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.

Moose Knuckles resolves misleading "Made in Canada" representations

Vanessa Leung - 

On December 7, 2016, Moose International Inc. (Moose Knuckles) reached a consent agreement with the Commissioner of Competition. The consent agreement resolves the Commissioner’s concerns about deceptive marketing practices in respect of the “Made in Canada” claims on certain Moose Knuckles parkas.

According to the Bureau, Moose Knuckles claimed that its parkas are “Made in Canada” (both on its website, and on the interior of the parkas themselves). The Bureau alleged that, in fact, the parkas were imported from Vietnam and Asia in a nearly finished form. The Bureau concluded that Moose Knuckles’ advertising was therefore inconsistent with its (non-binding) “Made in Canada” guidelines, which have three key requirements:

  1.  That the “last substantial transformation” of a product occur in Canada. (In fact, the Bureau alleged that the last substantial transformation of Moose Knuckles’ parkas occurred outside Canada.)
  2. That at least 51% of the total direct costs of producing or manufacturing the product be incurred in Canada. (The Bureau alleged that this requirement was also not satisfied.)
  3. That the “Made in Canada” claim is accompanied by an appropriate qualifying statement, such as “Made in Canada with imported parts” or “Made in Canada with domestic and imported parts.” (The Bureau alleged that Moose Knuckles’ qualifying statement – “Made in Canada with imported textiles” – was included only on the care labels in a sleeve, and therefore did not change the misleading general impression of the claims.)

Under the consent agreement, Moose Knuckles agreed to cease making representations that create the general impression that its parkas are made exclusively with Canadian components (in any advertising medium, including its website, print publications and social media). Moose Knuckles also agreed to either: a) add a “Made in Canada with Canadian and imported components” hang tag to the “Made in Canada” label on the parkas’ collars, with equal or greater prominence; or b) remove the “Made in Canada” label on the parkas’ collars. A corrective notice will also be posted on Moose Knuckles’ website’s product information page for one year, and a corporate compliance program will be implemented to ensure compliance with the Competition Act. Lastly, Moose Knuckles will donate $750,000 over five years to charities that support children in need in Canada.

However, no fines (or administrative monetary penalties) were imposed, nor was Moose Knuckles required to reimburse the Bureau’s investigative costs. Such financial penalties are common in consent agreements involving alleged misleading advertising. It is not immediately clear why no monetary penalties were imposed.

This is the second case where a consent agreement has been reached by mediation, and the Bureau welcomed this method as another tool to resolve concerns efficiently.

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.  

Competition Tribunal renders a decision in the Toronto Real Estate Board case

Ashley Piotrowski

After five years of back and forth at various levels of court, the Competition Tribunal has rendered a decision in the Toronto Real Estate Board case, partially granting the application brought by the Commissioner of Competition pursuant the abuse of dominance provision (section 79) of the Competition Act.    

As mentioned in our earlier blog posts, the Commissioner’s application involves a challenge by the Commissioner against TREB for allegedly abusing its dominance under section 79 of the Competition Act in relation to membership rules governing the use by members of certain of the board’s multiple listing service® (MLS®) listing data. In particular, the Commissioner alleged that TREB’s rules restricted the manner in which real estate brokers and salespersons may display and use certain MLS® data.

 While the decision has yet to be made public, the Tribunal has released a short summary of its decision that offers some insight into how the Tribunal concluded that TREB’s conduct, on a balance of probabilities, satisfied all three elements of the abuse of dominance provision:

  • The Tribunal determined that TREB substantially or completely controls the supply of MLS®-based residential real estate brokerage services in the GTA.
  • The Tribunal found that TREB has engaged in, and continues to engage in, a practice of anti-competitive acts through the enactment and maintenance of certain restrictive aspects of the rules and policy that TREB has adopted regarding the virtual office websites (VOW) of its real estate brokers and salespersons.
  • The Tribunal concluded that these VOW restrictions have had, are having and are likely to have the effect of preventing competition substantially in a market. 

The Tribunal reached this conclusion after finding that the VOW restrictions have substantially reduced the degree of non-price competition in the supply of MLS®-based residential real estate brokerage services in the GTA, including a considerable adverse impact on innovation, quality and the range of residential real estate brokerage services that likely would be offered in the GTA absent the VOW restrictions. 

The next step will be for the parties to provide written submissions and have an opportunity to make oral submissions to the Tribunal on the issue of remedies, after which the Tribunal will make its final order.    

Would Steris/Synergy have been blocked in Canada? Prevention of Competition à la Canadienne

William Wu - 

On September 24, 2015, a U.S. District Court in Ohio denied a motion for a preliminary injunction sought by the Federal Trade Commission (FTC) to prevent Steris Corporation from acquiring its alleged potential competitor Synergy Health plc. The FTC sought the injunctive relief under the Clayton Act based on the so-called “actual potential entrant” doctrine, alleging that the acquisition would have prevented Synergy’s entry into the contract sterilization market in competition against Steris.

