Non-compete clauses are included in virtually all purchase and sale agreements. They are designed to ensure that purchasers realize the full value of the acquired business by, for example, prohibiting competition from vendors within a defined area for a certain amount of time.[1] There is no question that such clauses are valuable to purchasers and essential in the mergers and acquisition context.

The Canadian Competition Bureau (the “Bureau”) has long recognized that non-compete clauses “can serve legitimate purposes”. However, the Bureau’s approach to non-compete clauses has been revised in its updated Competitor Collaboration Guidelines (the “CCGs”), which were issued on May 6, 2021 – see our prior blog post titled “New Competitor Collaboration Guidelines”. Significantly, as discussed in more detail below, the Bureau has signalled that it may consider such clauses under the criminal cartel provisions in the Competition Act (the “Act”) where they, for example, amount to a market allocation agreement or there is evidence that they are nothing more than a “sham”. Continue Reading Non-Compete Clauses – So What’s the Risk?

On May 6, 2021, the Competition Bureau (the “Bureau”) released its new (and long-awaited)  competitor collaboration guidelines (the “New CCGs”). This is the first update to these guidelines since the previous version was published by the Bureau over a decade ago, in 2009 (the “2009 CCGs”).

The New CCGs include updated guidance on various matters, including with respect to (i) how the Bureau assesses whether or not certain firms are competitors or potential competitors, (ii) how the Bureau intends to approach buy-side agreements, and (iii) increased scrutiny of certain agreements between competitors, particular in the context of mergers.

Competitors and Potential Competitors

The New CCGs clarify the types of evidence the Bureau will consider when deciding whether suppliers of differentiated products are competitors or potential competitors. The types of evidence enumerated in the CCGs include business and strategic plans prepared in the course of business, marketing and communications with potential customers, evidence of actual competition for similar customers, and the extent to which each party considers the other party to be a competitor or potential competitor.

With respect to section 45 of the Competition Act (the “Act”), new examples provided in the New CCGs clarify that where a wholesaler facilitates a price-fixing conspiracy among its retail clients, such wholesaler may be a party to the conspiracy even if it does not compete in the retail market. This new guidance may act to remove some of the ambiguity around certain “hub-and-spoke” – like arrangements.

Buy-Side Agreements

The updated guidance in the New CCGs directly addresses buy-side agreements such as no-poach and wage-fixing agreements (something the previous guidelines did not). In addition to reiterating the statement from the 2009 CCGs that section 45 applies only to the supply – and not the purchase – of a product, the New CCGs also explicitly contemplate no-poaching and wage-fixing agreements, stating that such agreements may be subject to review under Part VIII of the Act. This echoes the previous guidance by the Bureau set out in its November 2020 statement on buy-side agreements.

Mergers and Ancillary Agreements

The New CCGs include some additional notable changes regarding review of ancillary arrangements, which appear to signal increased scrutiny and enforcement by the Bureau.

The New CCGs suggest that some merger transactions may be reviewed under other provisions of the Act, aside from section 92. The New CCGs include a note that “[w]here parties enter into any agreement(s) that goes beyond the acquisition, amalgamation or combination agreement, whether within or outside said agreement, the Bureau will consider under which provision(s) of the Act any investigation or inquiry should be pursued.” For example, the New CCGs also note that where non-compete agreements are entered into in connection with a merger, such agreements may, in rare circumstances, be considered under section 45 of the Act.

The New CCGs also note that, in general, the Bureau will be looking closely at agreements between competitors which are structured so as to avoid the application of section 45. The Bureau will carefully assess whether such collaboration is a “sham” and whether the arrangement should be reviewed under section 45. Together with the above point, this signals that the Bureau will be increasing its scrutiny of certain business agreements, including non-compete agreements entered into in connection with a merger, and may be less willing to accept these as ancillary restraints in all cases.

Lastly, in its list of examples of agreements/clauses which may potentially be considered an ancillary restraint by the Bureau, and therefore generally be reviewed under Part VIII rather than section 45 of the Act, the New CCG’s have notably removed the example of a non-competes found in employment agreements, which was previously included in the 2009 CCGs. This may not be a significant change, and may simply be recognition by the Bureau that employment agreement non-competes should not have been contemplated as an ancillary restraint under section 45(4). Such agreements are generally vertical agreements between an employer and an employee rather than horizontal agreements between competitors, and accordingly they would not generally be considered under section 45 at all.

While the revisions to the New CCGs may not be as drastic as expected after more than a decade, they do signal that the Bureau is taking note of current issues, and may be increasing its scrutiny of competitor collaborations.

