Volkswagen and Audi settled environmental marketing claim with $15 million penalty

Vanessa Leung

On December 19, 2016, Volkswagen Group Canada Inc. (VW) and Audi Canada Inc. (Audi) entered into a consent agreement with the Commissioner of Competition to resolve the Commissioner’s concerns that VW and Audi had made false or misleading environmental marketing claims about certain of its 2.0 litre diesel vehicles. The consent agreement is one component of a broader Canadian settlement relating to VW’s and Audi’s allegedly misleading environmental claims.

The Bureau alleged that software installed in the affected VW and Audi vehicles could detect a test being conducted and alter the operation of the vehicle during the test to reduce nitrogen oxide emissions. The Bureau also alleged, however, that during normal use, the nitrogen oxide emissions would exceed the amounts at which the vehicle had been certified. The Bureau concluded that the statements, warranties and/or guaranties made about the performance or efficacy of these vehicles were false and misleading in a material respect, and were not based on adequate and proper testing, contrary to the Competition Act

In addition to its independent consent agreement, the Bureau participated in a proposed class action settlement that Volkswagen reached with consumers of certain affected vehicles. If approved by the courts, the settlement will provide total buyback and restitution payments totalling up to C$2.1 billion. The Bureau’s consent agreement provides for an additional, C$7.5 million administrative monetary penalty for each of VW and Audi, and provides that the parties will compensate the Bureau for C$200,000 toward its investigative costs. In the consent agreement, the Bureau also acknowledged an “Owner Credit Package” program, established voluntarily by VW and Audi, that provides certain benefits for affected owners and lessees.

As part of the consent agreement, VW and Audi agreed not to create a false or misleading general impression that: (a) their vehicles’ emissions are “clean”; (b) their vehicles produce lower emissions than other vehicles; (c) their vehicles are less polluting than other vehicles; (d) their vehicles are “green”, or less harmful to the environment than other vehicles; and/or (e) their vehicles are environmentally friendly. VW and Audi further agreed that, unless adequate and proper testing was performed, they would not make any representations that: (a) their vehicles’ emissions are cleaner than gasoline; (b) their vehicles produce less sooty emissions than older diesel engines; and/or (c) their vehicles produce fewer emissions than other vehicles.

VW and Audi also agreed to use their best efforts to stop selling or leasing affected vehicles, unless the emissions system of the vehicles was first modified to reduce nitrogen oxide emissions. VW and Audi will also enhance and maintain a corporate compliance program to ensure compliance with the Competition Act.

The Bureau noted that it had agreed to more favourable terms in the consent agreement due to VW and Audi’s cooperation with its inquiry. The Bureau also noted that the consent agreement does not resolve its ongoing inquiry with respect to certain vehicles equipped with 3.0 litre diesel engines. The consent agreement is part of a broader, global investigation into VW’s and Audi’s environmental marketing claims, and demonstrates the Bureau’s active role in such broader, industry investigations, both as a participant in the private class action process and as an independent law enforcement agency to enforce the provisions of the Competition Act.

Competition Bureau clears McKesson's acquisition of Rexall Health, subject to conditions

Gideon Kwinter and Mike Laskey

On December 14, the Competition Bureau entered into a consent agreement with McKesson Corporation in relation to its acquisition of Rexall Health from Katz Group. The agreement brings an end to the Bureau’s extensive review of the transaction, which was announced over nine months ago, on March 2, 2016.

Upon closing of the transaction, McKesson, the largest pharmaceutical product wholesaler in Canada, will acquire Rexall Health’s approximately 470 retail pharmacies. The Bureau determined that the acquisition would likely result in a substantial lessening or prevention of competition in the wholesale and retail of certain pharmacy products and services.

The remedies required by the Bureau under the consent agreement can be divided into two broad categories: structural and behavioural.

  • Structural: McKesson is required to sell 28 Rexall retail pharmacies spread across 26 suburban and rural markets in Alberta, British Columbia, the Northwest Territories, Ontario and Saskatchewan. Structural remedies (i.e., divestments) are very common in Competition Bureau consent agreements, and respond to concerns that the transaction would reduce competition for the retail sale of pharmacy products in certain communities.
  • Behavioural: In addition to the divestment requirement, the consent agreement requires McKesson to impose a “firewall” to restrict the flow of commercially sensitive information between its pharmaceutical wholesale business and its newly acquired Rexall retail business. McKesson is the largest wholesale pharmacy supplier in Canada, and will supply products to its owned Rexall locations, and to their competitors; the firewall is intended to preserve competition between Rexall and its retail competitors. A similar “firewall” requirement was imposed when Bell and Rogers each acquired a 50% interest in Glentel, a cellphone retailer. In the Glentel transaction, the firewall was intended to prevent information-sharing between two competitors (Bell and Rogers), whereas in the Rexall transaction, the firewall prevents the sharing of information within McKesson, between its wholesale and retail businesses.

This combination of structural and behavioural remedies echoes the Bureau’s approach in other recent retail transactions, including the Loblaw/Shoppers and the Parkland/Pioneer deals. 

Template consent agreement for better transparency and predictability in merger remedy

Vanessa Leung and William Wu - 

On September 29, 2016, the Competition Bureau released a template for merger consent agreements.

As part of its enforcement mandate, the Bureau reviews certain proposed transactions to determine whether they will likely result in a substantial lessening or prevention of competition in a market. If the Bureau determines that the proposed transaction is likely to result in substantial anti-competitive effects, the Commissioner of Competition has the option to challenge the proposed transaction before the Competition Tribunal or negotiate appropriate remedial measures with the merging parties to address the proposed transaction’s likely anti-competitive effects. Such negotiated remedial measures are typically implemented by way of a consent agreement. Once registered with the Tribunal, the consent agreement has the force and effect of a court order. The Bureau, as well as merging parties, generally prefers to pursue negotiated consent agreements rather than formal litigation before the Tribunal, as Tribunal litigation is more costly, time-consuming and uncertain for both the Bureau and the merging parties.

Merger remedies can be generally categorized into two types: divestiture of assets (i.e., structural remedies) and requirements prohibiting or mandating certain conduct (i.e., behavioural remedies). The template consent agreement published by the Bureau contains key provisions that may be expected to appear in a consent agreement, with a focus on structural remedies:

  • Obligations to complete divestitures of certain assets within prescribed time periods;
  • Prescribed divestiture trustee sale process;
  • Requirement for Commissioner’s approval of divestitures;
  • Requirement to hold certain assets of a merger separate pending divestiture;
  • Requirement to preserve divestiture assets pending divestiture;
  • Ongoing behavioural commitments and transitional support obligations;
  • Relationship with employees of divested businesses;
  • Consequences for failure to complete a divestiture;
  • Appointment of a monitor to ensure compliance with the consent agreement;
  • Ongoing compliance and reporting obligations.

The precise nature and terms of the negotiated remedial measures will differ depending on the nature of the transaction at issue and the nature of the Bureau’s concerns in respect of the transaction. Not all of the above provisions will appear in every consent agreement.

According to the Bureau’s press release, its publication of the template consent agreement is intended to “provide Canadian legal and business community with better insight into the Bureau’s expectations” in merger remedy negotiations and the Bureau will continue to “adjust the consent agreement template over time, based on its ongoing experience with negotiated merger consent agreements.” While recognizing the benefit of increased transparency and predictability, the published template consent agreement may serve to rigidly limit the scope for merging parties to negotiate remedies that may fall outside of the standard terms of the template consent agreement. Based on a number of consent agreements resolving allegations of deceptive marketing practices in recent years, it could be argued that the Bureau may have a tendency to rigidly follow a template without adequately taking into account the different prevailing market practices in different industries.

Avis and Budget reach settlement in alleged misrepresentation of fees and discounts

Vanessa Leung and Ashley Piotrowski

On June 2, 2016, the Competition Bureau reached a consent agreement with Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., over allegations of false or misleading advertising for prices and discounts on car rentals and associated products.  A Bureau investigation concluded that certain prices and discounts initially advertised were not attainable because consumers were charged additional mandatory fees that were only disclosed later when making a reservation. Pursuant to the consent agreement, the parties will pay a $3 million administrative monetary penalty, as well as $250,000 towards the Bureau’s investigative costs.  The parties have also agreed to implement a compliance program.

Background

In March 2015, the Bureau filed an application against the Aviscar Inc. and Budgetcar Inc. / Budgetauto Inc., alleging that the parties had made false or misleading representations to the public to promote the use of their rental cars and associated products, and that the parties had supplied their rental cars and associated products at a higher price than was advertised to consumer. The representations were made across a broad range of media including print, website, mobile applications, television commercials and electronic messages.

The Bureau argued that the initial price offered in the advertisements created a false general impression about discounts that were allegedly available to consumers for rental cars, which did not take into account mandatory fees that increased the ultimate price of the rental.  Such mandatory fees were allegedly disclosed only once a consumer had chosen to make a reservation. As such, the Bureau’s view was that rental cars were not available at the prices initially advertised to consumers.   The Bureau concluded that these mandatory fees could increase the cost of a rental by 5% to 20% above the initial advertised price. Furthermore, the disclosure associated with these mandatory fees allegedly misled consumers to believe that they were taxes and surcharges levied by government and authorized agencies when in fact they were fees emanating from the parties themselves. To address the Bureau’s concerns, the parties voluntarily redesigned their Canadian websites in July 2015 to ensure consumers are made aware of any mandatory fees when they are first shown the advertised price.

The consent agreement serves as an important reminder to businesses that the general impression of an advertisement is just as important as the fine print, and that mandatory fees that are not clearly disclosed to consumers at the initial stage of advertising a price, including in electronic messages and online price building tools, could result in misleading advertising.  

Telus agrees to pay $7.34 million in customer rebates to resolve false and misleading advertising allegations

Jeff Brown and Margaret Kim - 

On December 30, 2015, the Competition Bureau announced that it had reached a consent agreement with Telus Communications Inc., one of Canada’s “Big Three” wireless carriers, over allegations of false or misleading advertisements for premium text messaging and rich content services, such as trivia, daily horoscopes, and ring tones. 

As part of the consent agreement, Telus will issue rebates in an aggregate amount up to $7.34 million to certain current and former wireless customers, who the Bureau alleged were unknowingly charged extra for the text message services. The Bureau noted that the amount for consumer rebates made available under the consent agreement is the most obtained by it under any consent agreement to date.  In March 2015,  Rogers Communications Inc. settled with the Bureau, agreeing to pay $5.42 million in refunds to customers for the same fees as part of the same investigation. Similar proceedings against Bell Canada and the Canadian Wireless Telecommunications Association are ongoing.

