On Friday, the Foreign Investment Review Committee (“FIRC”) of the Canadian Bar Association’s (“CBA”) Competition Law Section met with representatives from the Investment Review Division (“IRD”), Innovation, Science and Economic Development Canada (“ISED”) and the Cultural Sector Investment Review (“CSIR”), Canadian Heritage. The meeting featured interesting and informative presentations from representatives from both the IRD and CSIR, followed by a Q&A. Outlined below are some of the highlights.

  1. Highlights from the IRD’s Presentation

(a) Net Benefit to Canada Review Threshold for UK Investors

The United Kingdom (“UK”), which has left the European Union (“EU”), and by extension the Canada-European Union Comprehensive Economic and Trade Agreement (“CETA”), is currently in a transition period which is set to end on December 31, 2020. During the transition period, UK investors have benefited from the net benefit to Canada review threshold available to trade agreement investors. As of January 1, 2021, investments into Canada by UK investors will be subject to the lower threshold for World Trade Organisation  (“WTO”) investors.

On November 21, 2020, Canada’s Minister of Small Business, Export Promotion and International Trade, along with the UK’s Secretary of State for International Trade, announced the successful conclusion of talks for the Canada-United Kingdom Trade Continuity Agreement – an interim deal that will be in place as Canada and the UK work towards negotiating a comprehensive free trade agreement. When that agreement comes into force, it will provide UK investors with the benefits of CETA and UK investors will again benefit from the trade agreement investor threshold.

(b) Impact of COVID-19 on National Security Review

As discussed in our previous post, the Minister of Innovation, Science and Industry released a policy statement on April 18, 2020, which provides that, in light of the COVID-19 pandemic, certain foreign investments into Canada will be subject to enhanced scrutiny. The policy statement, summarized below, is expected to be in effect until Canada recovers from the COVID-19 pandemic.

Under the extraordinary circumstances of the global pandemic, the Government announced that it will subject foreign investments of any value into Canada to enhanced scrutiny under the ICA:

  • in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the Government, whether those foreign investments are controlling or not, and
  • by state-owned investors or private investors assessed as being closely tied or subject to direction from foreign governments.

As a consequence of this new policy, the IRD has more closely scrutinized a number of transactions involving investments from state owned enterprises and investments into health and health related services or goods.

Despite the enhanced scrutiny of some acquisitions and the extension of national security review timelines, Canada remains open to investment and is still a foreign investment destination of choice.

The IRD encourages investors into Canada reach out to the IRD early in the lifecycle of a deal, including by proactively sharing information, a practice which is becoming more common. The following is a list of information that is commonly provided to the IRD, and which the IRD encourages parties to provide:

  • third party relationships
  • details of source of funds
  • upstream ownership details, including ultimate controllers
  • contacts or other relationships with Canadian governments
  1. Highlights from CSIR’s Presentation

As outlined in last year’s Annual Report, most cultural sector investment filings arise from the film and video industries, with a significant increase coming from video games and post-production activities.

Representatives from CSIR outlined how Canadian Heritage’s interpretation of what is a cultural product or business activity has evolved over time, particularly in regards to video games.

Canadian Heritage has typically considered a business activity to be “culturally significant” where, among other considerations, it:

  • (i) is a professional activity (typically by one who assumes risks), as opposed to amateur content;
  • (ii) involves the creation, selection of original content, contractual agreements with creators, authors, or copyright holders;
  • includes the development, production/creation/publishing, marketing and/or exploitation of a cultural product, copyright/ownership/rights, contractual relationship with content owners;
  • (iv) is capable of generating revenue, solicits advertising, and earns a percentage of revenues/profits from the sale of physical cultural products; or
  • (v) is eligible for funding from Canadian Heritage or one of its portfolio agencies.

Canadian Heritage typically does not consider a business activity to be “culturally significant” where it is ultimately not commercially available to Canadians. When in doubt, Canadian Heritage assumes that a business is culturally significant. Further, Canadian Heritage takes the view that as industry models change and adapt, its interpretation of what is a cultural product or business needs to evolve as well.

Returning to the topic of video games, it bears noting that they were not always considered cultural, and the definition of “cultural business” in the Investment Canada Act does not expressly reference video games. Canadian Heritage relies on the words “film or video products” and “audio or video music recordings” as encompassing video games. While the inclusion of video games may not quite fit into a strict reading of the definition of “cultural business”, Canadian Heritage has taken the view that video games generally are cultural, absent compelling reasons to the contrary (e.g. lack of a video component), due to the reliance on creative talent, among other reasons.

It is possible that Canadian Heritage may consider updating its foreign investment policies for cultural industries (i.e. book publishing, distribution and retail, magazine publishing, and film and video distribution) in the near future.

If you have questions about Canada’s foreign investment laws and regulations, please reach out to a member of Fasken’s Competition, Marketing & Foreign Investment Group. Our group has significant experience advising foreign investors, including state-owned enterprises, on the national security implications of Canada’s foreign investment regime.

The information and guidance provided in this blog post does not constitute legal advice and should not be relief on as such. If legal advice is required, please contact a member of Fasken’s Competition, Marketing & Foreign Investment Group.