In recent years, competition authorities around the globe have indicated an increased interest in the video game industry. As noted in a 2019 perspective paper by the US FTC, video games have evolved from being static one-time purchases to functioning as a dynamic service where players can make further in-game purchase, or microtransactions, for in-game content.

With the development of new monetization strategies, new deceptive marketing practices have also emerged. In particular, mobile game publishers have been criticized by both players and industry observers for publishing deceptive advertisements making use of embellished or unrelated gameplay footage in order to entice individuals to download what are often simple and lacklustre mobile games. The goal of these advertisements is not to necessarily achieve a high degree of player retention, but to maximize consumer exposure and attract the sizeable minority of players whom are willing to spend money for in-game microtransactions or sit through a large number of in-game ads which generate ad revenue.

Deceptive Gameplay Footage in Video Game Advertising

There is a recognized degree of difficulty when reviewing advertising that features purported representations of gameplay and in-game content. Compared to more traditional advertising which shows dramatized representations of video games that are evidently disconnected from actual in-game content, such a distinction is blurred with the use of gameplay footage and brings into question the acceptable degree of flexibility or “artistic license” that publishers may have when marketing their respective games. In this respect, two decisions from the UK’s Advertising Standards Authority (ASA) provide contrasting examples illustrating the difficulty in addressing this legal question.

In 2016, the ASA dismissed a complaint against a video game publisher over marketing materials for “No Man’s Sky”, an open world space and planetary exploration game. In that case, complainants stated that some of the game’s content and graphics were not as depicted in the allegedly misleading marketing materials. The ASA considered a wide range of issues but generally concluded that any apparent differences with in-game content were unlikely to substantially impact a consumer’s decision to buy the game, and any differences with in-game graphics were subject to consumer understandings that graphics were dependent on the power of the consumer’s computer. In concluding their decision, the ASA “acknowledged that … advertisers would aim to show the product in the best light” and “that the overall impression of the ad was consistent with gameplay and the footage provided… and did not exaggerate the expected player experience of the game.”

In contrast, in September 2020, the ASA upheld a complaint against a mobile game publisher concerning deceptive Facebook advertisements for two mobile games. In this case, the ads showed a game where users pull pins in a specific order to solve a puzzle. However, such puzzles were only available once every 20 levels, with all other levels being simple “match-three” style games where players simply moved shapes so as to match three in a row. In their decision, the ASA found that consumers would understand from the ads that the content featured was representative of the games overall. While the publisher included text which stated “Not all images represent actual gameplay”, the ASA found this insufficient as consumers would still expect the two mobile games to consist of a similar sequential problem solving puzzles as opposed to a “match-three” style game.

The seemingly disparate conclusions reached by the ASA were clarified in a recent 2021 bulletin where the ASA summarized that their consideration of gameplay is “context and content” specific and should be undertaken on a “case-by-case” basis. Citing their 2016 decision, the ASA specifically noted that there may be some features that are “unlikely to affect a consumer’s decision to make a purchase” and other extenuating circumstances that “will impact on visuals and gameplay being replicated by players.”

Assessing Deceptive Gameplay Footage under the Canadian Competition Act

While there have not been any similar decisions in Canada, it is clear that such deceptive practices are within the ambit of Canada’s Competition Act.

The Competition Act prohibits the making of a false or misleading representation to the public by “any means whatsoever”. Any potentially deceptive representation is assessed as to whether it is (1) “false or misleading”; and (2) “false or misleading in a material respect.” In regards to the first factor, it involves, among other things, an analysis of the “general impression” conveyed by the representation which is assessed from the perspective of a “credulous and inexperienced” average consumer. In regards to the second factor, “materiality” is defined as whether the representation would influence a consumer in deciding whether to purchase the product being offered.

In the context of such an analysis, a similar “case-by-case” approach as described by the ASA would appear to be applicable in the Canadian context. While the application of such an approach may be more difficult for complex video games where authorities must consider alleged misrepresentations amid a myriad of content and features, such difficulties are evidently lessened for simple mobile games with fewer moving parts. The comparatively simple parameters of a mobile game make any alleged misleading representation of gameplay more likely to be material from the perspective of the average consumer. Furthermore, the simplicity of a mobile game makes it easier for a publisher to provide a more encompassing impression of their mobile game. In turn, this underscores the comparative ease for regulatory authorities to see whether the general impression conveyed by featured gameplay footage is actually in line with the content available to mobile game users.

Avoid it being “Game Over” – Comply with the Competition Act!

