Competition, marketing and foreign investment law saw a number of changes in the past year. Many of these changes were in response to the continuing COVID-19 pandemic, which has changed every aspect of how Canadians, businesses and government agencies operate. Despite the pandemic, the Competition Bureau (the “Bureau”) has actively continued its enforcement activity and provided a number of guidance documents to help businesses stay onside the Competition Act (the “Act”). Similarly, Canada’s Investment Review Division also had to respond to the challenges posed by the pandemic.
Below we discuss ten key themes seen in the competition, marketing and foreign investment law space this year, and discuss what the year ahead has in store.
- Themes in Merger Review:
The Bureau’s merger review process continued as usual last year. However, the ongoing pandemic resulted in an increased focus on certain topics, including the failing firm doctrine and the efficiencies defence. For example, it was anticipated that many companies would be facing insolvency or bankruptcy in the aftermath of COVID-19 and that this could lead to a wave of proposed transactions involving distressed companies. Recognizing this, the Bureau provided additional guidance on the failing firm doctrine, including in its Position Statement on the Total Metal Recovery / American Iron & Metal merger and in a paper authored by Mergers Directorate staff. In this guidance, the Bureau did not indicate a willingness to relax its failing firm standards to accommodate the acquisition of firms weakened by COVID-19.
Similarly, with declining demand and excess capacity in many sectors, it was expected that companies would want to take advantage of opportunities to increase operational efficiencies, including through mergers and acquisitions. The Bureau provided additional guidance on the efficiencies defence in its Position Statement on the Canadian National Railway / H&R Transport merger. We expect that both the failing firm doctrine and the efficiencies defence will continue to be important factors in merger review throughout 2021.
- Competitor Collaboration:
The Bureau issued a statement on competitor collaborations during COVID-19 where it recognized that the pandemic may call for the rapid establishment of business collaborations of limited duration and scope to ensure the supply of products and service critical to the crisis response. Its statement clarified that it will refrain from scrutinizing such collaborations when done in “good faith” and not in excess of what is needed for the crisis response. Notwithstanding its deficiencies, the statement is indicative of the Bureau’s willingness to be flexible in its approach to dealing with competitors during the pandemic. For more information, see our prior blog post.
- Increased Consumer Protection Enforcement:
With its assumption of the Presidency of the International Consumer Protection and Enforcement Network, the Bureau has increased its focus on consumer protection, particularly in the digital economy. The Bureau entered into consent Agreements with Facebook, Inc., Stubhub Inc., True Sports Inc., and NuvoCare Health Sciences Inc., evidencing an increased focus on privacy policies and practices, drip pricing, and performance claims. The Bureau also issued a statement warning businesses against making false or misleading claims that their products and services can prevent, treat or cure COVID-19. We expect the Bureau to continue to vigorously enforce the Act against businesses that make false or misleading representations to the public, particularly in the digital economy, to address privacy concerns and in the healthcare space.
- No-Poach, Wage-Fixing & Other Buy-Side Agreements:
The Bureau issued much welcomed guidance to confirm what many have said to date, namely that no-poaching, wage-fixing and other buy-side agreements fall outside the scope of the criminal conspiracy provision of the Act. This guidance came in response to significant interest from politicians and the legal and business communities regarding the treatment of these types of agreements in light of the position taken by the US Justice Department’s Antitrust Division and the US Federal Trade Commission, which have indicated that naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between employers will be criminally investigated and prosecuted as hardcore cartel conduct. In late 2019 and early 2020, the US Justice Department’s Antitrust Division brought its first ever indictments against an individual and a company for labour market collusion. For more information, see our prior blog post.
In response to concerns that retailers may be incentivized to substantially increase prices for products critical to the COVID-19 response, three Canadian provinces (i.e. British Columbia, Ontario & Nova Scotia) have specifically prohibited selling essential goods at unconscionable prices, or at prices markedly higher than fair market value. Other provinces appear to be more active in seeking to enforce pre-existing price gouging prohibitions in their consumer protection legislation, particularly in relation to necessary goods. We expect this trend to continue at least for the duration of the pandemic. For more information, see our prior blog post.
