The Competitor : Canada Competition / Antitrust Blog by Stikeman Elliott Lawyers & Attorneys

Susan M. Hutton

In a ruling of the Newfoundland Provincial Court dated September 18, 2006, D. Orr Provincial Court Judge dismissed, after a preliminary hearing, charges laid under Section 45 of the Competition Act (Canada) against six companies and seven individuals in respect of an agreement among them to refuse to bid on certain contracts for exclusive supply rights at the St. John's Airport and other St. John's locations (R. v. Budgens Taxi, [2006] N.J. No. 250). The Judge found that the Crown's economic expert failed to provide any evidence as to the absolute size of the relevant market, therefore making it impossible to determine the impact of the agreement on competition. While stating that the regulated conduct defence could not be considered at the stage of the preliminary inquiry, he also stated that the accused "were acting within the confines of a regulated industry", and had brought the issue to the attention of the appropriate regulatory body, and could not be said to have "unduly" impacted the market.

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Susan M. Hutton and Michael Kilby

On September 22, 2006, the Competition Bureau published its Information Bulletin on Merger Remedies in Canada (Bulletin). The Bulletin is intended to provide guidance on the general principles applied by the Bureau when it seeks, designs, and implements remedies in merger cases. The Bureau intends to include, as an appendix, an outline of a model consent agreement, which it says will be published "shortly". The final Bulletin was issued just in time for the Canadian Bar Association's Annual Fall Competition Law Conference, almost a year after the initial draft bulletin in November, 2005.

The Bulletin must be read in the context of the merger remedies guidelines issued by Europe and the U.S. as part of the International Competition Network's work on improving international competition enforcement. In cooperating with other enforcement agencies internationally, Canada may rely on foreign remedies if they do not raise any Canada-specific issues.

The recently published Bulletin is substantially the same as the initial draft bulletin (highlights of which were published in the November 2005 edition of The Competitor). Similar to its predecessor, the Bulletin marks an intended tightening of the Bureau's stance toward divestitures, with shortened time-lines for divestitures, an emphasis on "fix-it-first" and "up-front buyer" solutions, and the use of "crown jewels" in the case of trustee divestitures. Noteworthy highlights include:

• A preference for structural over behavioural remedies.

• A strong recommendation to merging parties to use a "fix it first" approach, whereby merging parties remedy competition issues before closing the main transaction. "Fix it first" remedies also include signed agreements for a party to divest its assets, to be executed on closing, subject to Bureau approval.

• If upfront divestiture is not possible, the Bureau indicates that it expects sales processes to be concluded within 3 to 6 month (the precise time period will be kept confidential). This is a shift in the Bureau's approach, which has permitted a 6 to 12 month initial divestiture period in the past.

• The increased use of "crown jewels" during the trustee sale period.

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D. Jeffrey Brown and Kevin Rushton

On September 26, 2006, the Competition Bureau released its Draft Information Bulletin on the Abuse of Dominance Provisions as Applied to the Telecommunications Industry (the "Draft Bulletin"). The Draft Bulletin sets out the Bureau's approach to reviewing complaints under sections 78 and 79 of the Competition Act (the Act) - the abuse of dominance provisions - in respect of conduct that is not regulated by the Canadian Radio-television and Telecommunications Commission (the CRTC). Stakeholder comments on the Draft Bulletin must be submitted to the Bureau by December 29, 2006.

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Kevin Rushton

Speaking at the Canadian Bar Association's Annual Fall Conference on Competition Law, Sheridan Scott, Commissioner of Competition, offered new insights to the Bureau's approach to efficiencies in merger analysis. Most significantly, the Commissioner stated that the Bureau "would not necessarily require recourse to the [Competition] Tribunal in a case where the efficiencies resulting from the merger would clearly be greater than and offset any anti-competitive effects; rather, while our experience suggests that such cases are rare, we could, if sufficiently satisfied on the evidence, make our own independent assessment of efficiencies, and clear the merger on that basis."¹ In that regard, the Commissioner urged parties to make efficiencies submissions and "not to be deterred by an unfounded notion that to do so is somehow an admission of anti-competitive concern."

Under section 96 of the Competition Act - the so-called "efficiency defence" - a merger cannot be prohibited if it is likely to result in efficiency gains that are greater than, and offset, the effects of any substantial prevention or lessening of competition from the merger, provided that the efficiencies would not likely be achieved if the merger were prohibited. The Bureau's past practice had been to litigate the application of section 96 before the Tribunal, rather than to clear a transaction on those grounds.²

The Bureau's apparent change of approach to the application of section 96 is welcome news, given the Bureau's responsibility to administer the statute as a whole. Given the extreme rarity of cases in which the efficiencies defense is the determining factor, however, the change of approach will not ultimately affect many transactions.

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