This case provides an interesting comparison to the Canadian “substantial prevention of competition” test clarified by the Supreme Court of Canada earlier this year in the Tervita decision. Although the tests are now substantially similar, in practice Canadian courts have exhibited a greater willingness to find entry to be “likely” despite business plans to the contrary.

 FTC v Steris Corp.

Steris and Synergy are the second- and third-largest providers of contract sterilization services in the world, providing services to manufacturers of products such as food packaging and medical devices that require sterilization. There are three primary methods of contract sterilization currently available in the United States: gamma radiation (which penetrates deeply and is therefore most effective for healthcare products), e-beam radiation (which does not penetrate as deeply as gamma sterilization and is therefore more effective for low-density products) and ethylene oxide gas (which uses gas diffusion rather than radiation to sterilize surfaces). Steris is one of only two U.S. providers of contract gamma radiation services (the other, Sterigenics, recently bought Nordion, the Canadian supplier of gamma radiation technology and supplies).[1] Synergy, a British company, is the largest provider of e-beam services in the U.S., but operates gamma radiation sterilization facilities only outside the U.S. There is a fourth sterilization technology, x-ray sterilization, which is not currently available in the United States. Synergy operates the only commercial x-ray sterilization facility in the world, located in Switzerland.

The FTC alleged that, prior to the announcement of its proposed acquisition by Steris, Synergy had been planning to enter the U.S. market with an emerging x-ray sterilization technology, which would have challenged the current frontrunners in the U.S. contract sterilization market (i.e., Steris and the largest contract sterilization firm, Sterigenics, which together represent approximately 85% of all U.S. contract sterilization services). The FTC claimed that, if implemented, the proposed acquisition would insulate Steris from Synergy’s x-ray competition against its gamma sterilization business.

Under the “actual potential entrant” doctrine, the acquisition of an actual potential competitor violates section 7 of the Clayton Act (the principal U.S. antitrust law governing mergers and acquisitions) if:

  1. the relevant market is highly concentrated,
  2. the competitor “probably” would have entered the market,
  3. its entry would have had pro-competitive effects, and
  4. there are few other firms that can enter effectively.

The court focused on the second element and found that the evidence did not support the FTC’s contention that, absent the proposed acquisition, Synergy probably would have entered the U.S. contract sterilization market by building one or more x-ray facilities in that country within a reasonable period of time.

The court found that Synergy’s development of x-ray sterilization in the U.S. faced significant obstacles and it was unlikely to enter the market in the near future. In fact, Synergy’s board had only approved pursuing x-ray facilities in concept and it had not approved any specific business plans or capital expenditures. Despite of substantial efforts to do so, Synergy had failed to secure the customer commitments needed to support the significant and increasing capital expenditures for x-ray sterilization facilities. The testimony of several customers acknowledged that evaluation of and conversion to x-ray technology would be a long-term process for the customers, requiring significant testing and additional regulatory approvals by the Food and Drug Administration (FDA). Synergy’s x-ray equipment manufacturer had also lost confidence that its existing equipment offering would be able to deliver Synergy’s required capacity. The x-ray sterilization business model failed every one of the financial metrics Synergy uses to assess capital investments. Moreover, the court found that the negotiation and announcement of the proposed acquisition had no effect on Synergy’s efforts to advance the x-ray project as its executives continued working towards obtaining customer support and board approval even after the proposed acquisition was announced. Synergy’s decision to terminate the project was ultimately made four months after the announcement of the acquisition.

The Canadian “Substantial Prevention of Competition” Test

The Tervita decision released in January 2015 (see our blog post for more detail) articulated the proper legal test to determine when a merger gives rise to a substantial prevention of competition under section 92(1) of the Canadian Competition Act. After identifying the potential competitor that the merger would prevent from independently entering the market, the Competition Tribunal must examine the “but for” market condition to see if, absent the merger, the potential competitor would have likely entered the market and, if so, whether the entry would likely have a substantial effect on the market in reducing the market power of the acquiring firm (or others). While not separately identified, the Canadian “substantial prevention of competition” test is substantially similar to the key elements of the US “actual potential entrant” doctrine.

The Supreme Court of Canada in the Tervita decision also held that the timeframe of likely entry must be discernible, in that there must be evidence of when the potential competitor is realistically expected to enter the market in the absence of the merger. While confirming that the “lead time” it would likely take a typical new competitor to enter the market is relevant, the Tervita decision also cautioned that the further into the future the Competition Tribunal looks, the more difficult it will be to meet the “likely entry” test on a balance of probabilities. This is especially so in contexts where product development or regulatory approval processes may extend for several years, such that the lead time may be so lengthy that the probability of market entry is largely speculative due to many unknown and unknowable contingencies. The Steris decision in the United States largely took the same approach when it found that Synergy’s entry into the U.S. market with x-ray sterilization was effectively conditioned on obtaining equipment with adequate capacity and securing sufficient customer support, which itself was conditioned on lengthy testing of the x-ray technology and regulatory approvals by the FDA.

