Competition Chronicle

Competition Chronicle

Competition & Antitrust | Foreign Investment

Investment Canada Act threshold: exemption increases to $1.5B for EU companies acquiring Canadian businesses

Investment Canada Act threshold exemption for European Union companies directly acquiring Canadian businesses increases to $1.5 billion effective September 21, 2017

Effective September 21, 2017, most of the provisions contained in the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act (Act), including those provisions amending the Investment Canada Act, will come into force.

Currently, most direct acquisitions of Canadian businesses by foreign investors are exempt from the pre-merger review and approval process under the Investment Canada Act if the enterprise value of the target Canadian business is under $1 billion.  However, with the Act’s implementation of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU), the $1 billion threshold will on September 21 increase to $1.5 billion (adjusted annually to reflect increases in Canada’s GDP) for direct investments made by citizens and permanent residents of any of the current 28 EU member countries and for the business entities controlled by them.  Nationals of the U.S.A., Mexico, Chile, Peru, Colombia, Panama, Honduras and South Korea will also benefit from the higher $1.5 billion threshold due to the terms of their current trade agreements with Canada.

As was the case previously, Canada has reserved the right under CETA to apply different thresholds for direct acquisitions of Canadian cultural businesses ($5 million of asset book value) and for direct acquisitions of Canadian businesses by foreign state-owned enterprises (currently $379 million of asset book value).  Foreign investors who will not benefit directly or indirectly from the CETA-based threshold increase will remain subject to the current $1 billion threshold.

The Canadian Competition Tribunal’s Jurisdiction: Broader Than You May Think

The Canadian Competition Tribunal recently dismissed a jurisdictional challenge by HarperCollins to the Commissioner of Competition’s application for an order prohibiting the implementation of an alleged agreement between HarperCollins and other e-book publishers.  The Commissioner’s application is under section 90.1 of the Competition Act (“non-criminal agreements between competitors”).  It alleges, broadly speaking, that in 2010, HarperCollins US formed the anti-competitive arrangement in the US with other US publishers and retailer Apple. The decision is significant because it suggests that the existence of anti-competitive effects in Canada attributable to the impugned conduct (even if the conduct takes place outside of Canada) can be sufficient to establish the necessary “real and substantial connection” granting the Competition Tribunal, a creature of statute, territorial jurisdiction.


HarperCollins sought to dismiss the Commissioner’s application at a preliminary stage based on, among other reasons, the Competition Tribunal’s lack territorial jurisdiction over the conduct at issue – namely, that the alleged arrangement forming the basis of the Commissioner’s application was entered into in the United States; not in Canada.

At its core, the Tribunal considered, for the first time, whether a reviewable practice under the Competition Act can apply to conduct or an actor outside Canada and if so, which factors should be considered in assessing the Tribunal’s jurisdiction.  As a creature of statute, the Tribunal only has the powers conferred on it by Parliament. The Tribunal is vested with the jurisdiction to hear and dispose of applications under Parts VII.1 and VIII of the Act. The substantive provisions contained in Parts VII.1 and VIII of the Act define the explicit powers granted to the Tribunal in relation to the various reviewable practices described therein. In other words, the Competition Act does not confer open-ended jurisdiction on the Tribunal to deal with any and all competition issues. This is unlike the superior courts of the provinces that have “inherent jurisdiction”.

The Tribunal concluded that in the absence of language in the reviewable practice itself expressly limiting its application only to conduct in Canada (an express territorial limitation), the Tribunal will apply the “real and substantial connection” test to define the boundaries of the Tribunal’s jurisdiction.


The  “real and substantial connection” test generally governs the attribution of jurisdiction to Canadian courts and tribunals. It is a flexible test adapted to the circumstances the case. One element of the impugned conduct with a real and substantial connection to Canada can be sufficient to trigger jurisdiction. In this regard, the Tribunal found that reviewable practices that occur in part outside Canada but involve activities in Canada and have harmful effects in Canada can be subject to the Tribunal’s jurisdiction pursuant to the real and substantial connection test. This is significant as for many reviewable practices under the Act (whether unilateral conduct, mergers or non-criminal agreements between competitors), anticompetitive effects (whether in the form of a substantial lessening or prevention of competition or an adverse effect on competition) forms part of the elements of the reviewable practice itself.  Accordingly, the existence of anti-competitive effects in Canada attributable to the impugned conduct (even if the conduct takes place outside of Canada) can be sufficient to establish the necessary “real and substantial connection” granting territorial jurisdiction to the Tribunal.