Mobile game publishers who advertise their games to Canadian consumers with deceptive gameplay footage run the substantial risk of being in violation of the Canadian Competition Act. Accordingly, in avoiding any enforcement action and potential penalties, mobile game publishers should be cognizant in ensuring that any marketing materials making use of purported gameplay convey an accurate representation of actual gameplay content.

South Africa’s Competition Commission (the “Commission”) has published the finalised Terms of Reference for its Online Intermediation Platforms Market Inquiry (“OIPMI”). The OIPMI follows the Commission’s release of its “Competition in the Digital Economy” paper wherein it notes the benefits of online products and services but expressed concerns about the ‘winner-takes-all’ nature of some of these markets, particularly for search, shopping and social media.

The OIPMI seeks to examine and potentially address the features of online intermediation platform markets which may hinder competition. The Commission has noted that the “normal” competition enforcement tools may be insufficient to address issues within digital markets, particularly the ability of first-movers to entrench  their positions as well as the dominance of certain platforms, resulting in an inability for new players to enter the market. The Commission notes that in addition to platform competition concerns, the dependency of business users, and in particular small and medium sized enterprises (“SMEs”), on these platforms creates the opportunity for exploitative and/or exclusionary conduct.

The Commission notes that the Covid-19 pandemic has accelerated the growth of the online economy and access thereto for local online business will be critical for economic recovery.

The Commission has sought a narrow, focused scope of the OIPMI to deal with platforms intermediating goods and services between businesses and customers, which are typically monetised on commission/sales business models. This includes online classifieds, travel and accommodation aggregators, short-term accommodation intermediation, food delivery, application stores; and any other platforms the Commission may identify in the course of the inquiry.

The OIPMI will broadly focus on three areas of competition and public interest: a) market features that may hinder competition amongst the platforms themselves; b) market features that give rise to discriminatory or exploitative treatment of business users; and c) market features that may negatively impact on the participation of SMEs and/or firms owned by historically disadvantaged persons (“HDPs”). More specifically, some of the objectives of the inquiry include evaluating:

  • trends in adoption and use of the different online intermediation platform markets, including the identification of leading platforms across each market.
  • whether conduct or contracts are likely to have the effect of raising barriers to entry and reducing competition amongst platforms. Price parity clauses, exclusive contracting, and loyalty incentives have been identified as potential issues.
  • whether particular conduct is discriminatory or unfair, and the likely effect on consumer choice, competition amongst business users and the participation of SMEs and HDPs. Self-preferencing conduct, discriminatory pricing, promotional or pricing restrictions, inflated access pricing and access to business user transaction data have been flagged as potential issues.
  • whether the ranking algorithms used by platforms, including any ‘pay for position’ or promotional opportunities, negatively impact competition on the merits, consumer choice and/or the participation of SMEs and HDPs.

The OIPMI will commence on 10 May 2021, whereafter the Commission will have 18 months to complete the inquiry (i.e. October 2022, although this period can be extended). The Commission envisages gathering information through a range of mechanisms, including questionnaires, stakeholder meetings and public hearings.  Firms wishing to make submissions to the Commission on the OIPMI should notify the Commission in the prescribed form. Further details of the administrative phases of the inquiry will be published at the commencement of the inquiry.

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 of Fasken’s Competition Marketing and Foreign Investment Group.

National security concerns have been cited by some countries as the motivation behind recent legislative and policy changes directed at regulating foreign investment. The creation of new or the bolstering of existing national security investment review regimes raises the question as to whether these changes are solely based on legitimate national security concerns or whether some countries are using national security as a guise for more protectionist practices.

For example, while critical infrastructure has long been considered as needing protection from foreign threats to security, the COVID pandemic has brought such concerns to the forefront, at times perhaps overshadowing the concerns more typically associated with national security such as threats of terror and espionage. Unfortunately, if an overly broad definition is given to what is considered to be “critical infrastructure”, or what constitutes a threat or risk to critical infrastructure,  government protective actions may also appear anti-globalist.

How COVID-19 changed the ‘national security’ review process

Rarely in recent memory have domestic resource vulnerabilities been as obvious as they have been during the pandemic. Supply chains have been shaken and availability of necessities such as vaccines and other pharmaceuticals, food, energy, etc. has becomes a serious concern for many nations.

Canada faced the direct consequences of relying on non-domestic sources of supply at the outset of the pandemic when it needed to obtain personal protective equipment not just for health care workers, but also for the general population. Where Canada had historically relied  on foreign suppliers, including on its close relationship with its largest trading partner, the US, the global crisis drove home the fact that in a time of shortages of critical goods such as PPE, every country has a primary obligation to first protect its own citizens.