Interestingly, while the facts of the Tervita and Steris cases are very different, both cases adopted a similar methodology in assessing potential “preventions” of competition, and both cases dealt with highly regulated industries and situations in which the entry of a new competitor could reasonably be viewed as quite speculative. However, the courts reached different results: the U.S. District Court in Steris found that Synergy’s entry did not meet the “actual potential entrant” test, while the Supreme Court of Canada in Tervita agreed with the Competition Tribunal that the transaction did satisfy the “substantial prevention of competition” test (though the merger was ultimately cleared on other grounds).  Notably, in the Tervita case, the Tribunal accepted the testimony of the target company’s executives to the effect that their business plans did not call for it to enter the same business as the acquirer.  The Tribunal found, however, despite the evidence as to the company’s own plans, that the originally intended business would have failed, and that further decisions would likely have been made to enter into competition with the acquirer.

In summary, the Tervita decision by the Supreme Court of Canada and the Steris decision by the U.S. District Court have shown that the “substantial prevention of competition” test and the “actual potential entrant” doctrine provide largely similar analytical frameworks in determining whether a merger or acquisition transaction is likely to substantially prevent competition, though some may argue that, in practice, the Canadian Competition Tribunal is more apt to find that a potential entrant is “likely” to enter the market, having been given permission, in essence, by the Supreme Court of Canada to extrapolate beyond the company’s own plans.



[1] Stikeman Elliott LLP represented Nordion in that transaction, which also required approval under the Investment Canada Act and a legislative amendment waiving Canadian majority control.

Parkland announces closing of Pioneer transaction as Competition Act merger proceedings continue

Michael Laskey and Katarina Zoricic -

On June 25, Parkland Fuel Corporation announced the closing of its acquisition of the assets of Pioneer Energy LP. The closing follows an order of the Competition Tribunal, issued on May 29, 2015, which partially granted the Commissioner of Competition’s request for an injunction against Parkland’s acquisition of 14 of the 393 gas stations and exclusive long-term supply contracts. The Commissioner of Competition filed an application under section 92 of the Competition Act on April 30, 2015, seeking to block the acquisition of the 14 stations, alleging that the transaction (announced on September 17, 2014) would likely lead to a substantial lessening of competition in 14 already concentrated markets across Ontario and Manitoba.

Issued under section 104 of the Competition Act (see below), the interim injunction requires Parkland to preserve and independently operate the assets to be acquired from Pioneer in six of the 14 communities until the Tribunal issues its final decision.

Background

Each of the parties carries on business as an independent marketer of fuel and petroleum products. Parkland operates or supplies approximately 700 retail gas stations in Canada under the Fas Gas Plus, Race Trac Gas and Esso brands. Pioneer operates or supplies nearly 400 gas stations in Ontario and Manitoba under the Pioneer, Esso and Top Valu brands.

The test under section 104

Sections 100 and 104 of the Act empower the Commissioner to apply to the Tribunal for interim orders to prevent the completion or implementation of a proposed merger. Unlike applications under section 100 of the Act (which are subject to an easier legal test, but can only be obtained before the Commissioner has launched a formal merger challenge and are limited in duration), orders under section 104 can only be obtained after a challenge has been launched, and give the Tribunal the power to issue any interim order that it considers appropriate. In this case, the Tribunal directed the parties to preserve and hold separate the assets proposed to be acquired pending the determination of the Commissioner’s challenge. The Tribunal confirmed that the elements of the test under section 104, which track the test for injunctive relief in R.J.R. Macdonald Inc. v. Canada (AG) and which the Commissioner has the burden of satisfying, are as follows:

  1. there must be a serious issue to be tried;
     
  2. there must be “clear and non-speculative evidence” from which it can be reasonably and logically inferred that irreparable harm will result if the interim injunction is not granted; and
     
  3. the balance of convenience must favour granting the interim injunction.

Serious issue

With respect to the first element of the test, the Tribunal concluded that the Commissioner had raised serious issues to be tried in respect of whether the transaction would likely result in a substantial lessening of competition in the 14 local markets in issue. Parkland had unilaterally committed to divestitures in 11 of the 14 contested markets, and had also unilaterally committed to ensure that the fees charged to independent dealer stations would be consistent with current supply agreements and that Parkland would maintain Pioneer’s pricing strategy at Pioneer corporate stations. However, the Tribunal found that Parkland’s proposed remedies did not dispense with the serious issue to be tried because Parkland either did not offer a remedy or, where it did, its proposed remedy would not satisfy the Commissioner’s concerns because the remedies were not sufficiently detailed.

Irreparable harm

When it came to the second element of the test, the Commissioner met with only partial success. In his application, the Commissioner alleged that the apprehended harm to consumers and the broader economy would result from the ability of the merged entity to increase prices and otherwise limit competition, a position heavily dependent on the definition of the geographic markets. While Parkland’s expert had effectively acknowledged that market shares and concentration would likely increase in six of the markets (leading to an inference of irreparable harm), the Tribunal was of the view that the Commissioner had failed to advance sufficient evidence of the alleged harm with respect to the other eight, and the Tribunal concluded that the Commissioner’s expert did not provide sufficient evidence or information as to how the geographic markets were defined in eight of the 14 contested markets.