As a preliminary motion subject to an appeal, this is unlikely the last word on this issue. This is an important development to monitor.

Investment Canada Act Pre-Merger Review Threshold Increases to $ 1 Billion


Canada’s planned increase to the generally applicable threshold for “net benefit” reviews under the Investment Canada Act (ICA) from $800 million to $1 billion became effective June 22, 2017. The new $ 1 billion threshold, which is calculated using the enterprise value of the Canadian business being acquired, should have the effect of exempting most investments or dispositions by WTO investors (that are not state-owned enterprises) from the “net benefit to Canada” review process under the ICA.  The reduction in the number of direct acquisitions of Canadian businesses by non-Canadian buyers requiring pre-closing clearance by the Minister of Innovation, Science and Economic Development of Canada is further evidence of the Liberal Government’s desire to encourage foreign investment in Canada.

CASL Private Right of Action Delayed Indefinitely

spyware-2319403Citing the desire for a balanced approach to the needs of individuals and organizations under Canada’s anti-spam law, the Minister of Innovation, Science and Economic Development announced today that he is delaying indefinitely the coming into force of the private right of action provisions (section 51) in Canada’s anti-spam law (CASL).

This important decision is welcome news to domestic and international businesses and other organizations subject to CASL. The private right of action had been slated to come in force on July 1, 2017 and presented a significant risk of class actions and staggering statutory damages.

Parliament is expected to further study the private right of action as part of its scheduled review of CASL to commence in 2017. It is anticipated that further amendments to CASL may be proposed to ensure that Canadian businesses are not put at a competitive disadvantage.

Information about the Private Right of Action

Under the private right of action provisions, a person who alleges that they are affected by another person’s contravention of sections 6 to 9 of CASL or section 5 of the Personal Information Protection and Electronic Documents Act in relation to the electronic harvesting of personal information, or that constitutes reviewable conduct under section 74.011 of the Competition Act(the electronic advertising provisions), may apply to a court of competent jurisdiction for an order and damages.

If a court is satisfied that a person has breached certain provisions of CASL or engaged in conduct that is reviewable under section 74.011 of the Competition Act or a breach of PIPEDA in relation to the electronic harvesting of personal information, the court may order that person to pay the applicant statutory damages (without the need to prove harm) in addition to the actual damages suffered. The statutory damages include the following:

  • in the case of a contravention of the unsolicited commercial electronic message provisions (section 6 of CASL), a maximum of $200 for each contravention, not exceeding $1,000,000 for each day on which a contravention occurred (e.g., up to $200 for each email or other electronic message sent in violation of CASL);
  • in the case of contravention of the software or transmission data provisions (sections 7 or 8 of CASL), a maximum of $1,000,000 for each day on which a contravention occurred;
  • in the case of contravention of the electronic advertising provisions (section 74.011 of the Competition Act), a maximum of $200 per contravention, not exceeding $1,000,000 for each day on which the conduct occurred; and
  • in the case of a contravention Personal Information Protection and Electronic Documents Act in relation to the electronic harvesting of personal information, a maximum of $1,000,000 for each day on which a contravention occurred..

Organizations Should Remain Diligent

Although organizations may have gained a reprieve from the private right of action, organizations will continue to be exposed to enforcement by the CRTC, the Competition Bureau and the Privacy Commissioner of Canada, including administrative monetary penalties up to $10,000,000 and potential personal liability for directors and officers. Organizations should continue to take appropriate steps to ensure that they are fully compliant with CASL. As revealed by our firm’s recent survey, many organizations are falling short when it comes to their understanding of and compliance with certain requirements of CASL – despite the fact that CASL has been in force for nearly three years. In addition, our survey indicates that organizations are not taking simple steps to reduce or even avoid liability in the event of a breach. Among other things, engaging expert legal counsel can help an organization to avoid non-compliance and establish a due diligence defence under CASL.

