordination with Competitors

Globally, some agencies have suspended laws that would otherwise prohibit collusion between competitors to address unprecedented health and economic challenges. These suspensions aim to enhance the output, supply and distribution of much needed medical and food supplies during the COVID-19 pandemic. For example:

  • The European Competition Network, made up of the European Commission and the European Union’s national competition agencies, released a joint statement noting that it “will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply” due to the COVID-19 pandemic, and that the “extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products”.
  • The United Kingdom’s Competition and Markets Authority (the “CMA”) has published guidance regarding its priorities and approach to enforcement during the COVID-19 pandemic. The CMA stated that so long as coordination between competitors is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action. Some examples given by the CMA include businesses coordinating to ensure essential goods and services are available to the public and that there is no shortage of these goods, to ensure fair distribution of scarce products or to provide new services such as food delivery to vulnerable customers. The CMA has specifically advised supermarkets that they will not face enforcement action for cooperating, or even rationing products, where necessary to protect consumers during the COVID-19 outbreak.
  • In a joint statement by the U.S. Department of Justice and the FTC, both agencies committed to accounting for “exigent circumstances” in evaluating efforts to address the spread of COVID-19, including competitor collaborations. For example, they make explicit their recognition that businesses may need to temporarily combine production, distribution or service networks to facilitate production and distribution of COVID-19-related supplies that they may not otherwise manufacture or distribute. This joint statement also made clear that these sorts of efforts, which are limited in duration and necessary to assist patients, consumers and communities affected by COVID-19 and its aftermath, would be examples of “exigent circumstances”. In addition, the agencies stated their aim of providing individuals and businesses that are responding to the COVID-19 emergency with expeditious guidance about how to ensure their efforts comply with U.S. antitrust laws (i.e., within 7 days of such requests).

Canada’s Competition Act (the “Act”) does draw a distinction between criminal collusion and civilly reviewable agreements or arrangements that prevent or lessen competition substantially. Criminal collusion, which includes horizontal agreements between competitors to fix prices, allocate markets/customers or limit output as well as big-rigging, is per se unlawful, meaning such agreements are deemed illegal without any proof of anticompetitive effects. Other forms of competitor collaborations, such as research and development agreements or joint purchasing agreements, are presumptively legal, absent proof of anticompetitive effects.

As a practical matter, competitor collaborations that would be presumptively legal and viewed as particularly helpful under the circumstances are those that would support the delivery of affordable goods and services to address health and food supply needs of Canadians. In particular, collaborations aimed at increasing output of products and services, addressing supply or distribution issues, and driving efficiencies, would likely be viewed as pro-competitive.

Canada has not implemented any suspension of its laws against competitor collaborations nor has the Bureau released guidance akin in scope to that of the above agencies. However, the Bureau did remind the public that “Canada’s competition laws accommodate pro-competitive collaborations between companies to support the delivery of affordable goods and services to meet the needs of Canadians”. The Bureau further noted that it is “committed to a reasonable and principled enforcement of Canada’s competition laws, and [that it] will work closely with [its] partners in federal, provincial and municipal governments, along with the business and legal communities, to navigate these exceptional circumstances for the benefit of all Canadians”.

III. Changes in Priority for Competition Enforcement

Not surprisingly, the Bureau has stated that “investigations that may involve face-to-face interviews with Immunity/Leniency applicant witnesses, the operationalization of solicitor-client protocols, meetings with complainants, and plea or other settlement negotiations may suffer some delays”.

The Bureau has also emphasized that it may need to prioritize urgent marketplace issues that require immediate action to protect Canadians – an approach that may have implications on its ability to address other ongoing matters. While the Bureau did not provide specific examples of “urgent market issues”, such issues may include the following.

a) Deceptive Marketing Claims

The Bureau will likely focus on deceptive marketing practices relating to COVID-19 and, in particular, false, misleading or unsubstantiated performance claims about a product’s ability to prevent, treat or cure the virus. It bears noting that “health-related products and their marketing claims” were a Bureau priority before the COVID-19 crisis. For example, the Bureau recently sought a temporary order preventing Nuvocare Health Sciences Inc. from making unsubstantiated weight loss and fat burning claims in the marketing of certain natural health products. Given the current climate, it will be even more important for businesses to exercise caution when making health-related claims concerning COVID-19 and to ensure that such claims are supported by adequate and proper testing conducted before any such claims are made.

b) Refusal to Deal (Supply)

Suppliers generally have wide contractual freedom to supply their products or services to whomever they wish. Even suppliers with considerable market power can generally unilaterally refuse to supply their products or services for legitimate business reasons.