Because of supply issues caused by the global crisis, countries worldwide are creating or strengthening their national security review regimes to guard against unwanted foreign investment. As we move forward, perhaps at some point with the pandemic in our collective hindsight, the question may be asked whether countries were, in fact, directly responding to the pandemic, or whether they were taking advantage of the opportunity to pursue a more protectionist approach to trade.

How ‘national security’ is expanding

Whether related to the pandemic entirely, partially, or not at all, the fact is that countries are strengthening their foreign investment laws in the name of national security, in part, by expanding the list of investment categories that could potentially attract national security reviews. Germany, which had been developing a stronger foreign investment review process to apply to the pharmaceutical industry and other related sectors in response to the pandemic, now intends to apply its new rules to additional sectors including robotics, aerospace, autonomous driving, artificial intelligence, quantum and nuclear technologies, and cybersecurity.

The United Kingdom’s National Security and Investment Bill, currently working its way through the UK Parliament, originally applied to defence industries but was subsequently broadened to include critical infrastructure, advanced technology and personal data.

China’s new Measures for Security Review of Foreign Investment, which came into effect in January 2021 provides a broad and open-ended list of key sectors to which its investment regime applies.

Beyond simply strengthening legislation, developed nations around the globe have taken and continue to take actions that raise questions of whether countries are pursuing economic objectives under the guise of ‘national security’ – less welcoming to foreign investment and moving away from globalism. For example, Australia and New Zealand have blocked a number of Chinese investments on national security grounds in recent years. China’s reaction has been to question the true motivation behind such actions.

Even Canadian investment proposals have been impacted.  Notably, in January 2021, Canadian convenience store operator, Alimentation Couche-Tard Inc., abandoned its proposed $20-billion+ acquisition of France’s largest grocery chain, Carrefour SA, after the French government, upon being informed of the deal, immediately reacted by publicly promising to block it. While the French government has insisted that its resistance to the deal was grounded in a concern over food security, it is also possible that, with Carrefour being a flagship of French business, the decision was also politically motivated, with fear of support coalescing around the government’s political opposition, which has consistently maintained a nationalist economic platform.

How Canada’s approach measures up

In contrast to some of the national security measures being taken by other countries, one might suggest Canada’s rules-based national security review process is much more reasonable and predictable. While “national security” is not defined in the Investment Canada Act, Canada’s national security review guidelines provide for a number of factors used to determine whether a national security review will be conducted. Where legitimate national security concerns exist, Canada may intervene, but even in such cases, parties may be able to reach a mediation agreement to mitigate concerns, allowing a transaction to proceed.

On March 24, 2021, Canada announced updates to its national security review guidelines, which expanded the list of factors the government will consider during the national security review process, and provided some added clarity with respect to some of the pre-existing factors (see Fasken’s bulletin on the updates here). Although the list is structured as a non-exhaustive list of factors to be considered (and thus, other factors can and likely will come in to play), the recent updates to the guidelines have provided more clarity around what may constitute a national security concern.

While one cannot entirely mitigate against the risk of a national security review even in Canada, in the wake of the pandemic with countries world-wide reimagining the scope of ‘national security’ and responding unpredictably to possible foreign investment, Canada’s fair and steady approach to welcoming most foreign investment proposals may positively distinguish it from other jurisdictions.

On April 1, 2021, the Government of Canada announced two important updates relating to merger filing fees: (i) a decreased merger filing fee ($74,905.57), and (ii) a new Service Fees Remission Policy.

Decreased Merger Filing Fee for 2021

Effective immediately, the Competition Bureau’s (the “Bureau”) filing fee for merger reviews has decreased from $75,055.68 to $74,905.57.

The Competition Act requires parties to certain types of transactions that exceed applicable thresholds notify the Bureau. (See our prior blog post – 2021 Merger Review Thresholds.) The notifying parties are required to pay a filing fee in respect of such pre-merger notification and/or request for an advance ruling certificate (“ARC”).

Pursuant to the Service Fees Act, the Bureau’s merger review filing fee is adjusted annually based on the Consumer Price Index for Canada. Accordingly, the Bureau’s merger filing fee generally increases each year. Due to Canada’s economic contraction following from extensive restrictions on economic activity imposed by governments which were intended to slow the spread of COVID-19, the adjusted fee is slightly lower this year than it was last year, which is exceptional. If the Canadian economy improves, we can expect the merger filing fee to increase in 2022.