Understanding the Competition Commission South Africa’s Public Passenger Transport Market Inquiry

pexels-photo-136721On 7 June 2017 the Competition Commission South Africa will commence a market inquiry into the public passenger transport sector. This is the fifth market inquiry to be initiated by the Commission, following inquiries into the LPG, healthcare, grocery retail and banking sectors.

What does the Commission intend to investigate?

In terms of the Terms of Reference (published on 10 May 2017), the Commission will explore how competition in the public passenger transport sector is affected by factors such as:

  • Government regulations which govern the prices that may be charged by certain transport providers, such as metered taxi operators;
  • Government subsidies provided to certain providers, such as PRASA and the Gautrain;
  • Government regulations allocating certain transport routes to particular service providers;
  • Disruptive technology, such as Uber;
  • Gautrain buses being accessible to Gautrain passengers only, and
  • Envisaged expansion of the Gautrain’s network.

The Commission has also indicated that it will consider the ownership patterns and transformation in the sector.

What is a market inquiry?

A market inquiry is a general investigation into the state, nature and form of competition in a market, rather than a narrow investigation of specific conduct by any particular firm.

The Commission, acting on its own initiative, may conduct a market inquiry if it has reason to believe that any feature or combination of features of a market for any goods or services prevents, distorts or restricts competition within that market.

Upon completion of an inquiry, the Commission must publish and submit a report to the Minister of Economic Development, with or without recommendations. These recommendations may include recommendations for new or amended policies, legislation or regulations relating to the sector in question, or recommendations to other regulatory authorities on competition matters.

It is also possible that, in the course of the inquiry, the Commission may uncover illegal conduct, in which case it may initiate a complaint and commence enforcement proceedings against a particular firm.

Which firms could be the subject of this market inquiry?

The Terms of Reference are broad, and indicate that the Commission will investigate all aspects of the land-based public passenger transport industry. This will include investigations into:

  • Minibus taxis;
  • Localised taxis;
  • Metered taxis;
  • App-based taxis;
  • The Passenger Rail Agency of South Africa (PRASA);
  • Metrorail;
  • The Gautrain, and
  • Buses, including commuter buses, scholar buses, long distance buses and tourist buses.

What should affected firms expect during the inquiry?

As set out in the Terms of Reference, the Commission will establish a team that consists of Commission staff, as well as industry experts and/or consultants as and when required. The Commission will also allow all stakeholders an opportunity to provide input into the inquiry process and its outcomes.

Once established, the team will gather and assess information from relevant stakeholders of the public passenger transport industry. This information may be gathered by way of:

  • Questionnaires;
  • Information requests;
  • Calls for written and/or oral submissions;
  • Targeted meetings with key industry stakeholders, and
  • Public hearings.

During the inquiry, the Commission will contact all stakeholders involved in the land based public passenger transport industry in order to gather information in the ways described above.

The Commission aims to complete the public passenger transport market inquiry by May 2019.

New Private Right of Action in Canada for False or Misleading Electronic Advertising

This post has been prepared in collaboration with Chris Cole of Crowell & Moring law firm. Chris Cole is the Co-Chair of Crowell’s Advertising & Product Risk Management Group in Washington, D.C.

In less than three months, Canada will introduce a private right of action arising from false or misleading representations made in electronic messages. These provisions target false or misleading advertisements in, for example, email and social media and arguably capture website advertising based on the law’s broad definition of “electronic message.” Government-initiated enforcement of these provisions has already taken place through Canada’s Competition Bureau since 2014, which has led to Consent Agreements against Avis, Budget (following a contested application), Amazon, Hertz, and Dollar Thrifty. Even more concerning, the law applies statutory penalties to each violation. The closest United States analog to such a law would be the Telephone Consumer Protection Act, which carries penalties for violation of up to $1500 per violation.

The new private right of action is expected to give rise to significant class action litigation in Canada, including against US and global businesses that engage in digital advertising in Canada. It is also expected to be an attractive method of challenging a competitor’s representations regarding a product or service. Driving these incentives will be the law’s statutory penalties of $200 per occurrence (not to exceed $1 million per day).

The following outlines the nature of this private right of action and take-aways for businesses that advertise in Canada.