Refusals to supply critical products or services in the response against COVID-19 may be subject to greater regulatory scrutiny. Businesses should memorialize their valid business reasons for any refusals to supply, particularly any pro-competitive and efficiency enhancing rationales. Further, any refusals to supply should be made unilaterally and not in coordination with competitors.

c) Unilateral Price-Gouging

The COVID-19 pandemic has also impacted the price of various goods and services across the country. For example, many retailers are incentivized to increase the prices of hand sanitizers and masks because consumers are willing to pay more for these products. The Act does not regulate prices or otherwise prevent price gouging. Retailers are generally able to charge whatever prices they choose. That being said, Canada’s Emergencies Act allows the Federal Government to take measures regarding “the regulation of the distribution and availability of essential goods, services and resources”, which could be used to address price gouging for at least some products and services – something that has already been done across much of the United States.

Further, consumers may make price gouging complaints to the Bureau. Although it does not have clear jurisdiction over unilateral price-gouging, the Bureau may choose to engage on the issue.

IV. National Security and Investment Canada Reviews

The Investment Review Division (“IRD”), which is responsible for enforcing the Investment Canada Act, has not requested delays in filing or amended its processes. However, IRD staff is working remotely, which is expected to lead to delays.

Substantively, new national security issues are expected to emerge. Indeed, from the perspective of critical infrastructure, supply chains and supply, national security suddenly means fighting scarcity and disease.

There is a limited but important implication for businesses considering merger and acquisition activity at this time: COVID-19 has created conditions in which even close allies and friends may need to compete for critical resources, particularly in the health field. Scarcity of supply of products like medical protective equipment, ventilators and associated manufacturing inputs means that Canadian regulators will cast a keen eye over any deal that would make the mass acquisition of such goods more difficult. Mitigation in the form of supply guarantees will be in order.

As such, even if a deal involves a purchaser from a Canadian-friendly state, if the transaction may result in control of critical infrastructure falling out of Canadian hands, resulting in short supply of vital goods or services to Canadians, a deal could be blocked.

V. Investigative and Adjudicative Delays

Adjudicative bodies that hear competition matters have released practice directions outlining the impact of the COVID-19 pandemic on their respective operations. These delays are expected to delay Bureau investigations and the enforcement and adjudication of competition disputes.

a) Competition Tribunal

Canada’s main adjudicative body for competition disputes, the Competition Tribunal (the “Tribunal”), remains open for business. However, its members and employees are working remotely and its premises are closed to the public until further notice. According to the Tribunal’s Notice Regarding the COVID-19 Pandemic, there will be no in-person hearings until at least April 17, 2020. This notice contemplates the possibility of further postponements. The Tribunal will, however, continue to hear urgent matters by telephone conference.

Though no paper filings will be accepted for the time being, the Tribunal’s secure e-filing system remains fully operational and parties are urged to continue to file documents by electronic transmission through the Tribunal’s secure e-filing application.

b) The Federal Court of Canada

The Federal Court of Canada (the “Federal Court”) has jurisdiction to hear certain competition matters. It is primarily used by the Bureau for the issuance of section 11 orders under the Act, an evidence gathering tool for the production of records, written returns of information under oath and, at times, oral examinations under oath.

Through a Practice Direction and Order (COVID-19) and an updated Practice Direction and Order (COVID-19), the Federal Court has implemented a 33-day suspension period, from March 16, 2020 – April 17, 2020 (the “Suspension Period”). All Federal Court hearings scheduled to be heard during the Suspension Period are adjourned without any future date being designated. Further, all hearings that were scheduled to proceed by way of a telephone conference and all general sittings of the Federal Court falling within the Suspension Period are also cancelled. Matters that the Federal Court deems urgent or exceptional will proceed on a case-by-case basis.

Significantly, the running of all timelines under orders and directions of the Federal Court made prior to March 16, 2020 are extended for the duration of the Suspension Period. This includes section 11 orders requiring parties to attend an oral examination and to produce records and written information. The extended timelines will likely delay the Bureau’s evidence gathering activities related to its ongoing investigations. Depending on the way in which the COVID-19 pandemic evolves, further extensions to the Suspension Period are foreseeable which will, in turn, further delay the Bureau’s investigations.

The Federal Court is not closed but has only maintained skeleton staff which will not be monitoring registry counters. As such, parties are exempted from filing any required paper copies of filings and are urged to instead use the Federal Court’s e-filing portal or email to file documents.

c) Warrants for Search and Seizure/Investigative Delays

In light of superior courts across Canada and the Federal Court suspending all regular operations and Bureau officials working from home, previously planned search and seizures by the Bureau are also likely to be delayed. This will impact and delay the progression of Bureau investigations.

d) Class Actions

The suspension of regular operations at superior courts across Canada is also expected to impact ongoing competition class actions. This includes certification hearings, settlement approval hearings and related interlocutory motions.

Fasken’s Antitrust/Competition & Marketing Group will continue to monitor these developments and will keep you apprised, including through a series of blog posts on many of the topics discussed above.