The COVID-19 crisis has caused havoc to daily life and to economies around the world. Among other things, it has put immense pressure on businesses to coordinate and collaborate with each other in order to address unprecedented disruptions to major parts of the economy (e.g., shortages of essential goods and services, collapse of supply chains, mass bankruptcies). Coordination and collaborations among competitors, however, raise significant antitrust/competition law risks because certain agreements among competitors (cartel agreements) are subject to severe criminal sanctions in Canada.
In the wake of calls from Canadian businesses and the legal community for more meaningful guidance and following in the footsteps of competition authorities in other jurisdictions, the Competition Bureau (the “Bureau”) issued a Statement on April 8, 2020 on competitor collaborations during the COVID-19 pandemic. Ostensibly, given time constraints, the Statement and the guidelines contained therein were not the subject of consultation with the bar.
In the Statement, the Bureau seeks to provide further guidance to businesses so as not to chill competitor collaborations that may be needed to respond to the challenges posed by COVID-19 pandemic. The Bureau provides both general guidance, as well as a mechanism for companies to obtain informal specific guidance from the Bureau.
(a) General Guidance – The Bureau’s Enforcement Approach to COVID-19 Collaborations
“The Bureau therefore wishes to signal that in circumstances where there is a clear imperative for companies to be collaborating in the short-term to respond to the crisis, where those collaborations are undertaken and executed in good faith and do not go further than what is needed, it will generally refrain from exercising scrutiny.”
According to the Statement, the Bureau will refrain from scrutinizing agreements or other forms of collaboration between competitors where they are (i) necessary to respond to the crisis; (ii) limited in duration, (iii) done in “good faith”, and; (iv) do not go further than what is needed for the crisis response.
“Good faith” is a general principle of Canadian contract law which requires parties to perform their obligations honestly and to not lie or knowingly mislead another party. In this context, the Bureau’s use of the term “good faith” goes to the parties motivation for acting in coordination. The Bureau has indicated that it will not scrutinize agreements between parties motivated by a desire to contribute to the crisis response as opposed to those motivated by a desire to achieve competitive advantage.
The Bureau also emphasized that it has “zero tolerance for any attempts to abuse this flexibility or the guidance offered herein as cover for unnecessary conduct that would violate the Competition Act.”
(b) Informal Specific Guidance
The Bureau has created a process for the provision of informal guidance to parties that are looking for greater certainty before entering into specific agreements, or even communication, with competitors in connection with COVID-19. This informal guidance option is distinct from the Bureau’s pre-existing, but ineffective, Written Opinions process whereby parties can request, from the Bureau, a binding written opinion on the applicability of the Competition Act (the “Act”) or regulations made thereunder to proposed business conduct for a fee.
When assessing a proposed collaboration on request for informal specific guidance, the Bureau says that it may seek input from other parts of government at all levels, stakeholders, and market contacts. The Bureau will look to ensure that the impact on competition is limited only to the extent necessary to meet the critical needs in this emergency period and may require conditions on the proposed collaboration.
New Guidance Misses the Mark
Although well-intentioned, the Bureau’s Statement falls well short of the mark, especially when compared to guidance issued by other agencies around the world. Its general guidance is limited and creates confusion, while the informal specific guidance process outlined in the Statement contains elements that are likely to deter its use.
Businesses are primarily concerned with staying “on side” of the criminal cartel prohibition under s.45 of the Act. Whether or not the Bureau is likely to bring enforcement action under the civil reviewable matter provision (s.90.1), is not likely to chill competitor collaborations because under s.90.1 a remedial order can only be obtained if the Competition Tribunal is satisfied that the conduct is likely to substantially lessen or prevent competition, and such remedial orders cannot impose penalties or award damages. As such, it is curious that the Bureau provides buying group arrangements as an example of competitor collaborations that the Bureau would not scrutinize if they were arrived at in response to the COVID-19 crisis. Buying group arrangements do not fall within the scope of s.45 given its plain language and legislative history. The Bureau’s own Competitor Collaboration Guidelines clearly indicate that buying group arrangements are not captured under s.45. At best, the new guidance re buying groups is redundant and unnecessary. At worst, it sows confusion – raising questions as to whether the Bureau is reconsidering its position in relation to buying groups and s.45.
The informal specific guidance mechanism announced in the Statement also falls short of the mark and risks falling into disuse, similar to the Bureau’s existing formal Advisory Opinion process. Unlike the Advisory Opinion process, however, the informal specific guidance process is informal and technically not binding. In addition, it contains elements that will deter its use. Given that the Bureau’s specific guidance cannot insulate businesses from private actions (something that the Bureau points out in the Statement), the prospect of the Bureau reaching out to stakeholders and market contacts will surely make businesses think twice about invoking such a process. Moreover, such a process of stakeholder consultation and market contacts is unnecessary and will inevitably take time, delaying the process, in circumstances where speed is critical. If the specific advice sought is whether a proposed competitor collaboration would be prosecuted under s.45, there is no need to contact market participants because competitive effects are irrelevant under s.45. If the concerns relates to the “good faith” of the parties to the collaboration, that is already a condition of the guidance – if the Bureau subsequently determines that it was misled by the parties, it can repudiate the informal guidance. Further, the Statement does not contain an indication of how long the Bureau will take to render such informal specific guidance. This stands in stark contrast with the willingness of the US Department of Justice and Federal Trade Commission to come out and say publicly that they are committed to providing specific guidance to parties within 7 calendar days of the request.
If you have questions about the informal guidance process or competitor collaboration more generally, 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.