Balance of convenience

Proceeding to the final element of the test, the Tribunal found that, in the six local markets where it found that irreparable harm would occur in the absence of an interim injunction, the balance of convenience favoured granting the injunction. Specifically, it found that the costs that Parkland claimed it would incur as a consequence of the requested hold separate order were either speculative or minimal, while the harm to the public interest in the absence of an interim injunction would likely be significant.

Conclusion

This case marks the first time that the Tribunal has considered a contested application for an interim injunction in respect of a merger under section 104 of the Act. In a departure from the Commissioner’s practice over the last several years whereby the Commissioner  has been unwilling to allow any part of the merger to close until a final conclusion has been reached (whether by way of an agreed settlement or Competition Tribunal decision) vis-à-vis any contested issues. The Parkland decision is therefore important for two key reasons. The first is because the Commissioner only sought an interim injunction with respect to 14 of the 393 gas stations and supply agreements to be acquired (and was prepared to allow the balance of the transaction to be completed). Second, the Tribunal’s decision suggests that it will hold the Commissioner to a high evidentiary standard before issuing even an interim order. While it is always difficult to gauge the impact of one case, the Parkland decision may change the bargaining dynamic between merging parties and the Bureau when negotiating remedies for potentially problematic mergers.

Canada's Competition Bureau loses major bid-rigging case: 60 not guilty verdicts

Susan M. Hutton and Gina Demczuk - 

In a further blow to the track record of the Competition Bureau and the Public Prosecution Service of Canada in contested criminal trials, on April 27, 2015, a jury in the Ontario Superior Court of Justice found nine defendants not guilty on 60 charges of bid-rigging and conspiracy to rig bids. Another individual - David Watts, who waived his right to a preliminary inquiry, and sought an order directing a verdict of acquittal for himself only - was acquitted in February, 2015 of similar charges in a directed verdict.

The Competition Bureau had commenced a criminal inquiry in 2006 into bid-rigging allegations against 14 individuals and seven companies, regarding allegations that the accused had coordinated their bids for certain information technology (IT) services contracts with the Canadian federal government. The Attorney General filed the charges in February, 2009. One corporation had sought immunity from the Competition Bureau under its immunity program, in which the corporation and its employees are not prosecuted in exchange for assisting the Bureau with its inquiry and subsequent prosecution.  Two of the individuals pleaded guilty. Prior to the preliminary inquiry, the Crown had dropped charges against one individual.

Following a preliminary inquiry, Justice Adler of the Ontario Court of Justice dismissed the charges against three accused and ruled that the Bureau’s case against the remaining nine individuals  and five companies should proceed to trial for bid-rigging pursuant to section 47 of the Competition Act, and conspiracy to rig bids pursuant to section 465(1) of the Criminal Code. Regional Senior Justice Charles Hackland of the Superior Court of Justice dismissed the defendant’s application for certiorari of Justice Adler’s preliminary inquiry decision in 2012, and in 2013, the Ontario Court of Appeal further refused to quash the lower court’s committal of the defendants for trial.

Five defendants chose trial by judge alone, which is expected to be heard in August, 2015.  The remaining defendants proceeded to trial by jury.

Since the jury did not have to provide reasons, it is not clear what prompted their decision to acquit the six individuals and three companies.  That said, reviewing the submissions of the parties and the reasons of Justice Warkentin with respect to David Watts’ application for a directed verdict is instructive. On a motion for a directed verdict, the trial judge must commit the accused to trial if there is admissible evidence which could, if believed, result in a conviction.

In the case against Mr. Watts, the Crown (prosecution) argued that Watts committed the criminal offence of conspiracy and violated section 47 of the Competition Act because the companies failed to disclose their collaborations to the person calling the bids or tenders.  The Crown’s theory was that the defendants, including Watts, had participated in a “three-bid strategy” through which they unified their efforts to win certain IT services contracts with Transport Canada, Canada Border Services Agency, and Public Works and Government Services Canada. The Crown alleged the defendants participated in numerous meetings and communications; shared information about technical requirements and the pricing of bids; delegated specific roles among themselves in the preparation of bids; maintained a “tracking list” to identify the participants, resources and prices; acted collectively in responding to the calls for bids; and failed to disclose the alleged agreements or arrangements to the person calling for the bids or tenders.

As a result of changes to the request for proposal (RFP) process during the relevant time period, the RFP rules were amended to allow more than one vendor to submit the same “resource” (an IT consultant), and to allow a legal entity to submit more than one proposal. Indeed a Transport Canada witness for the Crown, Ms. Beverly Shawana, testified that, based upon the history for this type of RFP, it was known by Transport Canada that one company, working alone, would not be able to provide all the resources required for the RFP, and “she knew that companies would work together and form joint ventures in order to respond, as they had in the past.” Further, Shawana testified that “there was nothing wrong with a vendor company acting as a prime contractor on one proposal and also acting as a subcontractor to another company that submitted a [different] proposal.”