New Service Fees Remission Policy

Effective immediately, Innovation, Science and Economic Development Canada (“ISED”)[1] has issued a Service Fees Remission Policy which applies to filing fees for pre-merger notifications and/or ARC requests. Under this new policy, in certain circumstances, the Bureau will remit (i.e. refund/return) a portion of the filing fee paid when a service standard is not met.

The Bureau’s service standards for pre-merger notifications and ARC requests are set out in the table below.

Service or Regulatory Process Service Standard (calendar days) Commencement of Service Standard[2]
Non-complex 14 days

The day on which sufficient information has been received by the Commissioner of Competition (the “Commissioner”) to assign complexity.

Generally, complexity is assigned within a few days of submitting the pre-merger notification and/or ARC request.

Complex

45 days

(except where a SIR is issued, in which case it shall be 30 days)

The day on which sufficient information has been received by the Commissioner to assign complexity; or, where a supplemental information request (“SIR”) has been issued, the day on which the information requested in the SIR has been received by the Commissioner from all SIR recipients.

The amount of the remissions for pre-merger notifications and ARC requests are contained in the Program Annex, and set out below.

  • Non-Complex Transactions:
    • 25% of the filing fee will be remitted if the service standard was missed by 1 – 7 days.
    • 50% of the filing fee will be remitted if the service standard was missed by 8 days or more.
  • Complex Transactions where no SIR is issued:
    • 10% of the filing fee will be remitted if the service standard was missed by 1 – 23 days.
    • 25% of the filing fee will be remitted if the service standard was missed by 24 days or more.
  • Complex Transactions where a SIR is issued:
    • 1% of the filing fee will be remitted if the service standard was missed by 1 – 15 days.
    • 5% of the filing fee will be remitted if the service standard was missed by 16 days or more.

A party will not be eligible for a filing fee remission if the service standard was missed due to any of the following occurring before the expiration of a service standard:

  • an unforeseeable event;
  • a planned or unplanned power outage;
  • the merger transaction is under investigation pursuant to another provision of the Competition Act
  • the merger transaction is under investigation by another Canadian or foreign authority and the Bureau is cooperating with said authority with respect to the transaction;
  • the Commission and the parties entered into an agreement with respect to the timing of the service standard; or
  • the Bureau is reviewing multiple merger transactions involving one or more of the same parties.

Although the Bureau has a good record for meeting its service standards, the Service Fees Remission Policy is a welcome development because it further incentivizes the Bureau to improve its record in this regard.

[1] The Competition Bureau is a federal institution that is part of the Innovation, Science and Economic Development Canada portfolio.

[2] In the case of an unsolicited bid under subsection 114(3) of the Competition Act, the service standard will commence when all parties other than the target corporation have complied with the applicable requirements.

Canada’s Competition Bureau (the “Bureau”) has joined an international multilateral working group that will be focusing on the analysis of pharmaceutical mergers. Initiated by the U.S. Federal Trade Commission, the working group also includes the Antitrust Division of the U.S. Department of Justice, Offices of State Attorneys General, the U.K. Competition and Markets Authority (“CMA”) and the European Commission Directorate General for Competition (“European Commission”).  According to the Bureau, “(t)he goal of the initiative is to identify concrete steps to review and update the analysis of pharmaceutical mergers, which are often subject to review in multiple jurisdictions.” The organizer of the international working group, Acting FTC Chair Rebecca Slaughter, used stronger language, noting that “amid skyrocketing drug prices and ongoing concerns about anticompetitive conduct in the industry, it is imperative that we rethink our approach toward pharmaceutical merger review.” Similarly, the European Commission notes that the working group “will bring enhanced scrutiny and more detailed analysis of these kinds of mergers in the future, for the benefit of consumers.”

The FTC elaborated on the specific questions that the working group will consider, namely:

  • How can current theories of harm be expanded and refreshed?
  • What is the full range of a pharmaceutical merger’s effects on innovation?
  • In merger review, how should [antitrust/competition agencies] consider pharmaceutical conduct such as price fixing, reverse payments, and other regulatory abuses?
  • What evidence would be needed to challenge a transaction based on any new or expanded theories of harm?
  • What types of remedies would work in the cases to which those theories are applied?
  • What have [antitrust/competition agencies] learned about the scope of assets and characteristics of firms that make successful divestiture buyers?

Acting FTC Chair Slaughter is reported to be open to reconsidering completed pharmaceutical mergers based on the international working group’s findings. Acting FTC Chair Slaughter has been openly critical of certain pharmaceutical mergers in the past.  Accordingly, her role in spearheading this international working group is not overly surprising.