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More penalties for digital “drip pricing”


Hertz and Dollar Thrifty agree to pay $1.25 million

The Competition Bureau announced this week that Hertz and Dollar Thrifty have agreed to pay an administrative monetary penalty of $1.25 million and to implement compliance procedures to resolve the Bureau’s investigation of “drip pricing” by the companies.  “Drip pricing” refers to advertised prices that are not in fact attainable, due to additional non-optional charges that must be paid by consumers.

The Hertz and Dollar Thrifty pricing reps appeared in many media, including websites, mobile apps, and email.    The Bureau took issue with advertised price levels and discounts that ignored mandatory additional fees, as well as inaccurate descriptions of fees as taxes or surcharges imposed by governments.

In recent years, the Competition Bureau has repeatedly targeted drip pricing and misleading descriptions of mandatory fees. Avis and Budget agreed to pay an AMP of $3 million in 2016 to settle similar pricing allegations.  Comwave also settled allegations of drip pricing in ads for its communications services in 2016.

These settlements serve as an important reminder that misleading pricing practices are an enforcement priority for the Bureau.  Misleading price claims – in digital and traditional media – cannot be corrected by subsequent disclosure to a consumer, and may be the subject of significant monetary penalties.

In the digital context, CASL amendments to the Competition Act have enhanced the need for vigilance in email marketing campaigns.  Under these amendments, a false or misleading representation in the sender or subject matter information of a commercial email may be sanctioned, regardless of whether the misrepresentation is misleading in a “material respect”.  Furthermore, conduct contrary to these requirements may be the subject of private action, including class actions, for statutory and other damages, effective July 1, 2017.

All this to say, consistent application of comprehensive internal compliance policies to all digital and traditional marketing campaigns is critical, to avoid significant exposure for non-compliance with Canadian marketing laws.

Investment Canada Act: New Threshold for the Review of Direct Investments


Effective April 24, 2017, the review threshold under the Investment Canada Act for an investment to directly acquire control of a Canadian business (i) by a WTO investor (that is not a state-owned enterprise) and (ii) by a non-WTO investor (that is not a state-owned enterprise) where the Canadian business that is the subject of the investment is, immediately prior to the implementation of the investment, controlled by a WTO investor has been increased from $600 million to $800 million in enterprise value.  Additionally, in furtherance of an announcement made in the Liberal government’s Fall Economic Statement 2016, Bill C-44 was tabled in the Canadian Parliament on April 11, 2017 which includes an amendment to the Investment Canada Act to increase that direct review threshold to $1 billion; however that amendment is not yet in effect.

For investments to directly acquire control of a Canadian business by WTO investors that are state-owned enterprises and for non-WTO investors that are state-owned enterprises where the Canadian business that is the subject of the investment is, immediately prior to the implementation of the investment, controlled by a WTO investor, the review threshold for 2017 remains at $379 million in asset value.

For investments in Canadian cultural business by non-Canadians, the review thresholds for those investments remain unchanged at 5 million dollars in asset value for direct investments and 50 million dollars in asset value for indirect transactions.

On Second Thought: The Government of Canada Reverses Prior National Security Ruling

complex-664440_1280In what appears to be a dramatic shift in Canada’s foreign investment review policy, the federal government has recently approved the acquisition of ITF Technologies Inc. (“ITF”), a Montreal-based technology firm, by O-Net Communications Holdings Limited (“O-Net”), a Chinese developer of optical networking components, which is said to be effectively controlled by the Chinese government. Applications for ITF’s technologies include directed-energy weapons.

The acquisition of ITF by O-Net first became newsworthy in July 2015 when the former Conservative government ordered O-Net to divest its controlling interest in ITF, which it had acquired through a bankruptcy auction after no other North American company offered to purchase ITF. The order was made under the authority of the Investment Canada Act’s (the “Act”) national security provisions. Under these provisions, the Governor in Council (the federal Cabinet) can, among other things, block—or in the case of O-Net—unwind a transaction if it is injurious to Canada’s national security. In this case, the acquisition was thought to undermine the technological advantages that Canadian and other western militaries had over China.