 Background

Section 74.01(1)(a) of the Competition Act (the Act) addresses materially false or misleading representations to the public.  Under this provision, engaging in such activity for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, is a civilly reviewable matter.  

In September 2012, following a five-month investigation, the Bureau commenced legal proceedings against Rogers, Telus, Bell and the CWTA in the Ontario Superior Court.  The Bureau alleged that that the carriers and the CWTA made, or permitted to be made, false or misleading representations to customers in advertisements for premium text messages appearing in pop-up ads, apps and social media. The Bureau also alleged that the carriers permitted charges to be made by two third-party companies, Jesta and MMS, for texting services, such as trivia questions and ringtones, that wireless customers did not intend to purchase and for which they had not agreed to pay.  

In her statement, then-Commissioner Melanie Aiken stated that the Bureau’s investigation had revealed that “consumers were under the false impression that certain texts and apps were free”, and that “unfortunately, in far too many cases, consumers only became aware of unexpected and unauthorized charges on their mobile phone bills.” 

In the Bureau’s investigation, a tool known as a “common short code” was at the heart of the issue.  Text messages and digital content are delivered through this common short code, which is a number assigned by the CWTA’s Short Code Council. The CWTA then leases out the assigned number to a third party for the sale and delivery of digital content.   While such text messages and digital content can be made available for free to a wireless customer or billed at standard text messaging rates, these codes can also be used to charge higher rates to customers.  According to the Bureau, its investigation revealed that premium-rate digital content could cost up to $10 per transaction, and up to $40 for a monthly subscription. The digital content at issue was offered through advertisements in popular free apps on wireless devices, and also online. According to the Bureau, consumers were led to believe that such products were free but then later incurred charges. The Bureau also alleged that “the disclosure to customers had been wholly inadequate,” and the carriers “profited from these charges, at their customers’ expense”.

The Bureau’s sought remedies including full customer refunds and administrative monetary penalties of $10 million from each of Rogers, Telus and Bell, and $1 million from the CWTA. 

Overview of the Settlement

The rebates will apply to Telus, Telus Mobility and Koodo customers who incurred charges for certain premium text messaging services between January 1, 2011 and August 16, 2013.  The current affected customers will automatically receive a rebate as credits, while former affected customers will be notified with details on how to obtain their rebates by email or a letter with 120 days to make a claim.

In addition to the rebates, the consent agreement stipulates that Telus will publish a notice to all affected customers and establish a consumer awareness campaign to educate consumers on how to avoid unwanted wireless charges.  Telus will also create a corporate compliance program with a specific focus on its “billing on behalf of” practices and the Competition Act generally. The consent agreement requires that the compliance program be framed in a manner consistent with the Bureau’s “Corporate Compliance Programs Bulletin,” which was updated in June 2015.

Telus will also donate a total of $250,000 to the Ryerson University Privacy and Big Data Institute;  Éducaloi, an NGO dedicated to helping the public understand their rights and responsibilities under the law; and the Centre de recherche en droit public de l'Université de Montréal. The donations are earmarked for research on issues such as:

  • Citizen’s rights and consumer education regarding how wireless service providers use personal information and data collected from customers;
     
  • How wireless carriers could make more transparent to Canadian consumers what personal information the carriers are collecting and how that personal information will be used; and
     
  • The role that the law currently plays and could play in ensuring that consumers receive accurate information

Going forward: Bureau consumer protection efforts  likely to continue to be an enforcement priority

Going forward, it can be expected that the Bureau will continue to make enforcement of the Act’s false and misleading representation provisions an  enforcement priority.  The Bureau recently updated its Deceptive Marketing Practices Digest Bulletin, which focuses on the importance of truthful and accurate marketing practices in the digital economy.  The Bulletin also reflects Canada’s recently enacted Anti-Spam Legislation, which applies to the sending of electronic messages, as well as recent growth of online marketing through adoption of digital technology, in particular, mobile devices such as smartphones.

To this end, Matthew Boswell, Senior Deputy Commissioner of Competition, stated, “consumers expect and deserve truth in advertising. Allowing a third party to take advantage of consumers through misleading advertising is a violation of the Competition Act,” and indicated that the Bureau would continue enforcing misleading advertising “to ensure that consumers benefit from accurate information in the digital economy.”

Termination of franchise agreements required in minority interest acquisition

Jeffrey Brown and Shannon Kack -

On November 1, 2013, the Competition Bureau (the Bureau) announced a Consent Agreement with La Coop fédérée (LCF) and Groupe BMR (BMR) in relation to LCF’s acquisition of a minority interest in BMR. A position statement was released on November 13, 2013, outlining the Bureau’s analysis of the proposed merger.

Under the terms of the Consent Agreement, LCF and BMR are required to (i) terminate franchise agreements with certain retail store franchisees in four Quebec regions; and (ii) continue to supply these franchisees on competitive terms until a new franchisor is found or until December 31, 2014. In essence, the Consent Agreement will require the affected franchisees to find new competitor banners under which to carry on their retail businesses in these regions or to otherwise carry on business independently of LCF and BMR.

Notwithstanding that the transaction involved the acquisition of a minority interest, the transaction was reviewed by the Bureau as a "merger" within the meaning of section 91 of the Competition Act (the Act). As noted in the Bureau’s Merger Enforcement Guidelines (the MEGs), section 91 of the Act defines a "merger" broadly to include any acquisition or establishment of control over or a significant interest in the business of a competitor, supplier, customer or other person. The MEGs define a “significant interest” as “the ability to materially influence the economic behaviour of the target business, including but not limited to decisions relating to pricing, purchasing, distribution, marketing, investment, financing and the licensing of intellectual property rights”.

LCF and BMR are both engaged in the wholesale supply of hardware, renovation, agricultural machinery and gardening products to retailer networks that are mostly comprised of franchised stores. As part of its assessment of the transaction, the Bureau examined the extent to which the parties’ franchisees are independent from their respective networks and considered a number of factors, including:

  • purchasing requirements;
     
  • retail pricing practices;
     
  • obligations related to flyers and marketing practices; and
     
  • the parties’ integration plans post-transaction.

The Bureau concluded that both LCF and BMR were in a position to materially influence the economic behaviour of their franchisees and, moreover, that LCF, post-acquisition, would have the ability to materially influence the economic behavior of both LCF and BMR franchisees.

The Bureau identified the geographic scope of the market as local, and found that the relevant geographic market in rural areas generally did not extend beyond a 30km radius from a retail store. In such local markets, the Bureau found that sufficient competition from established players such as Rona, Home Hardware, Ace and Canac would remain post-transaction and that barriers to entry or expansion into new lines of products were relatively low for existing retailers. However, the Bureau identified four Quebec regions where the Bureau found LCF and BMR to be each other’s closest competitors, and that little or no remaining competition and high barriers of entry would exist in those areas post-transaction.

The Bureau ultimately found that the proposed transaction would likely result in a substantial lessening or prevention of competition in the retail sale of hardware products and building materials in Saint-Pampile, Saint-Cyprien, Lac Megantic and Montmagny, Quebec.

Competition Bureau consents to Re-structuring of Interac Payment Association

Susan Hutton, Michael Laskey, Erica Lindberg -

On July 12, 2013, the Interac Association – responsible for operating Canada’s on-line, point-of-sale and ABM debit system - filed a request with the Competition Tribunal to amend the Consent Agreement under which it has been operating since 1996. The original agreement required, among other things, that Interac be managed on a not-for-profit basis. The Commissioner of Competition has consented to the proposal, after rejecting a similar request in 2010.

Interac seeks to restructure to become a for-profit corporation, with an independent board. It believes this change will provide the flexibility necessary in order to remain a low-cost payment alternative for merchants in what has become an increasingly competitive payments marketplace. The new Interac Corporation would operate its services under a cost-recovery model, which would it says will permit the allocation of funds for the research and development of new and innovative payment services.

Interac had previously sought in vain to restructure on a for-profit basis. In February 2010, the Commissioner of Competition decided not to consent to a similar request due to what it termed as Interac’s dominant position in the market. Then-Commissioner Aitken did not believe that restructuring was necessary for Interac to remain competitive; however, she indicated that she would be prepared to re-examine the request in future, provided there was new information or material change in the marketplace, or Interac advanced an alternative proposal.

Interac believes that the Canadian payments marketplace is undergoing significant shifts and faces increased competition in the form of large multinational competitors that are unencumbered by the operating constraints imposed by the 1996 Consent Agreement. According to the Competition Bureau press release, Interac’s new proposal includes specific assurances as to how it would retain safeguards ensuring open and non-discriminatory access to the Interac network, as well as the above-mentioned assurance that it would operate by means of a cost-recovery model and use profits to fund innovation.

As mentioned, the Commissioner of Competition has consented to the newly-proposed amendments, which must still be approved by the Tribunal. If approved, and subject to successful completion of the restructuring plan, the amended Consent Agreement will remain in force until June 2018.

Competition Bureau finds slimming creams not as effective as advertised

Ashley Weber -

The Competition Bureau announced last week that it has entered into a Consent Agreement with Beiersdorf Canada Inc., the Canadian distributor of Nivea, regarding misleading claims associated with Nivea's "My Silhouette" product. According to the Competition Bureau, certain claims about the product, including that it can slim and reshape the body and cause a reduction of up to three centimetres on targeted areas, were false or misleading, and not based on adequate and proper testing. As part of the settlement, Beiersdorf has agreed to pay an administrative penalty of $300,000 plus $80,000 in costs, in addition to providing refunds to consumers.

The settlement follows on the heels of another high profile misleading advertising decision by the Commissioner of Competition pertaining to Bell Canada, which we described in a post of July 29. In that decision, the Commissioner concluded that Bell had misled consumers in its advertising regarding the prices consumers are required to pay for its TV, internet, home phone and wireless services. Bell Canada agreed to pay an administrative monetary penalty of $10 million, as well as revise its current and future advertising to ensure that consumers are no longer misled by the prices advertised and the fine-print disclaimers that accompany the advertising.

Given the recent activity by the Commissioner to exercise her powers under the Competition Act to crack down on misleading advertising, and further, given the steep penalties that can be imposed under the Act on companies found to have engaged in deceptive marketing ($10 million initially for a corporation and $15 million for repeat offenders), companies should take the time to carefully review their advertising and disclaimers prior to going to print, in order to ensure representations made to the public do not run afoul of the Act.

If you have any questions about the misleading advertising or other provisions of the Competition Act, I invite you to contact me or any other member of our Competition & Foreign Investment Group.