In finding that there was no evidence upon which a reasonable jury could return a verdict of guilty regarding either bid-rigging or participation in a criminal conspiracy, Justice Warkentin noted that the Crown had “incorrectly assumed Mr. Watt’s involvement in an alleged criminal conspiracy to bid-rig without taking into consideration the particular aspects of the Transport Canada RFP …” and that the “only conclusion supported by the Crown’s evidence is that prior to September 26, 2005, all nine companies were working together to submit one large joint venture, an activity that was entirely legal.”  She considered that:

The only inference or conclusion that can be drawn from an assessment of the direct and circumstantial evidence is that Mr. Watts knew about the Team Devon joint venture proposal and participated in that proposal to the limited extent that his role as president of The Devon Group required.  There is nothing illegal in these actions.  It is an entirely unreasonable inference to conclude that Mr. Watts was part of the larger alleged conspiracy.  The Crown has asked the court to interpret the evidence introduced against the other accused as though it also applied to Mr. Watts.

 
Following the release of the jury’s not guilty verdicts in the case against the six-individuals and three companies, the Competition Bureau issued a statement by John Pecman, the Commissioner of Competition, indicating that the Crown is considering whether to appeal the acquittals.

As noted, the trial of the remaining defendants is scheduled to proceed later this summer.  It will be interesting to see how the prosecution intends to approach those cases in view of what has to be considered a very disappointing result for the Competition Bureau and the Public Prosecution Service of Canada.

Red Light: Competition Bureau alleges misleading advertising by car rental firms

Jennifer Rad -

The Competition Bureau has filed an application with the Competition Tribunal against Aviscar and Budgetcar, and their parent company, Avis Budget Group Inc., alleging deceptive marketing practices contrary to several provisions of the Competition Act. The Bureau’s investigation into the pricing practices of Avis and Budget, two of the largest rental car companies in Canada, uncovered price representations which the Bureau considers to be false or misleading in a material respect, dating back to 1997.

In its Notice of Application, the Bureau submits that the prices advertised to the public by Avis and Budget are “not in fact attainable,” thereby creating a false general impression about prices and discounts. The Bureau submits that actual rental costs could be up to 35% higher than advertised once “non-optional” fees imposed by both companies are included. Although these “non-optional” fees are known to Avis and Budget, the Bureau alleges that the companies choose to exclude them from advertised prices and/or discounts. The Bureau also alleges that the “non-optional” fees, once revealed to the customer, are characterized as charges being imposed on customers by governments or other third-parties, when in fact they are Avis’ and Budget’s own charges related to the cost of doing business.

The representations in question were allegedly made across a broad range of media including print, mobile applications, online, oral representations and electronic messages. Because the Bureau’s case involves allegations of deceptive marketing practices carried on through electronic messages, this proceeding is the Bureau’s first under the new provisions of the Competition Act that were implemented as part of Canada’s Anti-Spam Legislation (CASL) in July 2014.

The relief sought by the Bureau includes an end to the alleged false or misleading price representations, $30 million in administrative monetary penalties ($10 million from each of the three companies), and reimbursements to affected consumers. The Bureau estimates that Avis and Budget have accrued over $35 million worth of “non-optional” fees since March 2009. None of the Bureau’s allegations has been proven before the Competition Tribunal.

Clarity and accuracy in pricing were the core themes in 2011 when the Bureau investigated Bell Canada and ultimately entered into a consent agreement in which Bell agreed to pay a $10-million administrative monetary penalty for making allegedly false or misleading representations in its advertising regarding its home phone, Internet, television, and wireless service prices. Now, almost four years later, the Commissioner of Competition remains focused on the accuracy of pricing claims, stating that "consumers are entitled to clear and precise information when making their purchasing decisions and need to be confident that the information they receive regarding additional fees is truthful and accurate."

Quebec telemarketing scheme leads to imprisonment

Marisa Muchnik -

On December 4, 2013, the Competition Bureau announced that Gilles Tremblay, a Quebec telemarketer, pleaded guilty to deceptive telemarketing under the Competition Act and fraud under the Criminal Code. As a result, Tremblay was sentenced to nine months imprisonment.
 

The guilty pleas arose out of Tremblay’s investment in a telemarketing scheme involving two operations in Montreal. Tremblay invested somewhere between $50,000 and $75,000 in the scheme and was involved in the financial management of some of the telemarketing activities. The scheme promoted “government grants” to American citizens and the sale of office supplies and medical kits to Canadian and American businesses utilizing allegedly misleading or fraudulent practices. The 2006 investigation was conducted by the Bureau in partnership with the Centre of Operations Linked to Telemarketing Fraud.
 

The imprisonment of Tremblay provides a useful reminder of the Bureau’s considerable power in investigating deceptive marketing practices. The Competition Act contains a provision that prohibits making materially false or misleading representations in promoting the supply or use of a product or business interest during interactive telephone communications (e.g., telemarketing). Contraventions of these provisions carry a maximum penalty on indictment of a fine in the discretion of the court, and/or up to 14 years imprisonment.

The Bureau withdraws charges related to waste company's breach of consent agreement

Marisa Berswick -

On December 14, 2012, the Competition Bureau announced that it had withdrawn criminal charges related to the breach of a consent agreement in a waste-collection company merger due to the accidental leak of privileged information during the course of the Bureau’s investigation.