No expected timetable has been reported on in regards to the working group’s work product.

Takeaways

  1. The promotion of competition and innovation in Canada’s health sector, including the pharmaceutical industry, is a strategic priority for the Bureau. Accordingly, the Bureau’s participation in this working group is a reminder of this strategic priority. What is unique about this initiative, however, is its focus on a particular industry and the Bureau’s (and working group’s) suggestion that different rules and analytical frameworks may need to be applied to the pharmaceutical industry.
  1. Each of the jurisdictions participating in this working group has its own individual laws and enforcement framework. The Bureau will have particular challenges trying to apply different rules to specific industries in Canada given that the Bureau’s framework for reviewing mergers is largely statutory with well established case law. For example, the consideration of non-merger related factors, such as regulatory abuses, would be a significant departure from the Bureau’s prescribed framework for analyzing mergers. Further, unlike in the US where there is no limitation period to review consummated mergers, Canada has a one-year post-closing limitation period after which time a completed merger cannot be challenged.
  1. Parties contemplating mergers in the pharmaceutical industry in Canada should plan early and anticipate the possibility of a lengthy and rigorous merger review, including in relation to potential divestiture buyers where necessary. Given the stated questions that the working group is considering, the merger review analysis may not only be based on traditional pharma related overlap analyses but also on new theories of harm and other considerations.

If you have questions about the Competition Act or any aspect of this blog post, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment 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 Competition, Marketing & Foreign Investment group.

Numerous countries around the world are currently reviewing their competition laws and policies. This review is focussed on both the purpose of competition law generally and whether existing laws are “fit for purpose”, particularly in the context of today’s rapidly changing and highly disruptive digital economy. The debate around these issues has been fierce to say the least, with some arguing that no changes are needed and others, such as U.S. Senator Amy Klobuchar, arguing that U.S. antitrust laws need to be completely overhauled in order to better protect consumers.

Canada is also considering possible amendments to the Canadian Competition Act. In fact, on February 23, 2021, the House of Commons Standing Committee on Industry, Science and Technology passed a resolution agreeing to devote “[a] minimum of four meetings to a study on competitiveness in Canada including … reform of the Competition Act and any other matter relating to competition”. In this regard, according to Member of Parliament Nathanial Erskine-Smith, there is “recognition” across political parties that there are “deficiencies” in the Act and that the Commissioner of Competition “does not have the tools he needs”. MP Erskine-Smith is of the view that, “[a]s the United States moves forward more seriously with a really strong antitrust lens … we need to update our laws and do the same” – it would be a “mistake” for Canada not to “seize this moment”. The Competition Bureau has indicated that it “supports any measure that ensures Canada is equipped with modern legislation and tools that are appropriate for the digital age”.

While no one can quarrel with the need to review competition laws to ensure that they are “fit for purpose”, any such review needs to be fully informed and take into account all relevant information – something that may not be happening today. For example, while many of the issues being discussed in the context of the digital economy are based on a relatively small handful of economics-related papers, Professor Daniel Sokol noted the following during a recent Canadian Bar Association teleconference titled “Economic Issues Involving Platforms, Privacy and the Digital Economy”: (a) that the vast majority of the more than 200 empirical online platform-related papers published from 2000 to 2019 by leading business journals covered other disciplines, such as finance, information systems, management and marketing; (b) that this empirical work looks very different than the economics-related work; and (c) that we need to better understand what the empirical literature tells us, particularly since most papers show pro-competitive results.

While Canada should be paying attention to what is happening elsewhere, it should not blindly follow other jurisdictions as it considers possible amendments to the Competition Act – particularly as it relates to the types of amendments being proposed by Senator Klobuchar, as many of the proposed changes could be harmful to competition, innovation and the economy. Rather, any such amendments should be carefully considered and subject to a detailed policy debate, which includes lawyers, economists, academics, Bureau officials, policy-makers and other relevant stakeholders. Moreover, the discussion should be informed by a thorough review of all relevant empirical literature – not just a small handful of economics-based papers that provide a one-sided perspective. Failing to proceed in this fashion could result in a “cure” that is worse than the perceived “problem” by, for example, creating a regime that unnecessarily limits or prevents pro-competitive or efficiency-enhancing conduct that could otherwise spur innovation – something that, in my view, needs to be avoided at all costs!