Bell Canada to pay $10-million penalty for misleading advertising

Ashley Weber and Jennifer Rad -

On June 28, 2011, Bell Canada entered into a Consent Agreement with the Commissioner of Competition that will require Bell to pay a $10-million administrative monetary penalty for making false or misleading representations in its advertising regarding the prices consumers are required to pay for its Home Phone, Internet, Television, and Wireless services. 

Upon completion of its investigation, the Competition Bureau concluded that Bell has, since December 2007, advertised monthly prices which were lower than the actual price it charges consumers for its services. Section 74.01 of the Competition Act prohibits any representation to the public, for the purposes of promoting a product, that is false or misleading in a material respect, and takes into account both the general impression conveyed by a representation as well as its literal meaning.

The Competition Bureau argued that, in order to identify any additional fees (e.g., TouchTone, modem rental and digital television services) applicable to an advertised price, consumers were redirected to other sources, including disclaimers on Bell’s website. The Commissioner found that the representations in Bell’s fine-print disclaimers included additional mandatory fees that were omitted from the advertised prices, and, as such, created a false general impression to consumers regarding the price at which they were able to purchase services.

In the Consent Agreement, Bell Canada has agreed to:

  • Pay a $10-million administrative monetary penalty, as well as cost and disbursements to the Competition Bureau related to their investigation;
  • Take immediate steps to cease any false or misleading representations regarding its services which are currently being published, disseminated or communicated to the public;
  • Not make false or misleading representations in the future in respect of the prices of its services;
  • Not make any new representations that convey a general impression which is contradicted by an accompanying disclaimer.

“Bell has agreed to resolve the issue with a consent agreement and move forward rather than going through a lengthy and costly legal challenge,” said Bell spokesperson Jacqueline Michelis, as quoted in the June 30, 2011 issue of the The Wire Report. As Bell agreed to a Consent Agreement, limited information will be made publicly available regarding the Bureau’s investigation. However, the fact that the Bureau sought the maximum AMP under the civil reviewable matter provisions for misleading advertising, $10 million for a company’s first offence, is a clear indication that the Bureau wants to send a message to advertisers at large. Going forward, to avoid running into similar problems with the Bureau, companies may wish to consider moving to “all-in” pricing in their advertisements that include all applicable fees and charges in the advertised price, and should also be cautious in relying on fine-print disclaimers to clarify material limitations in the offers they make to consumers. 

Canada's Merger Control and Foreign Investment Regimes - selected recent developments

Shawn C.D. Neylan and Michael Kilby -

In March 2009, significant amendments to Canada’s Competition Act and Investment Canada Act were passed, with important implications for the regulatory review of mergers and acquisitions. 

Merger Control – Competition Act

Following the amendments of March 2009, Canada now has a “two-stage” merger review process. The merits and demerits of this new regime were never thoroughly debated among competition law practitioners or in Parliament, because the amendments were included in a budget implementation bill drafted in response to the global economic crisis of 2008. The bill moved through the legislative process in a matter of weeks, with the clear focus of parliamentary debate being on economic stimulus measures, rather than amendments to the Competition Act and other statutes. In any event, the new merger review process shares many similarities with the US process under the Hart-Scott-Rodino Act1. More particularly, the submission of the required notification filings by the purchaser and the target company triggers a 30 calendar day waiting period during which the transaction may not proceed, unless the Commissioner of Competition (the Commissioner) issues a positive clearance for the transaction and/or terminates the waiting period. If the 30 calendar day waiting period expires without the issuance by the Commissioner of a supplementary information request (a SIR), then there is no legal impediment to the parties closing the transaction. However, if the Commissioner issues a SIR within the 30 calendar day waiting period, the transaction may not close until 30 days after the parties have complied with the SIR, unless the Commissioner issues a positive clearance for the transaction and/or terminates the waiting period.

To those familiar with US antitrust law, the above-outlined structure of the new Canadian regime clearly bears a close resemblance to the structure of US merger control law under the Hart-Scott-Rodino Act. However, two key differences between the Canadian and US regimes are that: a) it is possible in Canada, and even common, for parties to seek and obtain clearance for substantively simple transactions via an “advance ruling certificate” process, removing the need to make formal notification filings in the first place; and b) the expiry of the 30 calendar day waiting period in Canada does not amount to substantive comfort that the Commissioner has concluded that a transaction does not raise competition issues.

Since the new law came into force in March 2009, the rate at which the Commissioner and the Competition Bureau (the Bureau) have obtained negotiated remedies has increased dramatically in 2009 and 2010, as compared to historical levels. Indeed, between July 2009 and September 2010, (a 14 month period), the Bureau obtained Canadian competition law remedies in approximately 10 transactions, including numerous international transactions. Whether this is due to an increased number of strategic transactions or the new law is open to debate. Although it is impossible to say whether the Bureau could have obtained divestitures in respect of this number of transactions under the previous merger control regime, it is clear that this rate is considerably higher than in recent years where there were typically two or three merger remedies per year.2

Looking more closely at the transactions for which divestitures have been required, they vary greatly in terms of their Canadian elements. Some (Suncor/Petrocan, Clean Harbours /Everready and IESI-BFC/Waste Services) exclusively, or almost exclusively, raised competition issues in Canada and not in any foreign jurisdictions. In these situations, the Bureau obtained divestitures entirely independently from any foreign competition law regulators. Others (Pfizer/Wyeth, Merck/Schering Plough, Novartis/Alcon) were very much international mergers with relatively small Canadian components, and where international cooperation would have been significant in arriving at conclusions. Others still were international majors, but with relatively large Canadian components (e.g.,Agrium / CF Industries) with international cooperation again likely being significant. However, even where international cooperation was an important component of the Bureau’s review, the divestitures obtained have frequently had Canada-specific elements, demonstrating that Canadian remedies are not merely an exact re-iteration of any foreign remedies.

Prior to the March 2009 amendments, merging parties had the ability to force the Commissioner to litigate to prevent closing on the expiry of the 42 day period after pre-notification filings were submitted. Although such litigation was, in practice, a rare occurrence because parties wanted to obtain positive clearance from the Commissioner, the bargaining dynamic that existed between the Commissioner and the parties was nevertheless generally more favourable to the parties than is the case today. More particularly, for transactions the review of which lasted longer than 42 days, which captures the significant majority of mergers that are substantively complicated from a competition law perspective, the Commissioner had an incentive to negotiate to avoid litigation. 

Under the new regime, this dynamic is often not present, as the Commissioner’s review of substantively complicated transactions occurs largely, or even exclusively, during a period in which the parties are not able to close. Parties can only put themselves in a legal position to close by complying with a SIR (or the terms of a timing agreement), but the very act of complying with a SIR is a time-consuming, resource-intensive process, and results in the parties providing, under oath, the internal data and documents that the Commissioner would use to support a merger challenge. Parties can and do agree to pull and refile their merger filing such that the waiting period recommences and the Commissioner need not issue a SIR to prevent closing.

While information regarding the timing of parties’ compliance with SIRs (or timing agreements) for specific transactions is not publicly available, it is very likely that at least some of the recent divestitures contained in consent agreements obtained by the Commissioner were negotiated in situations where the parties were not in a legal position to close. This was never or virtually never the case under the old regime, where the parties would often be in a legal position to close during the negotiation of any remedy. One of the implications of the new regime for merging businesses where there is some competitive overlap is that if a relatively short interim period between signing and closing is contemplated, the parties will very likely arrive at their intended closing date in a situation where they require positive clearance from the Commissioner to close, meaning that their bargaining position in negotiating a consent agreement may be relatively weak.

Finally, it is notable that although the Commissioner has obtained merger remedies at an unprecedented rate since the implementation of the March 2009 amendments, the Commissioner has only brought a single formal merger challenge at the Competition Tribunal, continuing a trend that dates back a number of years.   Furthermore, the merger in question was “non-notifiable,” in the sense that it was not large enough to trigger a mandatory Competition Act filing. The new SIR process and the enhanced leverage of the Commissioner would therefore have been an irrelevant consideration in the review of this merger. 

It is unclear whether there will be much in the way of contested merger proceedings in the future. On the one hand, the enhanced information gathering powers of the Commissioner, which operate to extend the waiting period, suggest that the Commissioner may be in a better position than before to prepare for a contested merger challenge. On the other hand, parties to a transaction, recognizing the enhanced power of the Commissioner, may be more inclined to arrive at a negotiated settlement by way of consent agreement relating to the problematic portions of the transaction, in order to permit a relatively expeditious closing. It may take several years before the impact of the March 2009 amendments on merger investigation and litigation in Canada is fully understood. It would seem, however, that consent agreements will continue to occupy a significant position in the Canadian competition law landscape at least so long as the current strategic merger activity continues and that, consequently, case law under the Competition Act’s substantive merger review provisions will remain sparse.

Foreign Investment Review – Investment Canada Act

The ICA provides for the pre-closing review and Ministerial approval of certain investments in Canadian businesses, with such approval granted where the Minister determines that an investment is of “net benefit to Canada.” Prior to March 2009, the ICA did not contain any explicit “national security” review mechanism. We provide below a brief overview of Canada’s new “national security” review regime under the ICA. Certain other technical amendments to the ICAwere made in March 2009, but are not discussed in any detail herein. 

  • National Security - Overview

A national security review may be launched where the Government regards a foreign investment as potentially “injurious to national security”. If it concludes that there is a potential threat, the Government can prohibit or attach conditions to a foreign investment, whether an investment in an existing Canadian business or the establishment of a new Canadian business. If the investment is already completed, the Government’s powers include the ability to order the divestiture of a Canadian business. It is important to note that this mechanism for national security review is separate from the existing economic review process.

The national security amendments to the ICA raise a number of issues, including the following.

  • National Security is Undefined

The ICA does not define “national security”. The Government has not provided any meaningful guidance on the factors it will consider when determining whether there is a national security issue. The concern that national security could be interpreted expansively (beyond obvious defence-related concerns) is heightened by the large and varied group of governmental departments and agencies listed in the National Security Review of Investments Regulations (the National Security Regulations), including the Department of Canadian Heritage, the Department of Natural Resources, the Department of Transport, the Canada Revenue Agency, the Department of Public Works and Governmental Services and the Department of Finance, in addition to the more obvious agencies such as the Department of National Defence and the Canadian Security Intelligence Service.

  • Small Transactions and Other Investments are Subject to the New Law

Unlike the case in economic reviews under the ICA, the new national security review law applies to minority investments. Also, under the new law, the government may order a review if the business in question carries on any part of its operations in Canada and has any of: a place of operations in Canada; one or more individuals who are employed or self-employed in connection with the operations; or assets in Canada used in carrying on the operations. There is no minimum asset or transaction size threshold, with the result that a national security review is possible even with respect to small transactions.