The Bureau said in its statement that on September 19, 2012, it “became aware of an unfortunate procedural error, where certain information subject to solicitor-client privilege had been inadvertently shared with investigators.” As previously covered on this blog, on September 11, 2012, the Bureau laid criminal charges against Progressive Waste Solutions Ltd. and its subsidiary BFI Canada Inc. (known together as Progressive). The Bureau alleged that Progressive had violated the terms of a consent agreement it had entered into with the Bureau in 2010. The Bureau concluded at the time that the merger would result in a substantial lessening or prevention of competition in the waste collection market in several Canadian cities.

Upon discovery of the inadvertent disclosure, Progressive’s counsel was immediately alerted. The Bureau concluded that it was no longer appropriate to continue court proceedings due to the leak of privileged information to Bureau investigators. As such, the Bureau withdrew the criminal charges against Progressive.

Breaching a consent agreement is a serious offence pursuant to section 66 of the Competition Act, with fines of up to $25,000 or imprisonment of up to one year. Due to the “unfortunate procedural error,” the Bureau was unable to continue its investigation of Progressive, but companies should take note that the Bureau remains active in monitoring compliance with consent agreements.

Charges laid in Montréal telemarketing case

Robert Mysicka and Graeme Deuchars -

On December 7, 2012, the Competition Bureau announced that charges have been laid against five individuals for violations of the Criminal Code of Canada and of the Competition Act, in relation to tactics used in two Montréal-based telemarketing operations.

The charges arose out of a 2006 investigation by the Competition Bureau in partnership with the Centre of Operations Linked to Telemarketing Fraud (COLT), a joint forces operation between a number of Canadian and American law enforcement authorities. The investigation revealed two telemarketing operations in Montréal promoting the sale of office supplies and medical kits to Canadian and American businesses that allegedly utilized misleading or fraudulent tactics, including implying that the caller represented a business that had an existing relationship with the victim’s company, indicating that certain products or services were required under government rules, or implying that the call was being made on behalf of a government agency Five individuals were charged with defrauding the public in excess of $5,000 contrary to section 380(1) of the Criminal Code. In addition, four of these individuals were charged under the Competition Act with making false or misleading representations during telemarketing calls.

Section 52.1(3) of the Competition Act is a criminal provision that prohibits making materially false or misleading representations in promoting the supply or use of a product or business interest during interactive telephone communications (telemarketing). Contraventions of the Competition Act’s telemarketing provisions carry a maximum penalty on indictment of a fine in the discretion of the court, and/or up to 14 years imprisonment.

Canada's Competition Bureau uses big stick for breach of consent agreement in merger case

Michael Laskey -

On September 11, the Competition Bureau announced that it had laid criminal charges against Progressive Waste Solutions Ltd. and its subsidiary, BFI Canada Inc., alleging that Progressive had violated the terms of a consent agreement it had entered into in 2010. The consent agreement was reached in respect of a merger between IESC-BFC Ltd. and Waste Services Inc. (now known together as Progressive), two commercial waste collection companies. The Bureau concluded at the time that the merger would result in a substantial lessening or prevention of competition in the waste collection market in several Canadian cities, and entered into a consent agreement with the merging parties which required them to divest certain assets in the affected markets. The consent agreement also provided that the parties could not attempt to reacquire the customers of the companies who purchased the divested assets for one year following the divestitures. In October and December of 2010, the Bureau approved divestiture buyers. Now, the Bureau alleges that Progressive violated the terms of the agreement by soliciting and reacquiring a customer whose contract had been divested, and then providing a false declaration of compliance and failing promptly to notify the Bureau of the breach.

Contravention of a consent agreement is a criminal offence under section 66 of the Competition Act. If the Bureau’s allegations are borne out in court, Progressive could be liable on summary conviction to a fine of up to $25,000. The charges show the Bureau’s aggressive approach to monitoring and enforcing its consent agreements. In the misleading advertising context, in 2011, the Bureau required Beiersdorf Canada Inc. to take action to correct a public statement which the Bureau found to be inconsistent with the terms of a consent agreement entered into with Beiersdorf earlier that year. This week’s charges show that the Bureau will continue to monitor compliance with consent agreements across all of its enforcement branches, and may pursue criminal charges when circumstances warrant.

Criminal charges laid in alleged Montreal sewer services cartel

Michael Laskey -

On November 22, 2011, the Competition Bureau announced that criminal charges had been laid against six companies and five individuals accused of rigging bids for municipal and provincial sewer services contracts in the greater Montreal area. Bid-rigging, in which two or more bidders agree among themselves on whether or how to submit bids, without informing the person calling for the bids, is a criminal offence under section 47 of the Competition Act.

The Crown alleges that the accused companies and individuals conspired to pre-determine the winners of 37 municipal and provincial calls for tender in 2008 and 2009 related to the cleaning and maintenance of sewers, with a total value of C$3.3 million. The bidders who were not pre-determined to win allegedly submitted inflated, token bids in order to mislead tendering authorities into believing that the processes were competitive. Because the alleged conduct took place prior to the 2009 amendments to the Competition Act which increased the maximum penalties available under section 47, the accused face maximum penalties of up to five years in prison and/or a fine in the discretion of the court.