- National Security & Critical Infrastructure:
A major scuffle with the U.S. over N95 face masks in April 2020 was the international embodiment of what economists call the Scarcity Hypothesis: the gap between limited resources and theoretically limitless demand – or in this case, need for protective equipment in the fight against COVID-19. Where once Canada could reliably look to its closest ally for help in crisis, it became clear in 2020 that when push comes to shove, it really can be every country for itself. This reality will shape federal control of M&A long into the future, with security officials viewing threats through an old but freshly-polished lens: will Canadians have enough (medicine, food, energy, etc.)? Think Maslow’s Hierarchy and let your imagination run. Continuing into 2021 will be the impact of strained relations between Canada and China. Even as Chinese capital seeks a home in Canada’s stable, rules-based economy, serious bi-lateral tensions will make deal-making complicated, though not at all impossible.
- Lower Foreign Investment Thresholds:
While troubles multiply in the midst of a pandemic, economic growth has suffered: because financial thresholds for net benefit review of foreign investments are tied to growth in nominal GDP, those thresholds have been lowered for 2021. COVID-19 led to a decline in Canadian GDP over this past year, and as such, deals that might not have come in for net benefit scrutiny in 2020 will face the test in 2021.
Below is a chart providing the financial thresholds for a net benefit to Canada review of foreign investments over the last five years.
- Impact of the Biden Administration on Canadian Competition Enforcement and Policy:
With the election of Joe Biden and Kamala Harris, a democratically controlled US Senate and the subsequent appointment of Merrick Garland as US Attorney General, antitrust enforcement is expected to strengthen. This, in turn, can lead to more “second requests” (“supplemental information requests” in Canada) as well as more demanding merger remedies in the context of cross-border merger reviews. A democratically controlled US Senate is also expected to consider aggressive antitrust legislative proposals, such as legislation regulating the self-preference of platform operators, prohibiting exclusion of competitors on tech platforms and/or burden shifts to merging parties to demonstrate the lack of anticompetitive effects. We expect Canadian policymakers to closely monitor these US developments and to consider what, if any, legislative changes Canada may wish to make to its competition legislation.
- Big Focus on Big Tech:
Europe and the United States have increased their scrutiny of ‘big tech’ firms. This scrutiny is generally focused on large technology firms which have a high market share in multiple different markets. In 2020, the US Department of Justice (along with several state regulators) filed suits against several big tech firms, alleging, amongst other things, the unlawful maintenance of monopolies through anticompetitive and exclusionary conduct and engagement in anticompetitive mergers leading to monopolization of the market.
These high-profile cases against big tech firms beg the question of whether Canada will follow suit. While no such formal enforcement actions were taken in Canada in 2020, the Commissioner of Competition and the Bureau have signalled that large technology firms are, and will continue to be, under intense scrutiny in Canada. In a speech on November 25, 2020, Commissioner Boswell noted that “safeguarding competition in an era of global digital giants is paramount” and that “[i]n the absence of scrutiny and principled enforcement from competition authorities to address abuses of market power, these companies can take on the role of anti-competitive gatekeepers, deciding who gets to compete, and potentially forcing new and innovative firms out of the market.” In his speech on December 3, 2020, Commissioner Boswell again highlighted the Bureau’s continued focus on competition in digital and data-driven markets.
- Changing Geographic Landscape for Competition Class Actions:
The Province of Ontario’s Bill 161 (Smarter and Stronger Justice Act, 2020) received Royal Assent on July 8, 2020. Bill 161 is omnibus legislation that includes significant amendments to Ontario’s Class Proceedings Act, 1993 and, in particular, the introduction of a new preferability requirement for certification that includes superiority and predominance elements akin to US Federal Rule 23(b)(3). If interpreted like US Federal Rule 23(b)(3), certification judges will likely engage in a rigorous assessment of whether common questions of law or fact predominate over individual questions, which may, in turn, raise the certification bar for private antitrust/competition class actions. We have already observed a disproportionate number of new competition class actions pleading a national class being commenced in jurisdictions other than Ontario, such as the Federal Court of Canada and the superior courts of Quebec and British Columbia.