  • No Process for Voluntary Pre-Clearance

The ICA does not provide a pre-clearance process for national security issues. However, in some cases the National Security Regulations provide for a statutory limitation on the Minister’s ability to act after a certain date. In some cases it may be possible to have the limitation period expire before closing. If this is not possible, there will be some (in most cases minimal) risk of a post-closing national security review.

  • State-Owned Enterprises (SOEs)

It is generally thought that the genesis of the national security law was the proposed acquisition of Canadian nickel miner Noranda Inc. by China Minmetals in 2004. Although that transaction did not proceed, it did generate debate about the role of national security considerations under the ICA.

In December 2007, the government issued guidelines on how it would apply the “net benefit to Canada” test to investments by SOEs that were being reviewed under the economic review provisions of the ICA (as opposed to the new national security law, which was not then in force). In addition to the factors that the Minister of Industry typically considers in deciding whether to approve reviewable investments, the SOE Guidelines indicate that the governance and commercial orientation of SOEs will be considered.

With respect to governance, the SOE Guidelines state that the SOE’s adherence to Canadian standards of corporate governance will be assessed, including any commitments to transparency and disclosure, independent directors, audit committees and equitable treatment of shareholders, as well as compliance with Canadian laws and practices. The Minister will also consider how and to what extent the investor is controlled by a state.

With respect to the commercial orientation, the SOE Guidelines state that the following will be relevant: (i) destinations of exports from Canada; (ii) whether processing will occur in Canada or elsewhere; (iii) the extent of participation of Canadians in Canadian and foreign operations; (iv) the support of on-going innovation, research and development; and (v) planned capital expenditures in Canada.

Finally, the SOE Guidelines outline the types of binding commitments or undertakings an SOE may be required to provide to pass the “net benefit” test. While many of these include commitments required by any foreign purchaser, of particular interest is the potential for a requirement to list the shares of the acquiring company or the target Canadian business on a Canadian stock exchange.

Mitigating Considerations

Despite the uncertainty generated by the introduction of the national security review process in Canada, foreign investors should in most cases not be overly concerned for a number of reasons.

  • Experience with National Security Reviews to Date

As at the date of writing, there has apparently only been a single national security notice (not a full review) since the new law came into force a year ago. Moreover, as at the date of writing, even under the “net benefit to Canada” test that is applicable to economic reviews, there have only been two non-cultural investments rejected in the quarter century since the ICA came into force (the ATK - MDA aerospace transaction, and the BHP Billiton – PotashCorp transaction, both described below).

  • Canada has an Open Economy

Canada’s economy has historically been open to foreign investment. In 2009 (not a particularly active year for global foreign investment), 22 transactions were approved by the Minister of Industry under the economic review provisions of the ICA,including three significant investments by SOEs: (i) China National Petroleum Corporation’s acquisition of control of Athabasca Oil Sands Corp, (ii) Korea National Oil Corporation’s acquisition of Harvest Energy Trust and (iii) Abu Dubai’s International Petroleum Investment Co’s acquisition of NOVA Chemicals Corporation. Also, China Investment Corporation’s acquisition of a 17% interest in Teck Resources Limited was successfully completed in 2009, and, in 2010, Sinopec’s acquisition of an interest in Syncrude received approval under theICA. To date, no SOE transactions have been formally rejected.

Investment Canada Act Developments in Recent Months

The most significant ICA development in recent months was the rejection of BHP Billiton’s proposed acquisition of Potash Corporation of Saskatchewan (PotashCorp) in November 2010. This rejection, combined with other foreign investment controversies, has drawn considerable attention to the ICA and has generated widespread debate within the Canadian foreign investment bar, corporate Canada, policymakers and academia as to the appropriate role of government in screening, imposing conditions on and approving foreign investment in Canada. Most recently, parliamentary hearings regarding further potential changes to the foreign investment review regime have been commenced. The outcome of such hearings, in terms of further amendments to theICA, is uncertain. A brief summary of the PotashCorp situation follows.

BHP’s hostile takeover bid for Saskatchewan’s PotashCorp, an iconic world-class producer of a key Canadian natural resource, attracted massive political and media attention from the moment of its launch in mid-August 2010.3

The Premier of the Province of Saskatchewan vigorously argued that the federal government should refuse the proposed bid, concerned among other things, about potentially significant negative tax consequences for the Province of Saskatchewan and the loss of a public company Canadian head office.

On November 3, 2010, the Minister issued a preliminary decision rejecting BHP’s bid on the basis that it failed to satisfy the “net benefit to Canada” test. Although the law provided BHP with a 30-day period within which further submissions could be made to try to change the Minister’s view, BHP apparently chose not to proceed, officially withdrawing its application on November 14, 2010. BHP issued a detailed press release following the failure of the bid, outlining numerous specific commitments it had been prepared to make.  Undertakings would apparently have included a five-year commitment to remain in a Canadian potash export group, significant spending on infrastructure, increased investment in BHP’s already planned Jansen mine (also located in Saskatchewan), commitments to forgo certain tax benefits and to apply for a listing on the Toronto Stock Exchange. Other proposed undertakings apparently related to employment increases, spending on community and education programs and an unprecedented US$250 million performance bond to ensure that the company fulfilled its undertakings.

Following the decision, some commentators noted suggestions by Minister of Agriculture Gerry Ritz that BHP’s bid had been refused because potash is a “strategic resource” for Canada. This is not an explicit factor for consideration under the ICA. However, other countries have, in the context of foreign investment review, taken measures to protect their most valuable resources or companies.4

The ICA certainly provides the Minister with significant discretion and the PotashCorp decision has led to calls for clarification of Canada’s foreign investment rules from businesspeople, investors and politicians across the political spectrum. Critics have cited a lack of transparency and a lack of predictability as factors affecting the efficacy of foreign investment review. While the current approach gives the Minister significant flexibility to assess proposed investments on a case-by-case basis, it is also true that perceived unpredictability might complicate the risk assessments undertaken by foreign acquirers and, conceivably, deter investment in Canada. Nevertheless, the PotashCorp decision had numerous unique features, including the opposition to the transaction from the Premier of Saskatchewan, suggesting that it would be incorrect to draw any broader conclusions regarding Canada’s approach to foreign investment from this apparently unique transaction.


[1] There had been no groundswell of support in Canada for the adoption of a US-style merger review process. The recommendation was included in the final June 2008 report of the Competition Policy Review Panel, a panel formed in July 2007 with a mandate to review Canada's competition and foreign investment policies, and make recommendations to the federal government for making Canada more globally competitive. This recommendation was somewhat surprising given that none of more than 100 written submissions to the panel called for the adoption of US-style process, and indeed such a recommendation seemed beyond the terms of reference of the panel. Furthermore, the recommendation was also contained in the final report of Brian Gover, following his review of the exercise of the Commissioner’s powers under section 11 of the Competition Act

[2] The final months of 2010 and first few months of 2011 were a relatively quieter period for the Competition Bureau in terms of merger remedies. Although numerous remedy sale processes were completed, these related to remedies that had been previously announced. Notable transactions cleared during this timeframe included Shaw / Canwest, BCE / CTVglobemedia and XM Canada / Sirius Canada. The Bureau did, however, bring a merger challenge in January, 2011 in respect of a closed merger.

[3] Stikeman Elliott LLP acted as counsel to PotashCorp.

[4] In fact, Australia itself has been known to protect key industries and, at the same time that BHP was making a bid for PotashCorp, Australian authorities were engaged in a detailed review of the takeover bid for the Australian Stock Exchange by Singapore Exchange Ltd. Indeed, the very existence of BHP and the other Australian mining supermajor, Rio Tinto, as Australian companies, is due, in no small part, to the existence of stringent Australian foreign investment rules that played a major role in previous transactions involving BHP and Rio Tinto. 

Reprinted with permission from The Canadian Legal Lexpert® Directory 2011
© Thomson Reuters Canada Limited

 

 

 

 

 

Local waste divestitures approved

Shawn Neylan

On October 5, 2010, the Competition Bureau announced that it has approved the divestiture of waste collection assets of BFI Canada Inc. in Calgary, Ottawa and Edmonton. The divestitures were announced as a remedy in relation to the merger of IESI-BFC Ltd. (BFI) and Waste Services Inc. on June 29, 2010. In each city, there was a different buyer, illustrating that in transactions involving smaller geographic markets, different buyers in each market may be acceptable. Divestitures in other cities are still required under the terms of the consent agreement.

Competition Bureau requires divestiture in Novartis / Alcon Transaction

On August 9, 2010, the Competition Bureau announced that it had entered into a consent agreement with Novartis AG to resolve competition concerns stemming from Novartis’ proposed acquisition of control of Alcon, Inc.

The Bureau had concluded that, in the absence of a remedy, the acquisition would likely result in a substantial lessening of competition in Canada in the supply of certain ophthalmic products, more particularly: injectable miotics (which are used to contract the pupil in order to perform surgery); ocular conjunctivitis drugs (which are used to treat seasonal allergies); and multi-purpose contact lens cleaners/disinfectants solutions.  The consent agreement requires the divestiture of assets and associated licenses relating to the sale in Canada of the following Novartis products: Miochol-E (an injectable miotic); Zaditor (an anti-allergy agent); and Solocare Aqua (a multi-purpose contact lens cleaner and disinfecting solution, including the MicroBlock anti-bacterial lens case).

The registered consent agreement contemplates that Novartis will have an initial sale period within which to complete the divestiture of the products in question, failing which a divestiture trustee will be empowered to complete the divestiture.  It also contemplates that the relevant Miochol-E assets and associated licenses will be divested to Bausch & Lomb Incorporated, pursuant to an asset purchase agreement signed in July 2010.  The consent agreement does not contain an explicit “hold separate” obligation but does contain detailed asset preservation obligations, together with the appointment of a monitor.
The transaction had been announced on January 4, 2010, suggesting a relatively long review period by the Bureau.  The remedy is somewhat notable in that Novartis already owned an approximate 25% interest in Alcon, which it acquired in 2008.  It is not publicly known whether the Bureau reviewed the initial 2008 acquisition of the 25% interest, or how its analysis differed in respect of the 2010 transaction.
This transaction represents the fifth occasion to date in 2010 for which the Bureau has required a merger remedy (along with Ticketmaster/Live NationBFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Competition Bureau reaches agreement in Teva/ratiopharm merger

On July 30, 2010, the Competition Bureau (Bureau) announced that it had reached a consent agreement with Teva Pharmaceuticals Industries Ltd. (Teva) and the Merckle Group, carrying on business as ratiopharm, requiring the divestiture of assets and associated licenses in relation to certain forms of acetaminophen oxycodone tablets and morphine sulfate sustained release tablets. The agreement follows the Bureau’s determination that Teva's acquisition of ratiopharm would result in a substantial lessening of competition in Canada with respect to such products.  The consent agreement provides that Teva must divest either Teva or ratiopharm's versions of these products in Canada within an initial sale period, failing which the products are to be divested pursuant to a trustee sale process.  Teva and ratiopharm are both active within the Canadian generic drug manufacturing industry. The parties had entered into an acquisition agreement on March 18, 2010, valuing the global ratiopharm business at €3.625 billion.