The Bureau also noted that its investigation benefitted from cooperation under its immunity and leniency programs, which provide incentives for parties involved in criminal conduct to self-report the conduct to the Bureau.

CRTC goes global on telemarketing: will co-chair new international Do Not Call enforcement network

David Elder and Lindsay Gwyer  -

Life is about to get more difficult for foreign telemarketers that flout domestic Do Not Call rules, as twelve global regulators have joined forces to create an international enforcement network.

On October 28, 2011 the CRTC announced the creation of an International Do Not Call Network to facilitate international cooperation on telemarketing enforcement and hopefully reduce the amount of unauthorized telemarketing calls Canadians receive from abroad. 

The CRTC and the Australian Communications and Media Authority will be the inaugural co-chairs of the new network, which held its first meeting recently in Paris.  Other members include Do Not Call regulators from France, Hong Kong, Ireland, Israel, Korea, Mexico, New Zealand, Spain, United Kingdom and United States. 

The purpose of the Network will be to facilitate cooperation between the different national agencies charged with policing telemarketing in order to improve cross-border enforcement of telemarketing laws, as well as to work to harmonize telemarketing policies between countries.  Konrad von Finckenstein, Q.C., Chairman of the CRTC, explained that the Network is necessary in order to stop foreign telemarketers who violate Canada’s Unsolicited Telecommunication Rules.  

For many years, regulators around the globe have been grappling with the increasing problem of telemarketing calls being made into their home country from a foreign source.  In many cases, it is likely that unscrupulous telemarketers set their operations up in this way precisely because cross-border enforcement has been so difficult.  Although domestic regulators may issue fines or remedial orders against foreign-based telemarketers, they lack the legal authority and means to enforce these orders outside their borders. 

The announcement of the new enforcement network comes in the wake of the CRTC’s recent novel agreement with two Mexican telemarketing companies who had been targeting Canadians with telemarketing messages that violated the CRTC’s Rules, a case that demonstrates the Commission’s determination to enforce its telemarketing rules against foreign parties, as well as its commitment to working with foreign enforcement agencies to combat unauthorized telemarketing.  The CRTC's most recent announcement underscores this approach, and shows a global trend towards streamlining and enforcing telemarketing policy. 

While the CRTC oversees the Do Not Call regime, as well as regulating the time and manner in which telemarketing calls – including fax and “robocalls” – are permitted to be made, the deceptive and fraudulent content of telemarketing messages are governed not only by the fraud provisions of the Criminal Code, but are also subject to investigation and enforcement by the Competition Bureau pursuant to the Deceptive Telemarketing Practices sections of the Competition Act. In line with the trend toward cross-border enforcement, the Competition Bureau is also a member of a global enforcement network, the International Consumer Protection and Enforcement Network, and cooperates with its international counterparts in the investigation and enforcement of telemarketing scams, including a recent case where it laid charges against a Montréal-based telemarketing ring.

Federal Court of Appeal affirms constitutional validity of monetary penalties under s. 40 of the Investment Canada Act

Susan M. Hutton and Edwin Mok -

On May 25, 2011, the Federal Court of Appeal released its decision in Canada (Attorney General) v United States Steel Corp. In this decision, the FCA dismissed the appeal of US Steel, affirming the decision of the lower court to the effect that s. 39 and 40 of the Investment Canada Act (ICA) do not violate s. 11(d) of the Charter and s. 2(e) of the Bill of Rights. Accordingly, the constitutional validity of monetary penalties issued by a court under s. 40 of the ICA, in response to a breach of undertaking, has once again been upheld.

By way of background, on July 17, 2009, the Minister of Industry asked the Federal Court to impose retroactive penalties against US Steel under s. 40 of the ICA for allegedly breaching two undertakings made by US Steel as conditions for the Minister’s approval of the 2007 acquisition of Stelco, one of the last Canadian-owned steel companies in Canada. The Act allows for fines of $10,000 per day per breach, until such a time that US Steel complied with the undertakings. US Steel opposed the penalties, arguing that ss. 39 and 40 of the Act violated s. 11(d) of the Charter (the presumption of innocence for persons charged with an offence) and s. 2(e) of the Bill of Rights (the right to a fair hearing in accordance with the principles of fundamental justice). In its June 14, 2010 decision, the Federal Court rejected US Steel’s arguments. It ruled that the s. 40 penalties fell outside the ambit of s. 11(d) because, following the Supreme Court of Canada in R. v Wigglesworth, the penalties were not criminal in nature, nor did they impose true penal consequences. Further, the Federal Court rejected the Bill of Rights argument because US Steel had not been denied natural justice or procedural fairness in this case. US Steel appealed to the FCA, leading to the decision just issued.