The notoriety of the transaction grew later in August 2015 when O-Net became the first investor to challenge the government’s decision to block a transaction on the basis of national security concerns. In its application for judicial review, O-Net argued that, among other things: (i) ITF was controlled by non-Canadians prior to the sale in 2015; (ii) its investment in ITF would not provide access to technologies or products to which it did not already have access; (iii) it had increased ITF’s revenues and added almost 50 new engineering jobs; and (iv) the federal government’s order was issued without providing O-Net with any details about the nature and extent of the national security concerns.

In response, the former Conservative government signalled its intent to oppose O-Net’s application. However, a federal election intervened and, after the Liberal Party came into power in October 2015, it engaged in settlement discussions with O-Net which culminated in the original Conservative government divestiture order being set aside and a new national security review being ordered.

Even more surprising was that the second national security review resulted in the Liberal government deciding to allow O-Net’s acquisition of control of ITF. While press reports indicated that conditions designed to limit the potential risk that could compromise national security had been attached to Canada’s approval, Minister Bains’ explanation for the reversal  was that “the government has acted on the full record of evidence and advice provided by Canada’s security and intelligence experts”.

The Conservative public safety critic’s response to this announcement was to suggest that the Liberal government has not “proved anything has changed that would merit reconsideration.”  The critic’s comments highlight two longstanding complaints about the Act’s national security review process: (i) it is opaque for both investors and the public; and (ii) the process is politically-driven. To address the first complaint, the federal government issued, for the first time, Guidelines on the National Security Review of Investments in December 2016 (see our previous post on those guidelines here). However, it appears that there is no easy fix to the second complaint.

Given that trade and investment ranks high in Canada’s China policy, it is likely that this decision is evidence of a new openness to Chinese investment in Canada, which should result in many more Chinese investments being made and very possibly in some of Canada’s sensitive industry sectors.

Kobo’s Quest for Status Quo in the E-books Market: A Never Ending Story


On February 17, 2017, Toronto-based e-books retailer Rakuten Kobo Inc. (“Kobo”) sought judicial review of the consent agreements reached between the Commissioner of Competition (“Commissioner”) and three e-books publishers earlier this year.

The consent agreements reached between the Commissioner and each of Hachette, Macmillan, and Simon & Schuster are aimed at resolving the Commissioner’s concerns arising from alleged agreements that prevent or lessen competition substantially, which are reviewable under section 90.1 of the Competition Act (the “Act”). The Commissioner, however, was unable reach agreement with a fourth publisher, HarperCollins, and has now filed an application for a prohibition order under section 90.1.

Pursuant to the terms of the consent agreements, publishers are prohibited from using an “agency” model—a model wherein publishers set prices and pay retailers, such as Kobo, a commission. The consent agreements also restrict the ability of publishers to use most favoured nation clauses in their agreements with retailers for a period of 3 years. These clauses prevent retailers from negotiating their own agreement with publishers.

Kobo’s application for judicial review is not at all surprising. The consent agreements mentioned above are recent iterations of agreements that were first reached between the Commissioner and each of Hachette, Macmillan, Simon & Schuster, and HarperCollins in February 2014 but were later rescinded by the Competition Tribunal (the “Tribunal”) at the behest of Kobo.

Among other things, Kobo alleged that the consent agreements struck between the Commissioner and the four e-books publishers in 2014 would negatively impact its ability to effectively compete in the Canadian marketplace. Last year, the Tribunal partially found in Kobo’s favour, nullifying the 2014 consent agreements on the basis that the Commissioner did not sufficiently identify in the consent agreements the six elements of section 90.1 of the Act. However, the Tribunal rejected Kobo’s submissions that the terms of the consent agreements were unenforceable.

Now, more than 3 years later, Kobo appears to be right back where it first started—this time, however, in the Federal Court. Kobo’s decision to file an application for judicial review in Federal Court—as opposed to an application for rescission or variance under subsection 106(2) of the Act before the Tribunal—undoubtedly stems from the Tribunal’s earlier pronouncement (in an adjunct reference proceeding) of its ability to award such an order. In that proceeding, the Tribunal held that:

  • It may confirm that the terms of a consent agreement are within the “purview” of the type of order that the Tribunal would be able to issue in respect of the particular reviewable conduct at issue;
  • It may confirm that the elements of the alleged reviewable conduct have been identified and confirmed; and
  • Applicants may seek to establish that the terms of a consent agreement are unenforceable or would lead to no enforceable obligation.