This transaction represents the fourth occasion to date in 2010 for which the Bureau has required a merger remedy (Ticketmaster/Live NationBFI Canada/Waste Services, Nufarm/AH Marks, and Teva/ratiopharm).

Jeffrey Brown and Michael Kilby of Stikeman Elliott LLP were Canadian competition counsel to ratiopharm.

Post-Closing herbicide merger remedy

Shawn Neylan and Michael Kilby

On July 28, 2010, the Competition Bureau (Bureau) announced that it had reached an agreement with Nufarm Limited (Nufarm) in relation to its earlier acquisition of AH Marks Holding Limited (AH Marks) in March 2008, stating that commitments made to the Bureau by Nufarm and the entering into of a consent decree in the United States between Nufarm and the Federal Trade Commission (FTC) were adequate to resolve Canadian competition concerns.
 
The US consent decree pertains to three herbicides used on farms and lawns.  Nufarm is required to sell AH Marks’ rights and assets associated with the “MCPA” herbicide to a new competitor, Albaugh Inc., and to sell AH Marks’ rights and assets associated with “MCPP-P” herbicide to a new competitor, PBI Gordon Co.  Further, Nufarm is required to modify current agreements with two other companies (Dow Chemical Company and Aceto Corporation) to allow them to fully compete in respect of the MCPA herbicide, and a third herbicide, “2,4-DB.”  In the United States, the FTC concluded that Nufarm’s acquisition of AH Marks resulted in Nufarm having a monopoly in the US markets for the MCPA and MCPP-P herbicides, and left only two competitors in the market for the third herbicide, 2,4-DB.  In Canada, Nufarm will divest its MCPA Task Force seat and certain Canadian MCPA Technical Registrations and Canadian Formulated Product Registrations to Albaugh.

Both the Bureau and the FTC press releases refer to extensive international cooperation between the Bureau, the FTC, UK and Australian competition authorities, including specific reference to close cooperation between the Bureau and FTC that resulted in a coordinated remedy addressing the Canadian and US markets.

The remedy is notable in that it was obtained in respect of a merger that had been consummated over two years ago.  The size of the AH Marks business at the time of the acquisition (a reported purchase price of approximately £75 million, and reported global annual revenues of approximately £62 million) was such that the transaction may not have triggered pre-merger notification requirements.  It is always important to assess the substantive competition issues raised by a transaction, even where the transaction does not trigger mandatory filings.

Commissioner obtains waste divestitures in BFI - WSI transaction

On June 29, 2010, the Competition Bureau announced that it had negotiated a merger remedy in connection with the IESI-BFC Ltd. (BFI) and Waste Services Inc. (WSI) transaction.  The remedy is set out in a Consent Agreement filed with the Competition Tribunal. The divestiture will include commercial front end (as opposed to roll off bin) waste collection assets, including customer contracts, vehicles, bins and other equipment in Calgary, Edmonton, Hamilton, Ottawa and Simcoe County, Ontario as well as a waste transfer station located in Hamilton, Ontario.

The Consent Agreement includes specific provisions regarding national accounts, unassignable contracts and the prospect of different buyers in the various markets.

Waste firm divests Alberta landfill

On May 31, 2010, the Competition Bureau announced that Clean Harbours, Inc., a US-based company that provides environmental waste services in Canada, had implemented a merger remedy as required by the terms of its July 2009 agreement with the Commissioner of Competition.  The agreement required the divestiture of the Pembina Area Landfill in Alberta which Clean Harbours had acquired as a result of its 2009 acquisition of Eveready Inc., an Alberta-based company that also provided environmental waste disposal services.  In July 2009, the Bureau stated that it had concluded that Clean Harbours' acquisition of Eveready would likely prevent or lessen competition substantially in respect of Class I solid hazardous waste disposal in Alberta. In particular, the Bureau was concerned that the transaction “could result in higher prices for solid hazardous waste disposal” since Clean Harbours would have owned the only two Class I hazardous waste landfills in the province.

The landfill was sold to Secure Energy Services Inc.  Although the Initial Sale Period (during which Clean Harbours would have conduct of sale) set out in the agreement is still confidential, it is possible that it was considerably shorter than the 10-month period it took to complete the divestiture.  If so, the Commissioner may have agreed to one or more extensions of the Initial Sale Period so as to allow for the orderly sale of the business by Clean Harbours, rather than resorting to a forced sale by a divestiture trustee as provided for in the agreement if a sale was not completed by Clean Harbours within the Initial Sale Period.
 

Merger remedy in Danaher acquisition of MDS

The Competition Bureau announced today that it has reached an agreement with Danaher Corporation to resolve its concerns with respect to Danaher's acquisition of MDS Inc.'s Analytical Technologies business. Danaher has also signed a consent decree with the United States Federal Trade Commission, which the Bureau determined was sufficient to adequately resolve competition concerns in Canada.

Pursuant to the U.S. decree, Danaher agreed to a divestiture of MDS's Arcturus brand of laser microdissection (LMD) instruments, reagents and consumables to Life Technologies Corporation. The divestiture package includes all relevant Canadian intellectual property rights relating to Arcturus LMD instruments in Canada.

Ticketmaster and Live Nation agree to consent agreement to resolve Competition Bureau concerns

Jeffrey Brown and Kevin Rushton

On January 25, 2010, the Competition Bureau announced that it had entered into a consent agreement with Ticketmaster Entertainment, Inc. and Live Nation, Inc. to resolve competition concerns identified by the Bureau with respect to their proposed merger. The Bureau's announcement coincided with a similar announcement by the U.S. Department of Justice Antitrust Division, with whom the Bureau cooperated closely in its review.

Ticketmaster, a worldwide provider of ticketing services, and Live Nation, a promoter of live events globally, announced their intention to merge on February 10, 2009. Following a detailed review of the transaction, the Bureau concluded that the proposed merger would likely prevent competition substantially in respect of primary ticketing services for large live entertainment events in Canada. To address the Bureau's concerns and move forward with the proposed merger, Ticketmaster and Live Nation agreed to implement certain divestitures and comply with certain behavioural commitments, including principally:

  • Divestiture of Ticketmaster's subsidiary, Paciolan, Inc., which provides ticketing services to venues or other organizations, to a buyer approved by the Commissioner of Competition. Pending completion of the divestiture, the parties must hold Paciolan separate and apart from their other operations.
  • Licensing of Ticketmaster's primary ticketing software to Anschutz Entertainment Group, Inc. (AEG), a competing promoter of live events, and provision of private label ticketing services to AEG for a period of no more than 5 years. At AEG's option, AEG may acquire a non-exclusive, perpetual, fully paid-up licence to the Ticketmaster software used by Ticketmaster to sell primary tickets in Canada.
  • Non-retaliation, including anti-competitive bundling, in respect of any venue owner in Canada that chooses to use another company's primary ticketing services or another company's live event promotional services, for a period of 10 years after closing of the merger.

The divestitures and behavioural commitments in the consent agreement are substantially similar to those contained in the proposed U.S. Final Judgment addressing competition concerns in the United States. The consent agreement has been registered with, and is enforceable as an order of, the Competition Tribunal. Ticketmaster was represented in Canada by Stikeman Elliott LLP.

Competition Bureau Requires Divestitures by Ticketmaster

The Competition Bureau announced today that it has reached a consent agreement with Ticketmaster Entertainment, Inc. and Live Nation, Inc. that resolves the Bureau's concerns about their proposed merger. The agreement requires divestitures by Ticketmaster to facilitate competition in the ticketing services market.  It also requires Ticketmaster to sell its Paciolan ticketing business and to licence its ticketing system for use by a third party event promoter.  The consent agreement also contains some behavioural provisions.
 

Competition Bureau Reaches Agreements with Hot Tub Retailers on ENERGY STAR Claims


The Competition Bureau announced today that it has entered into consent agreements with two Canadian hot tub retailers, Polar Spas (Edmonton) Ltd. and Sleepwise Inc., regarding claims that certain hot tub products were associated with the ENERGY STAR Program.

Recent merger settlements in Canada

Susan M. Hutton

The Competition Bureau has settled a number of long-running merger reviews in recent months:

  • On November 4, 2009, the Competition Bureau announced that it had reached an agreement with Agrium Inc. to resolve competition concerns related to Agrium's proposed acquisition of CF Industries Holdings Inc. Under the terms of the Consent Agreement, if Agrium is successful in its bid, it will divest half of its nitrogen-based fertilizer production facility in Carseland, Alberta and will be required to supply additional product to Terra Industries, Inc., a new entrant into Western Canadian wholesale nitrogen fertilizer markets. 
  • On October 29, 2009, the Competition Bureau approved the acquisition of Schering-Plough by Merck, subject to Merck's divestiture of its interest in the animal health company, Merial, to its joint venture partner, Sanofi-Aventis, as well as the divestiture by Schering-Plough of its new anti-nausea and anti-vomiting product (used in the treatment of post-chemotherapy and post-operative side effects), Rolapitant, to Opko Health in both Canada and the United States.
     
  • On October 14, 2009, agreement was also reached with Pfizer Inc. and Wyeth as to the divestiture of several animal pharmaceutical and vaccine products to Boehringer Ingelheim Vetmedica, Inc., in both Canada and the United States. In Canada only, Pfizer also amended the terms of its existing arrangement with Paladin Labs Inc. governing the distribution and sale of Pfizer's human hormone replacement therapy product, Estring. (Members of the Stikeman Elliott competition group represented Wyeth in that transaction.)
     
  • Previously, on August 27, 2009, Ultramar Ltd. had been approved as the acquirer of terminal storage and distribution capacity required to be provided by Suncor Energy Inc. as part of a remedy addressing competition concerns raised by the Bureau over the merger of Suncor and Petro-Canada. The sale process for the 104 retail gas stations required to be divested in southern Ontario is still ongoing.