If you have questions about the Competition Act or any aspect of this blog post, you can reach out to any member of Fasken’s Competition, Marketing & Foreign Investment 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 Competition, Marketing & Foreign Investment group.

On March 24, 2021, the Minister of Innovation, Science and Industry (the “Minister”) announced updates to the Guidelines on the National Security Review of Investments (the “Guidelines”) issued under the Investment Canada Act (the “ICA”).

This first update since the Guidelines were issued on December 21, 2016 appears to respond to widely expressed concerns about the sanctity of personal information, vulnerability of Canadian intellectual property, and the growing importance of things like critical minerals to Canada’s geopolitical positioning and the basic health and safety of citizens in a post-pandemic world. Additionally, areas of technology broadly understood to be of concern to the Government of Canada (the “Government”) have been expressly listed, with the only potential surprise being “Advanced Ocean Technologies.”

Background

Separate and distinct from the “net benefit to Canada” economic impact assessment, the ICA provides for a national security review that gives the Government the authority to review any acquisition (or establishment) of all or part of a Canadian business, that, in its opinion, could be injurious to Canada’s national security.

In 2016, the Minister issued Guidelines as a way to provide foreign investors with a clearer picture as to the circumstances under which the Government of Canada may initiate a national security review. For more information on the introduction of the Guidelines in 2016, see our post, Investment Canada Issues National Security Review Guidelines.

What’s new

The Guidelines previously contained specific factors the Government would consider during the national security review process. The updated Guidelines expand that list of factors and provide additional clarity with respect to some of the pre-existing factors, including the potential effects of the investment on:

  • Canada’s defence capabilities and interests – this consideration now includes, but is not limited to, the defence industrial base and defence establishments.
  • Transfer of sensitive technology or know-how outside of Canada – this factor has been updated to provide additional clarity on what may be considered sensitive technology, including those developed in the following fields:
    • Advanced Materials and Manufacturing
    • Advanced Ocean Technologies
    • Advanced Sensing and Surveillance
    • Advanced Weapons
    • Aerospace
    • Artificial Intelligence
    • Biotechnology
    • Energy Generation, Storage and Transmission
    • Medical Technology
    • Neurotechnology and Human-Machine Integration
    • Next Generation Computing and Digital Infrastructure
    • Position, Navigation and Timing
    • Quantum Science
    • Robotics and Autonomous Systems
    • Space Technology
  • Critical minerals – the list of factors now includes consideration of the impact of an investment on critical minerals and critical mineral supply chains. For more information on which minerals are considered critical in Canada, see our recent post, Newly Critical: Copper, Helium and More – Canada’s List of Critical Minerals has Expanded for 2021.
  • Involving or facilitating the activities of corrupt foreign officials – corrupt foreign officials have been added to the examples of illicit actors whose activities may be considered.
  • Exploitation of sensitive personal data – the list adds consideration of the ability to enable access to sensitive personal data, exploitation of which could harm Canadian national security. Helpfully, the Guidelines provide a non-exhaustive list of the types of personal data that may be considered sensitive: (a) personally identifiable health or genetic data, (b) biometric data, (c) financial data, (d) communications data, (e) geolocation data, and (f) personal data concerning government officials, including members of the military or intelligence community. These are not new concerns to the Government, but the express listing represents a welcome move towards clarity that tends to explain the “why” behind past general expressions of federal concern.

Note that the Guidelines provide a non-exhaustive list of factors that may be taken into account during a national security review. Investments that do not possess the listed characteristics may nevertheless present national security concerns. Conversely, investments that possess some of the above-listed characteristics will not necessarily be viewed by the Government as injurious to Canada’s national security. Each of the factors must be set within the current bilateral, geopolitical, and domestic political contexts in order to produce a more fully-developed picture of the likelihood of an investment’s ultimate approval by the Government.

What Stays the Same

Consistent with the Government’s April 2020 Policy Statement on Foreign Investment Review and COVID-19, the updated Guidelines now provide that the Government will subject all foreign investments by state-owned investors, or private investors assessed as being closely tied to or subject to direction from foreign governments, to enhanced scrutiny under the ICA, regardless of the investment’s value. Enhanced scrutiny of foreign direct investments, both controlling and non-controlling, in Canadian businesses, has been the Government’s policy for some time now.

What’s Next

While these revised National Security Guidelines do provide a new level of transparency to the investment community concerning what types of transactions may attract national security scrutiny, they do not address the need for more openness and transparency during actual national security reviews in the context of specific transactions.