The FCA dismissed the appeal, following the reasoning that in order for s. 11(d) of the Charter to apply to a proceeding, the proceeding must either be criminal in nature or lead to truly penal consequences. The FCA affirmed that the proceedings under s. 39 and 40 of the ICA met neither of these criteria, and therefore s. 11(d) was not applicable. In so ruling, the FCA confirmed two important points. First, it confirmed that the purpose of the s. 40 sanctions is to encourage timely compliance with undertakings made under the ICA, rather than to punish foreign investors for a societal wrong. Second, it confirmed the proposition that a large monetary penalty does not automatically imply a penal consequence. This proposition recognizes that large fines are sometimes required to deter large corporations from flouting regulations, so that fines are not simply regarded as a cost of doing business.

Significantly, the FCA ruled that even the possibility of contempt proceedings, which are available under s. 40(4) of the ICA, do not render the proceedings criminal in nature, notwithstanding the fact that contempt proceedings can result in imprisonment. This is because US Steel would only face the possibility of contempt proceedings if it was able but unwilling to pay the penalty. Further, any contempt proceedings would arise separately from the current proceeding and would attract full Charter protection at that time.

This decision is significant because it confirms that the Minister of Industry can validly impose sanctions for breaches of undertakings made by foreign investors under the Investment Canada Act. Further, the principles espoused in the case may be transferable to other administrative monetary penalties, such as those in the Competition Act, the validity of which have yet to be tested in court.

Court denies stay to US Steel

Shawn Neylan

On July 23, 2010, the Federal Court of Appeal dismissed US Steel’s application for a stay of the Attorney General of Canada’s proceeding against it to enforce Investment Canada Act (ICA) undertakings with respect to Ontario steel mills it acquired in 2007.  The Minister is seeking enforcement of undertakings regarding employment and production levels, and a fine for non-compliance.

The court decided that while US Steel could show that its appeal from a trial level dismissal of its constitutional challenge of the enforcement provision in the Investment Canada Act was not frivolous or vexatious, it had not shown irreparable harm or that the balance of convenience favoured a stay of the enforcement proceeding.

With respect to the issue of irreparable harm, the court stated that if US Steel was ultimately successful in its appeal and was granted a declaration of invalidity, it could use that declaration in an application to set aside any order that was made against it in the ICA enforcement proceeding.

When discussing the issue of the balance of convenience, the court said that the ICA has a public interest dimension because it is aimed at encouraging investment, economic growth and employment opportunities for Canadians.  The court therefore found that it must proceed on the basis that the ICA is directed to the public good and serves a valid public purpose. Delaying the commencement of the enforcement proceeding would, the court said, effectively suspend the application of the legislation.

US Steel applies for a stay of ICA enforcement proceeding

On July 6, 2010, United States Steel Corporation (USS) filed a notice of motion with the Federal Court of Appeal seeking a stay of the Attorney General of Canada’s (AGC) enforcement proceeding under s. 40 of the Investment Canada Act (ICA), pending determination of the appeal brought to the court by USS in respect of a decision upholding the constitutional validity of s. 40.   The Federal Court issued its decision upholding the constitutionality of section 40 of the ICA on June 14, 2010, and USS filed its notice of appeal on June 24, 2010.

The AGC’s enforcement proceeding seeks the enforcement of undertakings given in 2007 by USS under the ICA in relation to its acquisition of Stelco as well as the imposition of a fine of $10,000 for each day of alleged non-compliance.  The undertakings in question relate to Canadian employment and production levels.  The United Steelworkers and Lakeside Steel have intervened in the AGC’s proceeding to seek damages for lost wages and the divestiture of the former Stelco operations.

USS argues that the possibility of a forced divestiture puts in jeopardy USS’s entire investment in Canada (despite the fact that the Minister has not sought this remedy).  It also argues that if a stay is not granted the hearing of the AGC’s enforcement proceeding will be nearly or fully completed such that USS will be deprived of its right to appeal the order upholding the constitutionality of s. 40.  USS argues that the AGC’s proceeding is fundamentally a retrospective effort in light of the fact that the undertakings are due to expire in October, 2010 and that there would therefore be no prejudice to the AGC if a stay is granted.

Court upholds Investment Canada Act enforcement provision

On June 14, 2010, the Federal Court of Canada released its decision dismissing US Steel’s constitutional challenge of the Investment Canada Act provision providing for enforcement of undertakings that may be given by investors to obtain Ministerial approval of transactions that are subject to the ICA.  The challenge was brought as an application in proceeding commenced by the Attorney General of Canada (“AGC”) for an order enforcing certain employment and capital expenditure undertakings given by US Steel in respect of its 2007 acquisition of Stelco, and for the imposition of a penalty of $10,000 for each day of alleged non-compliance.

The court found that the potential monetary penalty was not penal in nature, but was rather intended by Parliament to promote and ensure the legislative objectives of the Investment Canada Act.  Therefore, section 11 of the Charter, which provides rights to persons who are charged with an offence, did not apply.

The court also found that the procedural rights that were available in the proceeding brought by the AGC were sufficient to conclude that US Steel’s right to a fair hearing in accordance with the principles of fundamental justice under s. 2(3) of the Bill of Rights was not violated.