Bureau reaches Suncor/Petro-Can consent agreement

On July 21, 2009, Canada's Competition Bureau announced that it had reached a consent agreement with Suncor and Petro-Canada in connection with their proposed merger, previously announced on March 23, 2009. The consent agreement addresses the Bureau's concerns that the merger may have led to a substantial lessening of competition and increased retail gasoline prices. Specifically, the consent agreement requires that the parties:

  • sell 104 retail gas stations in southern Ontario;  
  • sell approximately 1.1 billion litres of terminal storage and distribution capacity, annually, to be used for wholesale distribution during a 10-year period at their terminals located in the Greater Toronto Area; and
  • supply 98 million litres of gasoline each year for a 10 year period, to independent gasoline marketers.

Both the Bureau and the parties to the merger have expressed satisfaction with the agreement. Melanie Aitken, Interim Commissioner of Competition commented that "requiring the companies to sell retail outlets will lead to increased competition by independent retailers who can expand their market presence [and] .the parties' commitment to sell terminal space in the Greater Toronto Area is important to promoting a competitive dynamic in that market." Rick George, the current president and CEO of Suncor, who will assume the same role in the merged company, said that "we are satisfied that the resulting terms will preserve the expected benefits of the merger and maintain a competitive refined products market in Ontario."

Competition Bureau negotiates a hold separate arrangement for American Iron & Metal Incorporated and SNF Incorporated

On December 20, 2007, American Iron & Metal Incorporated (“AIM”) made a Competition Act merger filing with respect to its proposed acquisition of SNF Incorporated (“SNF”).  AIM and SNF were two leading scrap metals collectors and processors in Eastern Canada. On January 28, 2008, the Commissioner of Competition applied to the Tribunal for an order to prevent the closing and/or implementation of the proposed transaction pursuant to section 100 of the Act.  The Competition Bureau subsequently negotiated a consent agreement requiring AIM to preserve the assets of concern for a period of 60 days to allow for completion of the merger review.  In light of the consent agreement, the section 100 application did not go to hearing.  The proposed transaction closed on February 5, 2008.

Canada Pipe case settled, abuse of dominance provision remains unresolved

Kevin Rushton

On December 20, 2007, the Competition Bureau announced the end to five years of litigation concerning the Stocking Distributor Program (SDP) of Canada Pipe Company Ltd. with the filing of a consent agreement with the Competition Tribunal. The consent agreement pre-empts the Tribunal's re-determination proceedings in the case.  As a result, the proper legal approach to the Competition Act's abuse of dominance provision, in light of the Commissioner of Competition's position in the proceedings, has yet to be resolved.

The SDP is a loyalty program under which Canada Pipe offers rebates and discounts to distributors that purchase all of their requirements for cast-iron pipe, cast-iron fittings and mechanical joint couplings (collectively known as cast-iron "drain, waste and vent" or DWV products) exclusively from Canada Pipe. Under the terms of the consent agreement, Canada Pipe will implement and offer a modified rebate program to distributors in Canada as an alternative to the SDP, which Canada Pipe may continue to offer. The modified rebate program will provide rebates and multiplier discounts to distributors meeting a minimum purchase requirement, but will not be conditional on exclusive purchases of DWV products from Canada Pipe. Significantly, total rebates and discounts under the SDP (or any other rebate program) are not to exceed those available under the modified rebate program, although Canada Pipe retains the right to offer additional price concessions or discounts "on an as-needed basis in order to match what Canada Pipe believes to be legitimate competing offers." The consent agreement therefore effectively nullifies Canada Pipe's SDP during the five-year term of the agreement.

The Bureau began its challenge of the SDP in 2002, with an application to the Tribunal seeking an order for its elimination as a contravention of the Act's civil exclusive dealing (s. 77) and abuse of dominance (s. 79) provisions. The Tribunal rejected the Commissioner's application in February 2005, finding that while Canada Pipe was dominant in relevant markets, its conduct did not amount to an "anti-competitive act" and did not prevent or lessen competition substantially.

On appeal, the Federal Court of Appeal ordered a re-determination of the case in June 2006, finding that the Tribunal erred by applying the incorrect legal tests under s. 79. With respect to the test for a "substantial lessening or prevention of competition," rather than focusing on whether a substantial level of competition continued to exist (evidenced by new entry and switching by distributors), the Court held that the Tribunal should have asked whether relevant markets would have been substantially more competitive "but for" the impugned practice of anti-competitive acts. The Court also held that the Tribunal erred in requiring a link between the impugned conduct and a negative impact on competition for a "practice of anti-competitive acts" to exist. Instead, the Court held that an anti-competitive act is identified by having as its purpose (based on the overall character of the act, including its reasonably foreseeable or expected effects, any business justification and evidence of subjective intent) an intended predatory, exclusionary or disciplinary effect on a competitor. Effects of the practice on competition are examined in determining the existence of a substantial lessening of competition. Finally, the Court held that for a valid business justification to exist, an impugned practice must have a credible efficiency or pro-competitive explanation; enhanced consumer welfare is on its own being insufficient.

Prior to filing of the consent agreement, the Tribunal was scheduled to hold a re-determination hearing on the case in February 2008. The Commissioner, in her arguments on the re-determination, raised several interesting issues concerning the proper legal approach under s. 79, the resolution of which has unfortunately been pre-empted by the settlement.

In particular, the Commissioner argued in her factum that, with respect to anti-competitive acts, "[t]he evidence of [Canada Pipe's] subjective intent unequivocally establishes that the SDP is an act that has its purpose an intended negative exclusionary effect on competitors and therefore, is an anti-competitive act within the meaning of paragraph 79(1)(b) of the Act."1 The Commissioner argued that "[i]n light of the evidence regarding the subjective intent of [Canada Pipe], it is not necessary to consider the reasonably foreseeable consequences of the SDP."2 Contrary to the Commissioner's submissions, however, the Federal Court of Appeal had held that "evidence of subjective intent is neither required nor determinative" in establishing an anti-competitive act, but rather is one of the "[r]elevant factors to be weighed to determine [the] overarching 'purpose', or 'overall character' of the conduct", along with the reasonably foreseeable or expected objective effects of the act and any business justification.3

With respect to the test for establishing a substantial prevention or lessening of competition, the Commissioner cited a prior decision of the Tribunal in arguing that "[w]here a respondent has significant market power, even a small effect on competition qualifies as substantial."4 The Federal Court of Appeal did not comment on this issue in its decision. However, as Canada Pipe argues in response, "to suggest that a de minimis impact upon competitors would be sufficient to meet the "substantiality" threshold in section 79(1)(c) would be to read this threshold out in all cases where it has been established that a firm has market power. Given that market power is a precondition under section 79(1)(a), this would effectively mean the elimination of the substantiality component under section 79(1)(c) in all abuse of dominance cases."5

Clearly, despite the Federal Court's decision in the case, significant issues remain to be resolved with respect to the enforcement of Canada's laws regarding abuse of a dominant position. With the settlement of the case, however, these issues remain to be heard another day.


1Commissioner of Competition v. Canada Pipe Company Ltd., CT-2002-006, Memorandum of Argument of the Commissioner of Competition (Re-determination Proceeding), at para. 90 ("Commissioner's Factum").
2Id., at para. 91.
3Commissioner of Competition v. Canada Pipe Company Ltd., 2006 FCA 233, at paras. 73 and 67..
4Commissioner's Factum, supra, at para. 167. See also paras. 18, 161 and 170.
5Commissioner of Competition v. Canada Pipe Company Ltd., CT-2002-006, Memorandum of Argument of Canada Pipe Company Ltd. (Re-determination Proceeding), at para. 235.

Recent marketing and advertising enforcement actions

Kim D.G. Alexander-Cook

Premier Fitness hit by $200,000 AMP and ten-year agreement

On November 27, 2007, the Competition Bureau announced that it filed with the Competition Tribunal a ten-year consent agreement with Premier Fitness Clubs, resolving concerns that membership advertising from 1999 to 2004 did not adequately disclose additional fees that consumers were obligated to pay to enjoy membership. Premier Fitness owns and operates thirty-five clubs in Ontario. Under the terms of the consent agreement, Premier Fitness must pay an administrative monetary penalty of $200,000; publish a corrective notice in certain newspapers; display a corrective notice in its clubs and on its Web site; implement a compliance policy to cover its marketing practices; and not make false or misleading representations in future promotional materials.

Commissioner strips Lululemon of clothing claims

The Bureau announced on November 16, 2007 that Vancouver-based Lululemon Athletica Inc. has agreed to remove all claims alleging therapeutic benefits from its "VitaSea" line of clothing products, marketed in its forty retail stores across Canada. The popular yoga- and exercise-wear chain has agreed to remove from clothing tags all therapeutic claims regarding the VitaSea technology (claimed to, for example, moisturize), remove from its Web site and in-store advertising all references to the VitaSea technology, inform its employees that they should not provide information on the impugned claims to customers, and undertake a review of all Lululemon promotional and marketing materials to ensure compliance with relevant legal requirements.  In describing this enforcement action, the Bureau noted that it is closely watching an increasing trend in the marketplace in claims about the use and attributes of sustainable fibres.

Health and environmental claims an ongoing bureau focus

Investigations and enforcement actions over marketing and advertising claims related to health products and services have been a significant part of the Bureau's recent fair-business-practices work. In addition to the steps taken against Lululemon described above, in the past three years the Bureau has announced numerous specific actions relating to misleading health claims, including in connection with UV protective clothing, "light" and "mild" cigarettes, nutrition information software, diabetes "cures," tanning-studio health claims, fitness club services, diet patches, herbal products, weight-loss programs and bogus cancer-therapy clinics.

The Bureau's focus on false or misleading health claims extends also to claims related to the environment.  According to a recent survey of environmental claims undertaken by a Canadian environmental marketing firm (which information has also caught the eye of the Bureau), the use of environmental claims is now pervasive across product categories.  The majority (57%) of the environmental claims examined in the survey reportedly failed to disclose attributes of the product relevant to (potentially negative) environmental effects; 26% of claims could not be substantiated by accessible information or third-party certification; 11% were deemed by the survey authors to be vague (e.g., claims of "all-natural"); and 5% were judged irrelevant (e.g. "CFC-free" oven cleaner, when CFCs are banned) and/or meant to distract from a more significant (negative) product feature (e.g., "organic" cigarettes).

In March, 2007, the Bureau issued for public comment new draft guidance on environmental claims.  Based on the draft document, the Bureau may be preparing to take a rigid stance on certain types of environmental claims. For example, in the draft document: (i) claims that a product is "free" of a substance may not be made when historically the product has never contained that substance; (ii) verification materials related to environmental claims must be available to both purchasers and potential purchasers, with no qualification related to confidential information; and (iii) consumers are misled if an explanatory statement for an environmental claim on a product is not displayed on the same display panel as the claim itself.