Actions to mitigate perceived security issues should always be something to be considered. In the past, the Government has shown reluctance to engage in mitigation discussions, appearing to prefer a binary “go / no go” approach. Hindering the ability to determine whether mitigation is even a possibility is a certain lack of transparency or openness by the government as to the exact nature of its security concerns with respect to a specific transaction.  Acknowledging that mitigation discussions are inherently difficult given that national security matters are involved, something more needs to be done to ensure that otherwise beneficial transactions are not blocked simply because the parties to the deal have not been given a full and fair opportunity to address the government’s security concerns and to offer possible mitigation options to address those concerns. A published list of specific areas of federal concern will make it more difficult for the Government to keep its concerns general and instead, will invite a healthy debate about specific problems with a deal — and specific solutions thereto. This is a step in the right direction in the attraction of the foreign capital crucial to Canada’s economic recovery from COVID-19.

 

Double Ticketing

Canadian competition law prohibits businesses putting two prices on one product and charging the higher of the two prices.

This concept of double ticketing was first introduced into Canadian law in 1975 to address stores listing two different prices for a single item; however, we are now seeing the concept being extended to today’s digital marketplace.

This trend commenced with the recent class action against Airbnb (2019 FC 1563) invoking section 54 of the Competition Act in the context of Airbnb showing a user one price for accommodation on the search results page, and a second, higher price that includes service fees on the listing page, then charging the customer for the higher price upon booking. This trend has continued with the B.C. Supreme Court recently certifying a class proceeding against an airline relating to its practice of charging passengers $25 to check their first bag (2021 BCSC 12).

Airline Class Action

The claim against the airline arises from inconsistent language in both its domestic and international tariffs with respect to whether or not passengers would be charged $25 to check their first piece of luggage. Both tariffs had provisions indicating that the first piece of checked luggage would be free of charge, and provisions indicating that there would be a fee on the first piece of luggage.

The plaintiff’s primary position was that because tariffs are published pursuant to government regulations, and form part of the contract with the passenger, they are continuously expressed to passengers.  The airline’s position was that because passengers can buy an airline ticket without ever looking at the tariff, the free check bag price was not clearly expressed, as required by the Competition Act, and that the plaintiff failed to plead that the two prices were expressed at the time of supply.

Initially, the Court found that the plaintiff had not pled that the two tickets were expressed at the time of travel, or even that they were expressed at the same time and permitted the plaintiff to amend its notice of civil claim to plead the temporal requirement. The defendants conceded that the plaintiff had adequately pled claims for breach of contract and unjust enrichment.

The Court subsequently certified the Competition Act claim (2021 BCSC 351), finding that the plaintiff’s proposed amendments addressed the issues it had previously raised with respect to timing.  In doing so, the Court rejected the defendants’ opposition to the amendments on the basis that the submissions effectively amounted to a request for the court to reconsider determinations it had already made on the basis of new arguments that were not made at the certification hearing.

The Court removed from the class individuals who flew on flights where the airline was not the entity that received the baggage fees.

The airline argued that commonality could not be established because the terms of its contracts with passengers differ depending on the circumstances surrounding each class member at the time of purchase. The Court rejected this argument and accepted the claim as a common issue. However, the court ordered a common issues trial on the basis that the tariffs were ambiguous insofar as they contain terms that contradict one another with respect to baggage fees, and thus needed to be properly construed.

The airline argued that because the determination of whether there was a juristic reason for enrichment would require an analysis of each individual contract, there could be no common issues in unjust enrichment. The Court rejected this argument, stating that the answer to this question will not differ between class members. The contract will either provide a juristic reason or not.

The Court found that the large number of claims, each for a small amount, made a class proceeding the only practical means of providing meaningful access to justice to the large number of individuals who may have a claim.

The airline raised the issue of double recovery due to a similar class proceeding in Saskatchewan with respect to baggage fees charged by it and another airline. Because that proceeding has not been certified, the Court found that any concerns about double recovery are mere speculation.

The Court found that the proposed representative plaintiff was suitable as she was subject to a contract of carriage with the airline during the class period and paid baggage fees for her first checked bag.

The Court therefore certified the plaintiff’s claims in relation to breach of contract and unjust enrichment and granted leave to the plaintiff to amend its notice of civil claim to plead the temporal requirement.

Unchartered Territory

There may be a growing trend of certifying cases applying double ticketing provisions to online sales, but it does not mean that these claims will succeed at trial. Indeed, in both the Airbnb case and the airline case, the courts expressed skepticism about the merits of the plaintiffs’ cases. Nonetheless, businesses putting two prices on a product or service to lure customers but then charging the higher price face potential class actions.