Grain handlers make divestitures to maintain industry competitiveness

Susan M. Hutton and Ian Disend

On July 5, several major players in Canada's grain-handling industry finalized plans for divestitures as agreed with the Competition Bureau (the Bureau). The most recent divestitures were required following the June, 2007 acquisition by Regina-based Saskatchewan Wheat Pool (SWP) of Winnipeg-based Agricore United (AU). However, the entire process dates back to the beginning of the most recent round of grain-handling consolidation in 2001, when United Grain Growers Ltd. (UGG) acquired Agricore Cooperative Ltd. (ACL). The complicated package of remedies includes the following:

  • AU has finally sold off its Port of Vancouver grain-handling terminal (the UGG Terminal) to Alliance Grain Terminal Ltd., pursuant to a consent agreement registered at the Tribunal by UGG on October 17, 2002 (the 2002 Consent Agreement). The divestiture had been ordered in response to UGG's 2001 acquisition of ACL.
  • SWP has sold off nine inland grain elevators and a Port of Vancouver terminal elevator to Cargill Ltd. (Cargill). The sale was made pursuant to a consent agreement registered on March 28, 2007 (the 2007 Consent Agreement). The Bureau had determined that even with the divestiture of the UGG Terminal, noted above, the SWP/AU merger would have led to the post-transaction entity controlling 89% of licensed grain storage capacity at the Port of Vancouver. It would also have eliminated competition between the two largest players in the Canadian West Coast Port Terminal grain-handling services market.
  • Under the terms of the same consent agreement, SWP has also ended its Vancouver-based joint venture (Pacific Gateway Terminal Ltd.) with Winnipeg-based James Richardson International (JRI), which had been under challenge by Commissioner of Competition Sheridan Scott (the Commissioner).
  • JRI itself entered into a consent agreement pursuant to which it will divest two Manitoba-based grain elevators, stemming from its acquisition from SWP of some of AU's inland grain elevators.

The UGG Terminal divestiture process was anything but swift. Following the UGG/ACL merger, the resultant entity, AU, was required to divest primary grain elevators in Alberta and Manitoba, as well as a terminal at the Port of Vancouver. Under the terms of the 2002 Consent Agreement, AU was required to divest six primary grain elevators in the two Prairie provinces in order to assuage competition concerns in certain local markets. If AU was unable to complete the divestiture within an allotted confidential time period, the facilities were to be sold off by a trustee. Five of the six were sold on time, but AU was unable to complete the sixth sale despite numerous deadline extensions granted by the Bureau. The trustee was ultimately employed, and the sixth grain elevator eventually sold.

Similar difficulties were encountered with the Vancouver terminal. Under the 2002 Consent Agreement, AU was given until October 31, 2004 to dispose of one of its two terminals at the port, ultimately choosing the UGG Terminal. However, AU was unable to complete a sale before the deadline, and no fewer than ten extensions were granted by the Bureau in anticipation of an imminent sale.

The Bureau's patience was at an end in August 2005, and it would grant no further extensions. AU applied to the Competition Tribunal requesting that the agreement be rescinded under s. 106 of the Competition Act, due to changed circumstances in light of the amount of uncommitted grain shipped to the Port of Vancouver by independent grain companies. In May of 2006, following a Tribunal decision not to adjourn AU's hearing date, AU officially withdrew its application, and the divestiture was eventually completed over a year later, against the background of the SWP/AU merger.

The structure of the 2007 Consent Agreement appears to be broadly in line with the Information Bulletin on Merger Remedies in Canada issued by the Bureau in September 2006, and designed to avoid further long delays. The 2007 Consent Agreement gave SWP ninety days following its acquisition of AU to make the relevant divestitures to Cargill, laying out a "hold separate" regime over the interim period governing those assets and the employees who worked with them. If the sale could not be completed on time, a divestiture trustee would have been appointed to sell off a different set of assets, although this list would be kept confidential until four months after the trustee was empowered to make the sale. The trustee could be appointed as early as seventy-five days into SWP's sale process.

In the event that the trustee was unable to complete the sale within four months (or after any extensions expired), or even if the Commissioner did not by then feel that a sale was imminent, the agreement empowered her to apply to the Tribunal for an order to facilitate a sale of the "crown jewels," presumably in an attempt to sweeten the package for any prospective buyers. The Commissioner could also request a Tribunal order that SWP divest its entire ownership interest in AU.

Consent agreement reached for standard TV ratings service

Susan M. Hutton and Martin Lapner

On June 23, 2006, the Competition Bureau filed a consent agreement with the Competition Tribunal regarding the BBM Canada-Nielsen Media Research Limited merger. The consent agreement resolves potential competition issues arising from the merger of the electronic television audience measurement (TAM) operations of both companies. Despite the consolidation of TAM data collection in Canada, the Bureau observed that the development of a standard TAM system had widespread support in the industry, that the merger would likely result in decreased costs to purchasers, and that both parties could still competitively market proprietary analytic tools to be used on the data collected by the merged company. Beyond these benefits, the consent agreement allows for independent audits to be conducted on the merged company in order to monitor the provision of quality services to purchasers. The consent agreement is interesting in that it would appear to embody a flexible and pragmatic approach by the Bureau to mergers involving significant efficiencies - even while the law on efficiencies remains in disarray.

Cineplex Galaxy agrees to divestiture of 35 theatres in 17 cities to complete its merger with Famous Players

On May 27, 2005, Cineplex Galaxy (“Cineplex”) entered into a consent agreement with the Competition Bureau to complete its acquisition of Famous Players.  After an extensive merger review process, the Competition Bureau concluded the proposed transaction was likely to result in a substantial lessening of competition in the exhibition of first-run motion pictures in a number of urban areas.  In the consent agreement, Cineplex agreed to sell 35 theatres in 17 cities with total annual box-office revenues of approximately CDN$100 million.  The divestiture package included both stadiums and sloped theatres.  The proposed transaction closed on July 22, 2005.

Competition Tribunal Adjusts to a ''Change in Circumstances''

BY D. JEFFREY BROWN

On May 30, 2005, the Competition Tribunal (the Tribunal) rescinded a consent agreement previously registered in September, 2003, on the basis of a "change in circumstances" pursuant to s. 106 of the Competition Act (the Act). The consent agreement had sought to resolve a concern expressed by the Commissioner of Competition (the Commissioner) that the acquisition by RONA Inc. (RONA) of Réno Dépôt and The Building Box "big box" home improvement stores from Kingfisher plc (Kingfisher) would substantially lessen competition in Sherbrooke, Quebec. To address this concern, the consent agreement had required that RONA divest to an independent third party the Réno Dépôt store in Sherbrooke.

Section 106 of the Act allows a consent agreement to be rescinded where "the circumstances that led to the making of the agreement or order have changed and, in the circumstances that exist at the time the application is made, the agreement or order would not have been made or would have been ineffective in achieving its intended purpose." In its submissions to the Tribunal, RONA argued that the consent agreement should be rescinded in light of Home Depot's subsequently confirmed intention to expand into Sherbrooke. The Commissioner opposed the application to rescind the consent agreement.

According to RONA, Sherbrooke was unique among the geographic markets considered by the Competition Bureau (the Bureau) in its 2003 examination of the RONA-Kingfisher transaction, insofar as it was the only market where Home Depot was not present as a competitor. Had it been present, RONA argued, Sherbrooke would have been indistinguishable from other geographic markets, in which case it would not have agreed to divest a store in that market.

The Commissioner submitted that RONA's application should be rejected on the basis that RONA had expected Home Depot to expand into Sherbrooke at some point, with the result that it could not now raise its intended entry as a material change of circumstances. The Commissioner also alleged that RONA had engaged in an abuse of process by deliberately trying to slow the divestiture process, contrary to the spirit of the consent agreement.

Upon evaluating the evidence, the Tribunal accepted RONA's contention that there had indeed been a change of circumstance within the meaning of s. 106 of the Act. According to the Tribunal, in September 2003 Home Depot had had no intention of expanding its operations into Sherbrooke. Therefore, Home Depot's subsequent decision to enter the Sherbrooke market presented a set of circumstances very different from those that led to the registering of the consent agreement.

The Tribunal rejected the Commissioner's argument that RONA could claim no change in circumstances since it had expected that Home Depot would eventually expand into Sherbrooke. The Tribunal distinguished jurisprudence on this point on the basis that the underlying rationale of such jurisprudence has been to prevent parties from failing to reveal facts and then subsequently arguing that they give rise to "new circumstances." The circumstances in this case, the Tribunal pointed out, were very different. Far from trying to hide its view that Home Depot would eventually expand into Sherbrooke, the Tribunal noted that RONA had tried unsuccessfully to convince the Bureau of this fact both before and after signing the consent agreement.

The Tribunal went even further, criticizing the Commissioner's decision to insist that the divestiture take place even after Home Depot's intention to expand into Sherbrooke became clear. The Tribunal went so far as to suggest that the Commissioner has a duty to stay attuned to the changing circumstances regarding the consent agreement, and should have agreed to revise the consent agreement once it had proof of Home Depot's expansion into Sherbrooke. The force and effect of a consent agreement, the Tribunal said, goes beyond merely carrying out its terms, to include ensuring that implementation of the consent agreement continues to make sense in the circumstances.

The Tribunal also rejected the Commissioner's allegation that RONA had engaged in an abuse of process by unnecessarily frustrating the divestiture process. According to the Tribunal, none of RONA's actions throughout the proceedings constituted an abuse of process. Rather, RONA made every effort to divest the Sherbrooke Réno Dépôt store to a buyer who met the criteria outlined in the consent agreement (i.e., "to a buyer wishing to operate the business principally for the retail sale of home improvement products"). Given a limited pool of potential buyers for big-box format stores of this type, RONA was unsuccessful in its attempt to divest the store within the time limits prescribed by the consent agreement, with the result that, as permitted by the consent agreement, the Commissioner appointed a trustee to effect the divestiture.

The Commissioner also alleged that RONA had engaged in an abuse of process by availing itself of certain rights under the consent agreement. However, the Tribunal rejected this allegation as well. The Tribunal noted that the consent agreement was negotiated and signed by both parties, each of whom was represented by competent legal counsel. As such, it could not be an abuse of process for RONA to exercise its rights under the consent agreement (including the right to object to the trustee's divestiture of the Sherbrooke store if the divestiture did not comply with the provisions of the consent agreement).

Stikeman Elliott LLP acted as counsel to Kingfisher in RONA's original 2003 acquisition of the Réno Dépôt and The Building Box stores.

Consent Agreement Process Under Attack

A key aspect of Canada's consent procedure for settling matters with the Commissioner of Competition (the Commissioner) before the Competition Tribunal (the Tribunal) has come under attack. The procedure was streamlined in 2002, with a change from the issuance by the Tribunal of an order on consent, often following a hearing, to the simple registration of a consent agreement - which then has the force of an order of the Tribunal.

There are several differences between the old and the new procedures, one being that supporting evidence is no longer filed with the Tribunal, and another being that the scope for intervention by third parties is (or was thought to have been) significantly narrowed. Previously, intervenors in consent order proceedings could potentially delay them for months, as in the case of Canada (Director of Investigation and Research) v. Imperial Oil Ltd. (1989), 45 B.L.R. 1 (Comp. Trib.), or even derail them altogether. Under the new procedures, potential intervenors are limited to an application to vary or rescind a consent agreement, within sixty days after its registration. In addition, they must show that they are directly affected by the agreement, and that the terms of the agreement "could not be the subject of an order of the Tribunal."

Through an application to rescind a consent agreement registered in December 2004 in connection with the acquisition by West Fraser of Weldwood (both forestry companies active in B.C.), several First Nations groups, including Burns Lake Native Development Corporation, the Council of Lake Babine Nation, the Council of Burns Lake Band and the Council of Nee Tahi Buhn Indian Band (the Applicants), have challenged the consent agreement registration process. Among other things, the Applicants argue that there was no evidentiary basis upon which the Tribunal could have issued any order at all.

If successful on this ground, the Applicants' challenge to the consent agreement registration process could mean, at a minimum, a return of the requirement to file a statement of grounds and material facts and supporting affidavits along with the consent agreement itself. Some feel that the requirement to file such minimal evidence provided a useful check on the Commissioner's rather considerable power to force concessions from merging parties (or those under investigation for other alleged Part VIII conduct). On the other hand, a requirement to file supporting evidence would also make it tougher to expeditiously conclude merger, abuse of dominance and other civil investigations where the Commissioner has a concern and the parties are prepared to agree to a remedy - and also facilitate further interventions.

RONA Asks Competition Tribunal to Rescind Consent Agreement

In an application filed with the Competition Tribunal (Tribunal) on January 10, 2005, RONA Inc. (RONA) has asked the Tribunal to rescind a Consent Agreement filed with the Tribunal on September 3, 2003. The Consent Agreement resolved concerns raised by the Commissioner of Competition (the Commissioner) that RONA's acquisition of Réno Dépôt and The Building Box "big-box" home improvement stores from Kingfisher plc (Kingfisher) would substantially lessen competition in Sherbrooke, Quebec. In order to resolve these concerns, RONA agreed to divest to an independent third party the Réno Dépôt store in Sherbrooke.

The Consent Agreement provided that RONA would have a finite period of time to divest the store, failing which the divestiture would be placed in the hands of a trustee. RONA having been unable to sell the store, a divestiture trustee was appointed. Although at first unsuccessful in finding a buyer, the trustee eventually entered into an agreement with a prospective buyer. RONA, however, exercised certain rights under the Consent Agreement to object to the sale negotiated by the trustee, thereby requiring that the divestiture be approved by the Tribunal. RONA also applied to the Tribunal for rescission of the Consent Agreement, which if successful would free it of the obligation to divest the Sherbrooke store.

RONA's application was made pursuant to s. 106, which allows for rescission of a consent agreement in certain circumstances, including where "the circumstances that led to the making of the agreement . have changed and, in the circumstances that exist at the time the application is made, the agreement . would not have been made or would have been ineffective in achieving its intended purpose." In RONA's submission, substantial evidence that Home Depot intends to open a big-box home improvement store in Sherbrooke constitutes such a material change of circumstances. Sherbrooke, RONA argues, was unique among the geographic markets examined by the Competition Bureau in its 2003 examination of the RONA-Kingfisher transaction, insofar as it was the only market where Home Depot was not present as a competitor. Had it been present, RONA submits that Sherbrooke would have been indistinguishable from other geographic markets, in which case it would not have agreed to divest the RONA store in that market.

As the filing was made without the consent of the Commissioner, it seems likely that the Commissioner will oppose RONA's application.

Stikeman Elliott LLP acted as counsel to Kingfisher in RONA's original 2003 acquisition of the Réno Dépôt and The Building Box stores.

Tolko Industries Ltd. agrees to a hold separate for 45 days in its proposed acquisition of Riverside Forest Products Ltd.

On November 18, 2004, the Competition Bureau filed a consent interim agreement requiring Tolko Industries Ltd. (“Tolko”) to hold separate certain milling assets at the Riverside Okanagan Manufacturing Facilities, while the Bureau completed its review of the proposed transaction.  Tolko made an unsolicited bid for Riverside Forest Products Ltd. (“Riverside”) in August 2004. The hold separate agreement required Tolko to continue to run the facility independently for 45 days while the Bureau completed its review.  On January 24, 2005, Tolko acquired 100% of the common shares of Riverside.

Forestry merger approved with divestiture of saw mills and certain timber harvesting rights

On December 7, 2004, the Competition Bureau entered into a consent agreement with West Fraser Timber Co. Ltd (“West Fraser”) and Weldwood of Canada Ltd. to divert both parties’ saw mill interests in Burns Lake and Decker Lake, as well as the associated forest tenures.  West Fraser also agreed to divest certain timber harvesting rights between the William Lake and 100 Mile House areas.  The Competition Bureau concluded that such divestitures would remove significant barriers to competition for new and existing competitors in the market.  West Fraser completed the acquisition on December 31, 2004

CN Railway agrees to a remedy in its successful bid to operate BC Rail Ltd.

On November 25, 2003, the British Columbia Government granted Canadian National Railway Company (“CN”) the right to acquire all of the shares of BC Railway Ltd. (“BC Rail”), partnership units in the BC Rail partnership and a long-term licence to operate its railbed.  In its review, the Competition Bureau concluded that the proposed transaction raised serious competition issues for rail interline transportation of commodities (e.g., lumber) and rail transportation of grain from the Peace River area.

In the consent agreement, CN agreed to open gateway rates by both publishing and maintaining tariffs inclusive of connection charges for each of BC Rail’s five distinct geographic zones and four different load weight categories.  It also agreed to adjust rates annually based on an industry index; however, published rates could not be adjusted below initial levels.

With respect to transit times, CN agreed to chart its performance against the 2003 BC Rail average transit time data, and would face financial penalties if performance benchmarks were not met.  The performance targets applied for the five year period post-closing, with the first year being a penalty-free transition period followed by a four-year period with the penalty regime in place.  The Commissioner of Competition also reserved the right to reinstate the penalty regime for an additional five years if she determined that the transit time covenants had not been respected.
The consent agreement also included safeguards to ensure shippers were not discriminated against with respect to car allocation.

Finally, in order to preserve competition in rates and services for the transportation of grain, certain remedies were introduced that aimed to prevent CN from materially increasing rates and curtailing service levels in the Peace River area.  The consent agreement was registered on July 2, 2004.

Competition Bureau negotiates a hold separate arrangement for Westway Holdings Canada Inc.

On March 20, 2003, the Commissioner of Competition entered into a consent agreement with Westway Holdings Canada Inc., to hold separate all assets and business being acquired from Tate and Lyle North American Sugar Ltd. with respect to its molasses operations.  The consent agreement remained in force for 31 days to allow for the Commissioner to complete her review.  Tate & Lyle was engaged in the business of storing and distributing molasses and molasses blended products, among other things.  The proposed transaction closed on March 10, 2003.

Suzy Shier and Competition Bureau reach $1 million settlement over pricing practices

''When is a bargain really a bargain?'' Ordinary price claims case ends with $1 million settlement.
The Competition Bureau has reached a $1 million settlement with Suzy Shier Inc., over marketing practices the Bureau considered to be misleading. In a June 13, 2003 press release, the Bureau stated that Suzy Shier had placed price tags on garments indicating a "regular" and "sale" price even though the garments were not sold at the "regular" price in any significant quantity or for any reasonable period of time.

Raymond Pierce, Deputy Commissioner of Competition, explained in the release: "The issue boils down to one question: When is a bargain really a bargain? The Bureau is committed to ensuring that consumers have accurate information regarding the regular price of clothing so that they may determine the true value of their savings when deciding to purchase items on sale."

In its own statement, La Senza Corp., the then owner of Suzy Shier, stated that Suzy Shier "does not admit any conduct contrary to the Competition Act" but noted that, in recognition of the Bureau's concerns and of the importance of providing accurate information to consumers, Suzy Shier and the Bureau had agreed to file a civil consent agreement with the Competition Tribunal to resolve the matter.

According to the consent agreement, only 12.5% of Suzy Shier sales of the products at issue were made at the "regular" price during the evaluation period and the products were offered for sale at the "regular" price" for only approximately 11% of the time.

The $1 million administrative monetary penalty is the first under the Competition Act's civil "ordinary selling price" provisions, which came into force in 1999. The consent agreement also required Suzy Shier to publish corrective notices in newspapers across Canada and to implement a corporate compliance program to ensure that it meets the requirements of the Competition Act.

The announcement of the settlement was released just a few hours before La Senza Corp. announced that it was selling Suzy Shier to a division of YM Inc. The sale was completed on July 28, 2003. Neither La Senza Corp., nor YM Inc., is bound by the terms of the consent agreement, which applies only to Suzy Shier.

Pfizer Inc. agrees to divestitures of certain assets to complete its acquisition of Pharmacia Corporation

On July 13, 2002, Pfizer Inc. entered into an agreement to acquire Pharmacia Corporation by way of a merger.  Due to the overlap in their product offerings, on April 11, 2003, Pfizer Inc. entered into a consent agreement with the Commissioner of Competition to divest certain pharmaceutical assets pertaining to the treatment of human sexual dysfunction and overactive bladder symptoms.  The divestitures were required to be completed within 10 business days from the closing of the transaction. 
The merger was also reviewed by the FTC in the US; the FTC required Pfizer to divest pharmaceutical products in nine separate product categories including: extended release drugs for the treatment of overactive bladder; combination hormone replacement therapies; treatments for erectile dysfunction; drugs for canine arthritis; antibiotics for lactating cow mastitis; antibiotics for dry cow mastitis; over-the-counter hydrocortisone creams and ointments; over-the-counter motion sickness medications; and over-the-counter cough drops.   Similar to Canada, the FTC required the divestitures be completed within 10 business days from the closing of the transaction.  The transaction closed on April 16, 2003.